A formal announcement of an agreement between Tata Motors and Volkswagen might reportedly be made at the upcoming Geneva International Motor Show next month.

IHS Markit Perspective:

• Significance:Tata Motors and Volkswagen (VW) are reportedly exploring joint opportunities across areas including technology tie-ups, joint ventures, and platform sharing. Separately, Tata Motors has showcased its C-Cube concept hatchback under the TaMo brand.
• Implications:The reported move would be in line with a recent trend for competitors to become collaborators amid growing pressure from development costs over a large number of vehicles.
• Outlook:Although the deal would make sense on paper, given the financial challenges facing both automakers, it is hard to imagine any sort of capital alliance between the two automakers.

Tata Motors and Volkswagen (VW) are reportedly exploring joint opportunities spanning areas including technology tie-ups, joint ventures, and platform sharing. The automakers are at an "advanced stage of finalising a partnership", according to a report by The Economic Times, citing five unnamed people with knowledge of the matter. The report added that a formal announcement might be made at the upcoming Geneva International Motor Show next month.

Using modular vehicle architectures across both automakers' line-ups is quite high on the agenda but specifics have yet to be finalised, according to the report. The two automakers could therefore end up using either Tata Motors' advanced modular platform (AMP) or VW's MQB A0 platform. This would impact operations not only in India but also in other emerging markets. "The idea is simple, to share architectures and capacities and bring in quicker returns on investment through economies of scale," the report quoted a source as saying.

Although details are emerging now, discussions between the companies have been under way for some time, having started under Tata Motors' former chairman Cyrus Mistry. Citing a source, the report added that several groups of VW executives from Europe had been travelling to India for meetings and that due diligence had also been undertaken.

A Tata Motors spokesperson declined to confirm or deny the potential collaboration. "As prevalent in the automotive industry, we regularly have discussions with different companies to explore future collaborations but we do not have any specific announcements at present," said the spokesperson.

Separately, Tata Motors has showcased its C-Cube concept car at the Future Decoded 2017, a digital transformation event organised by Microsoft India in Mumbai. The hatchback showcases its advanced structural technology, which will enable it to bring forward breakthrough products under the recently revealed TaMo brand.

Although technical details of the concept were not shared, the three-door city runabout has a cab forward design with a short bonnet. At the front, the C-Cube features the familiar mesh design grille containing angular projector headlamps with LED daytime running lamps.

Outlook and implications

This is an interesting development for both automakers and points to the increasing pace of consolidation in the industry at various levels. In a recent communication, executives at Tata Motors outlined the approach of reducing the number of platforms across its passenger vehicle lineup from six to two.

On the other hand, VW has already leveraged economies of scale through modular platforms and would be looking to boost volumes further, if the report is accurate. The German automaker explored using MQB architecture for key models in India but decided the modular platform would be too costly for the market. As a result, its mass-market products such as the Vento, Polo, and Ameo remain based on the old PQ25/26 architecture and only upscale models like the Jetta and Passat have moved to MQB.

If the automakers go ahead with the reported move, it will be yet another example of competitors turning collaborators in recent times. Toyota's decision to boost its equity stake in its affiliate Daihatsu and collaborate with rival Suzuki conforms to this trend. Similarly, GM has initiated talks with PSA to sell its European business after failing to sustain profitable operations in the region.

One factor driving this consolidation is pressure to maintain and boost profits, stemming in part from development costs across many vehicles. Both automakers are also currently strained financially. While VW has earmarked massive amounts in damages and warranty costs over the use of defeat devices in diesel engines in the United States and Europe, Tata Motors' excessive dependence on Jaguar Land Rover (JLR) for profits resurfaced when it recently posted a 96% decline in profits. Use of common platforms across the combined portfolio would have clear positives for both players but it remains to be seen how this collaboration is taken forward. Despite both sides' financial challenges, it is difficult to imagine any sort of capital alliance between the two automakers. Joint production remains a strong possibility and Tata Motors' experience in successfully operating manufacturing operations with Fiat is likely to be helpful.

About this article

The above article is from IHS Automotive Same-Day Analysis of automotive news, events and trends, and is a deliverable of the World Markets Automotive Service. The service averages thirty stories per day and also provides competitor and country intelligence. Get a free trial.