Budget 2023: BMW, Lexus, Mercedes among luxury car makers to feel customs' pinch

The Union Budget 2023 was presented by Finance Minister Nirmala Sitharaman on Wednesday and among some big-ticket announcements for the Indian automotive industry was the decision to hike customs duty on fully imported car models. Customs duty on vehicles in completely built units (CBUs) costing less than USD 40,000 or with engine capacity less than 3,000 cc for petrol-run vehicles and less than 2,500 cc for diesel-run vehicles has been raised from 60 per cent to 70 per cent, as per the Budget document.

The decision to raise customs duty on imported vehicles that come under the purview announced will have an impact on the luxury vehicle segment with the likes of BMW, Lexus, Mercedes among those that import vehicles. But while Mercedes says an overwhelming number of its models are locally manufactured and so, the impact would be less, most others offer models via the import route. “The Union Budget 2023 should drive demand as it focuses on boosting consumption by increasing the disposable income of taxpayers. Further, an increased capital expenditure on infrastructure, particularly roads, should also create demand for the automotive sector," said Santosh Iyer, MD and CEO at Mercedes-Benz India. "The change in basic custom duties is however going to impact the pricing of some of our select cars like the S-Class Maybach and select CBUs like GLB and EQB, making them dearer. However as we locally manufacture most of our models, this will not affect 95% of our portfolio."

Mercedes offers as many as 14 ‘Made-in-India’ car models. But many of its direct or indirect rivals largely depend on the import option with either limited manufacturing and/or assembly processes or none at all. Lexus, for instance, has already hinted as a looming price hike. Naveen Soni, President at Lexus India, praised the budget for its focus on electric vehicles or EVs but said details about the custom duty hike needs to be examined further. “Based on the increase in duties suggested in the Union Budget, we may have to adjust the prices of few of our models. We hope to have better clarity once we study the overall impact of the same," he said in a press statement issued by the company.

The hike in customs duty also covers EVs that are entirely imported, something that would compel BMW to also, possibly, hike prices. The Germans recently launched all-electric models like the iX SUV and i4 sedan. “The relaxations for e-mobility production, announcements regarding scrappage policy and National Green Hydrogen Mission will play an important role for a sustainable future," said Vikram Pawah, President at BMW Group India. “However, the increase in custom duty will impact sales of few of our models."

The others that are more than likely to feel the pinch are Audi, Jaguar Land Rover and even super luxury car makers like Lamborghini even though many believe the super rich won't exactly reconsider buying decision due to a price hike necessitated by customs' duty increase.