German sports car maker Porsche is selling its automotive and industrial consulting subsidiary MHP to India's largest information technology (IT) service company TCS (Tata Consultancy Services). At the same time, it will sign a five-year, €1.25 billion (about 2.0177 trillion won) long-term contract with TCS and MHP. The plan is to speed up the application of artificial intelligence (AI) from car design to production, operations, and customer experience by handing over the subsidiary to an external specialist company while building a long-term partnership.
According to Reuters on the 24th (local time), TCS agreed to acquire Porsche's automotive and industrial consulting corporations MHP at an enterprise value of €320 million (about 516.5 billion won). The acquisition process is expected to be completed within the next three to four months. MHP is a consulting firm specialized in the automotive and industrial sectors, with core businesses including management consulting and software-defined mobility.
The acquisition is part of a large-scale, long-term partnership signed by Porsche and TCS. Porsche signed a five-year contract worth €1.25 billion (about 2.0177 trillion won) with TCS and MHP. The contract also includes applying AI to Porsche's car design, production, operations, and customer experience, and developing automotive technologies and a software-defined mobility platform.
Behind Porsche's decision to sell a subsidiary while signing a large long-term contract with an external specialist corporations lie cost cuts and pressure for business restructuring. Volkswagen Group, which includes Porsche, is moving to cut costs and streamline its complex business portfolio as it faces competition from Chinese carmakers, tariff, and rising electric vehicle (EV) expense. This year it sold equity stakes in sports car companies Bugatti and Rimac. It also wound down three subsidiaries, including battery unit Cellforce and its electric bicycle business.
In particular, the deal comes as India's IT industry, where traditional outsourcing business models are being shaken by the spread of AI, is expanding its business scope. According to Reuters, the market size of India's IT industry reaches $315 billion (about 436.0545 trillion won). However, as AI upends the traditional IT outsourcing model, corporate customers are putting technology-related expenditure on hold.
In this situation, TCS is expanding beyond simple IT outsourcing services into automakers' AI adoption and technology and software development. The five-year long-term contract with Porsche is also expected to contribute to TCS's revenue.
Piyush Pandey, an IT analyst at Centrum Broking, said the deal would contribute to TCS's revenue growth. Comparing the transaction with Wipro's past acquisitions of Harman DTS and Altran to expand its business scope, he analyzed that this acquisition is similar to the so-called "land and expand" strategy of using the deal as a springboard to grow business within client companies. However, he projected the deal's impact on TCS's stock price and the company's overall capabilities would be neutral.