Reinventing Again And Again: Mercedes-Benz India CEO Santosh Iyer On Catching Up With EV Boom And India Strategy
In this week’s The Core Report: Weekend Edition, Iyer spoke about the changing Indian consumer, why people are opting for EVs and how the company is constantly looking for localisation, including in India, to keep costs in check.
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Santhosh, thank you very much for joining me, and I'm really happy to be here at the Mercedes-Benz factory near Pune. So tell me, did you at some point say that I'm going to work for a luxury car company or let me take a step before that? Did you, or rather, when did you say that I'm going to drive my first luxury car, and when would that be?
So, firstly, thanks for joining us here in our lovely facility back in Pune here. You know, I never planned my career, to be very honest, it is more by default and not by design.
I think things fall in the right perspective as you do the right jobs. But coming to your second part, which is about the luxury car to drive, you know, I grew up watching Formula One, watching Schumacher. So, Ferrari was always for me, the pinnacle there.
And I always felt that one day I should drive a Ferrari. Of course, now I drive AMGs. But that's where I started my fascination, I would say with luxury cars.
And this was when you were in college, and the reason I'm asking is, did your sort of professional and profession and your passion sort of align because of that or?
No, as I said, you know, my twist with automotive came after the first four years of, you know, working. I started selling weighing machines, etc, and I moved to Nepal. That's where, with a close friend of mine who is one of the big distributors for Yamaha bikes, that's where I, you know, supported his business to grow the Yamaha business in Nepal, and then I could get a sense of the two-wheeler market and automotive business.
I always loved the industry, and I love the smell of gasoline as well. And when you do what you love to do, I think you always excel. So in that sense, I said yes.
So when I came back to India, I had a couple of offers, and that's the one good decision I think I did. I actually went with Yamaha and not with, I used to sell capital equipment, compressors, etc. So I said, not an engineering hardcore capital equipment setup, I go more with automotive, and the rest is history.
And it's interesting you talk about the smell of gasoline because today, a lot of people who join the auto industry may not smell it at all, at least in some companies and then others. But I'll come back to that in a little bit. So you spent now 16 years in Mercedes.
So tell us about what you saw when you came here, and what are the big changes that have happened within and outside?
No, I think firstly, when I came in here as a brand, we were always very strong. The three-pointed star has always been desirable. But there were new players in the Indian luxury car market.
And when the new players came in, they disrupted the market. And that was a tough period of time. We had to stick to our brand promise. We had to work through the strategy again. And I am really thankful to my colleagues at that point in time.
I used to do marketing. I did many jobs in this company as well. And in all these functions, we said that, you know, we have to stay true to the core of the brand and the promise. And we did the right things.
I think right now it's a different set of challenges because the industry is going through transformation, not just the brand. Electrification on one side, autonomous on the other. Of course, in India, we don't see the effect of autonomous yet. But there's a lot of capex going back in Germany. Two weeks back, I was in Stuttgart. I saw level three autonomous driving.
It's all capital-intensive. So there's a lot of capital going into future technologies to be funded out of the current. You know, we are a brick and mortar traditional company responsible to shareholders over a period of time.
So we don't have easy money. We have to generate these from our operations and to do this massive investment in RD, both in electrification, autonomous and continue our current business, because we don't even know till when will combustion engine will last. So we cannot stop investing even in the current combustion engine technology as well.
So I think this I think is going to be the one of the biggest challenges to run three big power streams which are intensive on RD, capex and do this transformation. And the same applies to India as well.
In this transition, and I'm going back to the 16 year period, you said that when you came in the early days, there was there were some challenges and that was more sort of internal and to do with the brand. So, one is if you could take us to what those challenges were. The second is that as the brand has grown, and I know that you've brought, I mean, you've done changes, subtle shifts in the way it's positioned and so on. What has changed in the positioning? How much of that is global? How much of that is Indian? And equally, what has not changed?
Yeah, I think what is when I said 16 years back, we were attacked by new players also with very aggressive price point positionings and different topics. I think it's a full circle. We can see the same happening after 16 years.
We have new entry price points. We again have different kinds of, you know, price discounts happening in the market. But what we didn't change is that we said let's give more value to the customers.
So one of the mistakes people make is that India is a very price-sensitive market. So let's get the cheapest and be there in this market. And I think we stuck to that strategy. We said, no, we will come up with newer products, more content, more no stripped-down versions, no entry-level versions across segments. And I think that was a fundamental reason why, over a period of time we were successful. Second is we made India-specific products, the long wheelbase E-class, for example, which was then again, of course, followed by competitors, etc.
But I think at least we started very clearly defining products for India. The network strategy it's not just the number of outlets, but four years back, we completely redefined the way we sell a car. So we are the only brand to do a direct-to-consumer model.
Again, these are subtle things that we change. What has not changed is the core belief that we need to offer the best to our customers. I keep telling my team as well that we are just custodians of the brand.
We have to pass it on when we leave this organisation. So ensure the star is shining brightly. Ensure what we can do on the customer experience side and stay true to the brand promise.
