Price hikes and premium push: What explains automakers’ latest moves?

Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Hyundai Motor India, and Kia—accounting for nearly 85% of India’s passenger vehicle market—are leading the charge with hikes of up to 4%, citing rising input and operational costs.

While carmakers generally increase prices in January and April to clear older inventories and make adjustments for price pressures, so far this calendar year car companies have raised prices three times. This is puzzling considering India’s struggling car market.

Passenger vehicle sales grew a mere 5% in 2024, with five months witnessing a contraction. The sector’s recovery hopes for 2025 are dampened by a contraction in car sales in February after some growth in December and January and the latest price revisions.

Ravi Bhatia, president of JATO Dynamics, an automotive business research firm, pointed to a pattern of significant price increases that he said had contributed to market stagnation.

Also, while raw material costs are down compared to their 2022 highs, they have shown signs of a pick-up in recent quarters. Further, the rupee’s depreciation and the impact of the US tariff uncertainty are keeping automakers on their toes. Moreover, long-term hedging contracts have prompted companies to adjust prices preemptively to protect their profit margins.

Tariff tantrum

Last week, US President Donald Trump announced a 25% tariff on auto imports. A Mint analysis of India’s export of major auto components shows a declining share to the US, potentially insulating the domestic auto industry from a direct impact. India exported 13.8% of its total auto components exports to the US between April and December (the first three quarters of 2024-25), down from 18.8% in 2020-21.

However, some key players with high exposure to the US market may face the heat. Nikhil Dhaka, vice president at business advisory Primus Partners India, said companies like Samvardhana Motherson, which generates around 20% of its revenue from the US, could face substantial challenges. Maruti Suzuki is among Motherson’s major clients.

Also, the ripple effects of the tariff hikes by the US through potential retaliatory tariffs by India or the imposition of safeguard duties to prevent dumping may lead to price pressures for the domestic auto sector. India Ratings and Research estimates that the proposed safeguard duty on the import of alloy and non-alloy steel flat products could increase domestic steel prices by up to 13.2%.

Also read | US tariffs, EV slowdown pose global hurdles for Indian auto

Pricing dynamics

The Indian car market has undergone a shift in recent years, with consumer preferences shifting towards sports utility vehicles (SUVs) and high-end variants. At the same time, overall demand has been tepid due to the declining prominence of cheaper cars.

Data from JATO Dynamics shows that the average retail price of new cars has risen to nearly ₹13 lakh now from ₹9 lakh in early 2021-22. “What companies are trying to do is optimize their profit, which they do by increasing the prices, reducing the incentives, or changing the price value equation by changing some components in the vehicle,” said JATO Dynamics’ Bhatia.

Also read | Auto stocks are correcting, but it’s not a clearance sale yet.

While tepid growth in domestic passenger vehicle sales is also a reflection of weak consumption sentiment, a withdrawal of incentives and discounts could be counter-productive. Experts say the latest price hikes will primarily target top-variant models, for which there is strong demand.

Premium push

Premium SUVs and top variants have defied the overall sales slowdown, offering automakers a strategic pathway to maintain profitability and protect margins.

“While rising material costs do play a role, automakers are also reshaping their product mix to favour higher-margin vehicles. This strategy not only offsets cost pressures but also helps maintain profitability despite fluctuating sales volumes,” said Primus Partners’s Dhaka.

An analysis by Cargraphical Analytics Solution of car sales across various price ranges shows that the share of cars above ₹15 lakh has increased significantly since the pandemic. The segment now commands nearly a third of the total car sales in India.

“Automakers are confronted with a strategic dilemma: either pursue a high-profit approach by targeting a niche market of high-value and premium-priced models or prioritize expanding the overall market size,” said Bhatia of JATO Dynamics.