The US government's decision to impose a 25 per cent tariff on automobile imports, set to take effect from April 2, has created uncertainty for India's auto industry, particularly in the auto component sector. While India does not export a significant number of fully built vehicles to the US, the move could affect Tata Motors' luxury car subsidiary, Jaguar Land Rover (JLR), which relies heavily on the American market.
In the 2024 fiscal year, JLR sold approximately 400,000 vehicles, with 23 per cent of these sales in the US. All of these vehicles were exported from the company’s UK-based manufacturing units. Analysts predict that the new tariffs could put pressure on JLR’s profitability, as increasing prices for consumers may reduce market share. The company may either pass the additional costs onto customers, cut operational expenses, absorb the financial impact, or explore the possibility of setting up a manufacturing facility in the US to offset the damage.
The Indian auto component industry is expected to face a more significant blow due to its substantial export volume to the US. Companies like Sona BLW Precision Forgings, Bharat Forge, and Samvardhana Motherson International Limited (SAMIL) could be particularly vulnerable. Sona BLW generates 43 per cent of its revenue from US exports, while Bharat Forge earns 38 per cent of its total revenue from American sales.
Industry data indicates that India's auto component exports to the US amounted to $6.79 billion in FY24. Before the tariff announcement, the US imposed little to no duties on imported auto components. With the new tariffs in place, the profitability of Indian exporters could shrink by 125-150 basis points from their current range of 12-12.5 per cent, assuming they fully absorb the increased costs.
Senior industry analysts note that about 20 per cent of India’s auto component sector revenue comes from exports, with the US accounting for 27 per cent of this share. Suppliers providing components to Tier I manufacturers or OEMs catering to the US market indirectly would also be affected. However, companies with existing production units in the US may see some benefits through improved capacity utilisation.
Mrunmayee Jogalekar, an analyst at Asit C Mehta Investment Intermediates Ltd, highlighted that the US is not a major export destination for Indian vehicles. However, Tata Motors could experience a financial strain due to JLR's reliance on US sales, which constituted over 30 per cent of its total sales in the first nine months of FY25. Without a local manufacturing unit in the US, all JLR vehicles will be subject to the new tariffs, affecting pricing strategies and profitability.
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The Global Trade Research Initiative (GTRI), a think tank, stated that the broader impact of the tariff imposition on India's automobile industry is likely to be limited. Founder Ajay Srivastava pointed out that in 2024, India's passenger car exports to the US were valued at a modest $8.9 million, which accounts for just 0.13 per cent of India’s total automotive exports of $6.98 billion. Similarly, truck exports to the US stood at $12.5 million, representing only 0.89 per cent of India's global truck exports.
Despite potential concerns, GTRI suggested the exposure of India’s auto industry to the US market remains relatively low. However, specific segments such as car chassis fitted with engines, where the US accounted for $28.2 million of India’s total global exports of $246.9 million (11.4 per cent), may experience some adverse effects. While the auto component sector braces for challenges, experts believe the overall impact on India's automotive exports will be manageable.
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