You know, we used to have this tagline of best or nothing. We don't use it today. But I think the DNA is very clear that we need to continuously push our boundaries and be the best in what we do.
How would you describe the Mercedes brand globally, as well as the way in your mind it's perceived in India?
I think globally, because this brand has been there for around close to 140 years. Also, it's seen in different formats. You are right from trucks to cars, to also, I would say, different forms of vehicle ambulances, vans.
So the positioning is a bit distorted in different Europe, more so when I talk about Europe. That's where Mercedes-Benz is trying to do a fundamental shift. We are exiting segments with trucks and buses. We have now separate companies.
It's there in India as well.
In India as well. And there's a complete dedication to the brand as well. And what should a Mercedes stand for?
But in India, we always had a unique identity. You know, the first thing a kid starts drawing with a car is a three-pointed star as well.
So over a period of time, because the brand was present in India even before we came in, you know, one was, of course, the Maharaja world. But even in 1954, we had the Tata Benz trucks. Later on, a lot of consumers used to import these cars.
And in 1994, when we set up a car shop in India, that time again, we had a lot of Mercedes-Benz coming in. So the brand has been shaped up with a lot of aspiration, admiration, both being at the pinnacle of desirability.
And it's not only India. I can also see that maybe in a lot of developing or developed markets, be it China, Southeast Asia, Korea, Japan, we are very strong when it comes to the luxury brand positioning and in the top end. Europe, as I said, because of the model mix and the legacy and the story, people have seen the brand inventing, reinventing multiple times and seen the brand in different use cases.
So maybe it's more premium than luxury.
One of the shifts I recall, and do correct me if I'm off here, is the attempt to position it to slightly younger audiences. Now, is that something that's cyclical, as in every now and then, you have to find ways of making your brand seem younger and position younger? Or was that more like a one-off thing which happened after a long time?
So I think there was ta wo-pronged approach. I always believe that when you market and communicate, you have to be truthful, right? So, an old man now, if I go back to my college and I can wear what today's young generation may be wearing in colleges, but I will not be young.
So fundamentally, we have to change the product. So the starting point was our product strategy. So right from the A-Class in 2014 till all the new launches that we did and even we do today, the design language of Mercedes-Benz has changed significantly.
So the starting point was the product. Then follows the communication of placing it in the right target group. But I think there was also a bit of, you know, our cars are a bit more expensive.
So the idea was to say that, yeah, it's expensive, so young people won't buy it. It's therefore, it's more older people's car. And today we have been able to change the narrative.
Today, we are the most expensive luxury car brand across price segments. But still, we are the most desirable car brand. Even the young people, because today I don't think that price value, as long as you give the price value equation, you are able to command the right pricing. But we should not dilute that. And there I still feel that this young versus old is more in the mindset. I believe India, Indian consumers by default, also because of the demographics, because of the income levels, have also grown younger.
So our average age today for an S-class is 38 years old.
And, you also have a very wide range of models and I'm going to get into the manufacturing of that as well. So what, I mean, explain this strategy as you would to, let's say an MBA student.
Wow. So, you know, India is quite unique and on one side we do close to 20,000 cars. Last fiscal, we did 19,000, close to 19,000 hot cars there.
Which was your record?
Record year again. And if you see here, clearly, you know, we have to do 25 models. Now, 90% of the cars that we sell in India are made in India, which is around 11 models.
So 11 models to do close to 18,000 cars. If you see, it's hardly 1800 to 2000 cars. So that's not the scale that you are able to get, but at the same time, if we have a consumer at every price point, starting at 50 lakhs to five to six crores, and we need to give the product offerings.
So there has been a lot of discussion that should we reduce complexity? Should we take out certain car lines, fuel types? But we feel that this market demand choice, they need, and also Indians are well-travelled. So they have been driving these cars in, they have a house in London or maybe in the US or even in Dubai.
They are exposed to all brands. So we are compelled to get all these options. Drives complexity into our business, but surely it also for us, we need to offer this as an option to the market.
And would this be more than, let's say you mentioned Dubai. So, if I went to a dealership in Dubai, would I get 25 options?
Yeah, they would get it because it's CBU imported. So you have, but you know, in, in a hardcore, maybe in Southeast Asian markets, maybe not all these models will be available, I would say.
Right. So this is one of the few markets in the world where you have such a wide.
Yeah. In CBU markets, anyways, you can shop in and you can import any of the model, but in markets where you're producing, like, you know, we have this XKD set up in India, Vietnam, Thailand, Malaysia, et cetera. I would say India will still have the largest portfolio.
We have to also remember we are right-hand drive. So that's another complexity.
Many of your peers. And when I say peers, I mean, let's say, other German car manufacturers have not gone for a similar strategy or many other luxury car makers have not.
They didn't go. You're right. But now they are all in, they are also following us, be it in terms of the product lineup, also on fuel type.
So I think they have also realised that you need to be present in all segments. So today, if you see, segment by segment, we have a competitor across all the segments now.
