Trump's auto parts tariffs to impact earnings of Indian exporters: ICRA

US President Donald Trump’s 25% tariffs on automobiles and auto components could have a negative impact on revenue and earnings for India’s component exporters over the next few months, according to ICRA.

The credit rating agency, however, said that these tariffs could create long-term opportunities for Indian parts exporters as higher tariffs are being levied on other competing nations.

“While the situation is evolving, the recent tariff related development and the consequent inflationary pressures and slowdown in demand in the US could have a negative impact on revenue and earnings for component exporters (in the affected product categories) over the next few months,” said Srikumar Krishnamurthy, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA.

India’s auto components exports accounted for around 29% of industry revenues in the financial year 2023-24. Of this, about 27% was to the US.

The US Government has imposed a 25% tariff on passenger vehicles (sedans, sport utility vehicles, crossover utility vehicles, minivans, and cargo vans) and light trucks (collectively referred to as automobiles), which come into effect from April 3, 2025. As the passenger vehicle exports from India to the US represent less than 1% of the total PV exports, the tariff imposition of the tariff does not have any material impact on the automakers.

The scenario is however different for auto components, said ICRA. On March 12, 2025, a 25% tariff was imposed on all aluminium and steel components being imported into the US. Subsequent to this, on March 26, 2025, a 25% tariff was imposed on other key auto parts as well (including engines, transmissions, powertrain components and key electrical parts except those under USMCA), with processes to expand tariffs on additional parts, if necessary. The effective date is pending but is expected to be no later than May 03, 2025. Auto components have not featured in the latest set of additional tariff announcement that has been made on April 2, 2025.

“Exporters dependent on the US are also trying to diversify their revenue base across other geographies (including Asia). Measures to improve value addition, diversification into non-auto segments and cost-optimisation strategies are also being worked upon to reduce the potential impact on margins,” said Krishnamurthy.

Commenting on the recent announcement by US President Trump on reciprocal tariffs, Rajesh Menon, Director General, SIAM, said: “We don't expect any significant impact on the Indian Automobile industry since there are limited exports to US, but we will continue to monitor the situation."