VW's Skoda to invest in manufacturing EVs in India despite $1.4 billion tax demand overhang

Skoda Auto plans to manufacture electric cars in India and will invest in the country by itself if its search for a local partner fails, the Czech carmaker's CEO said, as its parent Volkswagen Group fights a $1.4 billion tax demand case.

VW's local unit Skoda Auto Volkswagen India is embroiled in a legal tussle with the country's tax department over allegations that it misclassified imports of some Audi, VW and Skoda cars to evade higher duties.

If the company loses the battle, against what it calls an "impossibly enormous" demand, it will need to fork out $2.8 billion including penalties and interest, which could become a matter of survival, one of VW's lawyers said last month.

CEO Klaus Zellmer told the media this week that he was unable to comment on the "ongoing, very critical procedure", but that Skoda is targeting India as it looks to the world's third-largest car market for growth outside Europe.

"(It) is still our will and our strategy to form a joint venture to be even stronger in India ... but if there's no right partner we stay single and be still attractive and successful," he told reporters at a post-earnings press conference.

Skoda has been leading Volkswagen's India strategy since 2018, but sales have remained low with the Volkswagen and Skoda brands together accounting for just 2% of India's 4 million units a year car market.

But with stricter vehicle fuel efficiency standards set to kick in from 2027, all carmakers will have to introduce EVs, and Skoda believes its access to the Volkswagen Group's EV technology might give it an edge.

"We can offer very innovative, very cost efficient solutions for battery electric vehicles, and this is our strategy also for India," Zellmer told reporters on the virtual call.

Skoda has an agreement with India's Mahindra & Mahindra to supply some EV components. Zellmer did not name Mahindra or any other company in terms of potential collaborators, but said talks were ongoing with partners with "local roots".

India, where small cars from Suzuki Motor and Hyundai dominate the roads, has proved a difficult market for Western carmakers.

But Skoda, which no longer has a big presence in China and exited Russia, says India is a "major focus" for its business.

The company has previously shown interest in a government programme that will offer incentives for local EV manufacturing.

It has also signed an initial agreement with the government in India's western Maharashtra state to invest about $1.7 billion to build EVs.

Zellmer said it was important for Skoda to get its portfolio right in India, a market he said was a "gateway" for Southeast Asia and the Middle East.

"We are really looking for us building on ... one of the biggest potential growth markets globally," he added.