The automotive component sector in India is facing significant challenges due to new US tariff implementations, which are expected to substantially impact earnings of exporters, according to Investment Information and Credit Rating Agency (ICRA).
The tariffs introduced by Donald Trump in April, just months after his return to White House, 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.
For FY2026, ICRA forecasts revenue growth for the sector — based on 46 key organisations with combined annual revenues exceeding Rs 3 lakh crore in FY2024 — to moderate to 6–8 per cent, down from the earlier projection of 8–10 per cent.
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.
Despite these pressures, ICRA expects most exporters to maintain satisfactory debt metrics and liquidity, although margin erosion and higher working capital requirements are likely.
"While the auto component suppliers with whom ICRA has interacted indicate that most of the incremental costs would be passed on, the extent of pass-through would depend on the supplier’s criticality, share of business, competition, and the technological intensity of the components supplied," said Shamsher Dewan, senior vice president and head, Corporate Ratings Group, ICRA Limited.
Dewan also flagged concerns about increasing economic uncertainty, slowing vehicle sales, and weak replacement demand in the US market, alongside intensifying competition in European and Asian export markets.
The new tariffs impact approximately 65 per cent of India's auto component exports. While India has temporarily suspended reciprocal tariffs for 90 days, an ad valorem duty of 10 per cent remains applicable.
ICRA notes that India could gain a medium-term advantage if it strengthens cost competitiveness relative to China, especially as global OEMs reassess their sourcing strategies.
In recent weeks, Indian manufacturers have seen a rise in enquiries from US importers, suggesting potential new opportunities despite current challenges.
In a related development, as US-India delegation prepare to for formal trade talks, a report from last week indicated that India is preparing to formally request the US for relaxed export controls and enhanced access to advanced technologies under the proposed bilateral trade agreement (BTA), according to sources quoted by news agency PTI.
India's reported concessions that have been requested mirror the privileges the US has extended to strategic partners such as Australia, the United Kingdom, and Japan.
The Indian government is pursuing enhanced market access across various technological domains, including telecommunications equipment, biotechnology, artificial intelligence (AI), pharmaceuticals, quantum computing, and semiconductors. Simultaneously, India is advocating for lower tariffs on its labour-intensive export products, encompassing textiles, gems and jewellery, leather goods, garments, plastics, chemicals, shrimp, oil seeds, grapes, and bananas.
Read more: India to seek relaxed export controls and tech access in bilateral trade deal with US, claims report
The tariffs introduced by Donald Trump in April, just months after his return to White House, 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.
For FY2026, ICRA forecasts revenue growth for the sector — based on 46 key organisations with combined annual revenues exceeding Rs 3 lakh crore in FY2024 — to moderate to 6–8 per cent, down from the earlier projection of 8–10 per cent.
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.
Despite these pressures, ICRA expects most exporters to maintain satisfactory debt metrics and liquidity, although margin erosion and higher working capital requirements are likely.
"While the auto component suppliers with whom ICRA has interacted indicate that most of the incremental costs would be passed on, the extent of pass-through would depend on the supplier’s criticality, share of business, competition, and the technological intensity of the components supplied," said Shamsher Dewan, senior vice president and head, Corporate Ratings Group, ICRA Limited.
Dewan also flagged concerns about increasing economic uncertainty, slowing vehicle sales, and weak replacement demand in the US market, alongside intensifying competition in European and Asian export markets.
The new tariffs impact approximately 65 per cent of India's auto component exports. While India has temporarily suspended reciprocal tariffs for 90 days, an ad valorem duty of 10 per cent remains applicable.
ICRA notes that India could gain a medium-term advantage if it strengthens cost competitiveness relative to China, especially as global OEMs reassess their sourcing strategies.
In recent weeks, Indian manufacturers have seen a rise in enquiries from US importers, suggesting potential new opportunities despite current challenges.
In a related development, as US-India delegation prepare to for formal trade talks, a report from last week indicated that India is preparing to formally request the US for relaxed export controls and enhanced access to advanced technologies under the proposed bilateral trade agreement (BTA), according to sources quoted by news agency PTI.
India's reported concessions that have been requested mirror the privileges the US has extended to strategic partners such as Australia, the United Kingdom, and Japan.
The Indian government is pursuing enhanced market access across various technological domains, including telecommunications equipment, biotechnology, artificial intelligence (AI), pharmaceuticals, quantum computing, and semiconductors. Simultaneously, India is advocating for lower tariffs on its labour-intensive export products, encompassing textiles, gems and jewellery, leather goods, garments, plastics, chemicals, shrimp, oil seeds, grapes, and bananas.
Read more: India to seek relaxed export controls and tech access in bilateral trade deal with US, claims report
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