BUMPY ROAD AHEAD!
OBSERVERS AND ANALYSTS alike expect the tariff announcement by the US government on imported automobiles and auto components to significantly impact India’s auto component industry. Its effects on Original Equipment Manufacturers (OEMs) may remain relatively limited. Indian exporters face rising costs, diminished competitiveness and potential revenue losses. The US has introduced a 25 per cent tariff on passenger vehicles
and light trucks, including sedans, SUVs, crossover utility vehicles, minivans and cargo vans. Since India’s passenger vehicle (PV) exports to the US constitute less than 1per cent of total PV exports, the impact on Indian automotive OEMs is expected to be minimal, noted Srikumar Krishnamurthy, Senior Vice-President & Co-Group Head, Corporate Ratings, ICRA Ltd.
AUTO PARTS EXPORTERS FACES BIGGER CHALLENGES
While the auto and auto component industry are assessing the unfolding events, the imposition of tariffs on Indian auto parts in the USA is turning out to be a significant concern for them. This development could have far-reaching consequences for industry exports and business operations. “The reciprocal tariff could lead to a potential hit on sales or profit margins for Indian auto parts exporters to the US,” said an industry representative, who declined to be quoted. Unlike OEMs, India’s auto component industry is more vulnerable to the new tariffs. A 25 per cent tariff on aluminum and steel components was implemented on 12 March 2025, followed by an additional 25 per cent tariff on key auto parts—including engines, transmissions, powertrain components, and electrical systems—on 26 March 2025. Even though auto components were not included in the most recent tariff announcement on 2 April 2025, the overall effect on Indian exporters remains considerable. In FY2024, India’s auto component exports accounted for approximately 29 per cent of total industry revenue, with 27 per cent of those exports directed to the USA.
TOUGH NEGOTIATIONS AHEAD FOR INDIAN EXPORTERS
Auto-makers dependent on imports will likely pass on part of the increased costs to consumers, leading to higher vehicle prices in the US. Given that buyers often switch cars based on preference rather than necessity, industry experts warn that rising costs could dampen new vehicle purchases. As a result, the new tariffs, combined with inflationary pressures and a potential slowdown in demand, could negatively affect revenues and profit margins for Indian component exporters in the short-term. Indian auto parts industry representatives highlight that customers in the US may not fully absorb the 25 per cent price hike, requiring suppliers to share part of the cost burden. “We will definitely feel pressure on margins. There will be tough negotiations, and we may have to bear some portion of the tariff impact,” stated a senior official from an auto parts firm based in Chennai. With US manufacturing wages being nearly ten times higher than those in India, a complete shift of production to the US remains a challenge, making a revision of tariffs a possibility, according to industry sources. Meanwhile, exporters reliant on the US market are actively working to diversify revenue streams. Many are exploring alternative markets across Asia, increasing value addition, expanding into non-automotive sectors, and implementing cost-optimisation measures to mitigate margin pressures.
ENHANCING THE PLI SCHEME
However, the higher tariffs imposed on other competing nations could create long-term opportunities for Indian suppliers. Saurabh Agarwal, Partner & Automotive Tax Leader at EY India, noted that with US automotive tariffs rising, India’s electric vehicle sector has a significant opportunity to expand its footprint in the US market, particularly in the budget car segment. In 2023, China’s auto and component exports to the US amounted to USD 17.99 billion, whereas India’s exports stood at just USD 2.1 billion in 2024, underscoring significant growth potential. To accelerate progress, the government should enhance the PLI scheme by including more auto components, extending participation to new players, and prolonging the scheme by two years, Agarwal suggested. While it remains too early to predict India’s exact course of action, its strategy thus far appears to focus on negotiating bilateral trade agreements swiftly with the US and other key partners.
“The Automotive Component Manufacturers Association of India (ACMA) remains hopeful that ongoing bilateral negotiations between the Indian and US governments will lead to a balanced resolution that benefits both economies. We believe the strong trade relationship
between India and the US, particularly in the auto components sector, will encourage continued dialogue to mitigate the impact of these measures,” said Shradha Suri Marwah, President of ACMA and CMD of Subros Ltd. Although the full consequences of the tariffs have yet to unfold, Indian auto component manufacturers must navigate an increasingly complex global trade environment, balancing short-term challenges with potential long-term advantages.
