The US auto industry is bracing for a significant shakeup after Donald Trump announced a 25% tariff on all foreign-made cars and auto components imported into the US. This move, aimed at boosting domestic manufacturing, has already started to impact Indian automakers and auto component manufacturers, many of whom have strong export exposure to the US and European markets.

On March 27, shares of Tata Motors, Sona BLW Precision Forgings, and Samvardhana Motherson dropped by up to 7%, as investors reacted to the potential business impact. While India does not directly export large numbers of fully assembled vehicles to the US, its auto component industry has significant stakes in the global supply chain.

Why Auto Component Makers Are Under Pressure

Although the US does not import large numbers of fully built cars from India, auto component manufacturers play a crucial role in the global automobile industry. India’s auto component exports stood at $21.2 billion in FY24, and with global auto component trade valued at $1.2 trillion, the country holds a 4.5% share of the global market. The US and Europe, two of the biggest importers, are now imposing new challenges for Indian players.

Company-Wise Impact of Tariff Decision

Tata Motors

• Jaguar Land Rover (JLR), a Tata Motors subsidiary, has a significant presence in the US. The American market contributes 22% of JLR’s total sales.

• In FY24, JLR sold about 400,000 vehicles globally, with a major portion of US sales coming from UK-manufactured models.

• Since JLR’s UK and international plants will now face 25% tariffs, the company may have to adjust pricing, restructure supply chains, or absorb higher costs.

Eicher Motors

• Royal Enfield’s 650cc motorcycles are a popular export product to the US, making Eicher Motors vulnerable to the tariff hike.

• Although the initial stock reaction was limited, the company may face pricing challenges in its US export segment.

Sona BLW Precision Forgings

• A major supplier of differential gears, starter motors, and drivetrain systems, 66% of Sona BLW’s revenue comes from the US and European markets.

• The company has been diversifying exports to China, Japan, and South Korea, aiming to reduce dependency on the US in the long run.

• Short-term impact: Margin pressure and potential supply chain reconfiguration.

Samvardhana Motherson International Ltd (SAMIL)

• One of India’s largest auto component manufacturers, with a strong presence in the US and Europe.

• Supplies to major US-based companies like Tesla and Ford but has local production facilities in North America.

• Less vulnerable to tariffs due to localized manufacturing, but any supply chain disruption could impact operations.

Other Auto Component Makers at Risk

• Bharat Forge, Sansera Engineering, Suprajit Engineering, and Balkrishna Industries also saw share price declines as investors worried about the long-term impact of US tariffs.

• Many of these companies have high exposure to global OEMs (Original Equipment Manufacturers) and could face price pressures from automakers looking to offset increased costs.

Stock Market Reaction and Industry Response

• At 9:30 AM on March 27, the Nifty Auto index was down 1.5%, reflecting investor concerns over the tariff decision.

• Analysts expect further volatility in auto stocks as more clarity emerges on how global automakers will adjust pricing and supply chains.

• Major auto industry groups have criticized Trump’s move, arguing that higher tariffs will lead to increased vehicle prices, fewer choices for consumers, and possible job losses in the US auto sector.

Potential Industry Outcomes

• Global automakers are likely to pass on some of the price increases to component makers, impacting margins.

• Companies heavily reliant on exports to the US may have to diversify to new markets like China, Japan, and Southeast Asia.

• Indian auto stocks could remain under pressure in the short term, with a recovery depending on how global automakers adjust to the new tariff regime.

Conclusion

Trump’s 25% auto tariff has already rattled the stock market, especially for Indian automakers and component manufacturers with high US exposure. While some companies, like Motherson, may be better positioned due to localized US production, others like Sona BLW and Tata Motors (via JLR) could face significant margin pressure.

With global automakers looking to adjust their supply chains, Indian auto component manufacturers must diversify and find new export markets to mitigate risks from the shifting trade landscape. The coming months will be crucial in determining the true impact of these tariffs on Indian companies and the broader global auto industry.

The Upcoming IPOs in this week and coming weeks are Arisinfra Solutions Limited, Infonative Solutions Limited,Spinaroo Commercial Limited,Aten Papers & Foam Limited.

The Current active IPO are Retaggio Industries Limited,Identixweb Limited, ATC Energies System Limited, Shri Ahimsa Naturals Limited.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.