US tariffs threaten Indian auto component exporters’ margins

April 29, 2025 | 0 Comment

The Indian auto component industry is bracing for a slowdown as fresh US tariffs are set to dent export earnings and operating margins. Rating agency ICRA warns that the impact could be significant, with exporters likely to bear the brunt amid declining demand and rising global competition.

auto export

The Indian auto component industry faces significant challenges as newly imposed US tariffs threaten to impact exporters’ earnings, according to rating agency ICRA. The agency estimates that the tariffs could erode operating profits by ₹2,700–4,500 crore, which represents 10–15% of the operating profits of exporters and 3–6% of the overall industry’s operating profits.

ICRA projects that revenue growth for the industry, represented by a sample of 46 key players with combined annual revenues of over ₹3 lakh crore in FY2024, may moderate to 6–8% in FY2026. This marks a downgrade from the earlier forecast of 8–10%, primarily due to a potential mid- to high-single-digit decline in exports to the US following the tariff hike.

The industry’s operating margins are expected to soften by 50–100 basis points to 10.5–11.5% in FY2026. Exporters could face a sharper contraction of 150–250 basis points. Despite this, ICRA maintains that most exporters in its sample will likely retain comfortable debt metrics and liquidity positions. However, they may experience declining margins and rising working capital needs.

Shamsher Dewan, Senior Vice President and Head of the Corporate Ratings Group at ICRA, noted that most suppliers intend to pass on incremental costs. However, the degree of pass-through will depend on factors such as the supplier’s criticality, business share, component competitiveness, and technological intensity.

Additional risks loom due to economic uncertainty, declining vehicle sales, and weak replacement demand in the US. Furthermore, Indian exporters face increasing competition in other markets like Europe and Asia. Approximately 65% of India’s auto component export basket could be affected by the US tariffs. Although India temporarily paused reciprocal tariffs for 90 days, a 10% ad valorem duty remains in effect.

Despite these short-term setbacks, ICRA sees medium-term opportunities for Indian exporters. If India strengthens its cost competitiveness against China, it could gain from global OEMs revisiting their sourcing strategies. Notably, some Indian players have already received increased inquiries from US importers, signaling potential for future growth.

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