Volkswagen is preparing for a much bigger push in India, with the company reviewing its broader product, powertrain and investment plans. While a locally produced compact SUV has already been confirmed for launch next year and is expected to drive volumes, the brand is also looking at the India-EU free trade agreement (FTA) as an opportunity to bring select niche models from its global portfolio here.
"FTA has been announced in Europe. It is a huge opportunity to bring a certain sort of niche models to widen the portfolio for the consumer to offer some exciting models every now and then, which is great," Member of the Board of Management of Volkswagen AG and CEO of Volkswagen Brand Thomas Schafer told us. He did not reveal which models could be on the cards, but said the company is taking a long-term view and will study market conditions over the next few months before making a decision.
VW's renewed focus for India
Schafer's India visit comes as Volkswagen reviews its global business strategy amid geopolitical tensions, changing trade policies and a growing move towards regional manufacturing. "So, globally, we see almost like a decoupling. You have a geopolitical situation and the old business model where everything's focused on Europe, and then you export to other markets is long gone. At the same time, you have a very different dynamic in China than in the US, which is putting import duties on Europe under certain attacks. So, in that game, you have to change your business model; you have to adapt it. And that's what we're busy doing," he added.
This shift could benefit India. Along with the growing domestic market, Volkswagen sees India as an important hub for engineering, IT and R&D. "We will focus a lot on India going forward. Not only because the market is exciting and growing and creating more opportunity for the future, but also the sort of knowledge base that you have here in India," he said.
Volkswagen also sees exports as an important way to build scale out of India. The company already exports vehicles made in the country to more than 40 markets, with Mexico being one of the major markets that imports vehicles from India. "So, exports are an important part of our business, and we will always strengthen that going forward," he said. For the upcoming compact SUV, export potential could also help boost volumes and strengthen the business case.
More powertrains can be offered at the right time
Volkswagen's current portfolio comprises cars powered by turbo-petrol engines, even as CNG and diesel remain in demand and EVs are gaining momentum. "So, what is clear is, in the long run, there will be strong electrification, especially also in India...You see it accelerating, probably driven by the conflict in the Middle East and the oil situation," he said.
At the same time, he clarified that be it flex-fuel, CNG, diesel or EV, the brand has the technology already on sale in certain parts of the world. "We have flex-fuel, super strong in South America for years; we have CNG, diesel and EVs, it's all there...When it's the right time to localise it, we will localise it," Schafer said.
The challenge, he said, is deciding when and how to use each powertrain technology. "The dynamics in India and the market shift have been quite significant even in the last couple of months. So, to be honest, we haven't concluded our planning on that, but the good thing is that we have it and we can deploy it if and when it is the right situation," he stated. Volkswagen is also evaluating its next-generation models and newer platforms, but these plans are still under consideration.
Cost remains a major hurdle for VW in India
Cost has been one of Volkswagen's biggest challenges in India. Schafer said the company has spent the past few years working on two key areas: ensuring that its products retain the core characteristics of the Volkswagen brand while simultaneously reducing the cost base. "We worked over the last four years very focused on the cars that we bring to the market now are through and through Volkswagen in terms of quality, brand fit. And, yes, our cost base is traditionally high because we are very much focused on Europe and especially Germany," he added.
India, he said, will play an important role in Volkswagen's efforts to reduce costs, especially through more cost-effective development and manufacturing. "Part of the programs that's been in the media over the last, especially two years, has been reducing our cost base, developing more in more cost-efficient places like in India very much, but also shifting production from high-cost locations into lower-cost locations,” he said.
Volkswagen is now working on its next set of products, investment plans and powertrain options for India. With India becoming an increasingly important part of its global strategy, there is plenty to look forward to from the brand in the coming years.