India's automakers are absorbing the steepest raw material cost surge in years even as vehicle sales climb, a combination that is quietly wearing away at profitability heading into the crucial festive selling season.
Two-wheeler sales rose 24.3% year-on-year, and passenger vehicle volumes climbed 26.3%, but that growth is being offset by a rally in the metals, rubber and battery inputs that make up the bulk of a vehicle's bill of materials, according to SIAM's Commodity Price Monthly Monitor.
Hot-rolled steel, the backbone of vehicle chassis and body panels, ranged between ₹60,625 and ₹62,463 a tonne in August, up 20% from a year earlier, 1.1% higher than July, and at its highest level in 12 months. Automakers are minor players in that market, though; construction accounts for 48% of HR steel demand against just 9% for the automotive sector.
Natural rubber has climbed even faster, up 42% to ₹278.76 a kilogram and also at a 12-month high, while synthetic polybutadiene rubber used in tyre production is up 59% to ₹270.61 a kilogram. Carbon black, another crucial tyre-making input, has risen 47% to ₹155.42 a kilogram.
Copper, used extensively in wiring harnesses and electric motor windings, has jumped 49% to $14,353 a tonne and is likewise at a 12-month peak. Meanwhile, lithium carbonate, the key battery chemical, has more than doubled, up 106% to $19.30 a kilogram.
The strain hitting legacy petrol platforms and electric vehicle supply chains at the same time echoes a broader trend. Worldwide OEM operating margins have fallen to about 4.8%, a multi-year low, with a full recovery not expected before 2027.
Moreover, tyre makers in particular are grappling with simultaneous highs in natural and synthetic rubber, which leaves little room for Tier-1 suppliers to absorb further cost increases without relief from either raw material prices or their automaker customers. As a result, legacy tyre makers – CEAT and JK Tyres – have already announced price hikes ahead of the festive season, when Indian car and two-wheeler sales typically peak.
To cushion the blow at home, the Ministry of Heavy Industries has allocated ₹2,818.9 crore, or roughly $325.6 million, during the Union Budget announcement to the Auto and Auto Component Production Linked Incentive scheme for the 2026-27 financial year, to support manufacturers in localising high-value components and cutting their exposure to imported inputs.
The coming quarters will test whether manufacturers, with earnings estimates for the second half of the 2026-27 financial year already facing downside risk, can protect margins without derailing the volume growth currently masking the damage.