India-EU FTA is a great opportunity to bring in niche models: VW CEO Thomas Schafer – Introduction

Volkswagen is preparing for a much bigger push in India, where the company is reviewing its broader product, powertrain and investment plans. While a locally produced compact SUV has already been confirmed to launch next year and is expected to drive volumes, the brand is also eyeing the India-EU free trade agreement (FTA) as an opportunity to bring select niche models from its global portfolio here.

“FTA has been announced in Europe. It’s a great opportunity to bring in a certain type of niche models to broaden the consumer portfolio and offer some interesting models from time to time, which is fantastic,” Volkswagen AG Board of Management Member and CEO of the Volkswagen brand Thomas Schafer told us. He did not reveal which models might be in play, but said the company is taking a long-term view and will study market conditions over the coming months before making a decision.

VW’s renewed focus on India

Schafer’s visit to India comes as Volkswagen reviews its global business strategy amid geopolitical tensions, changing trade policies and a growing move towards regional manufacturing. “So, globally, we see almost like a decoupling. There is a geopolitical situation and the old business model where everything was centered in Europe, and then exported to other markets, no longer exists. At the same time, there is a very different dynamic in China than in the US, which is subjecting import duties to Europe under certain attacks. So, in that game, you have to change your business model; you have to adapt it. And that is what we are busy doing,” he added.

This change could benefit India. Along with the growing domestic market, Volkswagen sees India as a major engineering, IT and R&D hub. “We will focus a lot on India in the future. Not only because the market is exciting and growing and creating more opportunities for the future, but also because of the kind of knowledge base that is here in India,” he said.

Volkswagen also sees exports as an important way to develop scale outside India. The company already exports vehicles manufactured in the country to more than 40 markets, with Mexico being one of the main markets that imports vehicles from India. “Therefore, exports are an important part of our business and we will always strengthen them in the future,” he said. For the upcoming compact SUV, export potential could also help increase volumes and strengthen the business case.

More powertrains can be offered at the right time

Volkswagen’s current portfolio comprises cars powered by turbo gasoline engines, even as CNG and diesel remain in demand and electric vehicles are gaining momentum. “So what is clear is that, in the long term, there will be strong electrification, especially also in India… You see an acceleration, probably driven by the conflict in the Middle East and the oil situation,” he said.

At the same time, he clarified that whether flex-fuel, CNG, diesel or EV, the brand already has the technology for sale in certain parts of the world. “We have flexible fuel, very strong in South America for years; we have CNG, diesel and electric vehicles, everything is there… When the time is right to localize it, we will do it,” Schafer said.

The challenge, he said, is deciding when and how to use each powertrain technology. “The dynamics in India and the market change have been quite significant even in the last few months. So to be honest, we have not finalized our planning on it, but the good thing is that we have it and we can implement it when the situation is right,” he said. Volkswagen is also evaluating its next-generation models and newer platforms, but these plans are still under consideration.

Cost remains a major hurdle for VW in India

Cost has been one of Volkswagen’s biggest challenges in India. Schafer said the company has spent the last few years working on two key areas: ensuring its products retain the core characteristics of the Volkswagen brand while reducing the cost base. “We worked for the last four years very focused on the cars that we bring to the market now are Volkswagen in terms of quality and brand fit. And yes, our cost base is traditionally high because we are very focused on Europe and especially Germany,” he added.

India, he said, will play an important role in Volkswagen’s efforts to reduce costs, especially through more cost-effective development and manufacturing. “Part of the programs that have been in the media for the last few years, especially two years, have been to reduce our cost base, develop more in more profitable locations, such as in India, but also move production from high-cost locations to lower-cost locations,” he said.

Volkswagen is now working on its next set of products, investment plans and powertrain options for India. With India becoming an increasingly important part of its global strategy, there is a lot to expect from the brand in the coming years.