Amidst rising woes induced by inflation, the automobile industry is yet again at the cusp of a topsy-turvy situation. Automakers are left in the throes of uncertainty—waiting for how the domestic consumer sentiment will unfold with bated breath. However, an outlier to this larger sentiment is the luxury passenger vehicle segment. Albeit luxury segment is a minuscule 2% of the larger car market, valued at $1.06 billion in 2021, according to a report by Mordor Intelligence—which is encompassed by some of the most pre-eminent names in automobile, including AB Volvo, the Tata-owned Jaguar Land Rover Limited; and a triumvirate of German brands—Audi AG, Mercedes-Benz AG, and BMW AG.

The ilk is rejoicing at the unabated demand for their products. “The luxury car segment witnessed growth in 2021. At Audi, we registered a 101% sales growth (in 2021) on the back of nine new launches—including five electric cars. This year (2022), we are seeing continued demand and sales growth,” Balbir Singh Dhillon, head, Audi India, tells Fortune India. Dhillon believes that it is important to note that purchases in the top-end segment are primarily driven by sentiment. “While sales have been stable and have even grown in the last few quarters; we have to see if this sentiment will sustain when things completely normalise,” he adds. Audi India sold 1,088 vehicles in FY’22, according to figures released by FADA.

Positive sentiment among the consumers manifests itself in an enviable business environment. “There is a positive business climate, a rise in disposable income and this we see fuelling the soaring aspiration of the successful young professionals and entrepreneurs. This especially is true for the strong demand for luxury marques like Mercedes-Benz, where we are witnessing the top-end segment comprising super luxury models, growing at the fastest rate,” Santosh Iyer, Vice President, Sales & Marketing, Mercedes-Benz India, tells Fortune India.

With the current positive momentum, Mercedes-Benz expects 2022 to be one of its best years ever in India, in terms of sales. “For the first time, we have an order bank of over 5,000 cars and the challenge is more on the supply side now, as we are ramping up to deliver these cars to the customers who have been waiting for months. The new generation C-Class had more than 1,000 confirmed bookings even before its price announcement and now the car has a waiting period of 2-3 months,” Iyer adds. In October 2021, Mercedes Benz unveiled a new business model that has helped it boost car sales in India. As part of the new strategy, the luxury car manufacturer intends to offer benefits of ₹1-2 lakh on the selling price to its customers.

Taking things a notch further, the ultra-luxury and supercar segment is further poised for an upward trajectory in sales. Italian supercar maker Lamborghini, which had a record-breaking year in India in 2021 in terms of volumes, will continue its upward trajectory of sales, Sharad Agarwal, head, Lamborghini India says in a conversation with Fortune India. The carmaker sold 69 vehicles last fiscal, and while Agarwal doesn’t delve into projections, he believes that 2022 will further its turnaround course post the pandemic-induced disruption, which Agarwal calls a “once-in-a-lifetime” deterrent. “The luxury car market in India is still seen as an infinitesimally small piece of the car market pie. It doesn’t show the complete picture of its potential. Looking at the number of billionaires we add every year, India is a unique market, and Lamborghini knows that” he explains.

When questioned about the semiconductor shortage and the supply-chain constraints, Agarwal credits his team—who worked in tandem with global stakeholders—to ensure that operations in India had smooth sailing. “Our team did the best it could for our customers, but one must bear in mind that this isn’t an India-specific problem. The entire world is reeling from the effects of the supply-chain disruptions induced by geopolitical escalations.”

Agarwal also says that the demographics of Lamborghini buyers have also evolved, taking it to a quasi-national footprint. “When we started operations in 2012, sales were limited to small pockets in the most affluent families in metropolitan cities,” he says, adding that Lamborghinis can now be found in hinterlands such as in Nagpur, Kanpur, Lucknow. “We recently delivered a Lamborghini in Siliguri. People are lapping up our products. Earlier we used to sell second, third-generation dynasts in business families. Now a sizable demographic is the first-generation entrepreneurs in those who have made it big in the startup microcosm. Even women are lining up to buy Lamborghinis,” he explains. He credits the ramp up of infrastructure that has spurted across the country. “Oil marketing companies are facilitating the availability of high-octane fuel—which a Lamborghini needs to run—in more cities, incentivizing the moneyed to take the plunge,” he says.

