Segment-Level Impact of the EU–India FTA on India’s Auto Market, by Country of Origin

India's automobile market entered 2026 with strong momentum, supported by broad-based demand recovery and structural shifts in consumer preferences. According to a recent survey, total retail vehicle registrations rose nearly 18% year-on-year in January 2026, reaching 2.72 million units. Passenger vehicle (PV) sales grew more modestly but still robustly at 7.22%, totalling 513,475 units. This growth was driven by expanding rural demand, which rose over 14%, and the continued structural expansion of PV adoption beyond metros.

SUVs remain the dominant force in India's PV landscape, accounting for 56.3% of sales, followed by hatchbacks at 24.4%, while sedans, MPVs, and vans make up the remaining 19.3%. Fuel trends also reveal a gradual transition, with CNG vehicles capturing 19.4% of the market in FY25, reflecting consumer sensitivity to running costs. From a country-of-origin perspective, Japanese brands lead with a commanding 49.8% share, followed by Indian brands at 25.4% and Korean automakers at 20.5%, while European, American, and Chinese brands collectively hold around 5%. This structure provides critical context for evaluating the potential segment-level implications of the EU-India Free Trade Agreement (FTA).

Segment-Level Impact

The EU-India FTA is expected to reshape India's auto sector through targeted liberalization rather than sweeping disruption. Currently, imported vehicles face tariffs ranging from 70 to 110%, among the highest globally. The agreement proposes phased tariff reductions to roughly 10% over time, with initial cuts potentially lowering duties to approximately 35% within annual import quotas of approximately 200,000-250,000 units. Importantly, these reductions are expected to apply primarily to internal combustion engine (ICE) vehicles priced above €15,000, while electric vehicles (EVs) may remain protected for at least five years, preserving India's domestic EV development strategy.

As a result, the most visible impact will occur in the luxury and premium segment. Despite accounting for less than 1% of total auto sales and roughly 50,000 units annually, this segment is the most sensitive to tariff changes. However, even here, the volume impact may be limited because over 90% of luxury vehicles sold in India are already locally assembled. Tariff cuts will mainly influence the relatively small share of fully imported models, improving price competitiveness rather than dramatically expanding volumes

In contrast, the mass-market segment, comprising entry-level hatchbacks and compact SUVs, will likely remain insulated. Price thresholds, quota limits, and deep localization across supply chains protect domestic manufacturers. Given that the bulk of India's PV market is highly price-sensitive and domestically produced, the FTA's tariff adjustments are unlikely to disrupt the core volume segments in the near term. Instead, the agreement introduces selective competitive pressures concentrated at the top end of the market.

Country-of-Origin Dynamics

The FTA's implications vary significantly by country of origin, creating a differentiated competitive landscape. European automakers are the clearest beneficiaries. Reduced tariffs will enhance pricing competitiveness in premium ICE segments, enabling stronger brand penetration in a market historically constrained by high import duties. Even with limited volume expansion, improved affordability could reshape consumer perception and aspirational demand.

Indian automakers face a mixed outlook. Domestic OEMs such as Tata Motors and Mahindra may encounter increased competition in premium SUVs and higher trims. However, the broader impact remains limited due to strong localization and dominance in entry and mid-market segments. On the upside, Indian auto component suppliers stand to gain from improved EU market access, potentially boosting engineering and parts exports and strengthening India's role in global supply chains.

Japanese manufacturers, led by Maruti Suzuki, are expected to remain largely insulated. Their strength lies in entry-level and mid-market segments, which are protected by price thresholds and localization advantages. However, there could be indirect pressure in upper segments such as premium hybrids and larger SUVs, where European brands may leverage tariff advantages to strengthen positioning.

Korean automakers, including Hyundai and Kia, face potential mid-tier challenges. While they have strong localization and design appeal, enhanced European pricing flexibility may intensify competition in premium trims. Meanwhile, the US and other global brands without FTA benefits could see selective erosion in luxury imports and premium SUVs due to relative pricing disadvantages.

Structurally, the EU-India FTA represents a calibrated liberalization strategy. It preserves high protection for mass-market and EV segments while introducing selective exposure in luxury ICE vehicles and unlocking export opportunities for Indian suppliers. Rather than triggering widespread disruption, the agreement is likely to reshape India's auto market through targeted competitive shifts concentrated in premium segments and defined by country-of-origin advantages.