The share of diesel vehicles in luxury car sales in India shrank to a record low of 35% in 2023. As recently as 2019, diesel models accounted for nearly 80% of auto sales. The biggest beneficiary of this is Audi, which has cornered a 31% share of the luxury petrol car segment, against BMW’s 28% share and Mercedes Benz’s 26%.
The shift has been central to Audi’s revival in India. In 2023 it posted 89% growth in sales at 7,931 units – its best annual sales performance since 2015, when it sold 11,192 units. That was also the year it lost its number-one position to Mercedes Benz.
Audi lost more ground in subsequent years after it exited the diesel sediment entirely owing to Volkswagen Group’s ‘dieselgate’ emissions scandal of 2015-16. At one point almost 70% of Audi’s sales came from diesel, so the scandal hit its business hard. Between 2019 and 2022, it sold just 5,000 cars a year.
“The performance last year should not be seen in isolation. It is on the back of our rebuilding strategy over the last five years,” said Balbir Singh Dhillon, head of Audi India.
While Mercedes and BMW are yet to officially announce their annual numbers, they are likely to be around 16,000 and 12,500 units, respectively. Audi has some catching up to do.
Of the three, Mercedes currently relies the most on diesel models. According to the government’s Vahan dashboard, diesel models accounted for more than half of its sales in 2023. For BMW, diesel models accounted for a third of total sales.
Dhillon believes once the industry share of diesel drops below 20%, which could happen in the next two years, it won’t make sense for any manufacturer to introduce more diesel vehicles.
In the immediate future, however, growth is likely to be elusive for Audi. The crisis in the Red Sea has disrupted supply chains – a recurring theme since the pandemic – and is set to delay shipments of parts from Europe and North America, affecting its production.
“In the first quarter of 2024, volumes will be lower as compared to last year. The delay could be between two and six weeks and as a result the impact on volume could be 15-20%,” Dhillon said. “We can make up for it in Q2 or subsequent quarters but it is very fluid. Projecting how 2024 is likely to be at this time is difficult but if supply is not a major constraint, the industry should still see double-digit growth this year.”
One segment where Audi lags its peers is electric vehicles. The outright leader here is BMW (EVs accounted for 10% of its volumes). For Mercedes and Audi this number was around 3%, but with Mercedes's bigger volumes, it sold more than twice as many vehicles as Audi.
“We are constrained on price. Our four EVs are imported and cost ₹1 crore. In the future, we will launch more cars and also assemble them in India, which will enable us to offer them at more affordable prices,” Dhillon said. “By 2028-29, almost half of our sales in India will be electric.”
With nearly 47,000 units sold, the luxury car market in India had its best-ever year in 2023. But its share in the overall passenger vehicle segment, which topped four million units, was under 1.2%. India’s low per-capita income of $2,500 and high taxes (luxury cars attract 50% GST) have hindered the segment’s growth. High import duties of 70-110% also play spoilsport for super-luxury and high-performance models.
“We come into the picture when somebody earns $30,000-35,000 per annum. In India there are lakhs of people who earn this much but it is still a small percentage of the population,” he said. “In developed markets the share of luxury cars is 8-10% and some developing economies like Taiwan have a 20% share. We are yet to cross even 2% [in India] so there is substantial headroom.”
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