Skoda Bets Big On India With CNG, Diesel and EVs

Skoda Auto is strategically navigating the competitive Indian automotive market by prioritising profitable growth, exploring new powertrain options like CNG and a limited diesel return, and gearing up for a locally produced electric SUV, all while expanding its retail footprint.

Czech carmaker Skoda Auto is prioritising profitable growth in India, with the company weighing the addition of compressed natural gas (CNG) to its portfolio and considering a limited-volume return of diesel with the Superb, even as it prepares to introduce a locally produced electric sport utility vehicle (eSUV).

India has emerged as Skoda's fourth-largest market globally by customer deliveries, behind the Czech Republic (or Czechia), Germany, and the UK.

The company grew 8 per cent in the first half of the year and plans to expand its retail network beyond 200 locations, with a greater focus on rural and Tier-II markets.

“We want to grow in India as much as possible, but it also has to be profitable growth, so growth without loss,” Martin Jahn, board member for sales and marketing at Skoda Auto, told Business Standard.

The company is also resisting the temptation to chase volumes through aggressive pricing in India’s highly competitive market.

Jahn said Skoda did not seek to gain market share by selling vehicles below their production cost but instead sought a balance among demand, pricing, production capacity, and profitability.

“You can, of course, sell the car much cheaper and sell much more, but you will make a loss,” he said, adding that the company was looking for the “sweet spot” between volumes and profitability.

Expanding Market Reach and Powertrain Options

The approach comes as Skoda attempts to broaden its addressable market in India.

The company, traditionally seen as a premium European brand, has moved towards more affordable products with the Kylaq, which Jahn said had helped expand the dealer network and bring customers towards the larger Kushaq.

However, smaller vehicles also carry lower profitability, with Jahn observing that, as a rule of thumb, larger cars generate better returns.

India’s intense pricing competition therefore remains a key consideration as Skoda seeks to expand beyond its traditional customer base.

Skoda is now looking at CNG as an important addition to its powertrain portfolio.

“Given the current development, we need to bring CNG to our portfolio,” Jahn said.

At the same time, the company is considering bringing the diesel-powered Superb to India in a small batch.

Diesel, however, is not part of Skoda’s current local production plans and would be positioned as a niche offering rather than a mainstream powertrain.

Future Focus: Electric Vehicles and Localisation

The company’s future expansion is expected to centre increasingly on electric vehicles (EVs).

Skoda is currently evaluating plans to bring an India-specific battery electric vehicle SUV.

The model will be based on a global platform but designed and produced in India, with the company still working out its size, features, sourcing, and localisation strategy.

The timeline has not been disclosed. Jahn said the investment associated with the eSUV would be announced once the product plans were finalised.

The company is already around 90 per cent localised in India and is looking to deepen localisation in areas such as powertrains and transmissions.

For the EV, too, Skoda wants a high level of local sourcing, but only where it makes economic sense.

“We want to localise as much as is economically possible and viable,” Jahn said, adding that higher localisation would help reduce costs and improve profitability.

India's Growing Importance and Strategic Adjustments

Skoda has appreciably increased its focus on India after stopping sales in China.

Jahn described India as the company’s most important market outside Europe and said the company sees the country as a relatively stable market for future growth amid geopolitical uncertainty in other regions.

The company now has around 190 retail locations and plans to take this number above 200, particularly in rural and Tier-II markets.

Jahn said demand from these markets had increased following the introduction of products such as the Kylaq.

Skoda also wants to increase exports from India, although geopolitical developments have disrupted some of its plans.

Its proposed expansion in West Asia was affected by the conflict involving Iran, which Jahn said resulted in “quite substantial” lost sales in Saudi Arabia and other markets.

The company is therefore pursuing a broader sourcing strategy after several disruptions over the past five years, including the pandemic and the Russia-Ukraine war.

However, Jahn said there were limits to supplier diversification because of cost considerations and the availability of capable suppliers.

Balancing Growth and Profitability

For Skoda, the immediate strategy is therefore not simply about increasing volumes.

The company is attempting to widen its customer base through more affordable products while protecting margins, adding powertrain choices such as CNG, selectively testing diesel demand, and preparing for a more localised EV portfolio.

The company expects its India business to continue growing, but Jahn said the objective was organic expansion rather than a rapid doubling of sales, with profitability remaining a key condition for long-term growth in the market.

Alongside its EV plans, Skoda on Tuesday unveiled the new Slavia and announced the return of the Superb TDI and Octavia RS to India.

The company said pre-bookings for the Slavia and Octavia RS had opened, while deliveries of the Superb TDI were scheduled to begin at the end of the second quarter of next year.

The Octavia RS will initially be limited to 50 units, while the new Slavia gets an eight-speed torque-converter automatic with the 1.0 TSI engine, a segment-first rear-seat massage function, and a 360-degree camera.

Feature Presentation: Rajesh Alva/Rediff