EU Carmakers Face Tough India Market Even After Trade Deal: Industry Analysis

On January 26, 2026, a significant development in global automotive trade emerged with the EU-India trade agreement, which substantially reduces tariffs on European automobile imports to India. The agreement cuts the import tariff on EU-made cars from

for vehicles costing more than €15,000, with further reductions expected to bring the tariff down to 10% over time [1]. Additionally, tariffs on luxury and completely built unit (CBU) imports will drop from 70% to 40% [1]. This development arrives at a critical juncture for European automakers, who face mounting pressures from and [1]. The India deal represents a potential geographic diversification opportunity, though industry analysts caution that the market presents formidable challenges.

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The Indian automotive market demonstrated robust growth in 2025, recording approximately

with 5% year-on-year growth, driven by strong performance across passenger vehicles (44.9 lakh units), commercial vehicles (10.27 lakh units), and a remarkable 16% export growth to 8.63 lakh units [2][3]. The passenger vehicle segment saw broad-based growth, with SUVs now dominating in 2025 [4]. This market maturation trajectory suggests substantial long-term potential, as noted by ING Research analyst Rico Luman, who maintains that “the Indian car market is still in the early stages of maturing, which means there is substantial growth potential” [1].

Rank	Company	Key Performance
1	Maruti Suzuki	17.50 lakh units, 36.5% YoY growth in December [2]
2	Mahindra	Highest-ever volumes in SUVs and LCVs, leapfrogged Hyundai [3][5]
3	Tata Motors	50,046 units in December, 13.1% YoY growth [2]
4	Hyundai	42,416 units in December [2]

The tariff reduction creates a meaningful price differential for European vehicles. Before the deal, EU cars exceeding €15,000 faced a 110% tariff; after the deal, this drops to an initial 40% with projections to reach 10% long-term [1]. For luxury brands importing fully-built units such as Porsche, the tariff drops from 70% to 40% [1]. Warburg Research analyst Fabio Hoelscher noted that “the biggest winners versus before are brands like Porsche who import their entire portfolio as completely built units” [1].

This tariff reduction arrives at an opportune moment for European automakers seeking to diversify away from developed markets facing structural pressures. U.S. tariff uncertainty under the new administration creates significant revenue risk for manufacturers dependent on transatlantic trade, while intensifying price competition in China erodes margins for established players. The India market, with its scale and growth trajectory, offers an attractive alternative—though one that requires careful strategic positioning given the competitive dynamics.

Despite favorable tariff adjustments, EU automakers face significant structural barriers that temper expectations for immediate market penetration:

Indian consumers prioritize , creating inherent tension with European models that carry higher price points and are perceived as expensive [1]. The mass-market price band of ₹10-20 lakh places Indian consumer expectations far below typical European vehicle pricing, creating a fundamental market mismatch for volume brands.

Local manufacturers—Suzuki, Mahindra, and Tata—control approximately [1]. Suzuki alone maintains dominance through its “kei car” segment (compact, affordable vehicles like the WagonR), which represents the mass-market volume segment [1]. These manufacturers benefit from deep market understanding, established supplier networks, and distribution infrastructure that European entrants cannot easily replicate.

EU car brands currently hold of the overall Indian car market [1], reflecting deeply entrenched competitive dynamics that will not be easily displaced by tariff reductions alone.

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The EU-India trade deal creates differentiated impacts across market segments:

Porsche, Audi, Mercedes-Benz, and BMW stand to gain the most from the tariff reduction, particularly for CBU imports [1]. These brands already maintain premium market positions in India with established dealer networks and brand recognition among high-net-worth consumers. The 30-percentage-point tariff reduction (from 70% to 40%) substantially improves price competitiveness, potentially accelerating volume growth in a market where luxury vehicle demand correlates strongly with economic growth.

Volkswagen Group and Mercedes-Benz have indicated they will examine the deal’s impact on their India strategy, with potential for future local manufacturing investment [1]. Mercedes-Benz expressed optimism that reduced tariffs should “boost car makers from both regions” [1].

Stefan Bratzel of the German auto-research group CAM provided a sobering assessment: “It’s a start. When we talk about exports from Europe, it’s only about premium cars. For the volume sector it is difficult” [1]. This assessment highlights the fundamental segmentation challenge: European automakers excel in premium segments, while India’s mass market demand centers on affordable transportation—a domain where Japanese kei cars and local manufacturers have established overwhelming dominance.

The deal creates a

across the Indian automotive ecosystem:

1. Japanese manufacturers
   (Suzuki, Honda, Toyota) face potential erosion of their “Japan-India” trade advantage, though their kei car dominance in the affordable segment remains protected by consumer preferences rather than tariff considerations alone.