Coming back to 25 models and you said about of the 19,500 that you sold last year, which was a record, almost 18,000 is actually manufactured right here. Yes, exactly. Tell us about the manufacturing process.
I mean, what is moving most of the time? What are the models that are working? How does the process itself adjust to these changes?
For us, we have added the complexity of this direct-to-consumer model, because we don't have stocks at dealers and we cannot push stocks to dealers. We are, we have to only give the car to the end customer. So the stock is owned by us.
So when I go to a dealership, I only see display model, display model, and there's no service centre at the back.
No, there is a service centre there. So servicing is still continuing the way it is done. But in terms of sales, the cars that you see are all Mercedes-Benz India stocks.
It's available online. It's fully transparent. Price is also standardised.
Discounts are standardised. There's no negotiation, haggling. So we have changed that narrative in the luxury car space completely that you focus on customer experience and not on discount negotiation, but that also means coming to the production side.
It's not like the production is erratic. I have cars. I can push it to the dealer, which is what generally the automotive industry does today across OEMs, wherein there's a push model and then a dealer sends it off with a discount or something.
So we have to be extremely mindful of planning the right cars, lead time being high. It's almost six months time that we have to plan the plan the production lifecycle. So the game starts from planning correctly, then comes to production.
In our production, our colleagues are really, they have been able to make a flexible plan, wherein on the same line, you can make a combustion engine, EV, diesel, you know, all different types of powertrains. In the same line, you can actually make a GLE, GLS, GLC. In a sedan line, you can make a sedan car.
So there is a high level of flexibility in our workforce they are able to do. And that also you don't need. You can actually make a GLS behind a GLE behind an S class, and that kind of flexibility very few plants in the world have.
And India was one of the first markets which adopted this production flexibility. Today, if you go back to Stuttgart, we have our benchmark factory 56. That's a plant of the future.
That's again modelled on this flexibility concept that you should be able to produce multiple trim lines, etc. And so that's one unique thing that our colleagues here have done it. They have actually innovated.
So that gives us a lot of flexibility for the market.
So, what is the lead time? So suppose I walk into a dealership in Mumbai where I live or if I were in Delhi, and I say I want this particular model, which let's say is not in your top 10 your maybe it's in the 11th, 12th, 13th in terms of hierarchy of sales. What's the time?
So most of the time, you know, I would say for 60-70% of my car line, we would have a stock for the balance.
And that stock would be here in?
In Pune itself or maybe placed at certain dealerships based on the run rate, etc., colours, etc. We are able to play.
You have some at dealerships.
Yeah, display cars which are standing there, which can be converted into sales. On the other side, we have cars which have a, I would say, waiting period of a month to 12 months to 18 months. It depends again on the global dependency also for that car.
But let me take an example of the new E-Class Petrols. I don't have a car for the next four months, but diesels. I have a car which I can give in 15 days time.
It's also sometimes related to fuel mix, variants and types.
So what is the 18-month wait for?
The G-Waggon, for example, you know, that takes a lot of time once you book the car. Guard vehicles, we have also we give, you know, fully armoured, protected cars as well. That also sometimes takes time.
But the G, the GLS Maybach, again, dual tone paints in the S680, is a 12-month waiting period for some of those cars.
And where do those cars come from?
They come from mostly from Germany. The G-Waggon comes from Austria, Graz. GLS Maybach, some of them come from the US as well.
And this the where it comes from is it because of their capacity or is it a.
No, so each car line has been allocated certain countries and certain markets like the S-Class is made in Germany. For example, the G-Waggon is made in Austria. The GLS GLE is made in the US. So there are mother plants for making them. And then they export this to the rest of the world. Also for the domestic market and export to the rest of the world.
So in a normal month, how many or rather what are the most prominent or most selling models of these 25?
So the top-selling car would be our E-Class, followed by the GLS, the GLE, the SUV portfolio, the GLC as well. You know, as Mercedes-Benz, if you look at our portfolio, we have one in four cars is a top-end car that we sell. Sixty percent of the portfolio would be a car, which is the core luxury segment, which is cars costing more than 60, 65 lakhs to 1.5 crores. And the entry for us is now hardly 10%. In fact, we also see a degrowth in the entry segment. But that, again, I won't say by design, but because of the price competitiveness and many topics, we are much more customers prefer Mercedes-Benz in the core and then the top end and in the entry segment.
And why is that?
So, you know, we took a strategic decision that we won't fight on entry car models by stripping our variants or giving three cylinder engines, for example, or doing something which will compromise. You know, there should be a pride of ownership when you drive out a luxury car, a Mercedes-Benz to tell your friends and family that, hey, this is the reason I bought. And if those reasons are not there in the car, maybe it doesn't make sense to do this.
So our cars are more expensive. So if you look at my GLA, that is around Rs 55 lakhs, on road is Rs 60 lakhs, that's the entry car which starts. We have an A class, but that's still very low volumes, hardly some double digit numbers that we sell, but that even on road is more than 50 lakh rupees.
