Five months after entering into partnership talks, home-grown Tata Motors and Czech car manufacturer Skoda have formally called off plans for joint development of new products and technologies. However, Tata Motors and Volkswagen have not ruled out future possibilities of working together.
In March, Tata Motors had signed a memorandum of understanding (MOU) for a long-term partnership with Volkswagen Group and Skoda to explore a strategic alliance.
The plan was to develop “innovative solutions” for the Indian and overseas market and evaluate synergies for the two automakers. Skoda was to lead the project for the Volkswagen Group.
Tata Motors and Skoda performed a joint technical feasibility and commercial evaluation of a potential collaboration. After “intensive and constructive discussions,” the two companies decided to hit the brakes, concluding that the envisioned areas of partnership were unlikely yield desired synergies as were originally thought of.
"We have evaluated the technical feasibility and degree of synergies for the envisioned partnership. We have concluded that the strategic benefits for both parties are below the threshold levels," Guenter Butschek, CEO and MD of Tata Motors said.
For Volkswagen Group, the thinking behind the proposed partnership was that, riding along with Tata Motors, it could make more cost-effective products for the emerging markets. However, the economics don't seem to have worked out.
"At present, neither the technical nor the economic synergies are achieveable to the extent desired by both parties. As a result, a planned strategic alliance will not be pursued for the time being," Skoda said in a statement.
It is important to make note that, like Tata Motors, Skoda too has insisted that while the plans may not have worked out at present, they may yet work together in the future.
“Both companies would like to emphasise that, following the intensive and constructive discussions in the last few months, they are not ruling out possible future collaborations,” Skoda added.
Tata Motors' Butschek also talked of a relationship of “mutual respect” witnessed during the discussions and so remaining “positive” of exploring future opportunities with Volkswagen Group.
This suggests that the talks may have ended on an amicable and mutually agreeable note.
For Tata Motors, its going back to pursuing its standalone product strategy. After years of lacklustre performance in the passenger car business, sales have picked up over the last year and its new products beginning the Tiago hatchback, which was followed by the Hexa SUV and Tigor compact sedan, have seen good customer response.
So far this fiscal year (April-July), Tata Motors' passenger vehicles in the domestic market are up 10 per cent at 49,791 units, versus 45,062 units in the year ago period.
The company is all set to launch the much talked about Nexon compact SUV before the festive season this year, which should further give sales a boost. It has already outlined a product roadmap until 2022.
While Tata Motors continues to develop new products and invest in new technologies, a partnership with Volkswagen would have helped it scale up faster in areas like connected cars and electric mobility, riding on the later's advanced technologies and huge R&D spends.
On the other hand, Volkswagen and Skoda haven't been able to make a major dent in the Indian car market. To be fair, some of their products like Skoda's Octavia have done fairly well, but the two haven't been able to make inroads in the entry-level car market, where Maruti Suzuki and Hyundai dominate. The Polo is the only hatchback that Volkswagen has offered in the country. Skoda phased out the Fabia a few years back, and a newer Fabia subsequently introduced in global markets never made it to India. Volkswagen also not launched the Up hatchback in the country.
The small car market was an area that Volkswagen was looking to break into with Tata Motors partnership; an entry level platform based on Tata Motors' AMP platform was learnt to have been discussed.
However, with the talks now aborted, the German giant must now go back to the drawing board and develop a new roadmap for the Indian market. Skoda and Volkswagen may now have to work with the later's new MQB platform.
Volkswagen recently launched the Tiguan, its first SUV built on the MQB platform, in India. It reportedly has a waiting period of three months. Skoda also recently launched the new Octavia and is set to launch the Kodiaq SUV in India later this year, which is also based on the MQB platform.
Volkswagen recently began production of the new Polo hatchback in Spain, but the company has not disclosed any concrete plans of when it will be launched here.