2. Korean manufacturers
   (Hyundai, Kia) must defend market position as Hyundai slipped to fourth position in 2025 [2], potentially facing increased pressure from both domestic Indian manufacturers and, over time, premium European brands expanding their reach.

3. Domestic Indian manufacturers
   (Tata, Mahindra) continue benefiting from “Make in India” sentiment, cost competitiveness, and superior understanding of local consumer preferences. Their strong SUV positioning (Mahindra and Tata dominate the SUV segment) provides defensive strength against potential European premium SUV competition.

The tariff reduction may catalyze discussions about

or assembly operations. Hoelscher (Warburg Research) noted that “after that, in the medium term, there is potential to expand local manufacturing” [1]. Establishing local production would require navigating India’s complex supplier ecosystem, currently dominated by firms aligned with Japanese and domestic manufacturers. The long-term trajectory toward a 10% tariff suggests this is a multi-year strategic play, with manufacturing decisions likely dependent on market share gains in the interim period.

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The luxury vehicle segment in India remains underserved relative to economic growth, with significant headroom for premium brand expansion as middle-class wealth increases. European luxury brands are well-positioned to capture this growth, particularly as tariff reductions improve price competitiveness against non-EU competitors.

For European automakers facing U.S. tariff uncertainty and margin pressure in China, India offers geographic diversification benefits. The scale of the Indian market (26.8 million vehicles in 2025) means even modest market share gains translate to meaningful volume.

Indian domestic manufacturers may seek technology partnerships with European firms for EV development and autonomous features, creating mutually beneficial arrangements that could reshape competitive dynamics.

European volume brands face substantial barriers to market entry without significant local investment. The combination of price perception, distribution gaps, and consumer preference for established brands creates a multi-year journey before India becomes a meaningful volume offset to developed market challenges.

Indian manufacturers are not standing still. Mahindra’s record SUV volumes [3][5] and Tata’s strong growth trajectory [2] demonstrate competitive intensity that will intensify as these firms defend market position against potential European expansion.

The reduction to 10% tariff is a longer-term prospect, with the immediate reduction to 40% representing meaningful but not transformative change for volume segments.

The Indian market’s growth trajectory depends on economic conditions, consumer credit availability, and currency stability—all of which introduce uncertainty into volume projections.

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The EU-India trade agreement represents a

for European automakers. Key data points supporting this assessment include:

• Tariff reduction
  : From 110% to 40% initially, with potential to reach 10% long-term [1]
• Market size
  : 26.8 million vehicle sales in 2025 with 5% YoY growth [2][3]
• Domestic control
  : Indian and Japanese manufacturers hold approximately two-thirds of the market [1]
• EU market share
  : Less than 3% of the overall Indian car market [1]
• Luxury segment opportunity
  : SUV demand represents 66% of passenger vehicle sales [4]
• Leading players
  : Maruti Suzuki (17.50 lakh units), Mahindra (record SUV volumes), Tata Motors (50,046 units in December) [2][3]

The deal primarily benefits

already present in India. For European automakers seeking to diversify away from U.S. tariff pressures and Chinese price competition, India offers a large and growing market, but capturing meaningful volume will require sustained investment in local understanding, distribution networks, and ultimately manufacturing presence. As Rico Luman (ING Research) correctly observed, India’s market is “still in the early stages of maturing” [1]—meaning the competitive landscape will evolve, but European players face a multi-year journey before India becomes a meaningful volume offset to their developed market challenges.

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[0] Ginlix Analytical Database - Industry analysis framework and market data

[1] Reuters - “EU carmakers face tough India market even after trade deal”
URL: https://www.reuters.com/business/autos-transportation/eu-carmakers-face-tough-india-market-even-after-trade-deal-2026-01-27/

[2] Economic Times - “December 2025 sees Indian auto industry shift into high gear with Maruti, Mahindra and Tata”
URL: https://auto.economictimes.indiatimes.com/news/passenger-vehicle/december-2025-sees-indian-auto-industry-shift-into-high-gear-with-maruti-mahindra-and-tata-report-robust-growth/126289872

[3] Reuters - “India’s Mahindra posts 23% rise in December SUV sales”
URL: https://www.reuters.com/world/india/indias-mahindra-mahindra-posts-23-rise-december-suv-sales-2026-01-01/

[4] CarToQ - “India’s top carmakers log December sales jump on tax cut”
URL: https://www.cartoq.com/car-news/india-automotive-market-rebalancing-suvs-mahindra-tata-2025/

[5] Autocar India - “Mahindra seals second spot in 2025 car sales”
URL: https://www.autocarindia.com/car-news/mahindra-seals-second-spot-in-2025-car-sales-438699