Whalesbook
Mercedes-Benz India is celebrating strong EV uptake in its luxury lineup, with EVs making up a quarter of its top-tier sales. Yet, this success is tempered by economic pressures: volatile foreign exchange rates and rising production costs are forcing the company to raise prices. This creates a challenge in balancing its premium image with customer affordability.
Santosh Iyer, CEO and MD of Mercedes-Benz India, noted that 20% of its top-end luxury vehicle sales are now electric. This figure significantly surpasses the 8-9% EV penetration across the company's full Indian range. Popular models like the EQS sedan and SUV, along with EQE and EQB SUVs, are driving this trend, particularly the locally assembled EQS sedan. This surge occurs as the broader Indian luxury car market is poised for significant growth, expected to reach about USD 4.99 billion by 2026 with a compound annual growth rate exceeding 10%. This expansion is supported by a rising number of high-net-worth individuals and a general shift towards premium vehicles. Luxury SUVs already command over 50% of this market.
Despite a 10-20% year-on-year rise in showroom visits and inquiries, Mercedes-Benz India is preparing for a roughly 2% price increase across all models starting April 1, 2026. The company attributes this to ongoing foreign exchange volatility and climbing input costs. This decision mirrors moves by competitors like Audi India, indicating a widespread challenge for luxury automakers in managing expenses against currency fluctuations. The depreciation of the Indian rupee against the euro, with the exchange rate persistently above Rs 100, directly inflates costs for imported parts and vehicles.
These pressures extend to the parent company, Mercedes-Benz Group AG. In 2025, its revenue fell 9.2% to €132.2 billion, with adjusted earnings before interest and taxes (EBIT) dropping 39.9% to €8.2 billion. These figures were affected by tariffs, currency shifts, and competition, especially in China. Despite this, analysts maintain a 'Buy' rating on the group. In India, economic growth is expected to remain strong, with Fitch Ratings forecasting 7.5% expansion for FY26. However, rising inflation could affect household incomes and spending on non-essentials. For luxury buyers, higher monthly payments due to price increases might lead to delayed purchases. The total cost of owning an EV also remains a consideration, a point highlighted when some customers previously returned to petrol or diesel cars when temporary tax cuts on EVs expired.
While Mercedes-Benz India leads in overall luxury car sales volume, competitors are also advancing. BMW India reported significant 200% growth in its EV offerings, selling 14,278 units in Q1 2025 versus Mercedes-Benz's 18,928. However, Mercedes-Benz retains its lead in the high-end EV sector. The company plans to introduce 11 new models in India this year, including the EV-first CLA sedan, which will also feature the new Mercedes-Benz Operating System (MBOS) for AI-driven functions and software updates. This robust product strategy aims to solidify its market standing and meet changing customer needs.
The luxury auto segment faces continued challenges due to its reliance on imported parts and vehicles, making Indian operations highly vulnerable to currency fluctuations. The euro's strength against the rupee directly impacts profitability. While some forecasts suggest the rupee might strengthen against the dollar, other analyses point to structural issues that could lead to further depreciation, with predictions of the USD/INR rate reaching 95-100. This persistent currency pressure, combined with rising input costs, forces carmakers into a cycle of price hikes. Such increases can reduce affordability for luxury goods and slow sales. The long-term growth of the luxury market also depends on India's overall economic health, making it susceptible to broader slowdowns. Expanding into Tier-2 and Tier-3 cities requires new strategies but can also strain resources and potentially affect brand consistency.
Mercedes-Benz's strategy in India focuses on maintaining its premium position, expanding its EV range, and reaching new urban markets. The planned launches, including the CLA sedan with its new MBOS system, highlight a commitment to integrating advanced technology. The long-term expansion of the luxury market is tied to India's economic growth. The company is balancing the immediate need for price adjustments with a vision to preserve its brand exclusivity and customer loyalty amidst competition. Successful execution could position Mercedes-Benz to benefit from India's growing wealthy consumer base.