The discussions for a 50:50 joint venture between Mahindra & Mahindra (M&M) and Skoda Auto Volkswagen India have reached an impasse. The companies are unable to finalise crucial terms after signing non-binding memorandums of understanding (MoUs) due to disagreements, The Economic Times reported on Tuesday.

 The report further added, M&M, with a stronger position in the domestic market, is reluctant to compromise, as the two sides face disagreements over development costs and sourcing. While the deal was expected to be finalised this month, the latest developments have slowed down discussions.

The MoUs have been signed on many aspects of the business, but some crucial terms remain unresolved. The Economic Times cited a source as saying that finalising these terms no longer seems imminent, indicating a slowdown in negotiations.

"The two companies that have already signed a series of nonbinding memoranda of understanding (MoUs) on various aspects of the business over the past few months, were supposed to sign the last few crucial ones at the end of the current month, taking it to the next stage."

"However, that doesn't seem to be happening anymore. The discussions have slowed down", The Economic Times source cited.

The Strategic Rationale Behind Skoda's Choice of M&M

 M&M has a strong domestic presence and is one of India's leading automotive manufacturers. In August, it was reported that both sides were exploring joint venture. The VW group has been looking to offload equity to share costs and risks in a market where its presence is marginal compared with rivals from Japan and South Korea.

Besides that, Volkswagen Group's Indian subsidiary includes brands such as Skoda, Volkswagen, Audi, Porsche, and Lamborghini. If the joint venture goes through, it is expected to centre around the Skoda and Volkswagen brands, enabling the Czech automaker to take advantage of M&M's more cost-effective development and sourcing strengths.

The report further stated that the potential joint venture could secure close to 20% of the domestic passenger vehicle market. However, M&M remains cautious due to its previous experience with a joint venture with Ford Motor.

Earlier this month, Skoda Auto CEO Klaus Zellmer highlighted his positive outlook on India's growth, noting its potential to become the world's third-largest car market. "India, clearly, is our second pillar that we want to build outside Europe," Zellmer stated.