India-EU Trade Deal on Cars: As expectations build for an India-European Union trade deal, Indian auto stocks such as Tata Motors, Mahindra & Mahindra (M&M), and Maruti Suzuki will be in focus during Tuesday’s (January 27) trading session. The stocks are likely to be in the spotlight on Tuesday, as reports suggest that India is planning to reduce tariffs on cars imported from the European Union from 110% to 40%, Reuters reported on Sunday, January 25, citing sources.
According to experts, this is a significant move for India’s vast market, as both sides move towards a potential free trade agreement, which could be unveiled as early as Tuesday.
Seema Srivastava, Senior Research Analyst at SMC Global Securities, said that India’s decision to reduce import duties on EU cars is set to create a stir in the auto sector. European luxury brands like Volkswagen, Mercedes-Benz, and BMW are likely to benefit, enabling them to sell cars at more competitive prices.
Local dealerships and service providers will also receive a boost. However, domestic players like Tata Motors and Mahindra & Mahindra may face increased competition in the luxury segment.
Tax Reduction on Select Cars!
Furthermore, Reuters, citing its sources, reported that Prime Minister Narendra Modi’s administration has agreed to a phased reduction in taxes on select cars imported from the 27-member bloc with an import value exceeding 15,000 euros ($17,739). According to a Reuters report, this will eventually be reduced to 10%, making it easier for European car manufacturers such as Volkswagen, Mercedes-Benz, and BMW to enter the Indian market.
The Reuters report stated that this will eventually be reduced to 10%, making it easier for European car manufacturers like Volkswagen, Mercedes-Benz, and BMW to enter the Indian market. Given this situation, Mohit Gulati, CIO and Managing Partner of ITI Growth Opportunities Fund, stated that all other listed players (auto stocks) in India will be negatively impacted, as this creates a favourable environment for VW, Mercedes, BMW, and Audi.
Auto and auto ancillary stocksare likely to be affected.
According to Seema Srivastava of SMC Global Securities, this move is expected to make the Indian auto market more competitive and benefit consumers. It also positions India as a competitive manufacturing hub, attracting investment and creating employment opportunities. Sales of European luxury EVs in India are likely to increase. Seema Srivastava points out that auto stocks expected to be positively impacted include Volkswagen India, Midas Components, and Bharat Forge. Conversely, Maruti Suzuki and Apollo Tyres are expected to experience little to no negative impact. However, Tata Motors and Mahindra & Mahindra, especially in the luxury segment, could be negatively affected.
What do lower import taxes mean for the Indian auto sector?
India is the world’s third-largest car market by sales, yet its domestic automobile sector has been heavily protected. Lower taxes will allow car manufacturers to sell imported vehicles at lower prices and explore the market with more options before deciding to manufacture more cars locally.
The reduced import duties will benefit European car manufacturers such as Volkswagen, Renault, and Stellantis, as well as luxury brands like Mercedes-Benz and BMW, which already manufacture cars in India but have faced challenges due to high tariffs. According to Reuters, New Delhi currently imposes tariffs of 70% and 110% on imported cars.
For the first five years, battery-electric vehicles will be exempt from import duty reductions to protect the investments made by local companies like Mahindra & Mahindra and Tata Motors in this emerging sector. Reuters, citing its sources, reported that after these five years, electric vehicles will also benefit from similar duty reductions.
