Tata Motors and the Volkswagen (VW) Group signed a Memorandum of Understanding (MoU) on Wednesday, exploring the possibility of working together to develop a new range of products to be shared by the Tata, VW and Skoda brands.

The MoU was signed by Guenter Butschek, managing director of Tata Motors and Matthias Muller, CEO of the VW Group, in Geneva. An official announcement is likely to be made on March 10.

"This MoU will allow us to have a wider range of discussions and exchange more information and data to understand the synergies that exist between our two companies," said a person close to the development who asked not to be identified.

The two companies have been negotiating the structure of the partnership for over a year now. We had reported this in the October 2016 issue of Autocar India. The VW Group was initially pushing for the joint development of the German automaker's MQB-A platform but that was working out to be too expensive for a price-sensitive market such as India. Tata Motors was keen that the coalition use its future Advanced Modular Platform (AMP) that has a distinct cost advantage and a flexible architecture to spawn a wide range of products. VW was initially sceptical of Tata's AMP platform but gave it the thumbs up after it was independently evaluated by EDAG, a German engineering firm. EDAG is believed to be hugely impressed with AMP, especially in areas of structural rigidity and crashworthiness.

The Tata-VW alliance will also look at sharing of components and technologies. For example, Tata is keen to use VW's electrical architecture in its AMP products; this is understood to be far superior to Tata's own electrical system and is cost effective to boot. Tata will take the lead on engine development as VW's powertrains, which have a low level of localisation, are proving to be too expensive, especially for the Indian market.

It's too early to tell how the Tata-VW alliance will pan out and the specific models that will be built on the common platform. For Tata Motors, the partnership means massive economies of scale and a way to defray the huge costs of developing the AMP platform. For VW and Skoda, a tie-up with Tata holds the only hope of making a dent in the Indian market. The German automaker's high-cost structure and huge gaps in its product portfolio have effectively rendered it uncompetitive in India.

The bigger issues revolve around the strong cultural differences between Tata and VW that could derail the potential partnership. VW had a falling out with Suzuki Motor Co for similar reasons but this time round, the German auto giant, humbled by Dieselgate – its emissions-fixing controversy – may be more amenable to partnerships. Several VW executives say the company is determined to make this one work.