Skoda unlikely to exit India. Might rope in local partner to understand market

While Skoda Auto entered the Indian market in 2001 and their vehicles have been well regarded, the automaker has been left behind by its competition.

File photo of the Skoda Kodiaq | Representational image | Instagram / Skoda India

Recent stories in the automotive media about Czech carmaker Skoda Auto reminded me of a song by the 1970s British punk rock band The Clash—Should I Stay or Should I Go. Speculation is rife that Skoda Auto, a subsidiary of the giant Volkswagen Automotive Group, might be planning to wrap up its operations in India and sell some of its stakes due to intense competition. 

Skoda Auto had recently invited several Indian journalists to Prague to showcase their new sub-4-meter SUV, likely to be called the Kylaq. It is expected to take on the likes of the Kia Sonet and Maruti Suzuki Brezza. The journalists who travelled to the Czech Republic told me the carmaker also showcased significant updates on their existing Kushaq SUV and Slavia sedan that will be launched in the next couple of years.

So, with a new product on its way and significant updates to its existing portfolio, why has such intense speculation emerged about Skoda Auto’s viability in India?

Left behind 

Skoda Auto heads up the giant Volkswagen Automotive Group presence in India. Therefore, its decision would impact the entire German-owned group’s operations in India, the world’s third-largest car market. And from what one has gleaned, successive strategies have not helped the group in the country. It finds itself to be way behind not only market leader Maruti Suzuki but also Korean conglomerate Hyundai Motor Group—which also owns Kia—and homegrown rivals such as Tata Motors and Mahindra Automotive.

According to data from the Society of Indian Automobile Manufacturers (SIAM) Skoda Auto and Volkswagen together sold 87,717 units in India during Financial Year 2023-24 (April 2023 to March 2024). Kia Motors, which entered the Indian market just five years ago, sold 245,634 units in the same period. Incidentally, market leader Maruti-Suzuki sold close to 1.6 million cars in India in FY24.

Skoda’s Kushaq and Slavia and Volkswagen’s equivalents, the Taigun and Virtus, have seen decent sales success albeit far below those of rivals such as the Hyundai Creta, Maruti Suzuki Grand Vitara, and Mahindra XUV 700. While Skoda Auto entered the Indian market in 2001—incidentally a story I broke for the Hindustan Times after a trip to Volkswagen headquarters in Wolfsburg, Germany—and its vehicles have been well regarded, it has been left behind by its competition. 

In my opinion, there are several reasons for this, starting with fraternal rivalry between Skoda Auto and Volkswagen onward to poor product planning and, crucially, Volkswagen Group’s drug-like addiction to the Chinese market. Much like many other German companies, including German automakers BMW and Mercedes-Benz, Volkswagen—which has Audi, Lamborghini and Porsche in its portfolio) was fattening itself on the Chinese consumers. 

However, like Germany’s addiction to cheap Russian energy, which has been cut off recently for obvious reasons, German automotive companies find themselves stunned by the growth of Chinese rivals such as BYD and SAIC. 

China’s strong focus on ‘New-Energy Vehicles’ (NEVs)—which run on electric energy—have caught out German companies. Volkswagen, which once dominated the Chinese automotive market, suddenly finds itself uncompetitive toward its Chinese rivals. 

This, coupled with poor investment decisions and product planning in India, led to Volkswagen India’s discontinuation of the old Polo, the delayed development of the sub-4-metre sedan, the Ameo, and Skoda’s withdrawal from the hatchback segment with the Fabia’s discontinuation. Not to mention the withdrawal from the diesel market in India, which was painted as an ‘environment-friendly’ decision, although Volkswagen was devastatingly caught cheating on emission tests in the United States while their rivals took far more sensible decisions—Maruti-Suzuki investing in CNG vehicles and Hyundai-Kia, Mahindra and Tata sticking in the diesel segment.

Weak sales

While sales for Skoda-Volkswagen have grown in the past few years, they are still behind many others, considering the overall market growth in India. So it isn’t surprising that Skoda and the Volkswagen Group wish to partner with an Indian company to better understand the market, develop better products, and improve their reach, as per Skoda Auto CEO Klaus Zellmer.

Much speculation was directed toward Mahindra Auto—which already collaborates with Volkswagen Group for their electric vehicle platform—that it would be Skoda’s new partner in India. Although this was not a given.

With Skoda going public, it can be speculated that initial negotiations have been unfruitful for the Czech-German firm until now. As Chinese companies like BYD and SAIC have proven, foreign partners have limited utility, particularly as nationalistic tendencies grow stronger in markets. 

Skoda-Volkswagen’s poor investment decisions with regard to product development and production facilities in India over the past decade, especially as their rivals take a massive lead on both fronts, cannot be helpful in making any negotiations. Sure, a partner might be found, but the question is, at what valuation? Certainly, nowhere remotely close to the crazy numbers Hyundai Motor India is talking about in their forthcoming public offering. The Korean company bet on India at the right time, invested in the country, developed the correct products, and will now reap the rewards. 

While it is unlikely that Skoda or Volkswagen are going anywhere just yet, it is also abundantly clear that, as the saying goes, ‘the chickens have come home to roost’.

@kushanmitra is an automotive journalist based in New Delhi. Views are personal.

(Aamaan Alam Khan)