Automakers’ joy ride hits a big cost hurdle

Automakers are facing the double whammy of rising input costs and freight charges due to the ongoing West Asia crisis, which could push them to raise prices, potentially derailing the demand rally seen after GST cuts last September.

Prices of HR steel rose 13% year-on-year (YoY) to a 12-month high of ₹59,900-61,200 per tonne in April. CR steel touched ₹65,600-67,300 per tonne, up from ₹58,000-59,400 in April 2025, according to the Society of Indian Automobile Manufacturers’ (SIAM) Commodity Price Monitor for April, accessed by ET.

Pig iron, stainless steel, steel scrap, iron ore, virgin aluminium, nickel, zinc, polypropylene, polycarbonate, urea (prilled), natural rubber are among 20 commodities whose prices have peaked in the last one year, affecting manufacturing costs across companies.

The automotive sector accounts for 9% of HR steel and 21% of aluminium consumed in India. Commodities comprise 60-65% of total costs for an Indian automaker.

Meanwhile, the shipping freight index (Baltic Dry Index) surged to 2,443 points in April, up from 1,369 points a year earlier, sharply inflating logistics costs.

“Prices in April 2026 were 78% higher than last year, 19% higher than the previous month, and at the peak witnessed in the last 12 months,” the SIAM report said.

The surge in input and shipping costs is coming at a time when the domestic market has been on a strong rebound post cuts in goods and services (GST) tax last September. Notably, industry wide sales increased in FY26, the first time since the pandemic.

VG Ramakrishnan, managing partner at Avanteum Advisors, said prolonging of the West Asia crisis will start reflecting on the balance sheets of companies, though it won’t be similar to the severe impact seen during the pandemic period. “Costs have gone up which will squeeze margins,” he said. “There is significant demand in the market. Come July, there may be some change in pricing.”

He said vehicle price hikes are inevitable not only due to higher commodity costs, but also from the currency standpoint. “The Indian rupee has depreciated 10% in the last four months, which will impact imports,” said Ramakrishnan. “Imports usually have a longer lead but all these expenses are piling up. Companies will be forced to make a decision if they will pass on the costs to customers or take a hit on margins. They are concerned about the hike as it may knock off some growth the industry has been witnessing.”

Domestic automobile sales started on a strong note in FY27 despite geopolitical uncertainties. While passenger vehicle sales grew 25% year on year to a record 437,312 units in April, two-wheeler and three-wheeler sales rose 28% and 33%, respectively.

A senior executive at an NCR-based carmaker said, requesting anonymity, that while all companies are facing cost pressures, there may not be an immediate increase in vehicle prices as the June quarter is traditionally a lean period for the industry. “The Adhik Maas started on May 17 (and will end on June 15), during which sales usually weaken in North and Eastern parts of the country,” the person said. “There are severe heat waves across states in North India, which is resulting in lower footfalls at showrooms. Automakers would also have to gauge how the recent fuel price hikes impact consumer demand. There are multiple factors at play, and most companies are in a wait-and- watch-mode for now.”

Overall, while passenger vehicle sales climbed about 8% to 4.64 million units in FY26, those of commercial vehicles, three-wheelers, and three-wheelers increased by 12.6% (1.08 million), 12.8% (836,000) and 10.7% (21.71 million), respectively. It was in FY19 previously that sales across all four categories of vehicles touched records.

“Although FY26 started modestly, t1he Indian auto industry has closed the year on a high note with every vehicle category viz. passenger vehicles, commercial vehicles, three-wheelers and two-wheelers, together posting their highest ever sales in a financial year, after seven years,” said Shailesh Chandra, president, SIAM, adding he expects domestic demand and macro fundamentals to stay robust this fiscal year, which should aid steady growth for the industry.