Tata-Volkswagen-Skoda: 10 Things To Know About This Potential Powerhouse

By Siddharth Vinayak Patankar

1 mins read

Published on March 11, 2017

Highlights

Tata Motors plans to launch products in the Indian market from 2019
Tata Motors and Skoda Auto will detail out the guiding principles
The partnership will not be restricted to just India

Tata Motors and the Volkswagen Group have inked a significant Memorandum of Understanding. They will now explore possible partnerships for jointly developing new mass volume car models for Tata, VW and Skoda brand of vehicles. Skoda will front the discussion from here on for the VW Group. Here's a quick look at what that could mean in terms of the potential it holds for both entities. Tata had announced in February 2017 that it wants to develop all future products on just two modular platforms, unlike the 6-9 platforms it has used in the past. This will streamline its operations and make it more cost competitive. VW has mastered modular platforms with its MQB play and can provide a lot of expertise to Tata. This will give VW and Skoda the chance to use the same platforms for building its own models. Even though they will not be built alongside Tata brand cars, the advantage will be on shared components and aggregates - that will save both sides a lot of money. VW has strength in engines - especially smaller displacement, higher efficiency ones. Tata would need access to such engines to power its future range. That is potentially what VW will bring to the party. Again sharing engines will amount to cost savings, and also the chance for all 3 brands to access higher tech engines at lower overall costs. The partnership will not be restricted to just India. Both groups have large manufacturing capacities in India. Co-developed products could therefore also be supplied via exports to other markets. This will only enhance the economies of scale and thereby profitability for VW and Tata Groups. Skoda has said it wants global sales to cross 1.5 million units by 2020. Entering new markets and getting emerging markets like China and India to fire is a big part of that. The above strategy will serve this plan well. Tata (and group brands JLR) have German management at the helm of affairs now. Guenter Bustchek, CEO, Tata Motors has worked with Daimler in the past. His connections and drive to improve overall quality at Tata is said to have driven the cos together in the first place. Tata's recently announced sub-brand TAMO and the British marques Jaguar and Land Rover - are not part of the discussion, and will stay out of the purview of any possible alliance. VW Group has been in India for several years (10 years for VW, 16 years for Skoda), and has as yet failed to crack the market, or achieve big success. An alliance with Tata will allow it to pare costs, while still producing cars to its standards. Tata has a huge in-depth understanding of the Indian market, and has a vast network. This will also be brought into the discussion to for potential synergies. The Indian market will see costs escalating for all carmakers in the short terms, as it adopts new safety regulations and crash norms, as well as a new emission regime between 2017 and 2020. An alliance at this stage will help all three brands absorb these increased costs more smoothly. The global success of the Renault-Nissan Alliance (now expanding to Renault-Nissan-Mitsubishi) and coming together of PSA Peugeot-Citroen and Opel signals the need for alliances to keep business interests alive for carmakers. This is crucial given the investments needed towards alternate fuels and autonomous driving too. Tata and VW Group are taking a page out of that book too, it would seem.