Tata Motors, Skoda find no common ground, call off JV talks
11 August 2017
Tata Motors and Skoda Auto have ended discussions for a potential partnership that would have seen the two automakers and the VW Group sharing vehicle platforms, engines and even production facilities.
On Wednesday, the companies said that they have ceased discussions on a potential alliance but will be open to talks on future collaborations.
But although Tata Motors and Germany's VW Group - which owns Volkswagen, Skoda and Audi - have kept the door open for future partnerships, according to The Economic Times, people in the know of the matter ruled out the possibility of them renewing the talks, at least in the near future.
''They realised that there were a lot of product overlaps,'' Mint cited a person aware of the discussions as saying.
The savings were also not seen as sufficient to go through the trouble of forming a partnership, and there were also multiple challenges expected on how to structure a deal, whether to make it a joint venture, explore contract manufacturing or licensing the architecture and, if so, what could be the fees, among other issues, according to ET.
The companies said that they have performed a technical feasibility and commercial evaluation of a potential collaboration and, based on intense and constructive discussions, jointly concluded that the envisioned areas of partnership may not yield the desired synergies as originally assessed.
''The strategic benefits for both parties are below the threshold levels,'' Guenter Butschek, chief executive and managing director at Tata Motors said in a statement.
Both companies have concluded that at present, neither the technical nor the economic synergies are achievable to the extent desired by both parties, said a spokesperson for Skoda Auto. ''As a result, a planned strategic alliance will no longer be pursued for the time being,'' the spokesperson added.
Butschek said Tata Motors will, however, ''remain positive of exploring future opportunities'' with the Volkswagen group, given the ''relationship of mutual respect that it witnessed during the phase of its cooperation discussions''.
Tata Motors, Butschek added, will continue to pursue its stand-alone product strategy to bring ''exciting and world-class'' products to its customers.
In March this year, the two companies signed a memorandum of understanding at the Geneva Motor Show to explore various options, including a partnership for the development of Tata's new advanced modular platform (AMP), a joint venture or a contract manufacturing agreement, in a bid to achieve economies of scale that would have helped to cut costs.
Reports of the joint venture hitting roadblocks first appeared two months ago in Autocar India magazine. VW and Skoda had become sceptical about the AMP platform, which was not proving to be as cost-effective as expected, the magazine reported.
An alliance with the German carmaker would have given Tata Motors access to advanced technology, and could have helped both partners cut development and production costs.
The announcement to call off the proposed agreement comes amid mounting losses in Tata Motors' India operations and efforts to turn around the business by Butschek. The India business reported a loss of Rs403 crore in the June quarter.
Both firms have had a patchy innings in a market that is poised to become the world's third largest by 2020.
The passenger vehicles business of the Tata group firm once was to be the third-largest by volume, but has lost out to rival carmakers over the last five years. Its market share in the segment has fallen to 5.2 per cent in fiscal 2016-17 from 13.1 per cent in fiscal 2011-12 – largely, it must be said, due to owners' disenchantment with shoddy quality control. But recent launches such as the Tiago compact car, Tigor compact sedan and Hexa SUV has helped the firm regain some ground.
Skoda Auto too has struggled in the Indian market. The firm continues to be on the fringes despite a 15-year presence. It sold a total of 13,712 passenger vehicles in fiscal 2016-17 against 15,368 units a year ago, according to the Society of Indian Automobile Manufacturers.