But what we have not done is we have now come up with an entry-level A class at Rs 40 lakhs or maybe an entry GLA at Rs 49 lakhs. That we have not done, and neither we intend to do in the near future as well.
If I were to come back to the manufacturing process and you said now it's a multi, it's not just multi-model, but it's also multi-fuel. Earlier, you just maybe a petrol engine to a diesel engine. I mean, similar in size dimensions, though not the same.
Electric is a completely different ballgame. So, how is the plant integrating with this flow?
I think hats off to the logistics colleagues, operations colleagues, that they have been able to master this art of complexity, I would say.
So, where do the batteries come from?
Again, batteries come from Europe itself. We have a plant in Europe where we get the batteries from. We have also established a very good supply chain in our own.
So the port is 110 kilometres away, the Navashiva port. We also have our own supplier modules in and around the plant. We have just in time, for example, Lear seeds, we have force porters who assemble the engines for us.
So we have also established this full ecosystem in and around Pune, in Chakan, where we are able to get just in time. The paint shop is internal. So we are able to do the paints within our in-house capabilities.
I think this model has now been adapted by other luxury players as well. So you can see we were the first. We started now.
It's replicated. It's nice. So but yes, to handle the complexity, usage of digital tools, we have done a lot of digitalisation when it comes to supply chain planning, demanding for demand and forecasting. We also have come up with very efficient custom clearances processes. Plus, I think the flexibility allows us because in today's world, even post-COVID, we had supply chain issues.
But our production colleagues were really able to manage it because of the flexibility. So if there is one part also not in a car, you cannot finish the car. So we have the flexibility to take it out, get the other car line in.
Plus handling complex jobs. You know, when we got the EVs, we had this hyper screen. Nowadays, in the front, you have this end-to-end screen in the car.
It's very difficult to assemble, install, fix it, maintain it. So there we again were able to come up with innovative ideas without again investing huge on CAPEX. We were able to come up with local solutions where we are able to do this installation in all these cars.
So we are able to do a hyper screen in cars. We are able to get this complexity done. Yeah, but that's also the secret behind the ability to offer so many variants at the right time in the right place.
For most of these, again, what would be the percentage of localisation at this point?
Overall, I would say we have almost over 30% in terms of localisation that we have been able to do with the different parts and module supplies that we have been able to bring. The rest is all coming as good.
And what would be the, let's say the most critical parts that come from outside and what are the most critical parts that are manufactured in India?
It depends on car line by car line. But for example, wiring harness, we not only make in India, it's a complicated part, we make in India, we export out of India also. We have a full-fledged procurement team sitting out of Chakan, which is constantly looking out for suppliers, not only for us, but for the world.
And this 50-member team is constantly evaluating. So we have many suppliers who are supplying a lot of components. Recently, somebody started supplying tow hooks, for example, in the States for Germany and for the world as such, whereas we also are able to get for our own local ecosystem, many of the parts as well.
So it's always, we never go with an RFQ only for India, for India, but RFQ is for India and for the world as well.
Are you seeing more localisation at this point of time?
No, I think we always look out for localisation because I think it helps us reduce logistic costs, custom duties as well. But on the other side, the threshold volume is important because, you know, wherever you have specific dies, jigs, fixtures, tooling, it has to be amortised on what number. Now, when you do 3,000-4,000 cars to amortise such a big capex, then you don't get the scale impact.
So this is a constant evaluation. But recently, let me again give the example of the last launch, the new E-Class. For the first time ever, we have localised the entire glasses in India.
So all the glasses, sunroof, to side glasses, everything comes out of factories in India. We did Saint Gobain and we have different partners ,and we have been able to localise that in India for India for us. So that's a continuous lookout, but it also depends on the volume development of that car line.
Now, in terms of number of units or volume, what are your top three models? And I know you said E-Class was the top, but what are the top three?
E-Class, the GLS and the GLC.
So and I'm assuming GLS and GLC are reflective of the SUV trend, which we've been seeing in recent years. So is that something that you were ready for or did you respond or?
You know, the good part is across the portfolio, right from the A-Class to the S-Class, we have a sedan and SUV in every portfolio. Today, we are 55% on SUV, 45% on sedans. And we have a portfolio.
We used to have a portfolio gap in the SUV, but in 2016-17, we started with the GLC. We plugged that gap, which used to exist. But now we are fortunate that we have a product in every segment, both in both the body types, both.
So that way also we are one of the only few who have also petrol and diesel across our powertrain. So not only the body type, but also the fuel mix, because when you look at top end SUVs, you have more diesel penetration. When you have entry SUVs like GLA, GLC, you have more petrol also.
So, but we offer both the powertrains and both across the car line. So are consumers asking for diesel or are you giving them? No, they're asking for diesel.
Even now, even though there's not much price.
Yeah, the guys who really drive, diesels are more expensive to start with, but the total cost of ownership is significantly cheaper. Not only because the cost of fuel is cheap, but the fuel consumption is at least 20% better than a petrol car. Secondly, the fun of driving, you know, high torquey cars, India also, the terrains are like this with also with good roads.
