US President Trump’s 25 percent hike in tariff for the auto sector could be a hit-or-miss situation for the Indian auto component makers. For brands such as Tata Motors, Eicher Motors, Sona BLW, and Samvardhana Motherson, there could be an impact as the US is an important market.
Take for example Tata Motors, although the company might not deal directly in the US for components, Jaguar Land Rover has a presence, and since most of the vehicles are made in the UK, which means that it will attract a 25 percent tax.
New tax for auto components in the US
For a lot of Indian auto component makers, the US is a big market. Take Samvardhana Motherson for instance, as it has a huge presence in Europe and the US, supplying components to Tesla and Ford. However, with a manufacturing facility in the US, the company is shielded from taxes, however, for Sona Comstar, which makes differential gears and axles, the US market accounts for 66 percent of the company’s revenue.
In FY24, auto components worth $21.2 billion were exported from India, contributing to the $1.2 trillion global auto component market. Other component makes such as Bharat Forge, Sansera Engineering Ltd, Suprajit Engineering, and Balkrishna Industries also have significant exports going to the US.
Commenting on the tariff hike, Anuj Sethi, Senior Director, Crisil Ratings, said, “The Trump Administration’s move to impose 25% tariff on key automobile components, such as engines, transmissions, powertrain parts, and electrical parts from May 2025 or later, would compress the operating margins of Indian component manufacturer-exporters by 125-150 basis points from the current 12–12.5% range, assuming full absorption of the tariffs, Crisil Ratings estimates. About a fifth of the revenue of India’s auto component sector is derived from exports. Of this, 27% is to the U.S. market alone.”
He added, “The operating profitability of indirect suppliers – who supply to Tier I suppliers or OEMs in other countries with the end destination in the US – would also be impacted. However, select automotive component players, with U.S.-based manufacturing facilities may see some offsetting gains from better capacity utilization. The US also plans to expand tariffs to more components, if necessary, however, the incremental impact is expected to be limited.”
