India instead of Russia – Skoda is sticking with the combustion engine for as long as possible

The war-related withdrawal from Russia cost Europe's industrial groups many billions of euros. Volkswagen alone had to accept charges of two billion euros last year, said Chief Financial Officer Arno Antlitz when presenting the consolidated balance sheet. The Czech subsidiary Skoda, which has been coordinating business for the entire group in Russia since last year – or rather the farewell to the business, was hit hard within the group.

The group had two plants in the country. The smaller one, in Nizhny Novgorod on the Volga, has already been sold to its local joint venture partner. “Possible buyers are being discussed about the larger of the two plants, in Kaluga. “We are on the home stretch and expect to close the sale soon. This means that we can also put the negative effects of EUR 700 million in connection with the closure of our business in Russia in 2022 behind us. We are focusing on dynamic growth markets in Asia, especially India and Vietnam," says Skoda boss Klaus Zellmer in an interview with WELT.

After Russia's invasion of Ukraine, most Western companies quickly shut down their operations in Putin's empire. However, many are still sitting on their investments there, the value of which they have to correct to zero in the balance sheets. The French Renault group, the largest car manufacturer in Russia before the war with 45,000 employees, was particularly hard hit. Renault owned the traditional Russian brand Lada, which the group, including the factory, had to cede to the state for a symbolic ruble.

It is unclear whether Volkswagen will get more money for the Kaluga plant. But it is clear that the losses will continue to add up as long as it is not sold. Because although production has been at a standstill for a year, VW still has to pay the wages of the employees. At the same time, the income from the Russian business is missing. Before the war, Skoda alone sold 90,000 to 100,000 vehicles there every year. Now Zellmer is trying to fill this gap by growing in new markets. He focuses primarily on India.

The manufacturer has developed two of its own vehicles for the market, the SUV Kushaq and the sedan Slavia, which are produced there in two of its own plants - with parts that come to 95 percent from India. Last year, the sales figures for the two models rose rapidly to 55,000 units. For the current year, Zellmer is once again expecting growth “in the double-digit percentage range” and an increase in profitability. "With more vehicles that we are developing in India for India, I am confident that we will double our sales again after 2024," says Zellmer.

Next, Kushaq and Slavia are to be manufactured and sold in Vietnam, and Skoda will start final assembly in the joint venture partner Thanh Cong Motor in the country next year. The components for this are imported to Vietnam.

Within the "volume group" at VW, which also includes Seat and the VW brand, the manager coordinates business in Southeast Asia (Asean). Other car companies are also hoping for strong growth in sales in countries such as Indonesia, Malaysia and Thailand in the coming years. Similar to China in recent decades, the middle class is growing there too – and with it the number of people who can afford a car.

However, at a lower level: By 2030, Skoda expects a total market of 4.1 million cars sold per year in the Asean region. China's car market is now more than five times as big. Nevertheless, VW competitor Stellantis (Fiat, Peugeot, Opel) also hopes to make this region its third mainstay alongside Europe and the USA.

The Volkswagen Group, on the other hand, is still the market leader in combustion engine cars in China and is trying to catch up in the electric car market there. However, probably without Skoda. VW brought the brand to the Chinese market late and now there is speculation about its withdrawal from the People's Republic.

Cars with combustion engines should be over from 2035. There is resistance to this from the finance and transport ministries. The ban on new oil and gas heating systems is also a bone of contention in the traffic light coalition. "There is no broad solidarity sought," said Andreas Jung (CDU), deputy Union faction leader.

Source: WORLD

"We are discussing the future of Skoda in China with our joint venture partner SAIC," says Zellmer. You can't communicate any more than that. However, he is now focusing his strategy on Asian countries outside of China. Skoda already sells 80 percent of its vehicles in Europe.

However, the new markets in Southeast Asia would fit in with the VW subsidiary's strategy of sticking with the combustion engine longer than the other brands in the group. Instead of Volkswagen in 2033, the Skoda combustion engines will probably be sold in Europe until the planned ban in 2035 - and abroad for much longer.

"We want to give our customers freedom of choice for as long as possible," says Zellmer. “The transformation towards electromobility is taking place at different speeds in different regions. In markets that do not have a fixed phase-out date, such as the EU, we want to offer both combustion engines and electric vehicles.” This also includes India and Vietnam, where the switch to electromobility is likely to take a little longer than in Europe. The Indian government now also wants to herald a corresponding transformation.

In Europe, on the other hand, the end of cheap, small combustion vehicles could come sooner than expected, warns Zellmer. The new Euro 7 emission standard planned by the EU worries him. “Vehicles like the Fabia must not become so much more expensive as a result of the new rules that they are unlikely to be successful on the market. Customers will then continue to drive with their old vehicles, which of course is not good for the environment,” he says. The industry criticizes the EU Commission's draft for the significantly expanded test conditions under which cars are to comply with the limit values ​​for nitrogen oxides and particulate matter in the future.

“We want to improve the environmental friendliness of the vehicles. That is why we are also investing massively in electromobility with 5.6 billion euros by 2027, with three new electric models in the next three years. At the same time, we are consistently working on the further development of efficient combustion engines," says Zellmer. He hopes that the discussion in Brussels will "go on a sensible path". "The transformation to electric vehicles, digitization, Industry 4.0, plus external competition are already making enormous demands on us."

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