Luxury carmakers are planning more made-in-India products to increase the number of offerings in the sub-Rs. 2.5 million (US$ 46,700) category to expand market.

The three major global luxury car manufacturers that have a substantial presence in India - BMW, Audi & Mercedes Benz - have been able to grow the Indian market five fold in the past three years by selling several models below Rs. 3.0 million, something they have been able to achieve on account of local production.

They, along with new players, are now planning to bring down the threshold further, to below Rs. 2.5 million by assembling their smaller models in Indian factories.

The plan to localise production by assembling in Indian plants, commonly known as completely knocked down (CKD) operations, helps carmakers offer lower prices as imported parts attract 10% import duty compared with the 75% charged on importing complete cars from overseas factories. Many automobile companies increasingly prefer the local assembly route to bring down prices.

Industry officials say demand should rise to at least 50,000 luxury vehicles by 2015, from 25,000 units sold in 2012. BMW, the market leader in the Indian luxury space, is looking at retaining its number one slot by assembling the new BMW 1 Series later this year from its Chennai plant.

"All our cars made at our Chennai plant conform to global quality parameters. So, going forward, we have also decided to add our top-end 7 Series saloon to the league of locally assembled cars. It would help us to increase the value for our customers and keep our prices competitive," BMW Group India President Philipp von Sahr said.

In 2012, BMW sold 9,375 cars in India, maintaining a slender lead over it German peer Audi AG, from the Volkswagen Group which sold 9,003 cars. Audi also plans to assemble more cars on Indian shores starting with its hugely successful Q3 SUV from the middle of this year followed later with the A3, a sedan.

"We would increase our local production allowing us the flexibility of technology at better price points across different models," Audi India head Michael Perschke said. Audi will take its tally of locally made cars to five by the end of this year.

"The simple strategy to localise cars is to offer stronger price points and package them as per the local needs. Any strong player would need local assembly to derive long-term advantages over its competitors," Perschke added.

The BMW Group currently sells three brands - BMW, MINI and Rolls Royce - all of which are marketed and sold independently in India. The world's largest manufacturer of luxury car plans to locally assemble six models by the end of this year.

It already assembles the 3Series, 5Series, the X1 and X3 SUV family at its Chennai plant, which has the capacity to produce 11,000 units per year on a double shift basis.

BMW currently sells 11 brands and the rest of the models - 6 Series, Gran Turismo, M Series & Z4 Roadster - are fully imported. The Tata Motors-owned Jaguar Land Rover (JLR) has also announced plans to expand its portfolio. This includes the local assembly of the 2.2 litre diesel variant of the XF luxury sedan in India.

This move would bring down the starting price of the model by over Rs. 1.2 million for the existing Jaguar's XF variants with bigger engines that are priced between Rs. 5.71 million and Rs. 10.3 million (ex-showroom) Mumbai.

Companies say that lower prices would help them to expand the luxury car market and bring in new customers. "We want to have successful sales at every price points. Even as many of our cars would be expensive than our competition, we offer more value in our products by localising our production in India," Mr. Sahr added. The Indian luxury car space is dominated by the German carmaker - Mercedes Benz that comes third with 7,138 cars sold in India in 2012. Jaguar & Land Rover that sold 2,393 cars in 2012 is also gaining acceptance with the Indian customers.

Mercedes Benz, which plans to invest Rs. 8.5 billion till 2014 for expanding its production capacity, will introduce the new A-Class shortly that would roll out from its Pune plant.

"Most of our future products will be in the entry-level segment with prices starting from Rs. 2.0 million. We will launch the premium hatchback A-Class in the country during middle of this year," Mercedes Benz India MD & CEO Eberhard H. Kern said.

The luxury carmakers are planning to tap the younger customers with lower price points. Mercedes Benz, with its B-Class at a starting price of Rs. 2.5 million, was able to attract young customers in the 30-40 year age group into its fold.