Now, people love to drive themselves and there they enjoy diesels very much. And I think it's again our responsibility to ensure that we don't cut a fuel type. But consumers in cities, mostly this Delhi ban and all that stuff on air pollution caused this negative syndrome on diesel.
Because diesel is a clean fuel, because with the clean diesel engines that we are able to give. But there's a lot of propaganda against diesel, and therefore that became a bit of sensitivity. But there are still, I would say still 35-40% of our customers love diesels, they buy diesels.
So you think 35-40% of your current sales are diesel, of your entire 19,000 cars, for example.
See, we have to remember from an emission standpoint, because we talk about decarbonisation. So full decarbonisation is electric, no doubt zero emission. Now, we are also signatory to the Paris climate change.
Now, we don't know what the world will do. But if as a responsible country, we want to decarbonise, then if you have more gasoline, you will have a problem with CO2. Because, and if you have more diesel, then you have a problem with PM, which is particulate matter.
You need to have a balanced mix of petrol and diesel to achieve your average fuel efficiency or the cafe energy targets and emission targets you have got. So ideally, a mix is the most ideal approach for reducing emissions and for decarbonising. If anybody is only on diesel, then they are doing more PM.
If anybody is only on petrol, then they are also emitting more CO2, which is equally harmful or even more harmful, some may argue. So we need a mix as long as combustion engines are concerned. And of course, EV is the final solution for decarbonising.
How has the response been to your EV range so far? And I know you recently launched some more.
No, no, it's great. If you see last fiscal, our sales grew by 51% actually, Januart to, I would say April to March, that we have recently announced now, and 51% is a great growth. But let me show another matrix.
If you look at the penetration of EVs to our total sales, when we started, it was around 2%, went up to 4%. Last fiscal, it has gone up to 7%. Last quarter, it is as high as 8%. So slowly but surely, we can see a higher acceptance of EV. Now, when you compare this with the mass market, it's still a 2%. So luxury cars, customers definitely find a higher propensity.
Of course, we are still not in the entry segment. You know, my cheapest EV starts at Rs 68 lakhs, Rs 66 lakhs. So we don't have a car at Rs 50 lakhs.
So in spite of that, our penetration is 8% today in the EV segment.
And those who come to you and buy EVs, what aspect is attracting them? Is it the brand? Of course, it's the brand. But in addition to that, is EV because they are aligned to the concept of environmental or is it something?
I think that comes in the second level. Environment comes in the second. The first level is, of course, a huge value proposition, not from the running cost also, but also from a car.
I keep saying in India, if you buy a 100 rupee car or a 1 lakh car, Rs 68,000 goes into the government for taxes. We have 48% GST and 20% road tax. And the balance, you are buying a car only for Rs 32,000.
If you buy an EV of Rs 1 lakh, you get Rs 95,000 worth of content and Rs 5,000 goes to the government in GST. There are no road tax in many parts of India. So from a sheer value for money, EV makes sense to a lot of people who do this match. Second is, of course, the running cost.
And third is this. You know, you have a green number plate today when you are in your societies, in your parking lots. It's also, I think the government has done a great job in that distinction of green number plate.
You can show that you are more responsible. Plus kids, you know, a lot of families, the pressure is coming from the school-going children and the college kids saying, hey, no, no, no, buy an EV. That's more futuristic, much better.
And of course, you know, there's no compromise on the driving because you love, it's great. You miss the sound. Also the smell of gasoline, maybe, but we have enough cars to smell that around us.
But from a responsibility perspective, it's great to shift to an electrified future.
Did a company have to work on this? Because when it comes to EV, there has been a bit of a levelling? I mean, you can see some of the Korean companies, for instance, also launching very sleek EV cars.
That's in India and in the US and others you have, of course, Tesla and so on. So how does a company, a brand like Mercedes, manage that, let's say, that sort of disadvantage because of technology, which sometimes may not fully overpower the brand promise?
You know, we have a firm belief is we reinvented the car. We continue to reinvent and we'll reinvent it again. Because, you know, when we go back 140 years, there was no car.
There was only horse carriages. So we started with that as such. And today, you see safety, innovations, many things we have been pioneering.
Coming back to electrification, we used to have a strategic stake even in Tesla at some point of time. So, but we have firmly believed in our own competence today, be it autonomous. We are the, let me talk first autonomous, I'll come to EV.
We are the only brand to be certified level three autonomous in the US. And we are the only brand now to be certified in Europe, in Germany, as well to drive on public roads with level three autonomous car. So we have again exit.
Coming to EVs, I think, yes, there are more options. But I think as long as we are able to stick core to our brand promise. Today, if you see our EVs, the range is 7, 750 kilometres, true range, not the certified range and some.
So many of our cars have this kind of a range. We are able to give better results.
I saw that there was a, my friend's auto car did a drive, which from Bangalore to New Mumbai, New Mumbai and on public roads on normal timing.
