Volkswagen & Škoda Struggle to Grow in India: Market Headaches, Tax Disputes, and Export Plans
European brands Volkswagen and Škoda face declining sales in India due to sedan-heavy lineups, tax hurdles, and lower reach in smaller cities. Amid legal challenges, they’re pivoting towards exports and EV production to bolster growth
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European automakers Volkswagen and Škoda continue to face major challenges in India. Despite long-standing presence and India-specific models, both brands have seen sales stagnation or decline over the past three financial years.
Sales performance (FY23 → FY25):
Renault dropped from 78,926 to 37,900 units
Škoda dipped from 52,269 to 44,866 units
Volkswagen fell from 43,197 to 42,230 units
JATO Dynamics India President Ravi Bhatia outlines multiple factors behind this slump—an early tilt toward sedans (like Vento, Rapid, Scala), slow product updates, narrow reach in Tier 2 and 3 cities, and corporate misalignment with India’s tax structure granting benefits to sub‑4‑meter, low‑engine vehicles.
On top of sluggish sales, Volkswagen and Škoda are embroiled in a major tax dispute. India’s authorities have slapped a $1.4 billion duty demand, claiming imported parts were disguised to avoid full customs duties.
The matter is serious—Volkswagen has warned potential existential risk if liabilities swell to the full $2.8 billion due to penalties .
In response, both brands are implementing strategic shifts:
Export hub ambitions: India is emerging as a global manufacturing and export base. The Škoda‑Volkswagen India (SAVWIPL) unit already exports left-hand‑drive models like Virtus to Mexico and exports kits to Vietnam, the Middle East, Africa, and South America.
EV and premium SUV push: SAVWIPL plans a €1 billion (₹10,000 cr) investment under its "India 3.0" roadmap. Focus areas include premium SUVs and electric vehicles built on the CMP21 platform, aligning with evolving global regulations. Škoda is also localizing EV production and has linked up with Mahindra for components.
To regain competitiveness, Volkswagen and Škoda must intensify localization, diversify product offerings toward compact SUV/EV segments, expand dealer networks, and resolve or mitigate the tax litigation outcome. Their emerging India-as-export-hub model may be essential to sustain scale and profitability.
