The Indian auto component industry is poised to experience a revenue setback of up to Rs 4,500 crore in the current fiscal year, as exports to the United States face adverse impacts from newly imposed tariffs. A recent report by Icra highlights that Indian auto component manufacturers could see a decline in growth, with revenue growth forecasted to ease to 6-8% by FY2026. The tariffs, which include a 25% levy on key automobile parts, will affect a significant portion of Indian exports, potentially disrupting the supply chain and imposing additional costs on consumers and exporters alike.
Impact of US Tariffs on Indian Auto Component Exports
The Indian auto component industry, a significant contributor to the country’s manufacturing sector, is grappling with the fallout of new tariffs imposed by the United States. According to a report by Icra, leading auto component manufacturers in India could face a revenue loss of up to Rs 4,500 crore due to a dip in overseas shipments, primarily to the US. The new tariffs are expected to trigger a slowdown in the industry’s growth, with projections for FY2026 revised downward to 6-8%, compared to the previously anticipated 8-10%.
The automotive sector, which saw exports to the US grow at a robust 15% compound annual growth rate (CAGR) between FY2020 and FY2024, is now looking at a potentially turbulent period. The US tariffs, especially a 25% levy on key automobile parts such as engines, transmissions, powertrains, and electrical components, are set to come into effect in May 2025. Icra estimates that this will directly impact 65% of India’s auto component export basket, creating a significant burden on manufacturers who rely heavily on US markets.
Financial Toll on the Industry
The tariff-related disruption in exports is expected to burden the Indian auto component sector with an incremental cost of approximately Rs 9,000 crore. This cost will need to be absorbed across the entire supply chain, affecting not just Indian exporters but also US importers and ultimately, US consumers. While some of these additional costs will likely be passed on to consumers, the extent of the pass-through will depend on the competitiveness of the products, the technological intensity of the components, and the negotiations between buyers and suppliers.
Icra’s Senior Vice President, Shamsher Dewan, pointed out that while Indian auto component suppliers are expected to pass on most of the tariff-related cost increases, the degree to which they can do so will vary. Suppliers with more critical products or those with a stronger share of business are in a better position to mitigate the impact, while others may struggle to absorb the costs, which could reduce profit margins.
If Indian exporters are forced to absorb between 30-50% of the incremental tariff costs, the overall earnings impact for the auto component industry could be substantial. Icra estimates a potential hit of Rs 2,700-4,500 crore, representing 3-6% of the industry’s operating profits and 10-15% of the profits of exporters specifically.
Diversified Market Demand Mitigates Some Risk
Despite the looming challenges, the Indian auto component industry remains resilient due to its diversified customer base. Over 70% of the sector’s revenue comes from domestic sales, which provides some insulation from the impact of declining exports to the US. The broader diversification of end-user segments and geographic markets has helped the industry maintain steady demand, even as it faces headwinds in the US market.
The export of auto components to the US, which only constituted around 8% of the total industry revenue in FY2024, is an important but not dominant portion of the industry’s business. However, the loss of this market would still be a significant blow, particularly given the rapid growth in US exports over the past few years.
Tariff Details and Future Outlook
The recent tariffs imposed by the US include a 25% import duty on critical auto parts, which is part of a broader protectionist strategy to bolster domestic manufacturing. Additionally, India’s auto component exports to the US face a reciprocal 26% tariff, which has been temporarily paused for 90 days but will still be subject to a 10% ad valorem duty. Notably, products under the US-Mexico-Canada Agreement (USMCA) are exempt from these tariffs, which may offer some relief to certain Indian exporters.
Given these developments, the Indian auto component industry faces an uncertain future in its largest export market. With the tariff hike set to take effect in 2025, companies have limited time to adjust their strategies. The focus will likely be on exploring alternative markets and reducing reliance on the US, although the tariffs will continue to weigh on industry performance in the short term.
Conclusion: Navigating the Tariff Storm
As the US tariff regime continues to evolve, Indian auto component manufacturers must brace for potential losses and explore ways to mitigate the impact. With the possibility of a revenue decline of up to Rs 4,500 crore, the industry must act strategically to reduce its dependence on the US market. Diversifying export markets, improving product competitiveness, and negotiating favorable terms with US clients will be key to maintaining profitability.
While the tariff imposition represents a significant challenge, the Indian auto component sector’s resilience and capacity for adaptation will determine how effectively it can weather this storm and secure long-term growth amidst a changing global trade environment.
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