Lexus: Getting the 'Luxe' Factor Right For Luxury Cars From clocking a significant amount of revenue from smaller towns to navigating the macroeconomic headwinds, Lexus has cracked the code for the Indian market. However, it is vigilant. "We need to carefully watch as we go towards the second or maybe the third quarter of 2023," says Naveen Soni, president, Lexus India

Since 1989, Lexus, the luxury arm of Japanese auto manufacturer Toyota, has been persistent: Making the impossible possible and redefining what the world expects from a luxury automotive experience. The luxury car company entered the Indian market in 2017 and since then, its growth has been fast and furious.

The Indian luxury car market is expected to reach a value of over $1.54 billion by 2027, registering a CAGR of more than 6.4 per cent during the forecast period 2022-2027, said a report by Mordor Intelligence.

In 2018, 40,000 units of luxury cars were sold in India, with the spread of COVID-19, the luxury car industry toiled due to lower footfalls in the showrooms. However, the sector has bounced back as luxury car manufacturers are launching multiple models with various price ranges and user-friendly financing schemes. "Years 2021 and 2022 were the revival period for the luxury car industry; In 2022, the sector sold around 36,000 units and had pending orders of 6,000 to 7,000 units. It would have easily crossed the 2018 numbers. If it continues to grow at the same pace, this is going to be one of the best years," said Naveen Soni, president, Lexus India.

In India the luxury car industry grew 52 per cent last year but Lexus grew 76 per cent. Was it because of the low base? "A part of our growth could be attributed to the low base, however, our efforts in creating a great experience for our consumers was the driving force behind the rise." The company has enhanced its network from four outlets in four cities at the beginning of last year to 18 outlets in 13 cities by the end of the year.

Smaller Towns, Bigger Bets

We often relate luxury cars to urban market/metro cities. However, the industry has been consistently growing in smaller towns as well. Delhi, Bombay, Bengaluru, and Chennai, contribute to maximum Lexus sales, but other cities such as Coimbatore, Ahmedabad, and Pune, among other relatively smaller cities, where the company is eyeing expansion, contribute significantly to its revenue. "The growth has been faster in smaller towns and almost 30 to 40 per cent of the sales come from these areas."

Post COVID-19, the YOLO factor played in: People realized they live once and started spending to their full capacities. For Lexus, first time customers and GenZ are its cherished assets.

"There are psychographic changes in our society. The younger generation have a stronger intention to express themselves and the YOLO factor is dominant. A sizable number of youngsters are purchasing luxury cars as their first owned car and this contributes a significant amount to the entire sale," Soni said, adding that higher disposable income also contributes to the uptick of sales.

Pending Orders & Waiting Period

The year started with a good note as January and February were promising months for the industry. The momentum seems to be continuing. "We need to carefully watch as we go towards the second or maybe the third quarter of this year. The headwinds coming from Europe and the US need to be monitored. Most luxury car buyers are businessmen and have close relations with the US and European economies. The pending order situation seems to improve and it shouldn't be a challenge to clock the best year for the industry."

The waiting period for the pending order of Lexus ranges from minimum three to four months and the maximum goes up to two years. "This is because of the supply chain issues triggered by geopolitical conflicts. So, we are trying to get better allocations from our head office, both in terms of local production in India and the models which we import from Japan. There are slowdowns in other regions, including China. So, this might divert production to satisfy the demands in India."

Do longer waiting periods lead to cancellation of orders and drop in revenue? "As long as there is a transparent transaction between the guests and the dealership, there is no problem. Our guests are updated regularly about the timeliness and deliveries; the Lexus Life, a program across India, keeps our guests engaged and aids in transparency."

Current Trends & Ramped Up Capacities

There is a current shift towards SUVs. When it comes to SUVs v/s passenger cars, there are more SUVs being sold in the mass market and there is a percentage increase. "Lexus India showcases the new Lexus RX SUV at the ongoing Auto Expo 2023 which will soon be launched in the country. We are also coming up with Lexus LM, an ultra luxurious car in the range. The testing is on."

Lexus imported a few sample UX battery electric vehicles with the intention of introducing EVs. Heat and dust are the biggest deterrents here and EVs have to undertake adaptation and trials in India. "We are studying and collecting feedback and are checking the vehicle's performance under Indian climatic conditions. We will decide on the right products for India based on the final results."

The Indian arm assembles ES300h at the Bengaluru factory, the first assembly line in Asia outside of Japan that could produce luxury vehicles at Japanese standards. "It took a lot of effort to produce Lexus in India as the average age of Lexus workmen in Japan is 47-48 years, while in the Indian assembly line it is 25-26 years. Getting the right talent with skill, mindset and craftsmanship helped us make Lexus here."

Lexus will be coming up with its fully designed battery electric vehicle (not adopted battery electric vehicle) in 2026. "The transformation has started in the head office and we will reach our electrification goals by 2035."

Talking about Lexus's interest in the Indian market, he said, "For any manufacturing division, India is a big market because the economy shows signs of growth and our head office is keen on strengthening its presence in India."

Immediate Challenges

There have been multiple supply chain challenges in the recent past due to semiconductor shortages, congestion at ports, European energy crisis and labor strikes, commodity prices increase, lockdowns in global production hubs such as China, and low visibility across the value chain tier suppliers. Several industries including automotive are deploying guardrails through short-term and long-term strategies to keep their supply chain resilient in these tough times. Few immediate actions adopted by players are increased visibility to upstream semiconductor suppliers, activate dedicated teams to secure capacities at tier-II and engage alternate suppliers to secure volumes.

The supply chain crisis is an immediate bottleneck that Lexus aims to resolve. "It takes time to ramp up semiconductor production as it has huge demand. The situation is improving now and as there is a slowdown in other economies, this can help the Indian market. The ongoing geopolitical conflict has added to the woes as it is not only about the raw materials but also about the logistic routes. These things have a short and midterm impact on the industry."