Blitz Bureau
NEW DELHI: European carmakers, squeezed by US tariffs and price wars in China, will get a welcome boost from an India-EU trade deal that sharply drops import duty on cars, but face a tough market dominated by homegrown firms and compact Japanese cars, according to a report in The Hindustan Times. The trade deal between the two countries reportedly includes a clause to cut import duty on European cars to 40 per cent from as high as 110 per cent. The move is seen as the biggest opening yet of the world’s third largest car market for the likes of Volkswagen to Renault and BMW. The move, however, only edges the door open, analysts said, with local car brands and Asian rivals from Japan and South Korea dominating the market.
“It’s a start. When we talk about exports from Europe, it’s only about premium cars. For the volume sector it is difficult,” said Stefan Bratzel of German auto research group CAM, who said Suzuki and Hyundai had understood the Indian market better. “In India it’s about cheap, reliable, stable cars. The Volkswagen Group cars have been too expensive. Suzuki has benefited from the Kei cars (smallest category of highway-legal vehicles) which are highly popular in Japan.”
European share in India’s car market With a modest production footprint and annual sales still in tens of thousands of cars, European brands have huge room to expand after losing market share in the last decade. The likes of Volkswagen to Renault and BMW hold less than 3 per cent share of India’s car market, according to industry data. Indian car market is dominated by Maruti Suzuki India Ltd. and home-grown brands Mahindra and Mahindra Ltd. and Tata Motors PV Ltd., which together hold two-thirds.
India has the world’s third-largest car industry after the US and China, but its 4.4 million cars / year market has been one of the most protected, with current levies of 70 per cent and 110 per cent on imported cars.
“India is a dynamically growing market and of considerable strategic importance to the Volkswagen Group,” a spokesperson for the carmaker which controls Audi, Porsche and Skoda said, adding it would look at the business impact from the trade deal. Mercedes-Benz said reduced tariffs should boost carmakers from both regions. BMW declined to comment.
Despite duty cut, there will be stiff competition from other mass players
Warburg Research analyst Fabio Hoelscher said a cut to 40 per cent would make luxury European carmakers more competitive. “The biggest winners versus before are brands like Porsche who import their entire portfolio as completely built units,” he said, though he cautioned the move would take time to boost profits, while ongoing US uncertainty would temper shares. “After that, in the medium term, there is potential to expand local manufacturing.”
Growth potential of India’s car industry High US import tariffs and a cut-throat market in China have pushed many automakers to consider new growth markets such as India, where the market is expected to grow by over a third to 6 million vehicles a year by 2030. ING Research analyst Rico Luman said that an India-EU trade deal “could turn into a significant opportunity for European carmakers” in the medium run.
“The Indian car market is still in the early stages of maturing, which means there is substantial growth potential,” Luman said. India is the world’s third-largest car market by sales after the US and China, but its domestic auto industry has been one of the most protected. New Delhi currently levies tariffs of 70 per cent and 110 per cent on imported cars. European carmakers currently hold a less than 4 per cent share of India’s 4.4-million units a year car market, which is dominated by Japan’s Suzuki Motor as well as home-grown brands Mahindra and Tata that together hold two-thirds share of the market.
Heavy metal
The price gap between European cars and the cars made in India by Indian / Japanese / South Korean companies is not just about taxes. It is a mix of manufacturing philosophy and trade math.
So far, fully imported European cars or completely built units (CBUs) faced duties as high as 110 per cent. With 28 per cent GST and up to 22 per cent cesses, the final price often became 2.5 to 3 times the car’s original value in Europe. Brands like Volkswagen, Skoda, and the German “Big Three” (BMW, Mercedes, Audi) historically focused on “over-engineering” — using heavier steel, complex multilink suspensions, and advanced electronics. Japanese (Maruti-Suzuki, Honda) and South Korean (Hyundai, Kia) brands on the other hand mastered “value-engineering,” optimising for fuel efficiency and cost-effective mass production.
Japanese and South Korean brands have nearly 90-95 per cent localisation in India. Most European luxury brands only assemble in completely knocked down (CKD) form a few models, importing critical components like engines and transmissions, which still carry higher duties than locally forged parts. The reduction from 110 per cent to 40 per cent is massive, but it comes with specific “fine print” that determines who actually benefits. In the mass market (VW Taigun, Skoda Kushaq) the impact of this cut will be minimal. These cars are already made in India with high localisation. The FTA affects imports, not local builds and these cars are already priced similarly to Hyundai / Kia.
It is in the premium segment (VW Golf GTI, Skoda Octavia RS) that the impact will be highest as these cars could see price drops of ₹15–20 lakh.