Why "Make-in-India" is a big challenge for luxury carmakers in India

Luxury car sales in India are nearly 1 per cent of the total market, while in the US it's 15 per cent and it's 17 per cent in China. One of the biggest factors that's keeping them from growing, automakers say, is India's brutal tax structures. Luxury vehicles currently attract the top GST slab of 28 per cent with an additional cess of 20 per cent on sedans and 22 per cent on SUVs, taking the total tax incidence to up to 50 per cent. The way to insulate yourself from global supply fluctuations and battle these challenges, Naveen Soni, president of Lexus India says, is to make it in India. But lack of enough critical mass in the country makes it difficult for automakers to make in India and hence the prices shoot up, experts say. Still, luxury carmakers are inching closer towards assembling more in India.

Lexus' largest-selling product in India, the ES is fully produced in India. "The number of products sold in the mass market and number of products sold in the luxury market is practically the same. Which means per-car sales in the luxury car market has to be much lower and the cost of getting a part in much more. We're trying to go from completely built units (CBUs) to completely knocked down (CKDs)," he said.

According to ICRA, the market contracted by almost 50 per cent over CY2019-CY2020 -- from annual volumes of about 39,640 in CY2018 to about 19,439 in CY2020. Last year, the industry crossed around 30,000 units. Soni expects that the industry could cross its highest volume mark if the supply-side pressures subside. "While the industry had slipped post the pandemic the good news is that there has been a strong rebound and there's enough headroom to grow," he said.

For now, localisation is key. Martin Schwenk says that Mercedes' manufacturing facility plays a vital role in Mercedes-Benz's CKD network and is the backbone of their India success story. "Mercedes-Benz has been making in India since 1995 and with 13 CKD products, we have one of the largest portfolios of locally produced vehicles for a luxury car brand in India. 90 per cent of our sales volumes in India comprise products that we make in India," says Schwenk, MD and CEO of Mercedes-Benz India.

"Our localization efforts have evolved over the last two decades. From Internal Combustion engine, we are now transitioning to manufacturing of electric vehicles and have adopted digitization widely across our shop floors," he adds. Schwenk says that in addition to local value adding to world-class products, Mercedes-Benz has also developed India-specific products like the Long Wheel Base E-Class. India is also the first market after Germany to make the Mercedes-Maybach limousine.

For Audi, too, currently, Audi A4, Audi A6, Audi Q5 and Audi Q7 are locally assembled in India. To assemble more models locally, Audi's Dhillon says, the company needs to reach the full potential of the luxury car market. "As of now, we have enough capacity to cater to the current demand. To make any more investments, we require to achieve a certain threshold sales volume in India, allowing us to make strong projections for the future, which is a prerequisite for any fresh investments," Balbir Singh Dhillon, Head of Audi India said.

He adds that all of Audi's internationally available models are available in India. "Our EV supercars, the Audi RS e-tron GT and e-tron GT were launched in India within a few months of their global launch. Likewise, our RS (performance) models were launched in India within months of their global launch," he says.

For luxury carmakers, it's a part of their long-term strategy to bring new models faster to India. "It's a part of our long-term strategy to bring new models faster to India. There used to be typically a 6 months to 18 months delay. If we're saying India is an important market, we need to look at it differently. In 2018, when we launched the Urus, we were the top 5 markets to launch the car in India. For Huracan, too, India became the first market after its global unveil to launch the car," Sharad Agarwal, Head of Lamborghini India said. Technica, too, was launched in India four months after its global launch. With every launch, Lamborghini said, it wants to demonstrate that India is an important market. Taxes, though, are a big hiccup, he adds. "If there's some rationalisation of taxes, there'll be more growth because the size of the market today does not reflect the kind of wealth and aspirations we have in this country," he said.