India's auto parts exports face heat as Asian rivals gain edge; all eyes on bilateral trade pact
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India's $111 billion auto components industry faces a fresh threat after US President Donald Trump announced a 25% tariff on Indian goods, denting the sector's edge in its largest export market.
The latest levy, revealed on Wednesday evening, slightly moderates the 26% rate proposed in Trump's April Liberation Day speech. But even at 25%, it places India at a disadvantage compared to other Asian exporters—Japan faces a 15% tariff, Vietnam 20%, and Indonesia 19%.
More worryingly for India, North American peers Mexico and Canada remain exempt under the US-Mexico-Canada Agreement (USMCA), which offers zero-tariff access to the US market for automotive components, provided they meet local content requirements.
The move has rattled India's supplier base, especially firms closely tied to US automakers, and may slow fresh investments until trade terms are clarified.
Also read: Luxury cars not the biggest opportunity UK senses in India after FTA. It's this
US market access under strain
The move assumes significance as the US accounted for 27% of India's auto component exports in FY25, worth about $5.9 billion, according to the Automotive Components Manufacturers Association of India (ACMA). Any erosion in competitiveness could ripple across Indian suppliers that serve US-based automakers and aftermarket clients.
'Indian exporters may face some price pressures in auto component exports compared to other Asian countries which have struck a deal with the US such as Japan, Vietnam, and Indonesia. These tariff announcements would have a slowdown in investments, at least till the India-US bilateral trade agreement (India-US BTA) is finalised," said Ashim Sharma, senior partner and Business Unit head, Nomura Research Institute Solutions and Consulting.
Data from the US Census Bureau shows Mexico and Canada were the top auto parts exporters to the US in 2024, with exports worth $81 billion and $19.4 billion, respectively. India, in comparison, exported just $3 billion worth of parts in the same period—lagging far behind Asian rivals such as China, Japan, South Korea, Thailand, Taiwan, and Vietnam.
India has said it is analysing the tariff statement and will protect domestic interests in ongoing trade negotiations.
But analysts say uncertainty will hurt the investment outlook in the short term.
'Any investments including capital investments, development investments are bound to slow down. Vehicle makers in the supply chain may also hold their cards closer to their chest due to the uncertainty. For instance, if an original equipment manufacturer (OEM) was planning to continue with an auto parts manufacturer, it may wait for the India-US BTA to be signed before investing further," said Sharma.
Publicly listed auto part makers with significant US exposure have already started feeling the heat.
Sona Comstar, which derived 41% of its ₹3,555 crore revenue from North America in FY25, saw its shares fall over 1.5% on Thursday. Bharat Forge, which earned 15% of its standalone revenue from the US Class 8 Truck market, also saw its stock drop close to 3%. This compared with a 1.2% decline in the Nifty Auto index.
Also read: Indian markets stare at short-term jitters from Trump's tariff hit
Tariffs raise pricing pressure
'Our competitors in both our major product categories tend to be from China. And in an event in which tariffs are imposed on every country, it is basically then your relative pricing that comes into place. And then the gap has actually widened much more," said Vivek Vikram Singh, MD and CEO at Sona Comstar, during the company's 30 April earnings call.
Singh also pointed to a potential upside from Trump's tariff policy and trade deals involving Southeast Asian countries. 'They are also closing, I think, backdoors, like Southeast Asia, Mexico, etc. where people could just reroute goods. I think those have also effectively been closed because now they're talking about US content," he added.
Nikhil Dhaka, vice president–public policy at Primus Partners, said the tariffs may especially impact Indian suppliers with tight links to the US.
'While Indian automotive OEMs have relatively limited exposure to the US compared to markets like Europe or Japan, the impact on component suppliers is more pronounced. The tariff may lead to short-term disruptions, especially for Tier-1 and Tier-2 suppliers with strong US linkages."
The component sector, composed largely of micro, small and medium enterprises (MSMEs), is also sensitive to shifts in global demand.
In July, Mint reported that the government had begun working on a scheme to boost auto part exports by offering financial incentives for both operational and capital expenses, and non-fiscal support such as skilling initiatives to narrow talent gaps.
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