Synopsis

Volkswagen is in advanced discussions with India’s JSW Group for a local partnership. The German automaker seeks fresh capital and a stronger presence in India. JSW Group is reportedly seeking a majority stake in the venture. Several sticking points remain unresolved, including deal valuation and investment amounts. This potential agreement caps Volkswagen's years-long search for an Indian ally.

Volkswagen AG is in advanced discussions with India’s JSW Group, said people familiar with the matter, as the German automaker seeks an ally to infuse fresh capital and bolster its local unit in the world’s third-largest auto market.

The two sides are working toward a potential agreement in the coming weeks involving JSW making an investment in closely held Skoda Auto Volkswagen India Pvt., the people said, asking not to be identified as the discussions are confidential. The Sajjan Jindal-led conglomerate is seeking a majority stake in the venture, the people added.

While top executives from Volkswagen and JSW have held meetings recently, several sticking points remain unresolved, including a valuation for the deal and how much capital JSW and Volkswagen will invest, the people said.

The transaction, if it’s finalized, will cap a years-long hunt by Volkswagen for a local Indian partner. The German manufacturer has struggled to build scale in India even after operating in the country for more than two decades. For the steel-to-electric vehicles conglomerate JSW, a deal would provide access to Volkswagen’s vehicle platforms and a springboard for further potential cooperation globally with a well-established European carmaker.

Volkswagen is constantly evaluating new business opportunities and various business options to implement its strategy in India, a company spokesperson said in an email. India is an important market for Skoda Auto’s global growth plans, the spokesperson added, while declining to comment on any discussions with JSW.

A JSW Group spokesperson did not respond to an emailed request for comments on the deal.

Volkswagen also slashed a planned investment in a new India EV platform to about $700 million from $1 billion, Bloomberg News reported in November.

Tiny Share

The Volkswagen group, across its Skoda, VW, Audi, Porsche, Bentley and Lamborghini brands, makes up about 2.5% of India’s passenger vehicle market, below a 5% market share goal set for the end of the decade, according to a local media report earlier this year. The low market share comes despite the Skoda brand having launched India-specific models like the Kylaq compact SUV.

Read More: VW Pares India EV Development Costs Amid Hunt for A Partner

JSW and Volkswagen began talks three years ago, and those discussions have previously focused on JSW tapping Volkswagen India’s manufacturing plants in Pune and Chhatrapati Sambhajinagar in Maharashtra. The most recent negotiations between the two companies still need to clear several hurdles and may yet collapse, the people familiar with the talks said.

Volkswagen has become more willing to cede control of its India unit as it grapples with a difficult turnaround globally, these people said. Although the Indian unit has posted a jump in profit for the year ended March 31, they said the European parent is growing wary of funding the business without a local partner to share the load.

The move to rein in expenditures in India mirrors pressures playing out across Volkswagen’s global operations, where the group is seeking to deepen an already broad cost-cutting drive.

Read More: VW CEO Outlines Up to 50,000 More Job Cuts to Hit Savings Goals

JSW also has a joint venture with China’s SAIC Motor Corp., which sells MG-branded cars in India, and has plans to introduce JSW-branded cars in the local market. Volkswagen had previously been in conversations for a partnership with Mahindra & Mahindra Ltd., but a local media report early last year said those talks fell apart over differences related to development costs and culture.

The German automaker has tried a number of times to build a sustainable business in India, but like other European automakers it has struggled in the price-sensitive market where homegrown players like Maruti Suzuki India Ltd., Hyundai Motor India Ltd., Mahindra and Tata Motors Passenger Vehicles Ltd. dominate with their more affordable models.