Why is JLR building in India now?

In today’s Finshots, we talk about why Tata Motors owns JLR is building cars in India despite the India-EU FTA.

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The Story

For quite some time, every Indian car fan has been silently watching global car launches happening around the world. A sleek hatchback from a small town in Europe, a futuristic Korean EV or a Japanese hybrid that never quite made it to India. That’s because buying a car in India came with an invisible passenger: the government.

India’s automobile sector has been protected by some of the highest import duties seen in the world. Completely built up units or CBUs have attracted levies of over 100% once you factor in customs, cess and surcharges.

In simple terms, if you bought a foreign-made car, you almost bought two: One for yourself. One for the government.

It was no accident.

India’s protectionism was not about keeping out foreign cars. It was to force them to build here. If global automakers wanted access to India’s growing middle class, they had to localize production, set up assembly lines, create jobs for the local population and build supplier networks. And it honestly worked.

Because we are not just another car market. India has become a manufacturing hub. Tamil Nadu, Maharashtra, Gujarat have all built entire ecosystems around this strategy.

But now trading has become much easier. In the past few months, India has just signed new agreements that essentially promise smoother imports and lower tariffs on entire industries. From European wines and spirits and pharmaceutical equipment to aircraft parts and luxury and performance cars, many industries could benefit. In theory, this means more choice, faster access and perhaps even better prices, especially for car buyers.

That sounds like a win. Borders are softer, markets are opening and trade relations are better.

Yet Tata Motors poured in at the same moment ₹9,000 crores in a brand new Jaguar Land Rover (JLR) manufacturing plant in Tamil Nadu. India built factories behind tariff walls for 30 years. Now the walls are coming down. But instead of backing down, Tata is building bigger.

But then it makes you wonder: If cars, especially premium ones, can move more freely across borders, why build more of them at home?

Well, at first glance it looks and feels quite contradictory. Imports are getting cheaper, so shouldn’t factories become less necessary?

You see, the contradiction only exists if you assume that trade transactions are permanent. But they are not.

The reality is that trade agreements are political instruments, shaped by elections and domestic political pressure. These rates can be cut today, sure. But trade policy is not set in stone and changes like the weather.

Governments can change. Industries tend to lobby. Protective duties are slowly re-emerging. Compliance regulations tighten over time. Currency swings or a geopolitical splash eruptions.

So what looks like ‘cheap imports forever’ can quickly turn into ‘cost uncertainty’ overnight. For most industries, that uncertainty is a lost night’s sleep.

And for cars it is dangerous. An automotive plant is years of infrastructure investment, and even more years just to break even on that cost. Thousands of crores are poured into the land, machinery, robotics and supplier contracts. Once that money enters the project, there is frankly no quick exit.

And this is where Tata’s global footprint matters. Tata’s JLR subsidiary operates various factories in the UK, Ireland, one in Slovakia and a new one in India. But a global manufacturing network doesn’t mean they’re immune to tariffs. Geography still matters to profitability.

Even after trade agreements, fully built imported cars are rarely duty-free. Historically, India imposed 60% to 100% customs duty on CBUs depending on engine size and value. Even if those duties fall under new agreements, they usually fail gradually, often with quotas or conditions attached. The India-EU FTA is the perfect example.

There is also the currency risk. If a premium car costs €50,000 at a factory overseas, its rupee price changes every time the exchange rate moves. The margins in the auto industry rarely provide enough to absorb that kind of volatility.

Then comes cargo and compliance. Shipping a vehicle from Europe or East Asia to India adds transport costs, insurance, port handling, homologation certificate (a document issued by a government authority certifying that a vehicle meets the mandatory safety, emission and technical standards required for road use), dealer logistics and inventory carrying expenses. It is not individually dramatic. But scaled down over tens of thousands of units, it adds up in structural cost disadvantages.

Now compare this to domestic manufacturing.

By investing ₹9,000 crores in Tamil Nadu, Tata Motors is not just adding capacity to its existing factories. They can build both electric and luxury cars in our backyard – one of the fastest growing markets in the world.

The proximity matters because JLR recently with a major cyber incident which disrupted operations and forced the company to confront the risks. The logic is that when production costs are naturally higher, even temporary disruptions and downtime are also extremely high, with a spillover effect on the entire supply chain.

This is where India’s demand story changes the equation. Even with import duties on fully-built luxury cars, India’s premium car market has grown at a healthy double-digit pace. Only luxury EVs alone have outgrown 66% early 2025.

Demand grew despite protectionism. Rising incomes, startup affluence, capital market gains and aspirational spending have all pushed more buyers into high-end vehicles. This means that if demand is already climbing under high duties, local manufacturing can create an even better opportunity. By manufacturing vehicles in India, there is lower exposure to any change in currency, freight, and most importantly, protects margins from any future tariff changes.

Moreover, a factory in Tamil Nadu is not just about serving Indian buyers. It offers optional. If trade remains smooth, India can function as a competitive export base for right-hand drive markets. If trade picks up again, domestic capacity insulates the company against external shocks.

Automotive plants operate on a horizon of 20 to 30 years. Factories are slower to build, even though this plant came up in just 16 months. Once built, they are much more stable. The Tamil Nadu facility represents one of the largest investments by Tata Motors. It will create over 5,000 jobs and produce both luxury and EV cars, for both JLR and Tata Motors passenger vehicle segments.

It doesn’t hurt either Tamil Nadu is not new to cars. It contributes a significant share of India’s automotive exports and houses one of the most integrated supplier groups in the country. Ports, logistics infrastructure, skilled labor pools and ancillary industries already exist.

That value addition creates more than cars. This creates jobs, supplier contracts, tax revenue and export potential.

So yes, historically India has used high tariffs to force global automakers to produce locally. But this time feels different. Even as trade barriers ease, Tata is not backing down. It doubles on its domestic basis – not because imports are impossible, but because long-term security still outweighs short-term convenience.

After all, even though trade agreements open doors, strategically planned factories ultimately decide who survives when those doors close.

Until then…

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