European carmakers facing pressure from higher US tariffs and intense price competition in China are set to gain some relief as India and the European Union prepare to sign a trade agreement that sharply lowers import duties on cars. According to Reuters, under the deal, tariffs on EU-made car imports will be reduced to about 40 per cent from as high as 110 per cent, marking the biggest opening yet of India’s closely guarded automobile market to European brands such as Volkswagen and Renault.
While the move is seen as a positive step, analysts caution that the tariff cut only partially opens the door to a market dominated by domestic manufacturers and Asian rivals.
European brands remain marginal players
European carmakers currently account for less than 3 per cent of India’s passenger vehicle market, according to industry data. The market is largely controlled by Suzuki Motor, Tata Motors and Mahindra & Mahindra, which together command nearly two-thirds of total sales.
Despite India being the world’s third-largest car market after the US and China, with annual sales of about 4.4 million vehicles, it has historically been one of the most protected, with steep import duties discouraging foreign-built vehicles.
“With a modest production footprint and sales still in the tens of thousands, European brands have significant room to expand, but the competitive landscape is extremely tough,” analysts said.
Premium focus limits volume potential
Industry experts say the tariff reductions are likely to benefit mainly premium carmakers rather than mass-market players. “When we talk about exports from Europe, it is mostly about premium cars. For the volume segment, it remains difficult,” said Stefan Bratzel of Germany-based automotive research group CAM.
He added that Indian buyers prioritise affordability, reliability and low running costs, a space where Japanese and local brands have excelled. Models such as the Maruti Suzuki Wagon R, inspired by Japan’s compact ‘kei car’ segment, continue to dominate sales.
Luxury brands seen as key beneficiaries
Analysts believe luxury carmakers such as Porsche, Audi and Mercedes-Benz stand to gain the most from the tariff cut, particularly those importing vehicles as completely built units (CBUs).
“A reduction to 40 per cent makes European luxury brands more competitive,” said Warburg Research analyst Fabio Hoelscher. However, he noted that any profit impact would take time to materialise and that global uncertainties, including US trade policies, could temper near-term gains.
Volkswagen Group, which owns Audi, Porsche and Skoda, said India is a market of “considerable strategic importance” and that it would assess the business impact of the agreement. Mercedes-Benz said lower tariffs would benefit carmakers on both sides, while BMW declined to comment.
Long-term growth potential remains strong
High US import tariffs and slowing growth in China have prompted global automakers to look towards India as a future growth engine. The Indian car market is expected to expand by more than a third to around 6 million vehicles annually by 2030.
As part of the agreement, India has reportedly agreed to cut tariffs on a limited number of EU-made cars priced above €15,000, with rates set to decline further to 10 per cent over time.
ING Research analyst Rico Luman said the EU-India trade deal could become a “significant opportunity” for European automakers in the medium term. “The Indian car market is still in the early stages of maturing, which means there is substantial growth potential,” he said.
While the immediate impact may be limited, analysts believe sustained demand growth could eventually encourage European carmakers to expand local manufacturing and deepen their presence in India over the longer term.
