Some analysts said the latest tie-up would do little to boost capacity utilisation at the locally listed automaker in the current demand environment, while others cited Mahindra’s ‘far-from successful’ previous alliances with Navistar and Renault.
Pawan Goenka, the M&M managing director, disagreed about the fate of the latest venture. “We parted ways as friends. These JVs were never failures,” Goenka said, referring to the previous tie-ups.
“For the foreign partners, the collaboration was for entering the Indian market, while we wanted to learn sourcing, advanced technology and manufacturing. We met our objectives, and they met theirs. After 15 years, Ford and Mahindra are back together, which shows the confidence we have in each other.”
M&M and Ford (India) recently announced a joint venture, with the former holding a 51% stake. The JV includes the automotive business of Ford India (FIPL), excluding the Sanand powertrain facility that feeds Ford’s global markets.
Through the JV, M&M gets access to two new mid-size SUVs on FIPL’s platform, leading to a shorter model introduction cycle. In addition, upcoming emission regulations in India would have increased the company’s R&D expenses. The JV will help both to reduce vehicle development costs.
Also, with access to Ford’s BEV platform, M&M is likely to navigate the regulatory hurdles with relative ease, a recent JM Financial Institutional Security report said.
It is critical for M&M to get its next few launches right and start gaining market share. Edelweiss says there is lack of clarity on whether M&M will be able to leverage Ford’s petrol engine expertise, which could help M&M in its BS-VI transition.
Even as it strengthens its weakening SUV business, earnings could come under pressure in FY20-21 given weak tractor and LCV demand and BS6 emission headwinds in SUVs, CLSA said in a report.
Recently, VW-Skoda also announced the merger of their India business. Similarly, Suzuki and Toyota are also working on India-specific alliances.
The M&M management is not unduly concerned about questions over sourcing synergies or capacity utilization.
“It also means that for several years, neither Mahindra nor the JV will need to invest in building capacity,” Goenka said. “There is also a huge opportunity in exports, both for Mahindra and Ford.
Mahindra will be able to leverage the Ford distribution network in emerging markets and Ford will be able to leverage Mahindra’s products.” Exports account for about 7-8% (approximately 3,000 units a month) at M&M, and the JV will help enhance shipments through Ford networks, particularly in the Gulf and Asean countries.
Ford is the biggest exporter of PVs from India, shipping out 162,800 units in FY19.
In the short term, the venture will improve sourcing and operational efficiency. In the medium term, export volumes will rise, while product development will be the longterm benefit of the alliance, Goenka said.
Jeffries in a report said that despite potential cost savings, M&M may not gain much from the capacity addition due to Ford’s weak domestic franchise and high reliance on exports. Over the past three years, Ford has utilised 55-60% of its capacity, with its domestic market share largely stuck around 3%.
To be sure, a recent Narnolia report expects the alliance to do well. It has pencilled in cost savings of 35-40%, as both companies would jointly work on common product development platforms.
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