US Imposes 25% Import Tariff on Automobiles; But Does it Impact The Indian Car Market?

The United States has officially enforced a 25 per cent import tariff on automobiles, following an announcement by the Donald Trump administration on March 26. The tariffs, which went into effect on Wednesday, also include a 25 per cent import duty on foreign-made auto components used in vehicles assembled domestically, set to be implemented on May 3.

Broader Trade Measures and Reciprocal Tariffs

In addition to the automobile tariffs, Trump announced a set of 'reciprocal' tariffs on all nations, including India. However, categories already subjected to enhanced tariffs—such as automobiles, auto components, steel, and aluminium—are excluded from this measure. The US has imposed a 26 per cent tariff rate on all Indian imports except these exempted categories. Comparatively, China and the European Union face tariff rates of 34 per cent and 20 per cent, respectively, while imports from the UK, Japan, and Vietnam are subject to tariffs of 10 per cent, 24 per cent, and 46 per cent, respectively. 

Trump defended the decision as necessary to revitalise domestic industries, stating in a speech at the White House Rose Garden: “For decades, our country has been looted, pillaged, and plundered by nations near and far, both friend and foe alike. American steelworkers, auto workers, farmers, and skilled craftsmen have suffered gravely.” He further asserted that increased domestic production would lead to stronger competition and ultimately lower prices for consumers.

According to the White House, the tariffs will remain in effect “until such a time as the President determines that the threat posed by the trade deficit and underlying nonreciprocal treatment is satisfied, resolved, or mitigated.”

Impact on Indian Automakers and Component Manufacturers

The new tariffs are expected to significantly impact Tata Motors’ Jaguar Land Rover (JLR), which derives 33 per cent of its sales from North America. Analysts estimate that JLR’s North America business contributes approximately 25 per cent of its consolidated EBITDA (earnings before interest, taxes, depreciation, and amortisation). 

Saurabh Agarwal, Partner and Automotive Tax Leader at EY India, sees an opportunity amid the disruption: “With US automotive tariffs rising, India’s electric vehicle sector has a prime opportunity to capture a larger share of the US market, especially in the budget car segment. China’s 2023 auto and component exports to the US stood at $17.99 billion, while India’s were only $2.1 billion in 2024, highlighting the growth potential. To accelerate this, the government should enhance the PLI (Production-Linked Incentive) scheme by including more auto components, opening it to new players, and extending it by two years.”

Challenges for Indian Auto Component Industry

The impact is not limited to automakers; Indian auto component manufacturers also face potential challenges. According to Arun Agarwal, Vice President, Research, Kotak Securities, “With a likely increase in vehicle prices in the US, industry vehicle demand is likely to be impacted, which will affect sales for component companies. Further, the margins of suppliers may come under pressure as they may need to absorb part of the cost increases. The extent of impact for Indian players will also depend on the US-India bilateral agreement over the next few months.”

Among the companies affected, Sona BLW, which derives 43 per cent of its revenue from North America—mainly from the passenger vehicle segment—could face a 4-5 per cent hit on its earnings per share (EPS) if sales decline by 10 per cent. Samvardhana Motherson International (SAMIL), which operates in the US and exports from Mexico, could see similar impacts. Bharat Forge, with 22 per cent of its revenue from the US (mostly from commercial vehicles), along with Ramkrishna Forgings and Balkrishna Industries, which derive 30 per cent and 16 per cent of their revenue from the Americas, respectively, are also monitoring the situation closely. 

Ayush Lohia, CEO of Zuperia Auto, voiced concerns over the new tariffs: “The imposition of a 26 per cent import tariff on Indian auto components in the US is a concerning development that could significantly impact industry exports and business operations. While we understand the US administration’s intent to address trade imbalances, we hope that a balanced resolution can be reached through bilateral negotiations.”

India’s Growing Export Strategy and Potential Resilience

Despite these challenges, some analysts believe India’s growing global trade partnerships may offset the impact of the US tariffs. Naveen KR, Smallcase Manager and Senior Director at Windmill Capital, highlighted that Indian automakers have been diversifying their export markets, “India exported approximately 670,000 vehicles in 2024, with exports now accounting for 15–16 per cent of total domestic automotive sales. Automakers like Maruti Suzuki and Kia Motors are increasingly focusing on exports as a key growth strategy. While earlier shipments were largely directed at Africa, Latin America, and South Asia, Indian-made vehicles are now reaching developed markets like Japan, highlighting their rising global competitiveness. Given that India exported only $37.11 million worth of motor cars and vehicles to the US in 2023, the direct impact of these tariffs on Indian automakers is expected to be limited.”

Industry Response

The Indian auto component industry is closely monitoring ongoing trade negotiations between New Delhi and Washington. Shradha Suri Marwah, President of the Automotive Component Manufacturers Association of India (ACMA), expressed hope for a diplomatic resolution: “ACMA remains hopeful that the ongoing bilateral negotiations between the Indian and US governments will lead to a balanced resolution that benefits both economies. We believe that the strong trade relationship between India and the US, especially in the auto components sector, will encourage continued dialogue to mitigate the impacts of these measures.”

How Does The Future Look?

India’s Free Trade Agreements (FTAs) with Australia, the UAE, and the European Free Trade Association (EFTA) are expected to open up new markets and bolster automotive export momentum. Additionally, India's relatively low import duty structure (ranging from 5 per cent to 15 per cent for auto components) allows for greater price flexibility, making it potentially more competitive compared to Mexico or China.