A Czech automobile manufacturer, Skoda Auto AS (Skoda) which is owned by Volkswagen (VW), is planning to increase its production of premium cars in India amid the uncertainty of the emissions standards in the coming years. Skoda, which has less control of the automobile market in India, aims to compete with the home-grown automobile companies including Maruti Suzuki, Tata Motors, and Mahindra & Mahindra.
VW and Skoda’s Target by 2025
Several analysts projected that India would become the world’s third-largest market for the automobile industry by 2026 due to the rise of global investment to the industry and an increase in the number of buyers. Meanwhile, the country is likely to impose certain new regulations on emission standards in some next years which would force carmakers to increase the prices as this would impact on the costs for domestic car manufacturers.
These new regulations would have a major impact on the existing domestic companies but it could be an advantage for the new openings in India. Keeping that in mind, the Czech car manufacturer owned by the German giant, VW is launching a planned strategy to work along with the potential changes of regulations in the automobile industry.
Keeping a target to achieve 5% shares in the Indian market by 2025, VW and Skoda, which have presently less than 2% share of India’s car market in the combine, have focused to improve its productions and sales by reducing the cost of ownership. The managing director of new entity Skoda Auto Volkswagen India, Gurpratap Boparai told Reuters, “The strategy was approved keeping in mind future regulations that would help us get competitive.”
One key challenge for Skoda and VW was that they have invested heavily in technologies and designed their cars far beyond the required emission standards set by regulators in India. With such technologies, the prices of their cars are over-engineered and more expensive which are not likely to taste of the majority customers in the country. Boparai, however, said that they would decide on the basis of what their rivals brought along their technologies and price setting.
Building Premium Cars and New SUVs
Under the new strategy to target the customers in India, Skoda and VW officials point out that the carmakers would use a modular platform to build cars, increase local sourcing of components to 95% to curb costs and design cars to local tastes, while also exporting them to other countries.
Citing the main challenge of new regulations in India, the associate director at consultancy IHS Markit, Gaurav Vangaal claimed, “Stricter rules will cut the cost differential between firms like Maruti, with low-priced, compact cars and Skoda.” He further claimed, “To maintain that cost advantage, Skoda and VW will need to increase volumes so as to benefit from the economies of scale. This can only be achieved by ramping up exports and having a new and attractive line-up of cars locally.”
Ahead of India’s biennial auto show that will begin in New Delhi this week, Skoda this week showcased its first vehicle, a family sport utility vehicle (SUV) which is expected to start launching in India next year. This week, VW has showcased a compact SUV called Taigun mainly in the premium price category. As Reuters reported, “VW and Skoda are planning to start launching four new SUV models in India over the next two years and increase the number of sales outlets to 150 by the end of 2020.”
Under the new strategy, the company targets its sales of 100,000 cars in India a year by 2025 from about 15,000 in 2019, and to expand its sales outlets from 85 to 200 by 2023.
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