The car also had a flat tyre, almost 900 kilometres on a single charge. And we did that to also show that these cars are beyond the usual, you know, reported figures these cars can deliver. So I think over a period of time, consumers will accept, of course, the design, you can argue, you know, we came up with a different design philosophy.
And now that's again changing. If you see the new CLA that we previewed recently in Rome, it's brilliant. It's in terms of design as well.
So I think we are also learning in this in this curve. But one thing will not change is the quality, the way we are committing to this cause. We are the first automotive company in the world to say Ambition 2039 will go carbon neutral, not just tailpipe.
We are still continuing to remain there. With all that's happening around us, we still feel we should be able to reach that goal. Of course, it's more tougher now because the pace of electrification is not happening the way we all envisage.
But we have many consumers, including me. Once I'm starting to experience it, you never go back then.
So you drive an electric car?
I drive an electric car.
OK.
But just to go back to that Bombay to Bangalore, you're saying that a Mercedes car on a single charge did a Bombay Bangalore run?
Yes.
Without any, except for some, I'm sure there must be stops.
But to be very honest, it was very conscious effort to do that because they had to make the Guinness Book of World Record and they had to do it. But in general, if you have to go Bombay, I have my colleagues going to Goa actually on a single charge of charge. And that's not a problem at all.
I do Bombay to Bombay, Pune, at least three, four trips also without recharging. That's also not an issue.
And as you look ahead and do you see, for example, BYD said that in five minutes, we can top up to almost 700, no, 249 miles, I think. So basically, it was a new benchmark. And Mercedes, I know, is not very far behind, but it is behind.
So do you see those things moving fast?
Electrification, I give a lot of similarity to the mobile phone race. If you see at some point of time, there are many phones which can give you better camera visibility, features, sound, audio, music, gaming experience, go on and it has everything else. But then generally, we stick to certain brands.
We don't go out of that. There's a set of consumers who stick to that iconic brands and they would like to have that experience because what defining that experience is not just that camera megapixel or something. It is the ecosystem.
Today, what we have done now is we are creating our own Mercedes-Benz operating system proprietary to us. So an experience once you are sitting in a Mercedes-Benz is a Mercedes-Benz experience overall. And then you would like to retain the customer in that ecosystem and not then look into just the features.
You know, otherwise, these are gimmicky. You know, there's all these things are driven a lot by gimmicks as well. We would stay out of it, but we will develop our own operating system where over a period of time, the customers are able to experience that Mercedes-Benz feeling and what differentiates us from many other cars.
So the feeling is a good point because if I were to, let's say, if I've been a traditional user of a Mercedes petrol or a diesel, which itself is a little different in feel, I think, and now I come to an electric, are you guaranteeing me a similar feel and a consistency of feel or are you saying it's going to be different?
It's a fantastic question. What we are doing, so we have clear guardrails that a Mercedes is a Mercedes should remain a Mercedes-Benz. Therefore, when it comes to drivability, when it comes to safety of the car, you know, the core values of love and respect that we say should remain the same irrespective of the powertrain.
And that's where our designers start the car from. So that Mercedes feeling one should get in the attention to detail, in the buttons, in the touch control feeling, in the tactile feel, even on the screen, even if there are no buttons, you should get that. That's something that we are trying to benchmark and ensure that that will not be compromised irrespective of the powertrain that we go for.
And if, as consumers become more demanding, for example, let's say consumers today in some cases want buttons back and maybe they're finding too much sort of screen. So is that something that you will respond to or?
There are enough blogs which says buttons will be back and buttons will be there, but I cannot confirm or deny at this stage.
Right. So anyway, so people are asking for it because there's a sense that… The tactile feel they needed.
And I'm asking this also because you're an auto company, I mean, not just because you're Mercedes. Today, I have a sense that, OK, if I buy a petrol car or a diesel car, it's going to be with me for 15 years and this is what I'll roughly spend every year. After four years, I'll need this for five years.
What is it looking like with electric? So it's the same.
If you see the cost of… First of all, total cost of ownership is very low in an electric. If you see the running cost, also the maintenance as such.
One big question mark is on the residual value. But I keep saying that a combustion engine car, you are only paying 32% of the price content. Here that is 95% is content.
So even if you depreciate the scrap value from 95 backwards, you will still get more value on a 95 bucks car than a 32 bucks combustion engine car, just to start with. So, but residual value will only develop when more consumers buy electric. We are seeing residual values improving now because there is a shift to electrification and there is a used car market now for electric.
So it's a value of tears, I would say, to start with. Some of them came to the segment much early. They didn't have the best of experience because these were first generation cars.
But today the cars are as good. They are also having high quality, high reliability. So I think the flipping point in terms of the cars have now come in.
Consumers, whether they will flip or they will say my next car will be an EV is still a question mark. As I said, we have 8% of our customers saying yes, EV now, but the rest are still going for combustion engine cars.
