India's 'Wealth Effect' Drives 50% Surge in Car Prices

Premiumisation has reshaped India's auto landscape as average prices surge 50%

Indian car buyers are paying 50% more for vehicles than they did five years ago as strong asset price growth across stocks, real estate and gold drives a structural shift toward premium models.

An HSBC analysis shows that India’s traditional pyramid-shaped automotive market has transformed into a diamond, with mid-market vehicles in the INR1m-2m ($11,510-$23,000) price bracket now accounting for 46% of sales, up from just 13% in fiscal year 2015.

The wealth effect has particularly benefited the utility vehicle segment, where market share has doubled over the past seven years to reach 69% of passenger vehicles. These larger, more expensive vehicles have displaced traditional hatchbacks, whose share has fallen from 76% to just 29% during the same period.

Average selling prices across the industry have also risen sharply, with Maruti Suzuki, India’s largest carmaker, seeing its realisation per vehicle jump from INR445,000 to INR657,000 between FY19 and the second quarter of FY25. For other manufacturers, the increase has been even more pronounced.

The trend has persisted despite an overall slowdown in passenger vehicle sales, which have been nearly flat in FY25 after growing 27% in FY23. HSBC analysts note the strong performance of asset markets has “had a significant impact on buyer sentiment and his/her ability and desire to upgrade,” even as white-collar job markets in technology and start-up sectors have weakened.

“The white-collar job market has been weak over the past one year but it hasn’t impacted demand as significantly as expected,” the report states.

This premium shift is creating both opportunities and challenges for manufacturers. Maruti Suzuki has expanded its utility vehicle offerings to defend its overall market share, which remains above 40%, while Indian conglomerate Mahindra & Mahindra has benefited from its strong position in larger vehicles.

The premiumisation trend extends beyond vehicle size to powertrain choices, with diesel engines maintaining a 35-40% share in the 1.5L engine category and over 80% in vehicles with 2L or larger engines. This contradicts earlier predictions of diesel’s decline in the Indian market.

HSBC forecasts this structural shift will continue, with growth in premium segments outpacing the broader market even as overall passenger vehicle volumes are expected to grow at just 4-5% annually over the next two years.