Tata Motors, Hyundai And Other Auto Stocks In Focus As India Mulls Tariff Cut For EU Carmakers

Indian automobile stocks, including those of Tata Motors and Hyundai, are expected to be in focus as India considers a significant reduction in import tariffs on cars from the European Union (EU). This move is anticipated as India and the EU approach a long-awaited free trade agreement (FTA), potentially to be announced as early as Tuesday.

The proposed arrangement involves India cutting its peak import duties on EU-made cars to 40% from the current levels, which range as high as 110%. Over time, these duties could be reduced further to 10%. The initial tariff reduction would apply to a limited number of cars from the 27-nation EU bloc with an import price above 15,000 euros ($17,739). This would apply to approximately 200,000 internal combustion engine cars annually, although this quota is subject to change before the final agreement. Battery electric vehicles (BEVs) are expected to be excluded from these duty cuts for the first five years to protect domestic investments, with similar reductions anticipated for EVs later on.

The potential tariff reduction marks a significant shift in India's trade policy, particularly for its automobile market, the third largest globally. Currently, India levies tariffs of 70% to 110% on fully built imported cars, a policy that has been criticized by global auto executives. The proposed cuts represent India's most aggressive move to liberalize the sector.

Such a move could provide a boost for European carmakers such as Volkswagen, Mercedes-Benz, and BMW, as well as manufacturers including Renault and Stellantis. These companies already have a manufacturing presence in India but have faced challenges in scaling up due to the existing tariff structure.

However, the impact on domestic players like Tata Motors and Hyundai remains to be seen. Lower tariffs could lead to price reductions for foreign brands, intensifying competition in the Indian market.

According to Reuters, the free trade agreement (FTA) between India and the EU is expected to create a free market of nearly 2 billion people with a combined economic output of approximately $27 trillion.

Despite the anticipated FTA, Mercedes-Benz India suggests that luxury car buyers may not see price cuts anytime soon. Santosh Iyer, managing director and chief executive officer of Mercedes-Benz India, noted that the near-term impact might be marginal, given that over 90% of their sales come from CKD (Completely Knocked Down) models. Therefore, any relief on CBU (Completely Built Unit) tariffs would only apply to a small portion of their portfolio.

The proposed tariff cuts come amid strained trade relations between India and the United States.