These positive signs also indicate the turnaround, and the consequent recovery trajectory, the luxury car market in India. The sales of the luxury car market in India were derailed by the onset of the pandemic and the nationwide lockdown—with dwindled footfall in showrooms, halted production and supply-chain disruption to curtail the spread of the virus. According to ICRA, the market contracted by almost 50% over CY2019-CY2020 — from annual volumes of about 39,640 in CY2018 to about 19,439 in CY2020.

However, once the virus receded, the market was quick to get back on its feet. “Post the decline, the luxury car segment registered a healthy growth in volumes in CY2021, on a curtailed base of about 27,000 units, aided by recovery in economic activity and several launches by OEMs,” Rohan Kanwar Gupta, vice president & sector head, corporate ratings, ICRA tells Fortune India. Gupta’s claims are not unfounded. To cater to the burgeoning demand of shifting preference towards luxury SUVs, the major luxury carmakers in India are making a beeline to launch a bevy of SUVs. According to Mordor Intelligence, Volvo was the biggest beneficiary among the luxury car manufacturers. “The company’s new line-up of SUVs is more successful,” the report adds. Similarly, 50% of sales made by Jaguar Land Rover were also for its SUVs.

Taking cues from Volvo, Mercedes-Benz India was quick to launch the Maybach GLS 600 in India in June 2021—the first SUV to carry the Maybach badge. During that time, Jaguar Land Rover also launched the Range Rover Sport SVR—its high-performance iteration of the Range Rover Sport. Mercedes-Benz sold 10,874 vehicles in FY’22, whereas Jaguar Land Rover sold 1,923 vehicles in the same period. Volvo, meanwhile, sold 1,376 vehicles.

According to Gupta, despite ongoing supply chain issues and a hike in prices (mandated by raw material hardening), the demand in the market has remained healthy over the recent past, with the discretionary spending power of the consumer class (wealthy individuals) remaining healthy. “On the contrary, demand for luxury items has in fact been reported to have improved post-pandemic, aided by enhanced brand consciousness. The luxury car penetration in India is the lowest among large economies (U.S., China, Germany), providing long-term growth visibility for the industry going forward as well,” he adds. The Mordor Intelligence report states that the luxury car market in India is expected to reach a value of over $1.54 billion by 2027, registering a CAGR of more than 6.4%.

Despite a pandemic-hit year, 2021 saw 1,007 individuals across 119 cities have a wealth of ₹1,000 crore, according to the IIFL Wealth Hurun India Rich List 2021. The cumulative wealth in 2021 was up 51%, while average wealth increased by 25% when compared to last year. A record 659 entrepreneurs or 66% are self-made, up from 530 last year, and up from 54% five years ago. It is also expected that the IIFL Wealth Hurun India Rich List will consist of 80% self-made entrepreneurs within five years, fuelled especially by tech startups. The 2022 M3M Hurun Global Rich List also mentions that India is the third-largest producer of billionaires in the world, with 215 billionaires residing in India.

The improvement in luxury car volumes in CY2021 notwithstanding, the segment sales still remain well below the all-time high, which was recorded in CY2018 the improvement in luxury car volumes in CY2021, the segment sales still remain well below the all-time high, which was recorded in CY2018—when 39,640 vehicles were sold. “The sales of luxury cars are expected to reach all-time levels over the next two years, aided by the recovery in demand for the segment. Notwithstanding the strong demand, the supply chain shortage will continue to act as a hindrance to the recovery prospects of the industry,” Gupta adds.

However, the silver lining is that this segment—which fell sharply than the mass-market segment—bounced back better than the latter. “The decline in the volumes of the luxury car segment was higher than the mass-market segment as such on account of the disruptions caused by the Covid-19 pandemic. As such, the bounceback in the segment's volumes has been healthier as well, leading to higher sales growth than the mass-market segment.”

It is with this potential that Dhillon hopes the government would further facilitate the ease of owning luxury vehicles. “We strongly feel that this is an opportune moment for the Government to use this positive sentiment as a springboard to bring about reforms like rationalization of Duties/GST/Cess/Road Tax structure on luxury cars, which in turn will help the segment to grow and see its full potential,” he adds. Looking forward, Dhillon expects double-digit sales growth this year—on the back of sustained demand for Audi products, a strong order bank and new launches—including the recently launched Audi Q7 and Audi A8L in India. Audi has also announced that it will bring back its beloved Q3 SUV back to the Indian market. The love for Q3 did not stop even after it was shelved in 2020, as according to Dhillon, the Audi Q3, along with the Audi Q5, continue to dominate the pre-owned Audi car market.

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