This move is anticipated to boost European luxury EV sales in India and position the country as a competitive manufacturing hub for these vehicles.The proposed free trade agreement (FTA) between India and the European Union is expected to sharply reduce import duties on automobiles including electric vehicles (EVs) from the 27-nation bloc to 10-15 per cent, potentially triggering a surge in European luxury EV sales in India, said people familiar with the matter.
The deal, expected to be announced at the bilateral summit on January 27, is also expected to make India an attractive manufacturing hub for luxury EVs, they said. India currently imposes import duty of about 100 per cent on European automobiles with landed cost of above $40,ooo (around 37 lakh), which is applicable to luxury EVs, a nascent category in the country that comprises units with a starting price of about 1 crore, according to industry executives.
With the India-EU FTA expected to slash import duty, European luxury EV makers will be able to price their products more competitively in the Indian market.
Protection for local automakers
Budget EVs, a segment dominated by domestic players, are likely to remain largely unaffected as they are produced locally.
The FTA is likely to contain provisions to balance market access with protection for domestic manufacturers such as Tata Motors and Mahindra & Mahindra, according to people in the know.
Phased localisation requirements and value-addition norms for EV makers are expected to remain in place, ensuring that the increase in imports does not come at the cost of India’s long-term manufacturing ambitions, they said.
India’s EV policy mandates 25 per cent domestic value addition by third year of operations and 50 per cent by the fifth year.
“We believe this (India-EU FTA) will benefit both parties, expand trade and lead to an exchange of technology and innovation,” said Hardeep Singh Brar, President and CEO, BMW Group India. “By leveraging each other’s strengths, it will boost consumption for luxury vehicles in India and improve supply-chain integration—critical in the current geopolitical context.”
India’s luxury EV segment, generating sales of about 2,000 units annually at present, is seeing stronger electrification momentum than the mass market. Battery electric vehicles accounted for 10.7 per cent of the luxury segment’s powertrain mix between January and November 2025, compared with 4.5 per cent for mass-market manufacturers, according to data collated by Jato Dynamics.
While internal combustion engines continue to dominate the broader market, luxury brands have leaned heavily on hybrids—ranging from mild hybrids to plug-in hybrids—as a bridge to full electrification.
Models such as BMW’s iX and i4, Mercedes-Benz’s EQS and EQE sedans, Audi’s Q8 e-tron, and Volvo’s XC40 Recharge have found steady demand among affluent Indian buyers seeking a combination of performance, sustainability and cutting-edge technology. Porsche’s Taycan, despite its premium pricing of about ₹1.7 crore , continues to draw interest, underscoring the growing acceptance of electric drivetrains in the luxury segment.
Manufacturing base
The proposed FTA is also expected to make India a more attractive manufacturing base. “More than 90 per cent of what we sell is manufactured in India, hence we don’t see any significant price reduction from the FTA,” said Santosh Iyer, managing director and CEO, Mercedes-Benz India. “That said, the agreement positions India as an export hub for Mercedes-Benz to the EU and global markets, boosting Pune plant output for international shipments.”
Škoda Auto Volkswagen India managing director and CEO Piyush Arora, while affirming the group’s focus on quality and competitiveness, said, “Once the final details of the India–EU FTA are available, we will evaluate its implications.”
Besides tariffs, the FTA is expected to introduce new rules on digital value addition, battery passports and software-led manufacturing, areas where premium European manufacturers have a head start.
“The recognition of digital value addition, potentially accounting for up to 40 per cent of a software-defined vehicle’s value, could favour brands such as BMW and Volkswagen, while nudging them to expand software and engineering investments in India,” said Ravi Bhatia, president, Jato Dynamics.
The deal is expected to set standards for battery passport—or a digital record of a battery’s entire lifecycle from raw material sourcing and manufacturing to usage and recycling—and lifecycle data tracking, leading to a reduction in dependency on China while aligning with the Europe’s ambitions to become the first climate-neutral continent by 2050.
