From Mexico City to Pretoria, India's car exports are running into turbulence.
Indian automotive exports, a sector crucial for maximizing production and achieving economies of scale, are facing headwinds in key markets, threatening to disrupt carefully crafted business strategies. Automakers have relied on exports to offset slower domestic sales and enhance profit margins, but recent trade policy shifts are forcing a re-evaluation of these approaches.
Mexico, India's third-largest car export market after South Africa and Saudi Arabia, has recently approved tariff hikes on imports from countries without free trade agreements, including India. Effective January 2026, the tariff on cars has increased from 20% to 50%, potentially impacting approximately $1 billion of Indian vehicle exports. This decision, impacting over 1400 product lines, also includes automobiles parts, steel, textiles, plastics and footwear. The Mexican government defends the move as necessary to protect local jobs and manufacturing, while some business groups in Mexico have warned that the higher tariffs will increase costs. This action also aligns with pressure from the United States for Mexico to reduce its trade relations with China.
The tariff hike will significantly affect major Indian car exporters such as Škoda Auto Volkswagen India Pvt. Ltd, Hyundai Motor India, Nissan, Maruti Suzuki and Bajaj Auto. Škoda Auto Volkswagen India, a subsidiary of the German Volkswagen Group, accounts for nearly 50% of India's total car shipments to Mexico. Hyundai shipped cars worth approximately $200 million, Nissan's exports stood at $140 million, and Suzuki's at $120 million. These companies may need to rethink their export strategies to Mexico, as the increased duty could undermine their competitiveness.
The Society of Indian Automobile Manufacturers (SIAM) had previously urged the Indian government to engage with Mexico to maintain the status quo on tariffs. In a letter to India's commerce ministry in November, SIAM warned of the direct impact on Indian automobile exports and requested government support to negotiate with the Mexican government. SIAM stated that Indian-origin vehicles do not pose a threat to the Mexican local industry because they do not cater to the high-end segments manufactured by Mexico for serving the North American market. It remains unclear what steps the carmakers, SIAM, and the Indian government will take in response to the tariff hike.
While the situation in South Africa is different from that in Mexico, it still presents challenges for Indian car exports. South Africa is India's largest car export market. External factors, such as global economic fluctuations and changes in consumer preferences, can influence demand and market dynamics in South Africa.
Despite these challenges, the AMCA president said that tariffs could affect Indian auto exports but not immediately. The US continues to be the largest market, with the EU as the second largest and Asia as the third. The Indian government continues to negotiate with the Mexican government to renegotiate.
The evolving trade landscape requires Indian automakers to be agile and adaptive. Diversifying export markets, enhancing product competitiveness, and exploring alternative business models may be necessary to navigate these turbulent times and sustain growth in the global automotive market.
