VW Group's Skoda unit will lead the project, the companies said in a statement Tata and Skoda will initially work together on market studies for developing mobility services, vehicle components and models, VW said. Specific projects will be disclosed in coming months.

 

VW's aim "is to lay the foundations to offer customer-oriented mobility solutions in the emerging, fast-growing automobile markets," VW Group CEO Matthias Mueller said in the statement.

 

By teaming up with Tata Motors, Volkswagen could plug a gap in its strategy. The maker of VW, Audi and Porsche cars has struggled for years to create vehicles thrifty enough to appeal to buyers in markets such as India.

 

Tata and VW "can leverage from each other’s strengths to create synergies and develop smart innovative solutions for the Indian and overseas market,” Tata Motors CEO Guenter Butschek said in the statement.

 

Goldman Sachs analyst Pramod Kumar said a tie-up could be "mutually beneficial" as the engine offerings of both companies complement each other and would help the alliance match up to competition.

 

For Tata Motors, which also owns the UK luxury brands Jaguar and Land Rover, an agreement offers access to VW's massive global presence as it faces increasing pressure in India, where other global manufacturers including Ford, General Motors, Fiat Chrysler Automobiles and PSA Group are vying for customers.

 

For VW, the tie-up would provide an opportunity to make more headway into India, which analysts expect to become the world's third-largest auto market behind the U.S. and leader China by 2020.

 

Even domestic players such as Tata have struggled to quickly adapt to changing demand trends in India, where Maruti Suzuki and Hyundai control two-thirds of the market.

 

Tata Motors is trying to turn around its money-losing domestic business by launching more modern vehicles, improving efficiencies and streamlining its organization.

 

VW's previous attempt to conquer emerging markets through a small-car partnership with Japanese automaker Suzuki Motor unraveled in a bitter dispute that was settled just before the German company’s diesel-emissions scandal erupted in 2015.