US tariff may impact Indian autoparts exporters by up to Rs 4,500 cr: ICRA

Business Standard

28-04-2025

Indian auto component exporters could suffer an earnings impact in the range of Rs 2,700-4,500 crore following the recent imposition of steep US tariffs on key automotive parts, credit rating agency ICRA said in a note on Monday.
While domestic demand continues to account for the lion's share of revenues, the new 25 per cent tariff on items like engines, transmissions, and electrical components is expected to moderate the auto component industry's overall revenue growth to 6-8 per cent in FY26, down from the earlier projection of 8-10 per cent.
The United States, which accounted for around 8 per cent of the Indian auto component industry's revenues in FY24, recently imposed a 25 per cent import duty effective no later than May 3, 2025. About 65 per cent of India's auto component export basket is estimated to fall under this tariff regime. Prior to this, a 25 per cent tariff on steel and aluminium content in auto parts had already been implemented in March 2025.
ICRA estimates that if Indian exporters are forced to absorb 30-50 per cent of the additional costs, the potential earnings impact could be 3-6 per cent of the auto component industry's operating profits and a steeper 10-15 per cent for exporters alone. Consequently, operating margins could moderate by 50-100 basis points (bps) across the industry, and by 150-250 bps for exporters specifically, in FY26.
"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 factors such as the supplier's criticality, share of business, competition, and the technological intensity of the components supplied," said Shamsher Dewan, senior vice-president and head of corporate ratings at ICRA.
Despite the expected pressures, debt metrics and liquidity are likely to remain comfortable for most exporters, the agency said. Exporters with manufacturing operations within the US would also be partly insulated from the new tariffs.
ICRA pointed out that switching suppliers in the auto component industry typically involves high costs and long product development and approval cycles, suggesting that the loss of business from US customers is unlikely in the near term. Moreover, Indian suppliers may eventually benefit from cost competitiveness vis-à-vis Chinese counterparts if tariffs on Chinese products persist, Dewan noted.
Indian auto component exports to the US had grown at a compound annual growth rate of 15 per cent between FY20 and FY24, driven by rising supplies to new platforms amid vendor diversification by global automakers and Tier-I suppliers. However, the new tariffs have introduced fresh uncertainty, alongside other downside risks such as declining US automobile sales and weakness in the replacement market.
Despite the challenges, the Indian auto component industry retains a significant cushion in its domestic market, which contributed over 70 per cent of overall revenues in FY24.
Following the March 26, 2025 order imposing 25 per cent tariffs, a reciprocal 26 per cent tariff on US exports to India was announced but temporarily paused for 90 days, though a 10 per cent ad valorem duty remains in place. Products covered under the US-Mexico-Canada Agreement (USMCA) remain exempt from the new duties.
Industry executives also flagged the possibility of price pressures building in other export geographies such as Europe and Asia, particularly with intensifying Chinese competition.
Component manufacturers are proactively strategising to mitigate adverse impacts. From increased localisation to strategic market diversification, industry leaders are recalibrating operations to maintain resilience in an evolving global trade environment. Leading players such as Kinetic Engineering and Samvardhana Motherson International (SAMIL) are placing strong emphasis on localisation, long-term partnerships, and a cautious yet opportunistic outlook on market diversification.
Ajinkya Firodia, vice-chairman and managing director of Kinetic Engineering, told Business Standard last week that Kinetic is working closely with its global original equipment manufacturer (OEM) customers to assess potential impacts and build long-term solutions. 'Auto programmes typically span seven years, involving extensive prototyping, feasibility studies, validation and testing. This stable structure allows us to plan ahead and mitigate risks effectively,' he said.