The luxury automotive sector in India continues to evolve amid regulatory changes and shifting consumer preferences, with Mercedes-Benz India addressing these dynamics through pricing strategies, localisation, and electrification initiatives.

For Mercedes-Benz India, September reflected the dynamics of the luxury car market in India - unpredictable and complex. In a discussion with media sources, Santosh Iyer, Managing Director and Chief Executive Officer of the German carmaker, provided insights on the market reset under GST 2.0, strategies to address foreign exchange fluctuations and cost escalation through localisation, and the approach to electrification, emphasising that the pace should be determined by market conditions rather than predetermined targets.

Market performance under GST 2.0

August recorded a notable delivery volume over a short period, supported by coordinated logistics and customer delivery operations.

With the implementation of GST 2.0, luxury demand has been influenced by consumer sentiment, which is closely linked to confidence and disposable income. Initial pressure on demand was observed due to price increases earlier in the fiscal year, driven by inflation, foreign exchange movements, and cost escalations. The GST 2.0 reforms, which brought an average price reduction of approximately 6%, contributed to improved market sentiment. Promotional initiatives such as flexible EMI structures aligned with annual bonus or dividend pay-outs, and the 'Key to Key' programme, enabling S-Class customers to upgrade to a new model after two years, supported this recovery.

Low interest rates combined with tax reductions have also affected sentiment. As of early October, approximately 2,000 orders were pending, reflecting continued demand during the northern wedding season and festive periods such as Dussehra and Diwali. Global factors, including geopolitical tensions, tariffs, and free trade agreements, may continue to influence the market later in the year.

Cost management and localisation

The company continues to manage cost and foreign exchange pressures through increased localisation. Sourcing of components such as glass, tyres, and seats from local suppliers helps reduce exposure to foreign exchange fluctuations and lowers costs. While some cost increases are passed on to customers, internal cost optimisation programmes aim to balance profitability with affordability.

Product and pricing strategy

Mercedes-Benz's core luxury segment represents approximately 60% of sales, with the top-end segment contributing to overall profitability. Price and discount strategies avoid aggressive competition, particularly in the entry segment where some electric vehicles are active. GST 2.0 has affected combustion engine models, with examples such as the GLA now priced below the Rs. 5 million (US$ 56335) mark. Combustion engines maintain higher residual values compared to electric vehicles, affecting total cost of ownership. With state-level EV incentives being withdrawn, on-road prices for EVs and ICE models are now comparable, presenting opportunities to re-engage in the entry-luxury segment. Supply normalisation is expected to take a few quarters to fully respond to demand.

Electrification roadmap

Battery-electric vehicles currently represent approximately 8% of sales. The company maintains that the pace of electrification should be determined by market conditions, considering OEMs, government regulations, and consumer adoption. GST 2.0 has standardised taxation, placing hybrids and ICE models under a 40% slab, with EVs taxed at 5%. This adjustment affects ICE competitiveness while EV adoption remains influenced primarily by total cost of ownership. Locally produced models, such as the EQS SUV, are positioned to maintain a value differential relative to higher-priced models.

Customisation and top-end segment

Customisation is a key component of the top-end vehicle strategy. In models such as the Maybach and G-Class, a significant proportion of options can be selected by customers. The 'Manufaktur' programme supports this, and the availability of bespoke options is planned to continue.

Entry-luxury segment and market positioning

In the entry-luxury segment, Mercedes-Benz holds an estimated 50% market share among German luxury OEMs. Previous performance was mixed, but GST 2.0 price reductions for ICE models, particularly the GLA, are expected to influence demand. The company emphasises brand equity, customer satisfaction, and residual values over a volume-driven approach, avoiding aggressive discounting that could affect long-term brand positioning.

Retail and supply preparation

Demand continues in the top-end and electric vehicle segments. The G-Class Electric Edition One, priced around Rs. 30 million, has sold out. Waiting periods for Maybach models extend to 6-8 months, and the S-Class Maybach maintains ongoing demand. Variations in colour and fuel-type preferences are managed through flexible supply and selective offers to maintain balance.