Mahindra To Buy 50 % of Volkswagen-Skoda India Operations For Rs. 8,355 Crore: Report

Mahindra is said to be on course to buy the Indian operations of Volkswagen (VW) and Skoda, according to a new report on ACI. In fact, rumours have been swirling about Mahindra using Volkswagen’s MEB platform for its next-generation range of Born Electric vehicles but an official confirmation of the same has yet to come.

The new report takes the possible alliance between Mahindra and the Volkswagen group several steps further by suggesting that Mahindra will take a 50 % stake in the VW-Skoda India operation. The stake could cost Mahindra about a billion US dollars, the report adds. Senior Skoda board members are said to be in India, finalizing the nitty-gritties of the Mahindra-VW deal, and an official announcement is expected to happen soon.

What Skoda-Volkswagen could get from the deal?

1. Mahindra’s supplier network so that they can buy parts at more affordable rates
2. Mahindra New Family Architecture (NFA) that will be used for new Volkswagen and Skoda SUVs
3. Cash for the divested stake

What Mahindra could get from the deal?

1. Volkswagen and Skoda technology for future car models, particularly electric vehicles
2. Electronic architectures that are becoming very expensive because of high use of electronics in modern cars
3. Additional capacity at Chakan

Now, Mahindra won’t be paying the full amount of Rs. 8,355 crore to Skoda and Volkswagen to acquire a 50 % stake. Instead, the automaker will pay Skoda-VW a portion in cash, and share the New Family Architecture for building SUVs for the remainder amount.

So, more than an outright buyout of a specific amount of stake, the Skoda-VW buy from Mahindra seems more like a joint venture with both parties getting significant benefits from each other.

Mahindra negotiating from a position of strength

Mahindra is doing very well in the Indian market. Nearly every car that it has launched over the past 4 years have been runaway successes. Mahindra’s purple patch started in 2020, with the launch of the 2nd generation all-new Thar. That was followed up by a year later by the XUV700. 2022 saw the Scorpio-N come in and take the market by storm while 2024 saw the XUV 3XO and the Thar ROXX – both now hits.

Mahindra’s sales have been on a steep rise year after year but in case of Skoda and Volkswagen the story has been much more muted. Though Skoda and Volkswagen brought out the India 2.0 strategy and four cars – Taigun, Kushaq, Virtus and Slavia, none of these cars except the Virtus are doing segment leading numbers. In fact, the Virtus also is a tepid seller if relative volumes in the Indian market are concerned as sedans have slowed down quite a bit.

In such circumstances, Volkswagen may need Mahindra more than the latter needing the German brand. It is in these circumstances that Skoda is said to come down from seeking 2 billion dollar for the 50 % stake to a much more reasonable 1 billion US dollars.

Mahindra’s past with JVs hasn’t been rosy

Mahindra’s tie up in Ford lasted only a few years in the 90s before both companies went separate ways. A similar story played out with Mahindra-Renault, which spawned the Logan sedan. Mahindra’s Ssangyong acquisition and Ssangyong’s later bankruptcy is another blot while talks with Ford for a new collaboration collapsed a couple of years ago, and this is said to have forced Ford to quit the Indian market. So, will Mahindra’s new joint venture with Skoda-VW work out in the long term. The answer my friend, is blowing in the wind.