Trump’s 25% Auto Tariffs Cast Uncertainty Over India’s $7 Bn Exports
US President Donald Trump’s decision to slap a 25 per cent tariff on all auto imports has cast uncertainty over India’s nearly $7 billion of exports to America, which industry fears could squeeze margins. Automobiles and car parts imported to the US will face a 25 per cent tariff starting April 2.
While India is not a big exporter of cars to the US, Tata Motors’ luxury car subsidiary Jaguar Land Rover (JLR) is deeply entrenched in the American market. About 23 per cent of JLR’s over 4,00,000 units sold in FY24 were in the US. These were all exported from its UK plants.
JLR’s profitability is likely to be impacted as passing on added costs to consumers may dent its market share, analysts said.
The options before it are to pass on the cost to consumers, cut expenses or absorb the hit. A fourth option is to set up a US manufacturing facility to mitigate the damage.
Indian auto ancillary firms will see the biggest hit as they export a lot of components to the US. Sona BLW Precision Forgings, Bharat Forge and Samvardhana Motherson International Limited (SAMIL) will be vulnerable to the tariff blow.
While Sona BLW derives 43 per cent of its revenues from US exports, Bharat Forge gets 38 per cent from sales to the US.
According to industry estimates, India’s auto component exports to the US were $6.79 billion in FY24, while the country’s imports from the US stood at $1.4 billion at 15 per cent duty. Prior to March 26th announcement by Trump, the US charged almost ‘nil’ duty on imported components.
“It is the Indian auto components industry that is more likely to face the heat due to the US tariff as exports from here to the US are significant. Indian vehicle makers are less likely to be impacted as there are no direct exports of fully built cars from India to the US,” an industry executive told media.
Anuj Sethi, Senior Director, Crisil Ratings, said the Trump administration’s move to impose a 25 per cent tariff on key automobile components, such as engines, transmissions, powertrain parts and electrical parts from May or later, would compress the operating margins of Indian component manufacturer-exporters by 125-150 basis points from the current 12-12.5 per cent range, assuming full absorption of the tariffs.
About a fifth of the revenue of India’s auto component sector is derived from exports. Of this, 27 per cent is to the US market alone. The operating profitability of indirect suppliers who supply to Tier I suppliers or OEMs in other countries with end destinations in the US would also be impacted.
Source: News Agencies