U.S. tariff hike can slash Indian auto component exporters' earnings by up to Rs 4,500 crore, ICRA warns

Economic Times

28-04-2025

Domestic resilience to offset export decline
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Mixed impact across auto ancillaries
Evolving tariff landscape and market opportunities
Broader sector sentiment and stock performance
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Indian auto component exporters are set to face a significant earnings hit between Rs 2,700 crore and Rs 4,500 crore due to new tariff hikes imposed by the US, according to brokerage ICRA . While the tariff impact threatens profit margins, the overall resilience of the Indian auto industry , particularly in domestic markets, may help cushion the blow.The new U.S. tariffs, which came into effect in May 2025, are expected to burden the industry with incremental costs of Rs. 9,000 crore, with Indian exporters potentially absorbing 30-50% of this cost, ICRA has projected.ICRA estimated that these additional costs will reduce operating margins by 50-100 basis points in FY2026. The brokerage said that the earnings impact for the broader auto component industry could amount to 3-6% of operating profits, while exporters alone could see a 10-15% reduction in earnings. Notably, a subset of Indian manufacturers with U.S.-based operations are shielded from the tariff's impact.While the U.S. market has been a growing export destination for Indian auto components, accounting for 8% of the industry's total revenues in FY2024, ICRA noted that the tariff hikes are likely to reduce export growth. However, the brokerage pointed out that the Indian auto component sector continues to benefit from a diversified mix of end-user segments, with over 70% of its revenue generated from domestic sales.ICRA's outlook for the sector has shifted, revising revenue growth expectations for FY2026 down to 6-8%, from a previous forecast of 8-10%. This adjustment takes into account the potential decline in export revenues to the U.S., which may drop by mid to high single digits.Despite the export setback, the domestic market remains robust, with leading players such as Mahindra & Mahindra (M&M) and Samvardhana Motherson benefiting from strong product portfolios and global diversification.ICRA also delved into the financial resilience of auto ancillary companies in light of the tariff hikes. Notably, the brokerage said that while the increase in tariffs will put pressure on operating margins, liquidity and debt metrics for most exporters are expected to remain comfortable. This outlook contrasts with the broader challenges facing the sector, including subdued growth and rising global competition, particularly from Chinese manufacturers."While the auto component suppliers with whom ICRA has interacted indicate that most of the incremental costs would be passed on, the extent of pass-through would depend on the supplier's criticality, share of business, competition, and technological intensity of the components supplied," said Shamsher Dewan, Senior Vice President and Head – Corporate Ratings at ICRA.He further said that the shifting dynamics of global auto markets—such as the growing competition from Chinese manufacturers—will play a crucial role in the sector's recovery.Although the immediate impact of the tariff hikes may pressure margins, ICRA suggested that Indian exporters could benefit from medium-term opportunities. Some firms have indicated additional inquiries from U.S. importers in the last few weeks, the brokerage noted, which could indicate potential market share gains from Chinese competitors, particularly if the tariff structure remains consistent.The brokerage also highlighted the ongoing evolution of global trade negotiations, suggesting that trade policies may further shape the landscape for Indian exporters. ICRA suggested that Indian exporters' diversified markets—such as companies like TVS Motor and Eicher Motors performing well in both domestic and international markets—may help mitigate some of the tariff-related challenges.The automotive sector has faced a turbulent fiscal year FY25, with subdued sentiment, particularly in the second half. Despite the challenges, some companies emerged as strong performers. TVS Motor and Eicher Motors, buoyed by urban recovery and premiumisation trends, have continued to see positive growth. Among four-wheelers, Mahindra & Mahindra (M&M) stands out with a robust SUV portfolio and a solid agricultural equipment division.In the auto ancillary space, Samvardhana Motherson is set to benefit from its global diversification strategy. However, stock performance across the sector in 2025 has largely been negative, with steep declines in auto ancillary stocks, reflecting the broader global uncertainty. Companies such as TVS, Eicher, Maruti Suzuki , and Ashok Leyland have been exceptions, showing resilience amid the volatility.Also read | Is the auto sector a buy or avoid right now? Amnish Aggarwal weighs in(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)