Green Way For Luxury Cars

Automakers bet on electric vehicles, find new playbook to target the country’s growing affluent millennial populace

- Prerna Lidhoo

“WE WANT TO DO SO, but import duties are the highest in the world by far of any large country!”

In just one tweet Elon Musk summed up why Tesla has been dragging its feet on India. And it’s not just the world’s most valuable carmaker. Musk, the 50-year-old founder and CEO of Tesla, echoed what a dozen other luxury carmakers such as Mercedes-Benz, BMW, Audi, Jaguar Land Rover (JLR) and Volvo have grumbled about for years.

India is the world’s fourth-largest auto market but isn’t even among the top 25 for luxury cars. And this despite the country boasting the third-largest number of billionaires in the world, according to Hurun’s Global Rich List 2021. In fact, only 21,400 luxury cars were sold in India last year, the lowest in over a decade and a 37% decline from 2019. While one can blame the slump on the pandemic, not so the absolute number. Luxury cars account for less than 1% of the overall auto market in India, in contrast to 13% in China and 10% in the U.S. Although growing, India is an extremely small market for global luxury players.

This dichotomy has its roots in the country’s tax regime, as Musk noted. Currently, India levies 100% tax on imported cars priced above $40,000 (about ₹30 lakh) and 60% on cars priced less than that. Moreover, luxury vehicles attract a goods and services tax (GST) of up to 50%, and another 15% in registration tax. This drives up prices, which drives down demand, making it unviable to manufacture locally and forcing automakers to import. It’s the classic chicken-and-egg conundrum: which comes first, higher demand or lower prices?