US tariff jitters: Auto part exporters may take a Rs 4,500 crore hit

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April 29, 2025 13:27 IST

Indian auto component exporters may suffer a hit of ₹2,700 crore to ₹4,500 crore on their earnings after the imposition of steep US tariffs on key automotive parts, credit rating agency ICRA said in a note on Monday.

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Photograph: Karen Toro/Reuters

The new 25 per cent tariff on engines, transmission, electrical components, and other auto parts may moderate the overall auto component industry’s revenue growth to 6-8 per cent in 2025-26 (FY26), down from an earlier projection of 8-10 per cent.

The US, which accounted for around 8 per cent of the Indian auto component industry’s revenues in FY24, recently imposed a 25 per cent import duty effective from May 3.

 

Around 65 per cent of India’s auto component export basket is estimated to fall under this tariff regime.

Prior to this, a 25 per cent tariff on steel and aluminium content in auto parts was implemented in March.

ICRA estimates that if Indian exporters have to absorb 30-50 per cent of the additional costs, they may see a 10-15 per cent impact on operating profits, while the overall auto component industry’s operating profits may see a 3-6 per cent impact.

Consequently, operating margins could moderate by 150-250 basis points (bps) for exporters and 50-100 bps across the industry in FY26.

“While the auto component suppliers with whom ICRA has interacted (with) indicate that most of the incremental costs would be passed on, the extent of pass-through would depend on factors such as the supplier’s criticality, share of business, competition, and the technological intensity of components supplied,” said Shamsher Dewan, senior vice-president and head of corporate ratings, ICRA.

Despite the expected pressures, debt metrics and liquidity are likely to remain “comfortable” for most exporters, the agency said.

Exporters with manufacturing operations within the US would also be partly insulated from the new tariffs.

ICRA pointed out that switching suppliers in the auto component industry typically involves high costs and long product development and approval cycles, suggesting that it is unlikely that there will be a loss of business from US customers in the near-term.

Moreover, Indian suppliers may eventually benefit from cost competitiveness vis-a-vis Chinese counterparts if tariffs on Chinese products persist, Dewan said.

Indian auto component exports to the US had grown at a compound annual growth rate of 15 per cent between FY20 and FY24, driven by increasing supplies to new platforms amid vendor diversification by global automakers and Tier-I suppliers.

The new tariffs, however, have introduced uncertainty, alongside other risks such as declining US automobile sales and weakness in the replacement market.

These risks pose limited challenges, because the Indian auto component industry retains a significant cushion in its domestic market, which made up for over 70 per cent of the industry’s overall revenue in FY24.

However, industry executives also flagged the possibility of price pressures building in other export geographies such as Europe and Asia, particularly with intensifying Chinese competition.

Component manufacturers are proactively strategising to mitigate adverse impacts.

From increased localisation to strategic market diversification, industry leaders are recalibrating operations to maintain resilience in an evolving global trade environment.

Leading players such as Kinetic Engineering and Samvardhana Motherson International are emphasising localisation, long-term partnerships, and maintaining a cautious yet opportunistic outlook on market diversification.

Ajinkya Firodia, vice-chairman and managing director of Kinetic Engineering, told Business Standard last week that Kinetic is working closely with its global original equipment manufacturer customers to assess potential impacts and build long-term solutions.

“Auto programmes typically span seven years, involving extensive prototyping, feasibility studies, validation, and testing.

"This stable structure allows us to plan ahead and mitigate risks effectively,” he said.

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