Prague: Czech carmaker Skoda Auto is looking to partner an Indian automaker to grow its business in a market that’s brutally price-competitive, and one that it’s been unable to crack in more than two decades of its existence there.
It believes that finding a local partner is a ‘very attractive’ scenario, as it aims to make deeper inroads into the Indian market with the help of a domestic entity that has close linkages in the supplier ecosystem, a rich understanding of local customer preferences and scale that can drive down the European carmaker’s costs in the country’s ‘predatory’ market.
The Skoda brand has been present in India for more than 20 years, but it now wants to double down on the world’s third-largest automobile market. Klaus Zellmer, chairman of the board of management of Skoda Auto, said that the company is in talks with multiple potential partners at this point in time, ‘carefully’ seeking out a company in tune with the industry and customer preferences to help Skoda achieve cost-effective manufacturing in the country, so that India can become the ‘second leg’ for the brand, after the European market.
Skoda Auto is part of the German Volkswagen Group.
“We very much believe in a scenario that we find a partner in India to be more in tune with the society, with customers, with the industry, with all the prerequisites, in order to be successful. We’re going to be very careful choosing the right one, which has to be complementary. We’re in this bringing something to the table. We want our partners to bring something to the table, too. We want this partnership not to be opportunistic – but full of opportunities”, Zellmer said.
Zellmer said that while India is Skoda’s most important global market after Europe, it is also the most competitive and predatory, with price wars often erupting in highly sought-after segments like compact SUVs.
“India is not only the most attractive region for us outside Europe, (but) it is also the most competitive environment that you probably find currently in the automotive market. You have many new competitors, new entrants, new cars. So it really is a predatory environment,” Zellmer said.
Skoda is preparing to launch a sub-4-meter compact SUV with 75% local content – its highest for any product so far. This segment commands 50% of the SUV market’s volumes, and is extremely competitive where models such as Tata Nexon and the Maruti Suzuki Brezza reign supreme. The product will be available for customers at the beginning of next year.
According to Zelmer, the company is also adding more retail touchpoints to attract “as many customers as possible” for the product.
Zellmer said Skoda has ‘learnt its lessons’ from its experience of being in India for 20 years, and being unable to achieve sales milestones it had initially set out. Skoda is expecting its new compact SUV, which will also be exported to other markets from India, to give it a 4% segment share in the sub-compact SUV market.
“… It’s lessons learnt. Often we build cars according to our own expectations and they tend to be over-engineered. And over-engineering always comes at a price tag and this price tag then, of course, is something that weakens our competitive position. So, we need to learn, we need to be aware of the switch. Where is the engineering ingenuity of a Skoda brand, and how to strike a balance between cost and price. We need to be competitive on cost without sacrificing the quality, fit, and finish that European cars are known for. The sub-4 meter car is a good example of this. We’ve been able to significantly reduce costs while maintaining quality. This approach will continue with future models, making them more attractive to the market.”, Zellmer said.
According to Zellmer, a local Indian partner can further help it achieve better cost efficiencies by helping the company strike more beneficial deals with potential suppliers.
“We can benefit from their local competence (of a local partner) from them being much closer to the market than we are. In terms of procurement and sourcing, they have certain connections that we probably don’t have and and therefore they are then able to get the best prices”, he added.
Skoda is hoping India will become its second-largest market, once sales of its sub-compact SUV and refreshed model line-up begin to pick up pace from 2025. Despite the fragmented nature of India’s automotive market and its competitive nature, Zellmer argued India is still an attractive bet for Skoda.
“In terms of leverage, India is by far the biggest potential going forward. In absolute numbers, we’re looking at 4.2 million cars sold in India. It is the third biggest automotive market in the world. Now, of course, United States and China are way ahead. But if you want to be part of a game where you know the growth is going to be extensive and something you are going to be part of, you have to be in that full throttle and early,” Zellmer told Mint, adding, “What is very compelling for us is to use India also as a hub for the ASEAN region. This is a perfect combination of sourcing and engineering in India, and delivering to other parts of this world”.