Skoda CEO says VW aims to finalise India partner this year to share risk, drive growth

NEW DELHI, Aug 19 (Reuters) - Volkswagen expects to sign a deal with a local partner in India this year, the CEO of its Skoda brand, Klaus Zellmer, said, as the German group struggles to build scale in the world's third-largest car market.

Skoda is in charge of the group's strategy in India, where VW is in talks on a joint venture with India's steel-to-autos group JSW, which has indicated it wants a majority stake.

Zellmer said on Wednesday that VW is in discussions with an unnamed partner and is confident of completing a deal this year, providing the clearest indication yet that a decision is close. 

"I'm deeply convinced that our momentum can be much stronger if we have a local partner with strong roots," Zellmer told reporters on the sidelines of a Skoda event in Mumbai.

Zellmer told India's Economic Times that VW is open to ceding control of its operations in the fast-growing Indian market, which has attracted investments from global automakers.

But many have struggled to gain scale and U.S. automakers GM and Ford eventually exited after years of losses.

A partner would allow VW to share investment risk in a market where its profit rose 50% as sales doubled last year. But its scale is still not meaningful despite more than two decades in the country. VW began looking for a partner in 2022 after it initiated talks with Mahindra that did not materialise.

Analysts see a greater chance for success with JSW because it aligns with the deep-pocketed group's ambition to become a major player in India's car market. JSW already has a joint venture with China's SAIC through MG Motor in India and a separate deal with Chery. 

VW is looking for ways to fund its next phase of growth in India where it needs to launch clean-energy vehicles to meet stricter emission norms from 2027. Any fresh investment into India will need a sign-off from VW Group's board, some of whom were present in Mumbai. 

"We brought all our VW colleagues ... to help them understand why we are so passionate about it. And it's sinking in," Zellmer said.

VW faces a $1.4 billion tax demand from Indian authorities in 2024 for allegedly evading import tax, which it has challenged, saying it fully complied with Indian laws and regulations. The court is yet to give an order.

The carmaking group is under pressure from investors to accelerate cost cuts and improve competitiveness as Chinese automakers expand in Europe. It also faces tariff pressures and a prolonged Chinese slowdown. 

(Reporting by Aditi Shah, additional reporting by Neha Arora in New Delhi and Christina Amann in Berlin; Editing by Alexander Smith)