Whalesbook
Rising Logistics Costs Squeeze Margins
Shipping and insurance costs for luxury car imports into India have surged due to disruptions in West Asia. Landed costs for fully built units (CBUs) have jumped by an estimated ₹9-12 lakh per vehicle. Carmakers are absorbing much of this extra cost to keep market share and appeal. The sector is forecast to lose ₹250-310 crore this quarter, with annual losses possibly hitting ₹1,100 crore.
CBU vs. CKD: A Tale of Two Portfolios
How much luxury carmakers are affected depends on whether they import fully built units (CBUs) or locally assemble completely knocked-down (CKD) kits. Companies like Mercedes-Benz and BMW, which rely more on CBUs, are facing higher per-unit costs, estimated at ₹6.7-8.3 lakh on these imports. Meanwhile, manufacturers such as Volvo Car India, primarily assembling CKD kits, are less exposed to these sharp cost increases. India's current duty structure, experts say, makes freight and insurance spikes hit CBUs harder.
OEM Strategies Amidst Uncertainty
Automakers (OEMs) are taking a careful approach to manage these costs. Some price hikes of ₹2-4 lakh per vehicle are expected, but much of the higher expense is being absorbed, partly because current inventory levels are stable. Companies are also subtly reducing discounts and controlling expenses more strictly. If the shipping crisis continues, carmakers might reduce the number of CBUs sent to India, favoring markets with steadier costs.
Future Outlook
The financial impact on luxury carmakers will grow as current inventory runs out and shipments with higher shipping costs start arriving. High-value, exclusive models like the Mercedes-Benz G-Wagon or BMW i7 are especially at risk from these absorbed costs, which can greatly reduce profit margins on these vehicles. How long the West Asia shipping crisis lasts will largely decide how much manufacturers have to increase prices for customers.