So let me come to the consumer and the Indian consumer. And we touched upon that in the beginning. And you talked about the average age of your S class owner being 38, which is your most expensive car.
And obviously that shows the wealth effect that we've seen in India. Now, there are lots of almost folk tales about Mercedes ownership, right? I mean, there are places in India, maybe Kolhapur or Chandigarh, where you have disproportionately high ownership.
What are the other big changes that you've seen in recent years, maybe post COVID, pre COVID? And what are you seeing today?
So firstly, the growth is coming across India. It's not just restricted to metros or mini metros, etc. Also, when I look at the structure of cars, consumers today, maybe in these cities are not just buying entry cars, they are buying high end cars.
The consumer is much more travelled, much more aware, much more learning from the digital side. They are subscribing, they are having access. So most of the time, the decision is made even before they come to the showroom, they have already done their research and they have driven this.
But apart from the demographics on the age side, even women buyers have doubled, you know, we used to be 7 to 8% was women buyers, today it's around 15%. Salaried professionals from 8 to 9% has gone up to 15%. So these are again, certain income level or demographic shift that we see, which again gives us hope that the market should grow much more in the times to come.
You know, the penetration of cars to India is only 24,000 compared to 500 plus in Germany and other places. So when you look at this, such kind of metrics, I think that gives us more confidence that yes, the runway is still the starting point of the runway, not somewhere in the middle or in the end.
And how much, how many would are buying through loans and how many outright, roughly?
80% of them are buying through loans in general. And also there, that's one of the big enablers for growth. You know, we have an NBFC, which is a 1 billion euro portfolio size NBFC in India.
We run specific products called the Agility Plus. So what we have done is, we have said that yes, luxury cars are expensive. So for example, a car is a crore of rupees.
You can buy the car only for 50 lakhs, pay EMI for 50 lakhs, a balance 50. At the end of third or fourth year, we buy back the car and you can actually trade in with a new car. This product we do close to 20% of our sales are this specific product where customers buy this under a lower EMI.
So they technically don't pay for a 1 crore car, they actually pay for 50 lakhs. Similar to leasing, but here the car ownership is with you and not with a leasing company. So this is again a specific financial product.
A lot of consumers today want that without paying the full price of the car. So this is again one of the key triggers which is driving growth. And you're saying 20% of sales is through this route?
20% of the final, 20% of the 80% that we do.
So it'll be 16%, yeah. Right. And as these things hit by external factors, I mean, interest rates going up or down.
There is a high sensitivity because consumers buy EMIs. The moment you have interest rates high, right now in the last quarter, we could already see a bit more interest rates foaming up. So that again causes a bit of wait and watch because a car is always a stress purchase.
They never buy what I always want, the next level of car, the next setup or the top end model as well. So in that sense, then there is always a delay sometimes when it comes to budget decisions. But it is as, you know, I keep saying the car, house and wedding has no budget, technically speaking.
These three always, consumers tend to spend much more than what they originally planned. Therefore, financing plays a very big role. EMIs play a big role in this.
And to come back to those, you know, clusters where you sell more, is that something that you still see or is it more that something that used to happen a few years ago?
No, those clusters, I think were great stories at that point of time. But today, I think there are many such markets. It's no longer, you know, these Kolhapur or something, but there are many even Raipur, Kanpur, all these markets sell a lot of luxury cars.
But again, one of the metrics that you have to measure is percentage of luxury car sales to the total car sold in that market. So let's say India is a 4.3 million car market. The overall luxury car market is 50-51,000.
So the penetration of luxury to total passenger car market is 1.2% odd. So what we do is we go and see which cities have higher penetration. So if I now take Bombay and Delhi, they are already at 2.5%. Then I go to the tier 2 markets, they are at 1.4, 1.9. Tier 3 today is still at 1% or even 0.4. So there is still a lot of, but if you take percentage growth in a small market, last year we would have sold 10 cars. This year we sold 20. It will become 100% growth. So basically, from a percentage perspective, small markets are contributing.
But from an absolute number, it's still the big ones.
And what's your archetypal or Mercedes customer? Two ways, what does the customer actually look like? And what is the customer you think you're trying to reach?
Well, so we have two segments of customers. One, I call them as luxury dwellers. These are, they have been consuming luxury in their day-to-day life.
For them, buying a Mercedes-Benz is another mobility and a personal choice that they're extending. They have driven these cars or they have access to these cars in other parts of the world as well. And that's a predominantly very big part.
60% of our base is real, rich, exposed to luxury customers. Then there is a 35% to 40% of first-time buyers into luxury who have been aspiring for the car. Doesn't mean they are buying entry-level cars.
They may buy the GLS, even a Maybach and the S-Class, but their first time into luxury, they take a bit more time to materialise, to close. They do more shopping. They are going around a bit more indecisive in that sense.
But it needs a bit more conviction as well. To push them to the threshold, they are relying a bit more on finance and to take that leap of faith. Because sometimes they just end up again going back to a premium car or maybe some other cheaper luxury brand and say, maybe the next time I shift to Mercedes-Benz.
