US auto tariff to hit Indian parts makers

New Delhi/Bengaluru: US President Donald Trump’s announcement of a 25 per cent tariff on auto imports effective April 3 is likely to badly impact Indian automobile component manufacturers as the country accounts for nearly one-third of the sector’s exports.

Shares of Jaguar-Land Rover owner Tata Motors and of auto component makers like Samvardhana Motherson, Sona BLW, Bharat Forge and Apollo Tyres fell on Thursday, following Trump’s latest salvo in the trade wars. Tata Motors’ shares dropped 5.6 per cent and Sona BLW shed 6 per cent, while others fell 1-2 per cent.

The auto component sector has a big exposure to the US, with 80 per cent of exports headed to the world’s largest economy.

India exported $2.2 billion worth of auto parts to the US in 2024, which was 29.1 per cent of the country’s total auto part exports globally.

However, out of the total exports of $6.98 billion worth of passenger cars, only $8.9 million or 0.13 per cent went to the US.

Talking to reporters in Washington on Wednesday, Trump said the US expects to raise $100 billion in revenue annually through the auto tariffs.

As per a CRISIL Ratings analysis, operating margins of the Indian component manufacturers are likely to decline by 125-150 basis points (1.25 per cent to 1.5 per cent) due to the US tariffs. About a fifth of the revenue of India’s auto component sector is derived from exports.

The operating profitability of indirect suppliers, who supply to Tier I suppliers or original equipment manufacturers (OEMs) in other countries with end destination in the US, would also be impacted, said Anuj Sethi, Senior Director, Crisil Ratings.

However, select automotive component players with US-based manufacturing facilities may see some offsetting gains from better capacity utilisation, Sethi added.

Some analysts argue that the increased tariffs may help Indian auto component makers increase share in the US markets.

“While it’s still early to gauge the full impact, the tariff could potentially trigger a ripple effect and countries like India, with competitive manufacturing capabilities, might seize this opportunity to increase their market share in the US,” said Saurabh Agarwal, Tax Partner, EY India.

Madhavi Arora, Chief Economist at Emkay Global, said the “Indian auto sector is relatively insulated from reciprocal tariffs due to the nature of trade between India and the US in this sector”.

“India charges 15 per cent import duty on parts and accessories, with the US charging 2.5 per cent, implying reciprocal tariffs of 12.5 per cent. Therefore, imposing high tariffs on Indian PV and bike exports to the US will make no difference to domestic OEMs,” Arora said.

The US imported $89 billion worth of auto components during the year 2024. India accounted for just $2.2 billion out of this. The top two suppliers to the US markets were Mexico at $36 billion and China at $10.1 billion.

Highlights - Tariff jolt 80 per cent of Indian auto component sector exports go to the US India exported $2.2 bn worth of auto parts to the US in 2024 About a fifth of the revenue of auto component sector is derived from exports As per a CRISIL Ratings analysis, operating margins of the Indian component manufacturers are likely to decline by 125-150 basis points Some analysts argue that increased tariffs may help auto component makers