Mahindra shares lose Rs 18,000 crore: Is India-EU trade deal really bad for top SUV seller?

Mahindra & Mahindra (M&M) shares plunged over 4% Tuesday, wiping out Rs 18,000 crore in market value, as investors reacted to the India-EU trade deal that slashes tariffs on European cars from 110% to 10%, but analysts say the panic may be overblown for India's second-largest passenger vehicle maker, which dominates a segment largely insulated from the import threat.

The free trade agreement announced today cuts duties on cars imported from Europe for a limited quota of 250,000 vehicles, sparking immediate fears that luxury European brands will flood the market and erode the share for domestic manufacturers. But the fine print reveals a carefully calibrated approach that excludes the mass market entirely and phases in electric vehicle access only after five years—protections that could shield Mahindra's core SUV business even as it faces fresh competition at the premium end.

M&M, which clocked its highest-ever volumes in both SUVs and LCVs in CY 2025 and recently overtook Hyundai to become India's second-largest passenger vehicle maker, saw its shares tumble amid broader weakness in the auto sector. The Nifty Auto index ended down 1% as investors digested the competitive implications.


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The Deal's Auto Provisions: Calibrated, Not Catastrophic

There are special provisions for the sensitive auto sector as authorities weigh the impact of strong imports on the domestic manufacturing sector. Hence, a quota-based reduction will be undertaken – for the first year, import duties will be lowered from 110% to 30-35%, which will then be lowered to 10% over time. There will be an exclusion for cars priced below Rs 25 lakh (mass market) to safeguard the domestic industry, while premium segments will be more open, Radhika Rao, Senior Economist and Executive Director at DBS Bank, pointed out.

Critically, access to EV markets will not be immediate and will open after five years—giving domestic players like Mahindra breathing room to scale up their electric offerings.

The Ministry of Commerce & Industry said a calibrated and carefully crafted quota-based auto liberalisation package will not only allow EU auto makers to introduce their models in India in higher price bands but also open the possibilities for Make in India and exports from India in future. Indian consumers will benefit from high-tech products and greater competition. The reciprocal market access in the EU market will also open up opportunities for India-made automobiles to access the EU market, it said.

Why Mahindra May Be Better Positioned Than Feared

Mahindra Group MD and CEO Dr Anish Shah said it is a huge positive for the auto sector as it provides duty-free access to European markets and will attract European OEMs to invest further in India.

"This agreement is very well designed, as it lowers in-quota duties only at higher priced segments which will enhance scale in the core segments relevant to Make in India for the world. We feel this will not change any competitive dynamics in the industry," he said in a statement.

Aditya Jakhotia of Prabhudas Lilladher agrees with him saying that the FTA will provide EU carmakers greater access to the Indian PV market (3rd largest globally by volume, just behind the US & China). "Luxury vehicles form ~1% of Indian market. Therefore, the tariff reduction should not impact the mass market players like Maruti Suzuki and entry/mid-level vehicles from TMPV and M&M, but it will impact to a small extent premium plus cars from these players."

The five-year delay on EV tariff cuts is crucial for Mahindra: "Tariff reduction on BEVs from 100% is expected to be applicable after 5 years in a phased manner, giving the likes of TMPV and M&M some relief," Jakhotia said.

Emkay Global adds that "Premium PV OEMs (BMW, Mercedes, Audi) already have assembly operations for over 70% of their volumes in India," suggesting the duty revision would have "minimal/no impact on Indian PV OEMs."

The brokerage notes that most EU large automakers already have CKD units or localisation, which brings effective import tariffs to roughly 30% for most. Moreover, the Indian market is already highly competitive in the entry to mid-segment, which may limit potential market share loss for Indian auto OEMs.

EU Automakers Eye India as Growth Outlet

The deal comes as major EU OEMs face headwinds at home. Volkswagen, Renault, Stellantis, BMW and Mercedes witnessed muted sales globally in CY25, with most of them reporting a dip in their home markets, according to Jakhotia. "Renault has been seeking growth beyond Europe, and VW is planning for higher investment via its Skoda brand in India. In this scenario, the Indian PV market, which is underpenetrated (<3% penetration) compared to major global markets, offers a good opportunity for these OEMs to revive their dwindling sales."

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However, the reality is that these OEMs are already manufacturing locally: "These OEMs are already manufacturing locally, but the tariff reduction can help them scale up and launch more models at competitive prices," Jakhotia said.

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The 250,000-vehicle annual quota represents a small fraction of India's passenger vehicle market, which sold over 4 million units in FY25. With cars priced below Rs 25 lakh excluded entirely, the competitive threat is concentrated in the premium and luxury segments—categories where Mahindra has been gaining ground but which still represent a minority of its volumes.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)