Luxury Car Market to Slow in 2025: Mercedes-Benz Sees Flattish Numbers

The Indian luxury car market, which has enjoyed robust growth since the COVID-19 pandemic, outpacing the mainstream segment, is now seeing a slowdown as falling stock markets and geopolitical instability dampen consumer sentiment.

The high-end car market may be experiencing its slowest growth from January to March 2025. If the weakness persists, it may even experience its first quarterly decline in the same period, following nearly 16 consecutive quarters.

According to Santosh Iyer, Managing Director of Mercedes-Benz India, the Indian luxury car market may experience a period of flat growth or a slight dip in the coming quarters due to weak consumer sentiment. However, he remains confident about the sector’s long-term outlook, citing strong economic fundamentals and continued brand desirability.

"We began the year by clearly stating that this year, we would experience growth as such. That’s a broad expectation, but right now, luxury is also a sentiment-driven demand,” Iyer said. 

“Currently, sentiments are muted in capital markets and some other sectors due to various geopolitical uncertainties as well.”

The Indian luxury car market is estimated to have grown by 6-7%, with retail sales of over 50,000 units, whereas the mainstream market grew by 4% in 2024. The market grew at nearly double the pace of the mainstream market between 2021 and 2023, helping the industry reach a new peak last calendar year.

Even this year, the market started on a high, with Vahan retail sales in January growing 12%. The momentum slowed in February to 5%, and the stress continues in the current month.

While the market conditions may remain sluggish in the short term, Iyer expects demand to recover in the second half. 

“We need to wait for those sentiments to return because, structurally, we don’t see anything wrong from either the economic or consumption perspective. The products are great, and the brand remains very desirable, so the growth should come at the right time,” he explained.

He acknowledged that the industry may see flat or slightly negative growth for a quarter or two before demand picks up again.

“Maybe for one or two quarters, you may see a flat or even a slight decrease, and then it should return to a better growth rate.” On a full-year basis, we still believe it should be either flat or slightly better than last year; therefore, we need to wait for it,” he added.

Tesla's impact on the Luxury Market
Regarding the potential entry of Tesla, Iyer stated that the introduction of new players into the Indian car market will grow the space. “New players always help to grow the market, so I think it’s always welcome to be there,” he said. However, he pointed out that Mercedes-Benz operates primarily in the premium and luxury segments.

"Our stake in the entry-luxury segment is only 10%. Ninety percent of cars sold in India fall in the top-end luxury, ultra-luxury, or core luxury segment,” he noted.

Maharashtra’s EV Tax on Demand
Addressing the recent 6% tax on electric vehicles (EVs) imposed by the Maharashtra Government, Iyer noted that such policy shifts could temporarily impact demand. 

“One of the reasons EVs were given exemptions by different states was to promote decarbonization,” he said. “State governments are trying to address issues like livable cities by increasing electric mobility, which is great. However, they also face financial constraints in continuing this waiver.

Mercedes-Benz has observed a demand impact in states where taxes on EVs were introduced. "However, over the last three years, our penetration into EVs has increased from 2% to 3% to 6% last year. More and more consumers are accepting it, and I believe this is also due to the increased availability of a greater variety of products. So, we should wait and watch how this develops.”

Despite short-term headwinds, Mercedes-Benz India remains optimistic about the luxury car market’s long-term potential, anticipating a rebound as consumer confidence stabilizes.

Forex Impact on Pricing
Mercedes-Benz India has implemented price increases this year, with hikes in January and March for the E-Class, which was initially launched at an introductory price. 

The company is now closely monitoring foreign exchange movements, as the euro-to-rupee exchange rate has seen a sharp increase, which could lead to further price revisions.

“We implemented a price increase in January, and we also raised the price of the E-Class in March, as we had initially introduced it at a promotional rate," said Iyer.

"The recent depreciation of the rupee against the euro has been a cause for concern. When we look at the exchange rate, the euro has already reached a 95 level, whereas we have always priced our cars at 90. That’s a significant increase, and if this trend continues, it may lead to another price hike from April onwards," Iyer explained.

Market Volatility and Pricing Strategy
The company generally follows an annual price review policy, with occasional adjustments made in the second half of the year as needed. However, sharp currency fluctuations may necessitate quicker responses.

"We generally implement an annual price increase, and sometimes, if required, we may also introduce another hike in the second half of the year. But if the exchange rate fluctuates significantly, we need to react," Iyer said.

To put the impact into perspective, he added, "A five-rupee increase in the euro-to-rupee exchange rate translates to a rise of almost 5-8% in costs, which is quite significant."

Despite these challenges, Iyer emphasized that such fluctuations are a normal part of business dynamics in a global market, and the company will continue to evaluate the situation closely.