The trade deal agreed by India and the EU in January was described by European Commission President Ursula von der Leyen as “the mother of all trade deals” — buoyant language to hail an economic partnership between the world’s largest trading bloc and its most populous nation.
The agreement will reduce or remove tariffs on 96.6% of EU exports to India. While sensitive agricultural products have been left off the table for both sides, many products seen as vital for the EU’s export machine are part of the deal — including cars.
India has agreed to give Europe’s carmakers a quota six times larger than any previously offered, granting companies such as Volkswagen, Mercedes-Benz and BMW far greater access to a market that has long been tightly ring-fenced.
New Delhi has levied tariffs of between 70% and 110% for imported cars and as a result, European car brands have barely penetrated the market.
If and when the deal is ratified, 250,000 European-made vehicles will be allowed to enter India annually at different preferential rates, depending on the price and engine type. Cars outside the quota will face higher tariffs.
The deal is a rare piece of good news for Germany’s beleaguered car sector, which has struggled in recent years with increased competition from China, the switch to electrification and global trade constraints.
The VDA, the trade body for the German car sector, welcomed the deal. Its president, Hildegard Müller, said it “will bring about urgently needed improved market access in an increasingly protectionist global environment.”
In a statement to DW, a BMW spokesperson said: “The free trade agreement between India and the EU is a historic milestone that benefits both parties,” adding that BMW sees India as an important sales market, with the reduction in tariffs providing “additional opportunities.”
Ramped-up quotas and slashed tariffs for European cars
The full details of the deal have not been revealed, but some information on the terms for European cars has emerged.
India has agreed to reduce tariffs on cars above an import price of €15,000 ($17,963), included in the annual quota to 40%, with a further reduction to 10% over time, but it’s not yet clear how exactly this will be implemented.
Bloomberg reports that levies for 160,000 internal combustion-engine cars per year will fall to 10% within five years, while 90,000 electric vehicles per year will reach the 10% mark within 10 years. For cars not included in the quotas, India has reportedly agreed to reduce tariffs to between 30% and 35% over a decade.
According to unnamed sources speaking to Reuters, European cars costing more than €35,000 would benefit from the steepest tariff reductions.
A bigger opening for German brands in Indian market
Rico Luman, senior automotive economist with ING Bank, told DW that the deal opens a market for German carmakers “which has been almost closed for export business with tariffs reaching to 110%.”
He cautions that a tariff rate of close to 40% on out-of-quota cars remains “a competitive burden,” but says the potential 10% rate on in-quota cars “offers opportunities to expand model offering in India and export more premium cars to the subcontinent.”
Jan Noether, director general of the Indo-German Chamber of Commerce, told DW that the free trade deal cements an already existing economic relationship between Germany and India and that German carmakers are well-placed to benefit from India’s fast-growing economy.
“The German manufacturers see the future of the Indian market; they see the growth potential when it comes to the domestic population more and more participating in consumption,” he said.
Can German carmakers crack the Indian car market?
Despite the optimism, Germany’s carmakers still face a major challenge to crack the Indian market.
At present, local Indian carmakers, including Tata and Mahindra, and Japanese and South Korean companies such as Hyundai, Suzuki dominate the car sector, with European manufacturers accounting for 3% of sales or less.
“The Indian market isn’t easy to penetrate quickly due to established brands such as Maruti-Suzuki, Tata Motors and Japanese brands,” says Luman.
Sushant Singh, a lecturer at Yale University, cautions that he expects electric cars to be much more popular in India by the time tariff rates come down to the promised levels, and that by that time, Chinese companies may well have entered the market and started manufacturing in India itself.
However, he sees potential for German EVs if they can eventually produce them cost-effectively on the ground in India. “I think it would be very challenging, but if Germany produced EVs there, the Indian market would definitely be interested,” he told DW.
Jan Noether says that a longer-term goal for India will be to attract German carmakers to set up production plants in the country, and that if this were to happen, it would greatly strengthen the overall footprint there.
“They wish for manufacturing units to set up their plants in India rather than to import completely,” he says. “And if that happens, it will help German automakers benefit from the lower cost structures the Indian market offers.”
Some German carmakers already have small production facilities in India, notably the Volkswagen Group, which produces Volkswagen, Skoda and Audi models in the country. BMW assembles cars at its plant in Chennai in order to avoid the high tariffs on imported cars.
Could India be the new China for German carmakers?
Rico Luman says that while it’s important to remember that average income per capita was around $3,000 in 2025, an increasing fraction of the country’s growing middle-class will be interested in buying German cars, particularly in the luxury segment that brands such as BMW, Mercedes and Porsche specialize in.
“I think there’s an opportunity for premium models from German car makers like Mercedes and BMW, which are well-known names in India,” he says.
While he thinks any suggestion that the Indian market could one day have the same importance for German carmakers as China is premature, its car market still has “huge growth potential.”
“We’re still far off from a similar importance like China, but German carmakers definitely have a window of opportunity to grow their presence and build their propositions to benefit from expected growth. As such, it’s definitely a bright spot amid a world with multiple headwinds.”