So that's where I think most of the work is happening to get them into the fold. But the 60% luxury dwellers are real, also the big revenue stream for us because there are multiple cars also in their household.
So that's one kind. And what's the other kind? The other kind is the first-time buyers of luxury brands who are not luxury dwellers.
So, and how would you define? Is there a mental image of what this person looks like?
It's, you know, the marketing, they keep showing slides, this ideal customer, blah, blah. And they show the most aspirational picture on the graph. But I think India is diverse.
You have different types of people. And it is unfair, yeah, at different points of time. And it's unfair to judge them based on the, in terms of what they wear, what they do.
Because many of them are also simple people. You know, as I said, the luxury dweller is buying this car more for enjoying and safety than for showing off. Whereas there is a set of customers who are also bling, bling, bling, right?
They are fully loaded with brands. They come in fully loaded with different brands, watches, stuff. So you have all sorts of people.
But for us, it's not our job to judge them. We do our job, right? We have a, as I said, we have a direct-to-consumer model.
We give them the right experience. And then a lot of word of mouth also plays a big role. So we focus a lot on customer experiences because it's a small set of people, 50,000 people in India buying luxury cars, right?
Every year. That's the universe. And out of which 20,000 end up buying Mercedes-Benz cars.
And the balance. So we still, in the German brands, we are almost one in two cars, German cars sold in India as a Mercedes-Benz. So that's the kind of strength we have in the ecosystem.
So we need to take care of customers, look at them. But I am against stereotyping customers. You know, that's not the right.
It sounds like you, maybe someone did it in the past and you've learned the hard way. You know, I came from the marketing background and I always feel, you know, when agencies, you know, in those creative pitches, they used to press it. I said, you find me this guy first or girl first.
I would love to meet. Because that's something in the closed door, air-conditioned cabins that you are envisaging. And one thing which is common is the customer, I would say a psychology or, you know, I was recently two weeks back, as I said, I was in Stuttgart.
We had a global CEO meeting. We were discussing markets. So we had all markets and everybody had similar topics.
So at some point of time, we can say Indian consumer is very different from the American, from the British. Yes, there are nuances. But at the core of the problems, at the core of the consumer behaviour, it's some things are standard, something the love for the brand, the way they look at design, the way they look at stuff.
You can easily have 70% commonality and there is a 20, 30% with changes between markets.
So you're also saying even personally, you've never been caught by surprise by a certain customer and that customers, let's say how the customer looked or talked or so on.
No, many times. I, again, you know, for me, I don't judge people by language. A lot of people feel that I was one of the first who said do advertising and dealers said, can we do vernacular advertising for Mercedes Benz?
I said, you have to communicate in the language people understand. But of course, vernacular in a vernacular medium is nothing wrong. There's reading a vernacular medium because or consuming a vernacular channel because they are comfortable with that language.
Doesn't mean there is something different. So, and that's what you're trying to say. And I fully understand many of my colleagues and other this guy, how can they be?
But frankly, the currency is the money. If they have been able to generate wealth and create wealth, and they are now able to afford our brands, why not? And why not communicate to them and make them comfortable then make them feel alien to our brand.
That's not Mercedes Benz from a DNA perspective.
Okay, last question or set of questions. So, you're also now doing a lot of work for Mercedes globally and you set up a big or expanded your R&D here for global. So, more like a GCC now.
So, tell us about what's going on there. So, that's a separate unit.
It's head by Manu Saleh, my colleague there in Bangalore. They have 10,000 odd people. And it's again a company existing in India since 96.
It came to India, but scaled up over a period of time. The good part is they are more than 500 or patents find out of Bangalore. So, it's a real RD and work happening.
A lot of topics like digital twin safety simulation and they're working end-to-end in the vehicle architecture, including a lot of work on MBOS autonomous drive is happening out of Bangalore. So, a lot of talent is available. We also have a set up in Pune.
We have also expanded here. And I think that's growing strength to strength. We keep saying, and I keep saying this also with pride that there is an Indian in every Mercedes Benz sold in the world.
So, I think that's a matter of pride for all of us. And they also support us for some of the India specific local topics. You know, we add in some of the cars, the active brake assist much more stronger in the Indian traffic.
So, they adjusted the software so that we are able to make it more India specific. So, they surely help us also to make the cars much more for the Indian consumer.
So, last question, you said you drive an electric, but if you were not driving an electric or even if in the electric, what's your preferred model or size or type of ride?
So, I am a big fan of AMG. As such, and there the C63 AMG has been my go-to car also for a lot of reasons. And I keep feeling it's like a squirrel on steroids, not too big.
I like to drive myself. I have been driving, you know, cross country in India ever since I was 18. I used to go to Kerala from Bombay driving cars.
And back at that time, the road infrastructure was also not good. So, I love an AMG, specifically a C63 AMG, not the fancy S63s and the dual cylinder ones. But I am happy with the C63.
And Santosh, it's been a pleasure talking to you. Thank you so much. Thank you.
