CHENNAI: Stepping up his trade offensive, US President Trump announced plans to impose a 25% tariff on imported cars and some components starting next week, a move that sets the stage for retaliation by others, including the EU and Canada, which have slammed the move.
Since the tariff will apply on imports from all countries, the major impact will be felt by US consumers, who could face price hikes (up to $6,000/vehicle), which may slow down demand and impact all companies, including those overseas.
While Indian automakers will largely escape unscathed immediately, given the tiny exposure of the small vehicles made by them, industry players said the real impact could be in segments such as components and tyres, where the US is the biggest export market. Tata Motors-owned Jaguar-Land Rover could be one of the companies to be hit.
Indian companies with overseas factories may be affected
With exports of $2.2 billion, the US accounted for 29% of all auto parts shipped from India. Similarly, with tyre exports of Rs 4,259 crore (around $500 million), the US commanded 17% of the Indian exports globally. In recent years, both segments have gained substantially from the China + 1 strategy pursued by global auto OEMs. Besides, some of the Indian players have production facilities in countries such as Mexico and will be impacted.
Tyre companies said they are watching how the developments unfold. “The US has traditionally been the largest export destination for Indian tyres, but the industry remains confident in its strong fundamentals of cost competitiveness, quality and adherence to global standards. If tariffs are applied uniformly across exporting nations, Indian tyres can retain their edge,” said Rajiv Budhraja, director general of Automotive Tyre Manufacturers Association.
Auto industry experts said that’s true for other auto parts too. “There are a set of components where India is 15% to 20% cheaper including foundry parts, rubber components and even plastics where the pinch will be on margins to begin with,” said the CEO of a top auto component company.
For passenger vehicles and trucks, the US is not a large market, accounting for less than 1% share of total exports from the country. India’s right hand drive vehicles are mostly sold in west Asia, South Africa, Saarc and African nations. Two-wheeler exports mostly go to southeast Asia, Africa and Latin America.
“The US is not a significant destination for Indian passenger or commercial vehicle exports so if there is an impact it will be on components industry. However, since the duties will be levied on all markets, the relative competitive position between India and other markets like Vietnam, Thailand or China does not change with this,” said Shenu Agarwal, vice president of industry lobby SIAM.
Apart from generating revenue, Trump is hoping that the tariffs would prompt some of the companies to locate production facilities in the US. “If Indian companies invest in putting up facilities in the US going ahead, they will gain tariff benefits,” said the CEO of a large component company. “But managing the complexity of the global supply chain will be trickier.”
Auto industry sources said the immediate impact could likely be on companies that have a direct exposure to the US market like Tata group’s sale of JLR cars in the US, companies like Sona Comstar that supply parts to Tesla and other North American auto majors, companies like Sundaram Fasteners which supplies powertrain components to US giant GM.
