New Delhi: Volkswagen Group and India’s JSW Group have signed an early agreement to work together in India. The German carmaker on Wednesday revealed a memorandum of understanding (MoU) with JSW. It’s not a “deal,” but it’s a good first step toward a larger deal.
What the deal is about
The deal would give JSW 51% stake in a new entity while the rest, 49%, would belong to Volkswagen. This is a new company that will have the liberty of Volkswagen’s mass-market car business in India, including petrol, hybrid and electric cars. The two will now explore the finer points of negotiations, including ownership, price, and company operation. They hope to sign a final and complete deal by December this year.
It has been reported that the transaction may include the transfer of the major assets, including the factory in Chakan, Maharashtra, that belongs to Volkswagen. The investment is estimated to be worth more than the EURO 1 billion, or almost ₹10,000 crore, according to industry watchers.
Why this matters
Volkswagen has been seeking a good reseller in India for several years. Previous discussions with Mahindra & Mahindra prove futile. Therefore the merger with JSW may provide local assistance to Volkswagen groups that would make cars affordable and assemble more parts domestically, rather than importing them from overseas countries. This is referred to as “localisation” and typically reduces buying costs.
JSW’s deal is part of a larger strategy to become a key player in India’s car market. The group already has a joint venture (JV) with China’s SAIC Motor for selling MG-branded vehicles. JSW would get boost from a tie-up with Volkswagen with its technology and engineering capabilities, which is a strong European option in the auto business.
The announcement comes at a tricky time for Volkswagen. Germany is the focus of a major restructuring for the company with job losses of approximately 50,000 worldwide in prospect. The search for new markets such as India has taken on greater significance in the company’s face of issues at home.
It’s not too late yet. Both companies will still need to negotiate the price and other terms of the contract before agreeing to a binding contract.
