After the speed bumps of the Covid-19 pandemic in 2020 and 2021, luxury car sales have seen a strong uptick in 2022. Its been the best-ever year for Japanese car giant Toyota’s luxury brand Lexus, which entered the country in 2017.
In a conversation with THE WEEK, Naveen Soni, the president of Lexus India, talks about the luxury car industry outlook, the new launches that it has lined up in the market as it looks to ramp up its market share and its journey towards electrification.
Q. How was the festive season this year for Lexus as well as luxury car makers
For us, the whole year has been a best seller. Its been an excellent start to the year, the best opportunities, the best time to enter into this luxury car domain. Supply has been the only challenge. There have been some semiconductor issues, and some geopolitical issues. But demand side, the market has been very buoyant.
People whose basic needs were not compromised (in Covid-19), they are willing to spend. India is a savings economy. But, now we are seeing people wanting to spend. Luxury cars can be a very good medium to make a statement.
Q. If we compare the year-to-date or 2022 numbers, what is the kind of sales growth that you have seen and how would you compare it to say pre-Covid 2019?
So we finished last year sales by July. This year has been the highest ever since the inception of Lexus from 2017, the last five years that we've been in this market. We have been able to sell the highest-ever vehicles. There is nearly 40% of that in the order bank. We are in the process now to convince the headquarters to divert some allocations to India.
Q. In your space also, are you seeing this shift happening from sedans to SUVs?
SUVs are the flavour of the season in every market, whether it is the mass market or it is the luxury market. Sedan lovers are there. A sizable number of people who are coming into the market are preferring SUVs over sedans. And the surprising part is the average age is going down. Among the newer generation, even the first car they buy could be in the luxury segment. It is not the natural progression that used to be there, that people buy a mass-market product, or a second-hand car first, and then then you graduate and the fourth or fifth car could be a luxury car.
Q. Overall from the industry perspective, how’s this year looking?
Luxury car market still has a glass ceiling to break—40,000 units. The supply issues are there. I think we might get to around 35,000-36,000 kind of number. In 2018, we (the industry) had done 40,000 units. But, the pending order bank is sizeable. If the supply was there, this could have been the best ever year.
Q. Looking at the semiconductor issue, is the worst behind us?
I would believe so. There are glitches that keep bothering us time and again. But, there is a positive momentum that is being built now on the supply side. The worst may be over, but the most important thing going forward is now how can we have the right product, at the right time, at the right place. So, we have been working hard in terms of improving the footprint.
Q. How is your network expansion going?
We originally had seven outlets to start with, we call them guest experience centres. This year, we have added five more of service points. We are also opening smaller brand spaces called Meraki.
We have 56 per cent of the market covered with the seven main cities we are present in. We added five service points to this and already have added one Meraki in Gurgaon. With this, by the end of the year, we are planning to be close to 85-86 per cent of the market. Beyond this, the team is also working hard to start the online store also. Before March, there are also plans to open more of these service points, which could take us to around 90 per cent of the luxury car market, where ever Lexus is present.
Q. What are the new product launches planned?
We have six products in the market, one is a locally produced car, and five we import from Japan in CBU (complete built unit) condition. We brought the NX at the beginning of this year and we will soon announce the new LX. We are participating in the Auto Show also next year, where we will introduce the RX, which is again an SUV.
Q. Will you launch more locally assembled products here?
The intention is there. But, the only challenge that is there is the total market size being around say 40,000 units. The number of products that you see in the luxury car industry outstrips whatever are present in the mass market. But, volume-wise we are around 40,000 versus three million cars. So, the skill is to make low-cost production assembly. So, like I mentioned this smaller Meraki, we have to develop some concept of Meraki inside our assembly shop also, so we can do local assembly at a very low volume. Otherwise, what happens is that you assign a vendor locally to produce higher quality and the volume is not there, so the cost even escalates further.
Q. Most of your products in India also come with a hybrid powertrain. Is strong hybrid going to be the focus, versus fully electrics?
For us, it is never versus, but it's a journey towards electric. We have brought in a few electric vehicles also, to experiment and do the endurance trials and testing, because our country has extreme weather conditions and we have to be careful of the product that we launch meets the aspirations and the requirement of the people. From a global perspective, 2035, we have mentioned, we will shift completely to electric and there will be a journey of transition towards that. The starting point is the strong hybrids that we have introduced. As you move along, you will see more electrics come from us. A glimpse of that will be available at the auto show.