Auto Parts Exports Steer Clear Of US Tariff Blues

The auto component suppliers indicate that most of the incremental costs would be passed on. However, as in any buyer-supplier negotiation, the extent of pass-through would depend on the supplier’s criticality, share of business, competition, and technological intensity of the compo-nents supplied -- Shamsher Dewan, SVP at ICRA Limited

The Indian auto component industry demand continues to benefit from a diversified mix of end-user segments and geographies, with over 70 per cent of its revenues coming from domestic sales. The US constituted only 8 per cent of the overall industry revenues in FY2024, an ICRA report states

New Delhi: Debt metrics and liquidity are likely to remain comfortable for most auto component exporters despite potential decline in margins and increase in working capital requirements in the wake of the US tariff hikes that have been announced by President Donald Trump, according to an ICRA report.

The Indian auto component industry demand continues to benefit from a diversified mix of end-user segments and geographies, with over 70 per cent of its revenues coming from domestic sales. The US constituted only 8 per cent of the overall industry revenues in FY2024, the report states.

Exports of auto components to the US grew at a Compounded Annual Growth Rate (CAGR) of 15 per cent during FY2020-FY2024.

Factors like rising supplies to new platforms because of vendor diversification by global original equipment manufacturers, higher value addition, and favourable Forex movement, among others, have benefited Indian auto component manufacturers, despite muted new vehicle registration growth in the US vis-a-vis pre-Covid levels, according to the report.

Shamsher Dewan, senior vice president at ICRA Limited, said: "The auto component suppliers indicate that most of the incremental costs would be passed on. However, as in any buyer-supplier negotiation, the extent of pass-through would depend on the supplier’s criticality, share of business, competition, and technological intensity of the components supplied.”

“If an average 30-50 per cent of the incremental tariff costs are to be absorbed by the Indian auto component exporters, we estimate an earnings impact of roughly Rs. 2,700-4,500 crore, which is 3-6 per cent of the operating profits of the auto component industry and 10-15 per cent of the operating profits of the auto component exporters,” he added.

Further, there could be incremental opportunities for India arising from cost competitiveness vis-a-vis Chinese components (if the same level of tariff continues), albeit over the medium term. Some players have indicated additional enquiries from US importers in the last few weeks.