Ongoing discussions between JSW Group and Volkswagen Group about a possible partnership in India are currently focused on reducing costs, opening up access to export markets and determining the level of control that Volkswagen will have, according to the statement Bloomberg citing people familiar with the negotiations.
Billionaire Sajjan Jindal’s JSW Group told Skoda Auto AS, which oversees Volkswagen’s operations in India, that the German automaker’s production costs in the country remain too high. JSW believes this could help cut material costs by as much as 50%, potentially making the proposed venture more competitive, said the sources, who asked to remain anonymous because the talks are private.
Volkswagen Group is also evaluating how much decision-making power it might give up in a potential venture that would make and sell vehicles under its brands, people familiar with the talks said.
The companies are discussing a potential valuation based in part on Volkswagen’s contribution to the proposed partnership, including the models it could supply and the possibility of selling vehicles produced by the joint venture in overseas markets. They added that the range of models and export opportunities will impact the size and financial viability of the venture, as well as the amount JSW Group will be willing to invest.
The talks mark another attempt by the Volkswagen Group to strengthen its presence in India’s fast-growing auto market, where it has operated for more than 20 years. Despite investing heavily in production capacity and developing models tailored to Indian buyers, Volkswagen remains a relatively small player in the market led by Maruti Suzuki India Ltd. and Hyundai Motor India Ltd.
Indian automakers, including Tata Motors Passenger Vehicles Ltd. and Mahindra & Mahindra Ltd. are also rapidly gaining ground in the domestic market.
Negotiations between JSW and Volkswagen have accelerated in recent months. JSW Green Mobility Ltd. and Skoda Auto have entered into a non-binding agreement to explore the possibility of forming a strategic joint venture, JSW said in a statement on Wednesday.
The two groups were close to finalizing the joint venture, with JSW hoping to take a majority stake, the report noted, citing people familiar with the matter in July.
The proposed partnership will focus on the development, production and sales of passenger vehicles in India as well as abroad. According to JSW, its planned portfolio could include vehicles with internal combustion engines, battery-electric powertrains, plug-in hybrid systems and traditional hybrid technologies.
He stressed that discussions are still at a preliminary stage and that the current agreement is provisional and non-binding. Any final transaction will be subject to additional negotiations and necessary internal and regulatory approvals.
A JSW Group spokesman did not provide further information about the proposed joint venture when contacted ahead of Wednesday’s statement, according to the report. Volkswagen Group also did not respond to an email from the news agency seeking comment.
London meeting
A meeting in London between JSW executives led by Sajjan Jindal and senior Skoda executives about two months ago helped build momentum for the potential partnership, according to people familiar with the discussions. The meeting was followed by a visit to India in mid-August by representatives of the boards of Volkswagen and Skoda, including Volkswagen brand chief Thomas Schäfer and Skoda CEO Klaus Zellmer.
For JSW, collaboration with Volkswagen could accelerate the auto industry’s expansion without requiring the group to produce vehicles, engines and platforms in-house. The conglomerate, spanning the steel and power sectors, entered the automobile sector through its investment in MG Motor India, now known as JSW MG Motor India Pvt., and has since been looking at expanding its role in automobile manufacturing.
JSW is primarily looking to value the Volkswagen Group based on its existing physical presence in India, including manufacturing facilities and distribution network, the sources said.
Volkswagen’s discussions have become more important to JSW because of its separate proposed partnership with China’s Chery Automobile Co. encountered obstacles.
(With inputs from Bloomberg)