Mahindra & Mahindra is nearing a memorandum of understanding (MoU) that could lead to its acquisition of a stake in Skoda Auto Volkswagen India, the local branch of the major European automotive manufacturer. Sources indicate that Mahindra is aiming for a 50% stake, valuing the deal between $800 million and $1 billion.
Skoda Auto’s board members are currently in India to finalize the details of this agreement, which may be announced soon. Negotiations have progressed significantly, with both parties reaching a preliminary understanding.
Mahindra’s insistence on a 50% stake mirrors its previous agreement with Ford, making it a critical condition for the deal’s viability. Should this acquisition proceed, Mahindra would benefit from increased production capacity and access to Skoda Auto VW’s global technology framework, which includes vehicle architectures. Skoda Auto Volkswagen India currently boasts an annual manufacturing capacity of approximately 210,000 units and has potential for further expansion.
For Skoda Auto Volkswagen, this partnership would open avenues to Mahindra’s cost-effective vehicle designs for both traditional combustion engine and electric models, alongside significant sourcing advantages due to Mahindra’s market influence. Recent reports have highlighted Mahindra’s interest in acquiring additional land to enhance its production capacity beyond 840,000 units, approaching the 1 million mark.
Negotiations between both companies have been intense. Skoda Auto initially valued the stake at $2 billion, but this figure has since been negotiated down to the $800 million to $1 billion range. Much of Mahindra’s investment may come in non-cash forms, likely including contributions of its New Flexible Architecture (NFA) platform, along with some cash infusion aimed at capacity enhancements in Chakan.
The specifics of how the manufacturing footprint and design platforms will be shared are still being finalized. An inquiry sent to both Skoda Auto Volkswagen and Mahindra & Mahindra has not yet received a response.
If the agreement goes through, the sales and marketing operations of the Skoda Auto Volkswagen Group, which oversees brands like Audi and Porsche, will be restructured outside the joint venture. Audi, which sources vehicles from Skoda’s Aurangabad facility, would then contract with the joint venture for its supply needs.
The partnership could also influence the development of the next-generation Kushaq and Taigun models. Initially intended to be produced on Volkswagen Group’s MQB A0 37 platform, cost overruns of around €800-900 have prompted a reevaluation. The upcoming models may utilize Mahindra’s NFA platform while retaining Volkswagen’s engine technology.
Volkswagen is also advocating for it to adopt its CMP platform to enhance project scalability. This collaboration would enable Skoda Auto Volkswagen to streamline its architecture investments, using Mahindra’s NFA for future internal combustion engine models while reserving the CMP for locally manufactured electric vehicles.
However, the implications for Skoda’s upcoming sedan models, Slavia and Virtus, remain uncertain. Skoda Auto Volkswagen, which previously committed €1 billion to India in 2018, is exploring various strategies to remain competitive in the country’s rapidly evolving automotive market, seeking partners to mitigate investment and risk.
In this context, Skoda Auto Volkswagen has already signed an MoU with the Maharashtra State Government to invest ₹15,000 crore for future growth. To effectively engage in India’s burgeoning electric vehicle sector and comply with future regulations, it is anticipated that the group will need to invest over $2 billion, which would also facilitate adherence to Corporate Average Fuel Economy (CAFE) 3 norms by FY28, thereby broadening its market reach.
