28th April 2025: On April 28, 2025, the ratings agency ICRA issued an advisory indicating that India’s automotive component sector is expected to decline by 2-3 percentage points from its previous growth estimate of 8-10 per cent, with the revised growth forecast now set at 8-10 per cent.
ICRA expects revenue growth in the Indian auto component industry, represented by a sample of 46 auto ancillary firms with total annual revenues exceeding Rs 3,00,000 crore in FY2024—accounting for approximately 50% of the industry—to moderate to 6-8% in FY2026, down from the earlier projection of 8-10%.
This adjustment is contingent on a mid to high single-digit revenue decrease in exports to the United States as a result of tariffs. Shamsher Dewan, Senior Vice President and Head of the Corporate Ratings Group at ICRA Limited, explained that while auto component suppliers have stated that the majority of the additional costs will be passed on to buyers, the degree of this pass-through will vary depending on factors such as the supplier’s importance, business share, competitive landscape, and the technological sophistication of the components provided.
He went on to say that if Indian auto component exporters are required to absorb an average of 30-50% of the additional tariff costs, the estimated impact on earnings could range from Rs. 2,700-4,500 crore, accounting for 3-6% of the auto component industry’s operating profits and 10-15% of the exporters’. Some companies have manufacturing operations in the United States, which would offset the cost impact of the tariffs.
However, the current economic uncertainty, declining automobile sales volumes, and sluggishness in the US replacement market all present significant downside risks. Pricing pressures may also emerge in other export markets, such as Europe and Asia, where competition from China is expected to grow.
According to ICRA, the overall effect of increased import tariffs on US consumers, US importers, and Indian exporters is estimated to be Rs. 9,000 crore. This increase is expected to moderate domestic component manufacturers’ operating margins by 50-100 basis points from previous forecasts, bringing them to a range of 10.5-11.5% in FY2026.
The extent to which Indian auto component exporters absorb the cost burden will be determined by their competitiveness and the price elasticity of the exported products, which could result in 30-50% absorption of the additional costs. Exporters may experience a more pronounced decline in margins, ranging from 150 to 250 basis points.
However, the situation remains fluid as tariffs are subject to change and trade negotiations are ongoing. ICRA expects debt metrics and liquidity to remain stable for the majority of exporters in its sample, despite expected margin declines and increased working capital needs.
The Indian auto component industry remains in high demand due to a diverse range of end-user segments and geographical markets, with domestic sales accounting for more than 70% of total revenues. According to ICRA, the US market generated only about 8% of total industry revenues in FY2024. Auto component exports to the United States increased at a compounded annual growth rate (CAGR) of 15% between FY2020 and FY2024. Despite a slowdown in new vehicle registrations in the US compared to pre-Covid levels, factors such as increased supplies to new platforms due to vendor diversification by global original equipment manufacturers (OEMs) and Tier-I parts manufacturers, increased value addition, and favourable foreign exchange movements have benefited Indian auto component manufacturers.
A 25% tariff on imported key automobile parts (engine, gearbox, powertrain and electrical components) was imposed by an order dated March 26, 2025, which became effective no later than May 3, 2025. Approximately 65% of India’s auto component export basket is expected to fall into the 25% import tariff category.
Before this, a 25% tariff was imposed on the imports of steel and aluminium content in auto parts under orders dated February 10 and 11, 2025, which became effective March 12, 2025. Following the March 26, 2025, order, a 26% reciprocal tariff was imposed on Indian exports to the United States, with a 90-day temporary pause, but the 10% ad valorem duty remained in effect. Products subject to the United States-Mexico-Canada Agreement (USMCA) are currently exempt. ICRA is aware that previously, components exported from India to the United States were subject to a 2.5% import duty.
ICRA believes that losing customer business is unlikely in the short term due to high switching costs and long product development, testing, and approval cycles. Furthermore, India may benefit from cost competitiveness with Chinese components (assuming tariff levels remain unchanged), albeit in the medium term. Some players have reported receiving more enquiries from US importers in recent weeks.
