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Volkswagen's existing manufacturing footprint in India could form the backbone of its proposed joint venture with JSW Group, with the two companies reportedly considering the use of plants in Chhatrapati Sambhajinagar and Chakan for the partnership.

The facilities have a combined production capacity of around 400,000 vehicles a year. The proposed alliance could also use India as an export base, particularly for electric vehicles, according to The Economic Times.

Higher utilisation of the existing facilities could help the proposed venture spread development and manufacturing costs across larger production volumes.

JSW, Volkswagen Begin Exclusive Talks

JSW Group and Volkswagen Group have now signed a non-binding memorandum of understanding (MoU) to advance their proposed 51:49 India joint venture.

The MoU begins exclusive discussions between the companies on the valuation and other terms of the transaction. The Economic Times reported that the two sides are targeting a binding agreement by December 2026.

The final transaction value has not yet been decided. According to a Hindu BusinessLine report, market estimates have placed the proposed venture's project investment and capital commitments at more than €1 billion, or around Rs 10,000 crore.

Which Brands And Cars Could Be Covered?

The proposed JV would initially cover the eight Skoda and Volkswagen brands currently sold in India, as well as future launches, including electric vehicles.

The partnership is expected to focus on mass-market internal combustion engine (ICE), hybrid and electric vehicles.

Skoda Auto Volkswagen India's manufacturing operations could also become part of the venture, along with its workforce and supplier ecosystem.

The companies are separately working out arrangements for sharing models and platforms, manufacturing operations, employee transfers, sales and marketing.

Audi, Porsche And Other Luxury Brands To Stay Out Initially

The luxury marques in Volkswagen's portfolio are not expected to be included in the JV at the outset.

Audi, Porsche, Lamborghini and Bentley are expected to remain outside the proposed partnership initially. JSW is open to bringing these brands into the alliance at a later stage, while Volkswagen is keen to eventually have all its brands under the joint venture.

Rs 20,000 Crore Tax Exposure A Key Valuation Issue

The valuation discussions could also be affected by a customs duty case involving Volkswagen, with a potential tax liability of around Rs 20,000 crore.

The Customs Department has alleged that Volkswagen imported nearly complete vehicles in an unassembled form but declared them as individual components, resulting in lower customs duties.

The report noted that JSW is unlikely to assume liabilities arising from the case. The potential exposure would therefore need to be taken into account while determining the valuation of the business.

Why JSW And Volkswagen Are Pursuing The Partnership

The proposed arrangement would give Volkswagen a local partner as it seeks greater investment and deeper localisation of its operations in India.

For JSW, the deal would provide a majority stake in an established passenger vehicle manufacturing operation.

A Skoda Auto Volkswagen India spokesperson told ET that the proposed cooperation is intended to improve competitiveness through a broader product portfolio, deeper localisation and stronger manufacturing and research and development capabilities.

The 51:49 structure remains subject to further negotiations, with the companies expected to finalise the terms before signing a binding agreement by December 2026.