Trump tariffs threaten India's slowdown-hit auto parts makers

Indian auto parts makers, already struggling with weak domestic demand, now face the risk of losing sales in their top overseas market as US President Donald Trump’s looming import tariffs ripple through global car manufacturing.

Trump had initially taken aim at fully assembled vehicles, with a 25 per cent import duty set to take effect on April 3, but additional levies on car parts such as engines, transmissions and electrical systems are slated to begin by May 3. That’s kicked off frantic lobbying by major carmakers Ford Motor Co., General Motors Co. and Stellantis NV to get certain components excluded, and left Indian suppliers stuck in limbo.

The US is the biggest market for India’s auto parts exports, accounting for almost a third of the $21.2 billion industry in the year ended March 31, 2024. The local passenger vehicle market has been tepid with growth expected at just 2 per cent for the year ending March 2026, Partho Banerjee, senior executive director at Maruti Suzuki India Ltd. told reporters on Tuesday.

“Original equipment manufacturers had expected a robust outlook for US growth,” said Jay Kale, an auto sector analyst at Elara Capital. The looming tariff now means “the only silver lining market could falter,” he said.

The prospect of a 25 per cent levy on auto parts has rattled India’s manufacturers since it’s more severe than expectations. The industry had initially estimated they may face about a 15 per cent levy in case US imposes reciprocal tariffs, given that’s the maximum import duty India levies on auto parts from the US.

Missing Details

The duties are set to have a significant impact, beyond just higher vehicle prices that will hurt demand, according to Chandrasekar Krishnamurthy, global director of product management at BorgWarner Inc., an American auto parts supplier with facilities around the world, including in India.

“Our strategy, sales and purchasing teams are on high gear to address the impact,” Krishnamurthy said, adding that the magnitude of the impact is not clear. “There are still a few important details missing which will need to be further followed up to obtain the full picture.”

A lot remains uncertain for Indian suppliers like Sona BLW Precision Forgings Ltd., Samvardhana Motherson International Ltd. and Bharat Forge Ltd., including whether duties will be imposed on individual parts or entire systems.

The tariffs are also likely to spur discussions around who bears the brunt of the additional cost.

Many Indian suppliers operate under contracts where buyers bear shipping and other costs, but US automakers are likely to force tough renegotiations, according to three executives at auto parts firms that supply the US market, who asked not to be named because they’re not authorized to speak publicly.

Mitigating Efforts

With auto tariffs taking effect this week, US carmakers are turning their efforts toward reducing the impact of duties on components. They argue that such levies would drive up costs by billions of dollars, leading to layoffs and profit warnings that would run counter to Trump’s goal of building up the industry.

The timing of the tariff announcement is significant, as India and the US are currently in discussions to finalize a bilateral trade agreement, according to Saurabh Agarwal, a tax partner at EY.

“This makes the upcoming negotiations an important space to watch for potential tariff adjustments” on auto parts, Agarwal said. “While it’s still early to gauge the full impact, the tariff could potentially trigger a ripple effect.”