Weak rupee, not West Asia tensions, is the bigger risk for European carmakers in India

European carmakers in India are increasingly looking past the noise around West Asia tensions as a more structural challenge builds closer home. While conflict-led disruptions to oil prices and logistics remain a concern, it is the steady slide of the Indian rupee against the euro and the dollar—alongside a gradual drawdown in forex reserves—that is beginning to weigh more heavily on their balance sheets, as per senior representatives of numerous European carmakers.

For companies such as Mercedes-Benz, Skoda Auto Volkswagen, BMW, Audi and Volvo, the India business remains structurally exposed to currency movements. A significant portion of their portfolio—either as completely built units (CBUs) or completely knocked down (CKD) kits—relies on imports priced in foreign currency, making cost structures immediately sensitive to exchange rate movements.

Since January, the rupee has weakened by about 2–3% against the euro, hovering around the ₹90–₹92 mark per euro, while staying near ₹83–₹84 against the US dollar. This has pushed up landed costs for euro-denominated imports, including kits and high-value components.

“The impact of currency movement is immediate and difficult to fully pass on,” stated Piyush Arora, MD and CEO, Skoda Auto VW India (SAVW). Noting that persistent depreciation compels companies into staggered price corrections. “We cannot pass on the full increase at once. That would shock the market. Calibrated hikes are here to stay,” he said, adding that pricing actions are now a function of both cost pressures and demand sensitivity.

Import costs rise, pricing headroom shrinks

The impact of Rupee devaluation is already visible. Mercedes-Benz raised prices by about 2% earlier this year and is evaluating further increases. Its India head Santosh Iyer said rising input costs and currency pressures have made periodic corrections unavoidable. “The effective price increase last year was around 5%, spread across quarters. Now, increases of about 2% every quarter may be needed,” he said, while emphasising the need to balance profitability with demand stability.

Luxury carmakers, unlike mass-market players, operate within a narrower demand band. Frequent price hikes risk pushing entry-level buyers out, even as costs continue to climb. Executives also point out that currency swings are beginning to influence vehicle allocations and supply decisions.

Forex reserves signal adds to uncertainty

The pressure is compounded by forex reserves, which have eased from their peak levels to around $640–650 billion in recent months. While still at a comfortable level, the trajectory is being closely tracked by global headquarters of all multinational giants, as it signals potential currency volatility ahead.

Industry analysts reckon that a weaker reserve position raises hedging costs and complicates financial planning. Most automakers hedge exposures, but only partially—and at a cost that rises when volatility persists.

Geopolitics transient, currency pain structural

In contrast, the impact of West Asia tensions remains episodic for many German luxury carmakers. BMW Group India President and CEO Hardeep Singh Brar maintained that it had built buffer inventory to manage supply disruptions. “We are sorted for this quarter, but prolonged disruption could impact future supplies,” he noted.

Balbir Singh Dhillon, from Audi India, added that easing geopolitical tensions would support sentiment, as many luxury buyers are closely linked to global markets. Similarly, Iyer noted that while there were some delays in parts supply, inventory buffers helped cushion the impact, with demand expected to recover as sentiment improves.

Yet, for all the near-term disruptions, companies see geopolitics as cyclical. Currency pressure, in contrast, is structural—impacting every imported component and vehicle.

“That shift is already shaping strategy. European carmakers are accelerating localisation, leaning into higher-margin models, and recalibrating growth expectations. For now, the bigger risk to their India playbook is not conflict abroad, but the steady erosion of the rupee at home, said Puneet Gupta, Director , S&P Global Mobility.