Mahindra and Mahindra Ltd and Ford Motor Co. said the global disruption caused by covid-19 and the ensuing change in capital allocation priorities forced them to abandon a partnership project for engine development and of vehicles in India.
The move is a blow to Mahindra’s plans to access manufacturing capabilities and new technologies for connected engines and vehicles. At the same time, Ford will have to continue its independent battle to gain a greater share of the Indian market where it has fallen behind most of its competitors despite a presence of more than two decades.
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Mahindra, India’s largest sports utility vehicle manufacturer, said the pressure to save cash, the need for investment in emerging technologies and the increased focus on its core automotive business in India have influenced its approach. .
The automaker aims for direct savings of more than ₹3,000 crore next fiscal year thanks to the separation from Ford and a potential sale of a stake in its bankrupt Korean unit SsangYong Motor Co.
The move to separate “follows the adoption of a Dec.31 ‘long shutdown’ date, or expiration, of a definitive agreement the organizations reached in October 2019,” the companies said in statements separated.
Pawan Goenka, chief executive of Mahindra, said the joint venture (JV) with Ford has been affected by the global upheaval due to Covid.
“In the current scenario, the investments would have been significantly higher than what was envisaged. Therefore, it made no business sense for either partner, ”Goenka said on Friday.
In October 2019, Mahindra and Ford announced a first JV pact to develop vehicles for emerging markets. Mahindra was to hold the controlling 51% stake and Ford the remainder. They planned to share BS VI compliant engines, in addition to developing connected vehicle solutions. Ford’s assets in India, including a factory near Chennai and Sanand, Gujarat, were believed to have been absorbed by the JV and run by Mahindra.
The partnership with Ford and the acquisition of SsangYong aimed to enhance Mahindra’s offering for the domestic and export markets. The decision to withdraw the plug could have a negative impact on Mahindra’s product strategy at a time when its SUV market share in India is under severe strain and competition in the electric vehicle space has increased.
Mahindra, who has announced plans to sell his controlling 70% stake in SsangYong, could sign a deal with a potential investor as early as next week, said Anish Shah, deputy managing director and group chief financial officer, M&M.
“With the kind of change that is happening in the economic and business scenario, specific to the automotive industry, the shift to the type of vehicles that will be popular in the next 3-5 years, we need to prioritize where to put our money. Said Goenka.
To be sure, Mahindra’s new management reassessed the capital allocation strategy and decided to exit the loss-making activities of its main and non-main group companies globally.
“The recent announcement is part of its new asset allocation strategy to focus on its core businesses of tractors and SUVs. Returning to core competence will strengthen the company’s balance sheet and improve the return profile, ”said Md Shaukat Ali, analyst at Asian Markets Securities.