US tariffs unlikely to impact India’s PV exports

ICRA states that the recent US tariffs on India’s passenger vehicle exports will have little impact due to low shipment volumes. However, higher duties on auto components, particularly aluminium and steel parts, may hurt Indian exporters’ revenues and earnings in the coming months.

Image Credit: Shutterstock

The recent announcement of reciprocal tariffs by the United States is unlikely to have any significant bearing on India’s passenger vehicle (PV) exports, according to credit rating agency ICRA. On April 2, US President Donald Trump imposed fresh tariffs of 27 per cent on Indian goods, citing high import duties by New Delhi on American products. However, experts say that the Indian automobile industry, particularly the PV segment, will remain largely unaffected.

The new tariffs are part of a broader initiative by the US administration targeting 60 countries that levy steep import duties on American goods. Notably, these new levies exclude the automobile sector, as it is already covered under Section 232 tariffs. These tariffs, first announced on March 26, 2025, impose a 25 per cent duty on all passenger vehicles and light trucks entering the US market.

Srikumar Krishnamurthy, Senior Vice President and Co-Group Head for Corporate Ratings at ICRA, emphasized that the impact on Indian automotive original equipment manufacturers (OEMs) will be minimal. “Passenger vehicle exports from India to the US account for less than 1 per cent of India’s total PV exports. As a result, the newly announced tariffs do not have any material impact on Indian PV exporters,” he explained.

While the PV segment seems insulated from this round of tariff escalations, the scenario is more complex when it comes to auto components. On March 12, the US imposed a blanket 25 per cent tariff on all aluminium and steel imports. This has direct implications for critical auto parts such as engines, transmissions, powertrain components, and electrical parts, all of which rely heavily on these metals.

ICRA notes that although the exact implementation date of the new duties on components is yet to be finalized, they are expected to come into effect no later than May 3, 2025. This poses a potential challenge for Indian component exporters, particularly given the scale of trade with the US.

“In FY24, auto component exports accounted for approximately 29 per cent of the industry’s total revenues, with around 27 per cent of these exports going to the US,” Krishnamurthy said. He warned that the new tariffs, coupled with inflationary pressures and a potential slowdown in US demand, could dent revenue and earnings in the short term for affected exporters.

However, the outlook isn’t entirely bleak. Krishnamurthy noted that higher tariffs are being imposed not just on India but also on several other competing nations. This may eventually create new market opportunities for Indian exporters who can maintain competitive pricing and value addition.

In response to the evolving trade dynamics, Indian auto component manufacturers are proactively working to mitigate risks. Many exporters are exploring diversification strategies, both in terms of geography and product mix. This includes targeting new markets in Asia and beyond, as well as branching into non-auto segments to reduce dependence on the US.

Additionally, companies are implementing cost-optimization measures and increasing value addition in their product offerings to sustain margins in a more challenging global trade environment.

As the tariff situation continues to develop, ICRA emphasizes the importance of agility and adaptability for Indian exporters. While near-term headwinds could pose challenges, the longer-term outlook may offer opportunities for those who can innovate and reposition themselves strategically in the global supply chain.

While India’s PV exports remain largely immune from the latest round of US tariffs due to low exposure, the auto component sector will need to navigate a more complex landscape. The industry’s ability to diversify, innovate, and enhance efficiency will be key to weathering this turbulent phase.