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Tata Motors, Volkswagen sign agreement for cooperation in India: Sources

business Updated: Mar 10, 2017 13:43 IST
Tata Motors

Chairman emeritus of Tata Sons Ratan Tata (left) and Tata Sons chairman Natarajan Chandrasekaran with Guenter Butschek, CEO & MD, Tata Motors and Tim Leverton, head of advanced and product engineering at Tata Motors, pose with Nexon at the 87th Geneva International Motor Show in Switzerland on Tuesday. (PTI Photo)

Volkswagen has signed an agreement with Tata Motors to explore cooperation in India, company sources close to the matter said.

Tata Motors has been in talks with the German automaker for more than a year now, over sharing its new advanced modular platform (AMP) development, possibilities of a joint venture or a contract manufacturing with Volkswagen.

Tata Motors MD and CEO Guenter Butschek had on Tuesday confirmed the news of talks, saying, “We are in the midst of discussions. We will let you know in good time.

VW, already the biggest carmaker by sales in China, is embracing electric cars and looking for new markets as it battles to recover from its diesel emissions scandal.

According to Autocar India, the automakers signed a memorandum of understanding (MoU) on Wednesday and are expected to make an announcement on Friday. Under the partnership, Volkswagen has agreed to make use of Tata’s AMP chassis system developed by Germany’s EDAG firm, while Tata is keen on using Volkswagen’s electrical architecture, which is better and more economical than its own, the AutocarIndia report says.

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A previous VW attempt to expand in emerging markets through an alliance with Suzuki Motor Corp. collapsed in 2015 after a fierce dispute. Both Tata Motors as well as Volkswagen have been struggling to find a right product mix to succeed in a very price-sensitive market like India.

With its passenger vehicle market share dwindling to under 6% in India and profits dropping by 96% in the October to December quarter, Tata Motors needs Volkswagen in order to learn the German know-how of making better cars and implementing it cost-effectively.

Tata Motors, whose claim to global fame is the “one-lakh-rupee” Nano, has a strong sales and manufacturing network, which Volkswagen needs to reach that extra mile it has been struggling to go alone. Volkswagen cheating in emissions tests that affected almost 11 million vehicles globally across its brands such as VW, Audi, Skoda and Porsche, has also caused a dent to its brand image.Besides, penalties and damages to be paid are also huge.

In an attempt to conquer emerging markets, Volkswagen has redrawn its China plans to make a budget car, company sources told Reuters, saying the automaker has pared costs for its MQB mass-market platform. The German automaker is likely to make an announcement at the Shanghai Auto Show next month.

“We will continue to work on the budget car and we will offer good solutions here in the foreseeable future,” chief executive Matthias Mueller told Reuters in Geneva, without elaborating.

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Interestingly, Tata Motors owns Jaguar Land Rover, the Britain luxury car brand which is a direct rival of Audi, a subsidiary of the Volkswagen Group AG.

Tata Motors is also undergoing a major transformation in its home. The company is cutting down its number of suppliers and also its platforms from six to two in order fore more economical and efficient production so as to adjust more quickly to market trends.

“The strategy is to have 80-90% commonality” among all models made at Tata, the company boss Butschek said at the Geneva Motor Show.

The exact terms of the partnership and possibilities of the products will only be known as the announcements are made. But for both the parties, the sign on the paper could become a win-win situation.

According to IHS Markit, light vehicle sales in India are expected to more than double to 7.1 million cars by 2025 from 3.4 million last year. With cheaper labour, materials and a big push from the government to “make in India”, India has become a bright spot for Western carmakers looking to grow.