Mahindra & Ford’s plans of joint venture called off

The much-awaited joint venture between Mahindra & Mahindra and Ford Motor Company has been called off due to significant changes in the global business environment due to COVID-19 pandemic. The decision follows the passing of the December 31 “longstop,” or expiration, date of a definitive agreement the organizations entered into in October 2019.

The statement from the company said, “Ford Motor and Mahindra & Mahindra have mutually and amicably determined they will not complete a previously announced automotive joint venture between their respective companies.”

According to the companies, the decision to call off the JV “was driven by fundamental changes in global economic and business conditions – caused, in part, by the global pandemic – over the past 15 months. Those changes influenced separate decisions by Ford and Mahindra to reassess their respective capital allocation priorities.”

In a statement to Bombay Stock Exchange, Mahindra & Mahindra said “This decision will not have any impact on its product plan. It is well-positioned in its core true SUV DNA and product platforms with a strong focus on financial performance. In addition, Mahindra is accelerating its efforts to establish leadership in electric SUVs.”

Ford Motor in a statement said, ” We are actively evaluating the business around the world, including in India, making choices and allocating capital in ways that advance Ford’s plan to achieve an 8% company adjusted EBIT margin and generate consistently strong adjusted free cash flow.”

“The company has set its sight on developing and delivering high-quality, high-value, connected vehicles – increasingly electric vehicles – and services that are affordable to an even broader range of customers and profitable for Ford” it added.

The Background:

On October 1, 2019, both brands had signed an agreement in Mumbai to create a joint venture that will develop, market and distribute Ford vehicles in India along with Ford and Mahindra vehicles in high-growth emerging markets overseas. The JV (joint venture) was going to see Mahindra having the 51% controlling stake and 51% of the equity share capital of Ardour Automotive Private Limited, a wholly-owned subsidiary of Ford Motor Company (“NewCo”) in India and Ford owning the balance 49% equity shareholding in NewCo. Ford was going to transfer its India operations to the JV, including its personnel and assembly plants in Chennai and Sanand. Ford was to retain the Ford engine plant operations in Sanand as well as the Global Business Services unit, Ford Credit and Ford Smart Mobility.

The enterprise value of those assets was pegged at Rs 1,925 crores. After adjusting for FIPL’s debt of Rs 636 crore, which the new company will assume, Ford and Mahindra were to pay the remaining Rs 1,289 crore in cash. Mahindra will pay 51% of this, which comes to Rs 657 crore and Ford will foot the remaining capital in the new entity.

The JV was planned to be the next step in the strategic alliance forged between both brands back in September 2017 and aimed at exploiting new mobility opportunities, among other things.

Future Plans:

In its official statement in the US, Ford said its independent operations in India will continue as is.

Ford likely to enter into contract manufacturing arrangement with Mahindra for future products.

Mahindra and Ford have been in talks for over three years now and have previously signed several agreements, including ones to co-develop an SUV and connected vehicles technology, and sharing engines.

The agreements to share BS-VI petrol engines and C segment SUV have already been formalized. The project W605 – C SUV for Ford based on the new generation Mahindra XUV platform has already been kicked off and is likely to hit the roads by end of 2022 and both Mahindra and Ford have actively negotiated the joint B SUV project called B772 including an electric vehicle.

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