American President Donald Trump’s implementation of a 25% tariff on all automobiles and automotive parts, applicable to finished vehicles imported into the United States as well as parts for vehicles assembled domestically, which is set to take effect on April 1, is expected to reduce Indian component manufacturers’ profit margins by 10-12%.
While increased tariffs are expected to drive significant growth in the US automotive sector, Indian companies such as Tata Autocomp, Bharat Forge, Bosch, Motherson Sumi Systems, Sundaram Fasteners, and Endurance Technologies are likely to see a significant drop in profit margins.
Anuj Sethi, Senior Director at Crisil Ratings, believes that US tariffs will reduce major auto parts manufacturers’ operating margins by 125 to 150 basis points. The decision by the Trump administration to impose a 25% tariff on essential automobile components, including engines, transmissions, powertrain parts, and electrical components, is projected to compress the operating margins of Indian component exporters by 125 to 150 basis points from the current range of 12 to 12.5%, assuming the tariffs are fully absorbed, Sethi said.
According to Crisil Ratings, exports account for approximately 20% of India’s auto component sector revenue, with 27% attributed to the US market alone. The operating profitability of indirect suppliers who supply parts to Tier I suppliers or original equipment manufacturers (OEMs) in other countries with final destinations in the United States will also be impacted.
However, certain automotive component manufacturers with production facilities in the United States may benefit from increased capacity utilization, potentially offsetting some of the negative effects. In a related statement from the Oval Office, Trump expressed enthusiasm for the tariffs, saying, “This is very exciting,” and adding, “What we are going to do is a 25% tariff on all cars that are not made in the US.”
According to an equity market analyst, Indian automakers view US tariffs as detrimental to Tata Motors’ Jaguar Land Rover sales. In the first nine months of the fiscal year 2025, JLR North America contributed approximately 25% of the consolidated EBITDA, which is expected to have a net impact of 3-4% on the company’s consolidated EBITA, according to other analysts.
Last year, approximately eight million cars were imported into the United States, accounting for roughly half of all machines sold in the market.
Trump confirmed that the new laws were “permanent,” putting an end to any speculation that they would be reversed. However, he stated that “if you build your car in the United States, there are no tariffs.”
BMW, Mercedes-Benz, and Volkswagen already have plants in the United States, where they manufacture key models for both domestic and international markets. BMW’s Spartanburg plant in South Carolina, for example, manufactures the X3, X4, X5, X6, X7, and XM. It will be hit, however, because it manufactures and imports the 3 Series from Mexico for the US market.
The news will likely come as a big blow to the likes of JLR, which has seen an increase in Range Rover and Defender sales over recent years. Other car makers targetting the US which don’t have factories across the Atlantic include Cupra – although its models could be manufactured at other Volkswagen Group brand facilities in the US – and Lotus.
However, the move could also impact domestic US car makers and firms that currently manufacture vehicles there. GM, for example, manufactures a number of vehicles and car parts in Canada, China and Mexico that it then imports into the US, and those machines and parts would be hit by the tariffs.
Some automakers have announced plans to expand or open new US facilities in recent months in an effort to spread production globally and avoid tariffs.
Hyundai Motor Group, for example, has invested over £16 billion in the country to increase vehicle production, including the construction of a new steel manufacturing plant.
Hyundai Motor Group’s $12.6 billion investment in Georgia will produce up to 500,000 electric and hybrid vehicles per year for its Hyundai, Kia, and Genesis brands.
The announcement was deemed “disappointing” by the Society of Motor Manufacturers and Traders (SMMT).
