Volkswagen, Tata Motors Target Strategic Indian Car Alliance

  • Cooperation succeeds collapse of VW’s partnership with Suzuki
  • Deal is response to intensifying emerging-markets competition

Volkswagen AG plans to team up with Tata Motors Ltd. on joint projects in India, renewing the German automaker’s push to boost its presence in emerging markets after its previous efforts failed to gain traction.

Tata and the European carmaker’s Skoda division will initially work together on market studies for developing mobility services, vehicle components and models, Wolfsburg-based VW said Friday in a statement after the companies signed a memorandum of understanding. Specific projects will be disclosed in coming months, the manufacturers said.

“Our aim with the envisaged strategic partnership with Tata Motors is to lay the foundations to offer customer-oriented mobility solutions in the emerging, fast-growing automobile markets,” VW Chief Executive Officer Matthias Mueller said in the statement.

By teaming up with Tata Motors, Volkswagen could plug a gap in its strategy. The maker of VW, Audi and Porsche cars has struggled for years to create vehicles thrifty enough to appeal to buyers in markets like India. Volkswagen’s previous attempt to conquer emerging markets through a small-car partnership with Japanese automaker Suzuki Motor Corp. unraveled in a bitter dispute that was settled just before the German company’s diesel-emissions scandal erupted in 2015.

For Tata Motors, which also owns the U.K. luxury brands Jaguar and Land Rover, an agreement offers access to Volkswagen’s massive global presence as it faces increasing pressure in India, where other global manufacturers including Fiat Chrysler Automobiles NV to PSA Group are vying for customers.

The Mumbai-based carmaker and Volkswagen “can leverage from each other’s strengths to create synergies and develop smart innovative solutions for the Indian and overseas market,” Tata Motors CEO Guenter Butschek said in the statement.

“I can see apparent benefits for Tata Motors in terms of technology and manufacturing systems,” Deepesh Rathore, director at Emerging Markets Automotive Advisors in London, said by phone. “At the same time, the VW brands have hit a glass ceiling in India and frankly have no future.” With the accord indicating that “Skoda will move down-market and target the mass customer, the Tata joint venture would then be beneficial.”

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