Volkswagen’s 22-year struggle in India: aiming to scale up and thrive, only to be reaped.

By Wang Xinxǐ Volkswagen endured 22 years in India—aiming to expand its footprint, achieve dominance, and stage a glorious comeback—only to be reaped. According to Bloomberg and other foreign media reports, the German automaker is engaged in deep negotiations with India’s JSW Group over selling equity in its Indian subsidiary. The JSW Group isn’t seeking mere minority participation—it wants outright controlling stake. Volkswagen publicly frames this as partnering with a local player to jointly develop the market; in reality, it’s cutting losses and exiting. India has long been dubbed a ‘graveyard for multinational automakers,’ and Volkswagen now joins a growing list of cautionary tales—General Motors, Ford, and Fiat all previously failed there. Volkswagen is simply the latest to pay tuition. Over two decades of strategic buildup undone by a single $1.4 billion tax bill Volkswagen entered India in 2001 with Škoda, later adding the Volkswagen and Audi brands—among the earliest foreign automakers to commit deeply to the Indian market. In 2018, it launched its ‘India 2.0’ initiative, investing €1 billion to consolidate three subsidiaries under Škoda’s leadership for localized R&D, targeting a 5% market share by the late 2020s—hoping to capitalize on India’s demographic dividend and unlock growth in this high-potential market. Reality? As we approach 2026, its market share remains stuck at just 2.5%, with annual sales hovering around 100,000 units—far too low to even enter the mainstream tier in the world’s third-largest auto market. Though Volkswagen struggled for years to gain traction, India’s tax authorities showed no patience. In September 2024, Indian customs slapped Volkswagen with a $1.4 billion tax demand, accusing it of misclassifying imported CKD (completely knocked-down) vehicle kits—as individual components instead of integrated assemblies—between 2012 and 2024, thereby evading duties. India levies 30–35% tariffs on CKD kits but only 5–15% on individual parts. By declaring parts separately, Volkswagen saved substantially on import costs. Now, Indian customs is retroactively auditing 12 years’ worth of imports—and demanding principal plus interest totaling $1.4 billion. Volkswagen India’s entire FY 2023–24 revenue was just $2.19 billion, with net profit a meager $11 million. That single penalty equals more than a decade’s worth of profits—insufficient to cover the fine alone. If Volkswagen loses the legal battle, total penalties could balloon to $2.8 billion, effectively bankrupting its Indian operations. Moreover, customs simultaneously seized large shipments of imported parts, leaving dealers without inventory—disrupting both new-car sales and after-sales maintenance. Unable to earn revenue while facing massive liabilities and supply-chain chokepoints, Volkswagen’s decision to sell equity is entirely unsurprising. Volkswagen isn’t the first—and India’s scythe never targets just one player Volkswagen isn’t the first, nor will it be the last. India specializes in humbling the overconfident. General Motors returned to India in 1995, spent two decades struggling, accumulated over $1 billion in losses—and announced its withdrawal from the Indian market in 2017. Yet exiting proved harder than operating: over 1,100 workers at its Pune plant rejected severance terms, filed collective lawsuits, and unions made exorbitant demands. Asset disposal approvals dragged on for years—GM took four grueling years just to mostly disentangle itself. Ford fared even worse. Entering India in 1995, it ultimately racked up over $2 billion in cumulative losses, yet never broke past 2% market share. In 2021, it shuttered both of its Indian assembly plants. Its Sanand plant in Gujarat was eventually acquired by Tata Motors for just $91.5 million—a fraction of Ford’s original investment.

In India, foreign automakers attempt to replicate China’s joint-venture model.

From platform outsourcing to equity-based joint ventures, from engineering collaboration to shared supply chains, multinational automakers are collectively transplanting to India the localization alliance strategies proven successful in China. Overseas media such as Nikkei Asia have labeled this the Indian ‘replication’ of China’s joint-venture model—but viewed from the perspective of China’s auto industry, the partnerships unfolding in India operate within an altogether different context. As the world’s third-largest passenger vehicle market—with annual sales exceeding 4 million units—India exhibits a highly concentrated top-tier and a struggling long tail: data from July this year shows Maruti Suzuki sold 196,000 units, commanding over 40% of the market—effectively a monopoly. Tata Motors and Mahindra followed with 62,000 and 60,000 units respectively, while Hyundai together with them accounts for nearly 40% of total sales. Adding Toyota and Kia, the top six players collectively hold over 93% of India’s market share. In contrast, traditional foreign giants—including Honda, Nissan, Volkswagen-Škoda, and Stellantis—have languished for years with shares stuck between 1% and 2%. Thin product lineups, low capacity utilization, and unrecouped R&D investments have become widespread pain points. The previous path of heavy, capital-intensive investment pursued by Ford and GM in India has already been proven fatally flawed. Meanwhile, domestic Chinese brands have surged—from 36% to 72% market share over the past five years. Cases like Volkswagen’s equity stake in XPeng and Stellantis’ investment in Leapmotor demonstrate that aligning with local partners is the optimal strategy to share costs, access supply-chain resources, accelerate electrification, and hedge risks. Thus, a light-asset, hyper-localized cooperation paradigm is rapidly taking root across India: Honda has adopted an engineering outsourcing model with Tata Technologies—where Tata Technologies leads the full process, from vehicle-platform architecture design to engineering validation, while Honda retains control over branding, powertrain calibration, and distribution channels. The core objective: cut R&D costs by 30–40% and shorten new-model launch cycles. Stellantis’ collaboration with Tata Motors goes further: it directly procures Tata’s mature ARGOS modular platform for developing new Jeep models, leveraging their existing 50:50 joint-venture plant—operational for two decades—for production, primarily targeting export markets. This essentially replaces costly in-house platform development with proven local alternatives, drastically reducing capital expenditure. Volkswagen’s talks with India’s JSW Group remain ongoing. Public reports indicate Volkswagen plans to cede equity—and potentially control—of its Indian operations, bringing in local capital and government support to boost market share. If negotiations succeed, JSW would hold a 51% controlling stake in the new joint venture, while Volkswagen contributes technology and brand expertise to co-develop an electric-vehicle platform tailored for India—addressing foreign automakers’ funding constraints and regulatory hurdles in scaling up. In March this year, Bosch and Tata Motors’ component division also established a 50:50 joint venture to localize production of critical EV components—helping plug gaps in India’s ‘three-electric’ (battery, motor, electronics) supply chain. Why do foreign automakers struggle to turn a profit in India? India does not restrict how foreign brands operate in its market—so why do so many automakers opt for lightweight joint ventures? In May this year, Tesla officially scrapped its entire plan to build a Gigafactory in India—abandoning earlier projections of $2–3 billion in investment and an annual production capacity of 500,000 vehicles. That ambitious vision remains confined to PowerPoint slides.