Volkswagen is reviewing its product, powertrain and investment plans for India.

A locally produced compact SUV has been confirmed for launch next year and is expected to support volumes, while the company is also considering the India-EU free trade agreement (FTA) as an opportunity to introduce select niche models from its global portfolio.

"The FTA has been announced in Europe. It is a huge opportunity to bring a certain sort of niche models to widen the portfolio for the consumer to offer some exciting models every now and then, which is great," Member of the Board of Management of Volkswagen AG and CEO of the Volkswagen Brand Thomas Schafer told media sources. He did not disclose which models could be considered, but said the company is taking a long-term view and will assess market conditions over the next few months before making a decision.

Volkswagen's focus on India

Schafer's visit to India comes as Volkswagen reviews its global business strategy amid geopolitical tensions, changing trade policies and a shift towards regional manufacturing.

"So, globally, we see almost like a decoupling. You have a geopolitical situation and the old business model where everything's focused on Europe, and then you export to other markets is long gone. At the same time, you have a very different dynamic in China than in the US, which is putting import duties on Europe under certain attacks. So, in that game, you have to change your business model; you have to adapt it. And that's what we're busy doing," he added.

Alongside the domestic market, Volkswagen sees India as a base for engineering, IT and research and development (R&D).

"We will focus a lot on India going forward. Not only because the market is exciting and growing and creating more opportunity for the future, but also the sort of knowledge base that you have here in India," he said.

Volkswagen also considers exports a means of increasing production volumes in India. The company already exports vehicles manufactured in the country to more than 40 markets, with Mexico among the major markets importing vehicles from India.

"So, exports are an important part of our business, and we will always strengthen that going forward," he said.

The upcoming compact SUV could also be exported, which could contribute to volumes and the business case for the model.

Powertrain options remain under consideration

Volkswagen's current portfolio comprises cars powered by turbo-petrol engines, while CNG and diesel remain in demand and EV adoption is increasing.

"So, what is clear is, in the long run, there will be strong electrification, especially also in India...You see it accelerating, probably driven by the conflict in the Middle East and the oil situation," he said.

Schafer said Volkswagen already has flex-fuel, CNG, diesel and EV powertrain technologies available in different markets.

"We have flex-fuel, super strong in South America for years; we have CNG, diesel and EVs, it's all there. When it's the right time to localise it, we will localise it," he said.

The company is assessing when and how each powertrain technology should be introduced in India.

"The dynamics in India and the market shift have been quite significant even in the last couple of months. So, to be honest, we haven't concluded our planning on that, but the good thing is that we have it and we can deploy it if and when it is the right situation," Schafer said.

Volkswagen is also evaluating its next-generation models and newer platforms, although these plans remain under consideration.

Cost remains a challenge for Volkswagen in India

Cost has been one of Volkswagen's key challenges in India. Schafer said the company has spent the past few years working on ensuring that its products retain the core characteristics of the Volkswagen brand while reducing its cost base.

"We worked over the last four years very focused on the cars that we bring to the market now are through and through Volkswagen in terms of quality, brand fit. And, yes, our cost base is traditionally high because we are very much focused on Europe and especially Germany," he added.

India is expected to play a role in Volkswagen's efforts to reduce costs, particularly through more cost-effective development and manufacturing.

"Part of the programs that's been in the media over the last, especially two years, has been reducing our cost base, developing more in more cost-efficient places like in India very much, but also shifting production from high-cost locations into lower-cost locations," he said.

Volkswagen is working on its next set of products, investment plans and powertrain options for India while assessing how market conditions, trade policies and manufacturing costs could influence its strategy.