European Automakers Intensify India Localisation Efforts as EU Trade Agreement Nears Finalisation
In a strategic move that precedes the anticipated India-European Union free trade agreement, leading European automotive manufacturers are significantly enhancing their local production capabilities within the Indian market. This proactive approach underscores a long-term commitment to India's rapidly expanding luxury automobile sector, where rising affluence is driving substantial demand growth.
Strategic Local Manufacturing Takes Precedence Over Tariff Benefits
Prominent companies including Volkswagen, Mercedes-Benz, UK-based Jaguar Land Rover (JLR), Renault, and BMW are already engaged in assembling imported kits and selling vehicles in India, benefiting from a relatively low tariff rate of 16.5%. The proposed trade pact is expected to substantially reduce import duties on fully-built cars from the current high of 110% down to approximately 40%.
However, industry experts emphasise that local manufacturing holds far greater strategic importance than mere tariff advantages. Vinay Piparsania, founder of auto consultancy Millenstrat Advisory and Research, highlighted this perspective, stating, "Establishing a local manufacturing or assembly presence is a critical demonstration of long-term commitment. It instills confidence among customers, suppliers, and dealer partners that a carmaker is genuinely invested in India's future, moving beyond opportunistic imports."
He further elaborated that this strategy aligns perfectly with the Indian government's broader objectives of promoting localisation, generating employment, and developing robust supply chains. "Most European automakers have spent years meticulously building local ecosystems. As market access expands through trade agreements, they are more likely to deepen these investments rather than retreat from them," Piparsania added.
Recent Announcements Signal Accelerated Investment
The commitment to local production is being demonstrated through a series of high-profile announcements and expansions:
- Mercedes-Benz revealed plans this month to commence local assembly of its ultra-luxury Maybach GLS SUV in India, making the country the only market outside the United States to produce this vehicle locally.
- Volkswagen has rolled out the locally-assembled Tayron R-Line from its facility in Chhattrapati Sambhaji Nagar, Maharashtra, just one year after its global launch.
- Renault unveiled its new Duster model, which will be locally produced, as part of its strategic revival in the Indian market.
- Jaguar Land Rover is preparing to launch its first vehicle from Tata Motors' new manufacturing plant in Ranipet, Tamil Nadu, within the coming month.
Executive Insights on Localisation Strategy
Industry leaders are vocal about their focus on domestic production. Piyush Arora, head of Volkswagen Group India, articulated the company's philosophy: "Our strategy is to develop and produce cars that can achieve significant domestic sales volumes, rather than relying heavily on imports. Regardless of how the trade agreement evolves, our 'local for local' approach will remain central to our volume growth ambitions." Volkswagen's Indian plant has an annual capacity of approximately 200,000 vehicles, serving both its Skoda and Volkswagen brands.
Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, provided a concrete example of the customer benefits from localisation. "We are localising the Maybach in India, which will be the first market outside the US to produce the GLS Maybach locally. This allows us to pass on significant cost benefits to customers, reducing the price from approximately ₹3.37 crore to around ₹2.75 crore," he explained. Mercedes' Chakan facility, with an annual capacity exceeding 20,000 units, already localises over 90% of the cars it sells in India.
Hardeep Singh Brar, CEO of BMW India, noted that while the company already relies minimally on imports of completely built units (CBUs), the potential FTA could facilitate portfolio expansion. "If customs duties on CBUs are reduced, it would help broaden the luxury car market in India. Such a framework would allow us to introduce globally popular models and test new offerings, though CBUs currently constitute only about 5% of our sales," Brar stated. BMW plans to launch six new models this year, most of which are already localised at its Chennai plant, capable of producing up to 50,000 units annually.
Infrastructure Expansion and Market Ambitions
The push for localisation is supported by substantial infrastructure investments. Tata Motors Passenger Vehicles is constructing a new facility in Ranipet with a massive annual capacity of 250,000 vehicles, which will be shared with JLR. Renault India assumed full ownership of its 480,000-vehicle-per-year plant near Chennai from Nissan last year, aiming to bolster manufacturing control and competitiveness.
JLR's Chief Financial Officer, Richard Molyneux, emphasised the company's focus on tapping demand from ultra-high-net-worth individuals in the coming years. "Most of our models are locally assembled in India at the Pune plant. Plans are underway to locally assemble the Defender as well, as we seek to grow our presence in the Indian market," he remarked during a recent earnings call.
This concerted effort by European automakers to deepen their manufacturing roots in India reflects a strategic vision that extends beyond immediate tariff reductions. It positions them to capitalise on the nation's economic growth, evolving consumer preferences, and supportive policy environment, ensuring a sustained and influential presence in one of the world's most promising automotive markets.
