Volkswagen India is set to make a major play in the country’s most hotly contested segment: compact SUVs. The German automaker will launch its own version of the Skoda Kylaq in 2026, reversing its earlier stance of leaving the sub-4-metre space to Skoda. This move comes as part of a broader realignment within the VW Group, prompted by shifting market dynamics, slower-than-expected EV adoption, and the need to justify significant investments in the India 2.5 project
Why The Change Of Heart ?
Volkswagen’s initial reluctance to enter the compact SUV segment was rooted in hard lessons from the past. The sub-4-metre Ameo sedan, developed at a cost of €70–75 million i.e ₹520–555 crore (if rounded, using the 2016 exchange rate), failed to capture the market, selling just 32,000 units between 2016 and 2020.
Skoda, wary of the same pitfalls, didn’t create its own version, resulting in missed economies of scale and further limiting the project’s viability. The unique tax structure for sub-4-metre vehicles in India, which offers lower duties but restricts export potential, also made the segment less attractive for global players like VW.
Adding to this, the VW Group’s global strategy had divided responsibilities: Skoda was to lead development of ICE models for emerging markets, while Volkswagen would focus on EVs. The MQB A0 IN platform—already underpinning the Taigun, Virtus, Kushaq, and Slavia—was assigned to Skoda for compact SUVs, and VW was even considering a full exit from ICE mass-market models in India by 2028
Market Pressures And Internal Shifts
However, the Indian market’s transition to EVs has been slower than anticipated, with demand for electric vehicles plateauing and neither VW nor Skoda having a mass-market EV ready before 2027.
Meanwhile, the compact SUV segment has exploded, accounting for nearly half of all SUVs sold in India and registering over 1.38 million units in FY2025 alone. The Tata Punch, Maruti Brezza, and Tata Nexon continue to dominate, while new launches like the Mahindra XUV 3XO and Citroen Basalt are intensifying competition
What To Expect From The VW Kylaq Twin
Volkswagen’s upcoming compact SUV will be mechanically identical to the Skoda Kylaq, sharing the MQB A0 IN platform, MacPherson strut front suspension, and a rear twist beam axle. Power will come from a 1.0-litre, three-cylinder turbo-petrol engine producing 115 BHP, paired with manual and automatic gearbox options. This engine keeps the SUV eligible for the sub-4-metre tax benefits. While the standard model will focus on value, a “GT” version with a 1.5-litre turbo-petrol is reportedly under consideration for enthusiasts, though it would forgo some tax advantages
Where Volkswagen will differentiate is design. Expect a new grille, unique front and rear lights, bumpers, and a distinct tailgate skin to align with VW’s global styling cues, as well as some interior tweaks for brand identity. The SUV will ride on a wheelbase of around 2.5 metres, with an overall length just under 4 metres—matching the Kylaq’s footprint.
A Crowded, Cutthroat Segment
Volkswagen’s late entry means it faces a segment packed with established rivals offering petrol, diesel, CNG, and electric options. The Tata Punch, Maruti Brezza, Tata Nexon, and Hyundai Venue have each sold well over 100,000 units annually. Feature-rich interiors, connected tech, and aggressive pricing are now the norm, raising the bar for any newcomer.
VW’s challenge will be to craft a product that stands out on design, quality, and driving dynamics—areas where the brand has traditionally excelled—but also to price it competitively and offer the features Indian buyers demand.
Critical Outlook
This strategic U-turn is both pragmatic and necessary. Volkswagen’s earlier focus on EVs was forward-thinking, but the reality is that India’s mass-market EV adoption is lagging behind projections. By leveraging the Kylaq’s groundwork, VW can enter the market at a fraction of the development cost while still benefiting from shared economies of scale. However, success is far from guaranteed. The compact SUV space is unforgiving, and VW’s brand alone won’t be enough to command volumes unless the product delivers on value, features, and after sales support.
Conclusion
Volkswagen’s upcoming compact SUV marks a significant shift in strategy, acknowledging both the enduring strength of India’s ICE market and the critical importance of the compact SUV segment. With a proven platform, distinct VW styling, and a renewed focus on local needs, the brand is aiming to finally crack a segment that has eluded it in the past. The real test will be whether VW can deliver a product that not only stands out, but also sells in the numbers needed to justify its investment—something its previous sub-4-metre effort, the Ameo, could not achieve.
