India, a giant growth opportunity for luxury cars

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?

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.