Amid rising global trade tensions and tariff stand-offs between major economies, Mercedes-Benz India remains cautiously optimistic that businesses will adapt and stabilise over time.

Commenting on the current geopolitical climate and its potential impact on global trade, Santosh Iyer, Managing Director and Chief Executive Officer of Mercedes-Benz India, emphasised that the prevailing uncertainty is not without precedent and that businesses across the world are likely to recalibrate eventually.

"The world must continue to engage in trade, and much of what is currently seen, heard, and reported may be temporary. This is not the first time trade wars have emerged; a similar situation occurred in 2018 under the same administration in the United States," Iyer stated.

These remarks come in the context of U.S. President Donald Trump announcing a 90-day pause on most tariffs, even as tensions with China intensify.

"No economy can afford to overlook others. Each plays a significant role in the growth and development of the rest. Eventually, there will be a median point where matters stabilise," Iyer further added.

Iyer expressed hope that the situation would not escalate into a full-scale economic conflict but acknowledged the necessity for businesses to prepare for a new equilibrium in global trade dynamics.

"This appears to be a momentary phase, and hopefully it does not develop into an economic war, which would represent the worst-case scenario. In general, however, business operations are expected to continue, with a new normal emerging - possibly comprising revised tariff structures or percentage adjustments where matters could stabilise," he said.

While business performance for Mercedes-Benz India remains steady, Iyer characterised the current environment as highly unpredictable, influenced by global volatility, currency fluctuations, and broader economic headwinds.

"This is perhaps the most unpredictable phase, given prevailing circumstances. No drastic measures are being taken in the market concerning pricing or discounts. Our products are performing well, and growth is being recorded steadily. Nonetheless, the prevailing volatility does cause some unease," he noted.

Despite recent flat growth, Mercedes-Benz India remains confident in its long-term prospects and is preparing for a potential recovery in the latter half of the year, supported by a strong festive season and greater clarity on trade policies.

Potential Trade Agreements

As India continues to negotiate trade agreements with the European Union and the United States, Iyer noted that while such agreements offer long-term economic promise, they are unlikely to result in a substantial reduction in the prices of luxury vehicles.

"One of the misconceptions currently circulating is that car prices will decrease significantly as a result of free trade agreements. Let it be stated clearly: there is no expectation of zero tariffs," Iyer said. "Even with FTAs, duties will remain. They may be reduced from the present 60% to 110% range, but they will not be eliminated."

He further highlighted that 90-95% of Mercedes-Benz India's sales are derived from Completely Knocked Down (CKD) kits, which are already subject to an import duty of 15% - a rate that is unlikely to change, even with new trade agreements.

"CKD kits currently attract a 15% tax, which is not expected to be altered. Therefore, the pricing of most vehicles in India is not primarily high due to import duties," Iyer explained.

While acknowledging that Completely Built Unit (CBU) imports - accounting for only 5-8% of the company's business - may benefit slightly, he noted that such benefits would be restricted by quotas and phased implementation.

"It is a far more complex and limited opportunity. Free trade agreements do not equate to unlimited imports; there will be restricted quotas, gradual phasing, and discussions regarding allocation. Consequently, these agreements are unlikely to significantly impact the luxury segment," he stated.

Rather than expecting substantial price reductions, Mercedes-Benz India views FTAs as vehicles for broader economic development - stimulating trade, increasing per capita income, and fostering organic demand.

"If India succeeds in signing trade agreements with the European Union and the United States, it would unlock numerous opportunities. Indian industry would gain access to larger and more developed markets, potentially increasing export volumes to those regions," Iyer observed. "A free flow of goods and services consistently contributes to economic advancement. The potential impact of these agreements is, in fact, being underestimated."