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Mercedes Shifts Focus, Opens Door for BMW
Mercedes-Benz India is stepping back from entry-level luxury cars to focus on its core and ultra-premium models. This move, aimed at boosting profit margins and brand exclusivity, opens the door for rivals like BMW to gain ground across a wider range of the fast-growing Indian luxury auto market.
BMW's Bold Strategy: More Cars, More EVs
While Mercedes-Benz aims higher, BMW India is pursuing a dual strategy: strengthening its premium lineup while simultaneously drawing in new buyers with attractive electric vehicles. In 2024, BMW India recorded its best-ever sales, selling 15,012 BMW units and 709 Mini units. The company continued this momentum into 2025, achieving record sales of 18,001 units, a 14% year-on-year increase. This growth is increasingly driven by first-time luxury buyers, a segment BMW actively cultivates. Its electric vehicle strategy, notably with the iX1 Long Wheelbase, has been a key differentiator, contributing to EVs making up 21% of BMW Group India's sales in 2025, with targets to reach 25% by the end of 2026. The company's performance has been stellar, with Q1 2026 sales growing 17% year-on-year, making India the second fastest-growing market for BMW globally. BMW's sales in the January-to-March quarter of FY26 reached 4,944 units, narrowly edging past Mercedes-Benz's approximately 4,860 units for the period, indicating a potential shift in short-term market dynamics.
India's Luxury Market Booms
The Indian luxury car market is growing strongly, projected to expand at a compound annual growth rate (CAGR) between 5% and 11% over the next decade. Market size estimates range from USD 1.52 billion in 2026 to over USD 9 billion by 2032. SUVs remain the dominant body style, capturing more than 50% of the market share. The price band between ₹50 lakh and ₹80 lakh (USD 55,000 to 90,000) is a key growth driver, fueled by locally assembled hybrids like the BMW 530e and Mercedes E 300e. Luxury vehicles, currently representing about 2-2.5% of India's total passenger vehicle market, are projected to reach 5% by 2030, signaling substantial room for expansion. This trend is fueled by rising disposable incomes, a growing affluent class, and urbanization, with luxury car buyers becoming younger and more digitally engaged.
Company Valuations and Local Success
From a parent company perspective, BMW AG (XTER:BMW) trades with a TTM P/E ratio around 6.5x as of April 2026, suggesting it is modestly undervalued. Mercedes-Benz Group AG (MBGYY) shows a TTM P/E ratio in the range of 7.7x to 10.3x, indicating a slightly higher valuation. Both companies have large market capitalizations, with BMW AG around $47-51 billion and Mercedes-Benz Group AG around $51-52 billion. Mercedes-Benz India reported its best-ever revenue and profitability in 2025, despite a slight volume dip, showing its focus on high-margin ultra-luxury and performance models has worked. The average selling price for Mercedes-Benz vehicles in India has climbed significantly, from ₹57 lakh pre-Covid to ₹89 lakh, showing its move upscale has paid off. This focus on top-end vehicles, including performance AMG models and luxury EVs, now accounts for approximately 27% of Mercedes-Benz India's total sales.
Challenges Ahead: Global Uncertainty, Competition
Despite the strong growth, the Indian luxury auto segment faces challenges. Geopolitical tensions, particularly in the Persian Gulf, are starting to impact consumer sentiment, prompting affluent buyers to delay high-value purchases due to global economic uncertainty. This caution was evident in the March 2026 quarter, which saw a modest 3% rise in luxury car sales, lagging behind the mainstream market. While BMW has benefited from its EV strategy, Mercedes-Benz faces increased competition from BMW's aggressive EV push and its success in attracting first-time luxury buyers. Furthermore, Mercedes-Benz's reliance on specific high-margin segments could leave it vulnerable if demand in those niches falters. Any significant disruption to supply chains or a sharp depreciation of the Indian Rupee against the Euro could also pressure profitability, despite price adjustments. The continued reliance on internal combustion engines, which still account for a substantial majority of luxury vehicle sales, poses a long-term risk as electrification gains pace.
What's Next: Growth, EVs, and Market Share Battle
Industry forecasts remain optimistic, with projections of the Indian luxury car market reaching approximately 5% of the total passenger vehicle market by 2030. Key players are heavily investing in expanding their retail networks, with Mercedes-Benz planning over 20 new outlets in 2026 and significant investments by franchise partners. BMW is equally aggressive, planning 10 major launches and 17 updates in 2026, further localizing production, especially for EVs like the iX1. The increasing adoption of EVs in the luxury segment, currently around 10% and higher for specific brands like BMW (26% in Q1 2026), is expected to accelerate, backed by government incentives and better charging infrastructure. The battle for supremacy in India's luxury automotive sector is set to intensify, with both German giants vying for market leadership through distinct yet aggressive strategies.