Mahindra and Mahindra Ltd and Ford Motor Co. said on Friday that the global disruptions brought about by Covid-19 and ensuing change in capital allocation priorities forced them to abandon a proposed partnership for engine and vehicle development in India.
The move is a blow to Mahindra’s plans to get access to manufacturing capacities and new technologies for engines and connected vehicles.
At the same time, Ford will have to continue its independent battle to garner a bigger share of India’s market where it has lagged most of its rivals despite a more than two-decade-long presence.
Mahindra, India’s largest sport-utility vehicle maker, said the pressure to conserve cash, need for investments in emerging technologies and intensifying focus on its core automobile business in India have influenced its step.
The automaker aims direct cost savings of more than Rs 3,000 crore next fiscal through the separation with Ford and a potential stake sale of its bankrupt Korean unit SsangYong Motor Co.
The decision to part ways “follows the passing of the December 31 ‘longstop’, or expiration, date of a definitive agreement the organisations entered into in October 2019”, the companies said in separate statements.
Pawan Goenka, managing director of Mahindra, said the joint venture (JV) with Ford was impacted by the global upheaval due to Covid. “In the current scenario, the investments would have been significantly more than what was envisioned. Therefore, it did not make any business sense for either partner,” he said.
In 2019, Mahindra and Ford announced an initial pact for a JV to develop vehicles for emerging markets. Mahindra was to hold the controlling 51% stake and Ford the rest. They planned to share BS VI-compliant engines, besides developing connected vehicle solutions for India. Ford’s assets in India, including a factory each near Chennai and Sanand, Gujarat, were supposed to have been absorbed by the JV and run by Mahindra. The partnership with Ford and acquisition of SsangYong were meant to significantly enhance Mahindra’s offerings for both domestic and export markets. The decision to pull the plug might, therefore, negatively affect Mahindra’s product strategy at a time when its SUV market share in India is under severe strain, and competition in electric vehicle space has risen.
Mahindra, which has announced plans to sell its controlling 70% stake in SsangYong, may sign a term sheet with a potential investor, as soon as next week, said Anish Shah, deputy CEO and group CFO, M&M.
“With the kind of change happening in the economic and business scenario, specific to the auto industry, the shift taking place to the kind of vehicles that will be popular in the next 3-5 years, we have to prioritise where to put our money,” Goenka said.
To be sure, Mahindra’s new management has been re-evaluating the capital allocation strategy and has decided to exit loss-making businesses across its core and non-core group companies globally.
“The recent announcement is a part of its new asset allocation strategy of focusing on its core businesses of tractors, SUVs. Scaling back to its core competence will strengthen the company’s balance sheet and improve the return profile,” said Md Shaukat Ali, an analyst at Asian Markets Securities.
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