Indian auto component exporters are bracing for a potential earnings decline of Rs 2,700 crore to Rs 4,500 crore due to recently imposed tariff hikes by the United States, according to a warning issued by ICRA, an Indian credit rating agency, on April 28, 2025. These tariffs, which took effect in May 2025, are expected to increase costs for the industry by approximately Rs 9,000 crore, with Indian exporters potentially absorbing 30-50% of this additional burden.
ICRA estimates that these increased costs could reduce the operating margins of auto component exporters by 50-100 basis points in the fiscal year 2026. The brokerage firm suggests that the broader auto component industry could witness a 3-6% decrease in operating profits, while exporters could experience a more significant 10-15% reduction in earnings. However, some Indian manufacturers with operations in the U.S. will be shielded from the tariff's impact.
The U.S. has become a growing export destination for Indian auto components, accounting for approximately 8% of the industry's total revenue in FY24. ICRA anticipates that the tariff hikes will likely reduce export growth. ICRA forecasts revenue growth for the sector to moderate to 6-8% in FY26, down from an earlier projection of 8-10%. This revision is primarily attributed to an anticipated decline in US exports following the substantial hike in import duties. Industry operating margins are projected to decline by 50–100 basis points (bps) to 10.5–11.5 per cent in FY2026, while exporters could face a sharper contraction of 150–250 bps.
According to ICRA, the steep increase in import tariffs imposed recently by the USA is estimated to burden the entire supply chain with an incremental cost of around Rs 90 billion, which will need to be borne by the US consumers, US importers, and Indian exporters. The extent to which the Indian auto component exporters share the cost burden will be contingent on their competitiveness and the price elasticity of the products exported. Operating margins are likely to moderate by 50-100 bps against earlier estimates, to 10.5-11.5% in FY2026, in a scenario where 30-50% of the incremental costs are to be absorbed. Specifically for exporters, the decline could be higher at 150-250 bps.
The tariffs, reportedly introduced in April by Donald Trump, could reduce operating profits by Rs 2,700–4,500 crore, representing 10–15 per cent of component exporters' operating profits and 3–6 per cent of the overall industry operating profits.
Despite these challenges, ICRA believes that the Indian auto component sector benefits from a diversified mix of end-user segments, with over 70% of its revenues coming from domestic sales, which may cushion the blow. Moreover, India could gain a medium-term advantage if it strengthens its cost competitiveness relative to China, especially as global original equipment manufacturers (OEMs) reassess their sourcing strategies.
Shamsher Dewan, Senior Vice President and Head - Corporate Ratings Group, ICRA Limited, noted that while auto component suppliers indicate they would try to pass on most of the incremental costs, the extent of successful pass-through would depend on various factors. These include the supplier's criticality, share of business, competition, and the technological intensity of the supplied components. Dewan also expressed concerns about increasing economic uncertainty, slowing vehicle sales, weak replacement demand in the U.S. market, and intensifying competition in European and Asian export markets.
