How M&Ms Potential Stake Purchase In Skoda Aligns With Its Business

The automobiles market was abuzz with speculation on Monday about Skoda Auto in India looking to sell stake to Mahindra and Mahindra Ltd. This prompted the Scorpio maker to issue a clarification, saying it will "continue to explore multiple opportunities to expand the collaboration potential".

But what could this mean for M&M and its existing agreement with Volkswagen, along with its own electric vehicle portfolio? Here is a look.

Supply Agreement With Volkswagen

M&M notified the exchanges back in February that it signed a supply agreement with Volkswagen Group. As per the agreement, Mahindra will equip a certain range of its electric platform, INGLO, with electric components of Volkswagen’s MEB and unified cells. The INGLO platform will be used by the company to produce electric vehicles. The deal covered supply of certain electric components as well as unified cells.

The company had guided for this as a definitive step further, on their joint vision for electric-mobility collaboration.

Volkswagen’s MEB platform and its components are currently used by its group company brands like Volkswagen, Audi, Skoda and SEAT/CUPRA, as well as external partners like Ford and Mahindra. Both Volkswagen and M&M will continue to evaluate a potential expansion of the collaboration.

Also Read: Mahindra Clarifies On Reports Of Stake Purchase In Volkswagen’s India Unit

Skoda's Potential New Plant

Skoda Auto Volkswagen India Pvt. currently operates two production units. These are in Chakan, Pune and Shendra, Chhatrapati Sambhajinagar (formerly known as Aurangabad). The facility at Pune has a production capacity of 1,80,000 cars per year, while that at Chhatrapati Sambhajinagar has a capacity of 60,000 cars per year.

Devendra Fadnavis, Deputy Chief Minister of Maharashtra, had put out a post on X, announcing that Skoda, Volkswagen will be setting up a new plant in Chakan, Pune. Their product portfolio will include electric as well as hybrid cars, entailing a total investment of Rs 15,000 crore.

M&M has 23 plants across verticals, with one in Chakan being a key plant for its passenger vehicle division. It is planning to increase its monthly production capacity to 72,000 vehicles per month from 49,000 vehicles a month currently, entailing total capacity of 8.64 lakh vehicles per annum. The SUV maker sold roughly 4.59 lakh vehicles in fiscal 2024.

Also Read: M&M's Classic Legends Launches Jawa 42 FJ 350 At Starting Price Of Rs 1.99 Lakh

Mahindra’s EV Plan

M&M currently has only one electric vehicle in the passenger vehicle market—the XUV 400 EV. It is expected to launch five new electric vehicles starting December 2024 on the INGLO platform. The company also expects EVs to contribute to 20-30% of its mix in five years. Brokerage firm Emkay expects M&M’s EV margins per unit to gradually converge towards petrol/ diesel, with greater scale.

M&M has lined up investment of Rs 12,000 crore in its EV business, Mahindra Electric Automotive Ltd.—over the next three years. The company will not be looking to raise additional capital in this venture, it has said. MEAL has already raised roughly Rs 1,500 crore from external investors. British International Investment has invested close to Rs 1,200 crore and had plans to invest an additional Rs 725 crore as well.

Currently, both parties have mutually agreed to extend timeframe for final tranche of BII’s planned investment of Rs 725 crore and will make a decision by December 2024. Temasek is the other external investor and has invested Rs 300 crore. It will be investing Rs 900 crore, as per agreed timelines.

The EV market is presently skewed, with Tata Motors Ltd. having a market share of 70%. The industry is growing and recorded sales of roughly 90,000 electric vehicles in fiscal 2024.

Also Read: Skoda Auto To Offer Diverse Range Of Electric Vehicles In India