Indian Auto Component Exporters May Face Rs 4,500 Crore Earnings Hit From US Tariffs

Indian auto component exporters could see their earnings fall by as much as Rs 4,500 crore due to new tariffs imposed by the United States, according to a report by ratings agency ICRA (Investment Information and Credit Rating Agency). The potential impact stems from a 25 per cent import duty the US has levied on key automobile parts like engines, powertrains, and electrical components.

The earnings hit, estimated to range between Rs 2,700 crore and Rs 4,500 crore, could reduce the operating profits of the export segment by 10–15 per cent. This would also account for a 3–6 per cent dent in the overall profits of the Indian auto component industry, ICRA noted.

Revenue Growth to Slow Down

ICRA, which studied a sample of 46 major auto component manufacturers contributing nearly half of the industry’s revenues, expects the sector’s revenue growth to slow to 6–8 per cent in FY2026. This is lower than the earlier projection of 8–10 per cent. The slowdown is mainly attributed to a possible mid to high single-digit drop in exports to the US.

These exporters reported combined annual revenues of over Rs 3 lakh crore in FY2024. While domestic sales continue to be the backbone of the industry, accounting for over 70 per cent of revenues, the US is still a significant export market, contributing about 8 per cent of the industry's total income.

Between FY2020 and FY2024, exports to the US grew at a strong pace of 15 per cent per year. This growth was driven by global automakers and tier-one suppliers diversifying their vendor base, higher value addition by Indian firms, and favourable currency movements.

Who Will Bear the Cost?

The total additional cost burden from the new US tariffs across the supply chain is estimated to be around Rs 9,000 crore. Who bears how much of this depends on the negotiating power of Indian suppliers, the nature of the products, and how essential they are to buyers.

“Auto component suppliers we spoke with believe that most of the increased costs will be passed on to customers,” said Shamsher Dewan, Senior Vice President and Head of Corporate Ratings at ICRA. “However, this depends on factors like the supplier’s importance, market share, product complexity, and competition.”

If Indian suppliers end up absorbing 30–50 per cent of the increased costs, their operating margins could shrink by 150–250 basis points. Overall industry margins may fall by 50–100 basis points, to around 10.5–11.5 per cent in FY2026.

That said, exporters with manufacturing units in the US will not be impacted by these tariffs, shielding a portion of their business from the additional costs.

Wider Trade Tensions Add to Uncertainty

The new US tariffs will apply from May 3, 2025. They affect roughly 65 per cent of India’s auto component export basket. These duties follow earlier 25 per cent tariffs on imported steel and aluminium components imposed in March 2025.

India has responded with a reciprocal 26 per cent tariff on US auto imports, though this has been temporarily paused for 90 days. A 10 per cent import duty on US vehicles remains in place. Products under the US-Mexico-Canada Agreement (USMCA) are currently exempt from the new rules.

Before these changes, Indian auto components faced only a 2.5 per cent import duty in the US.

While the increased tariffs pose risks, ICRA believes Indian exporters are unlikely to lose significant market share in the near term. This is because switching suppliers is costly and time-consuming for automakers due to lengthy product testing and validation processes.

There may also be medium-term opportunities for Indian firms. “If the same level of tariffs continues on Chinese products, Indian suppliers could benefit from being more cost-competitive,” the report said. Some manufacturers have already reported increased inquiries from US buyers in recent weeks.

Financial Resilience Expected

Despite the challenges, ICRA believes most exporters in its sample will maintain healthy debt levels and liquidity. Although profit margins may take a hit and working capital needs could rise, their overall financial health is expected to remain stable for now.

However, the situation is still evolving. Ongoing trade negotiations and the broader global economic environment, including a decline in US auto sales and a weak replacement market, continue to pose risks.