India, a giant growth opportunity for luxury cars
India is the world's third-largest car market, but the growth potential of the luxury car segment in the country is still far below what it could achieve. Several factors are holding back this growth. Let's take a look at a complex market with enormous growth potential.
By Shilpa Dhamija22 mai 2023
The number of passenger vehicles sold in India in 2022
Mercedes-Benz sales growth in India in 2022
Mercedes cars sold in India are made in India
The year 2022 proved to be a remarkable year for India's automobile market as it overtook Japan to become the world's third-largest auto market by selling over 4.25 million vehicles (passenger & commercial). About 3.8 million were passenger vehicles, another record-breaking figure for India. Luxury car makers - Mercedes-Benz, BMW, Lamborghini & Porsche too, parked their best performances ever in the Asian country last year. And yet only about 1% of the 3.8 million passenger vehicles sold were luxury cars! In a country with a large millionaire population, why aren't more luxury cars selling?
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Double-digit growth, despite a still low volume
Mercedes-Benz sold about 15 822 units in India in 2022, 41% more cars than in 2021. The brand's high-speed growth was accelerated by the demand for its top-end vehicles (TEVs), i.e., car models such as the GLS SUV, S-Class limousine, and Maybachs that command an ex-showroom price of INR 1 Crore (121 890 USD) upwards. "The TEV segment in our portfolio grew by 69% in the calendar year (CY) 2022. Half of our planned product introductions in CY 2023 in India will comprise TEVs", reveals Santosh Iyer, MD & CEO of Mercedes-Benz India, in an interview with Luxury Tribune.
In 2022, Porsche and Lamborghini recorded 64% and 33% growth, with 779 and 92 units delivered, respectively, in India. The accelerated 'percentage growth' of luxury car sales demonstrates an encouraging and promising trend. But why is the 'number' of luxury cars sold still so low?
"Luxury car penetration in India has remained below the market potential, especially when compared to the dollar billionaires the country has, "answers Iyer. A Knight-Frank report claims that India has around 800 000 HNWI (high-net-wealth-individuals) with wealth exceeding US$ 1 million as of 2021 - only 5% less than the number of millionaires in South Korea. Last year, Mercedes-Benz sold over 80 000 cars in South Korea; in India, the number was much smaller at 15 822!
According to industry experts, the lower penetration of luxury cars in India may be attributed to an array of factors such as high taxation, lower profitability, and unsuitable infrastructure. All imported cars (CBUs) with a CIF (cost, insurance, and freight) value of more than USD 40,000 have a basic customs duty of 110%, in addition to a VAT (goods and services tax) of up to 50% in India (more on these factors in a forthcoming article). Even in the UHNW (ultra-high-net-wealth) segment, which typically has significant disposable income, the mindset of prioritizing savings over consumption, also interferes with the growth trajectory. "Only 4% of the dollar (USD) billionaires in India own a luxury car, and hence the potential for the segment to expand is immense", reveals Iyer.
A demand that exceeds supply
"I don't think there is any shortage of buyers in India," argues Renuka Kriplani, a veteran auto journalist in India. "Brands have people queuing up at their doors. It is the brands that are not able to deliver the product because of shortage of supply". According to reports, Lamborghini's most popular car range in India - the Urus - has at least an 18-month-long waiting period in India. Lamborghini Urus-S is one of the highest priced SUVs in India at 4.18 Crore INR (509 502 USD) ex-showroom.
Luxury car brands with manufacturing plants in India, too, are straining to meet increasing demand and have long wait lists for luxury cars in various price segments, "Due to high demand, most BMW models now have a waiting period of up to six months. Our order pipeline is heavy - BMW cars around 2 500 units, MINI around 250", reveals Vikram Pawah, President, BMW Group India, that has a manufacturing plant in the southern Indian city of Chennai with a capacity to produce 14 000 units a year.
BMW started its India plant almost 16 years ago and has invested about INR 520 Crores (approx USD 63.5 Million) in it so far. BMW assembles 11 car models, including the BMW 7 series TEVs. Audi, Jaguar Land Rover, and Volvo are the other luxury brands 'made in India.' Mercedes-Benz leads as luxury car manufacturer in India, as it started its plant nearly 30 years ago and has invested about INR 2 700 Crore (approx 329 Million USD) in it. "We manufacture 14 models, which comprises 95% of our sales volumes in India," says Iyer, adding that India was the first market outside Germany to locally manufacture high-end vehicles like the Mercedes-Maybach and the EQS luxury EV!
With manufacturing plants already set up in the country, why aren't luxury car brands amping up the production? "India has luxury car plants, but some of the car parts still come from abroad. Each global market is given allotments of even those parts. In the general scheme of things, India is a smaller market than the US. These decisions also depend on the profitability quotient of each market." answers Renuka Kriplani. Luxury car manufacturers claim that India's market is steadily gaining importance on that front. "Its vast customer base, immense contribution in technology and digitization, a resilient economy, draws significant interest at most companies' headquarters," Iyer asserts. This year, Mercedes-Benz reopened bookings for AMG G63 and Maybach GLS 600 in India after getting more allocations of these TEV CBUs (Completely Built Units) for the Indian market.
Importing high-end cars to India can be a costly affair. Yet the waiting list is long. The second part of this series of articles dedicated to the luxury car market in India will give voice to the wealthiest luxury car owners in India.
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