Passenger Vehicles and components for PVs seem to have been exempted from the latest volley of tariffs from the Trump administration, but segments such as motorcycles, tractors and construction equipment may be hit hard.
26 Aug 2025 | 4641 Views | By Sarthak Mahajan
In a silver lining to the overall gloom and doom of the trade war, India's passenger vehicle and passenger vehicle part exports to the US seem to have been excluded from the latest tariffs imposed by the Trump administration as part of its efforts to pressurize Russia to stop its ...
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In a silver lining to the overall gloom and doom of the trade war, India's passenger vehicle and passenger vehicle part exports to the US seem to have been excluded from the latest tariffs imposed by the Trump administration as part of its efforts to pressurize Russia to stop its war on Ukraine. The Federal Register notice published on August 27, 2025, specifically exempts passenger vehicles (sedans, SUVs, crossover vehicles, minivans, and cargo vans), light trucks, and their parts from the additional 25% duty, providing critical relief to one of India's most important manufacturing sectors.
This exemption could prove pivotal for India's automotive industry, which exported approximately 5.3 million vehicles in FY25 and generated auto component exports worth $21.2 billion in FY24. However, the impact across different segments of the automotive sector varies significantly, creating a complex landscape of winners, losers, and those caught in regulatory grey areas.
The passenger vehicle segment emerges as the biggest beneficiary of the tariff exemptions. With approximately 672,100 passenger cars exported from India in FY24, and 14% of domestically manufactured passenger vehicles finding international markets, the exemption provides crucial stability for manufacturers like Maruti Suzuki, Hyundai, and Mahindra & Mahindra. However, most of the exports are not to the US, but to regions such as MENA, East Asia, Australia and Latin America.
Still, the US market, while not India's largest destination for passenger vehicles, represents a strategic foothold for Indian manufacturers aspiring to compete globally. Companies like Mahindra, which has been attempting to establish its presence in the US market with vehicles like the Roxor off-road vehicle, can now breathe easier. The exemption allows these manufacturers to maintain their price competitiveness against established players from Japan, South Korea, and Mexico.
Industry experts suggest this exemption reflects the US administration's recognition of India's limited threat to American automakers in the passenger vehicle segment. Unlike Chinese EVs or European luxury vehicles, Indian passenger cars occupy niche segments and don't directly compete with core American automotive products. This strategic calculation has worked in India's favor, allowing companies to continue their long-term US market entry plans unimpeded.
India's two-wheeler industry, which dominates the domestic automotive sector with an 80% market share and exported 3.5 million units in FY24, faces a more ambiguous situation. The Federal Register notice doesn't specifically mention motorcycles or scooters in its exemption list, leaving manufacturers like Bajaj Auto, Hero MotoCorp, and TVS Motor Company in regulatory limbo.
The potential application of 50% tariffs on two-wheelers could erode India's competitive position in the US market, where companies like Royal Enfield have been making steady inroads with their mid-size motorcycle offerings.
The two-wheeler segment's vulnerability is particularly concerning given its role as India's automotive export champion. With electric two-wheelers gaining traction globally and Indian manufacturers investing heavily in EV technology, any tariff barriers could derail plans to position India as a global hub for affordable electric mobility solutions. The segment exported over one million electric two-wheelers in 2024, and companies are counting on international markets to scale production and achieve cost competitiveness.
The commercial vehicle segment presents a nuanced picture. While "light trucks" --which, besides SUVs, may include small CVs---receive explicit exemption, the status of medium and heavy commercial vehicles remains unclear. This ambiguity affects major players like Tata Motors, Ashok Leyland, and VE Commercial Vehicles, which have been expanding their international footprint.
The exemption for light trucks provides relief for manufacturers producing vehicles under 8,500 pounds gross vehicle weight rating, and may include pickup trucks and delivery vans. However, heavy-duty trucks, buses, and specialized commercial vehicles may still face the full brunt of tariffs, potentially disrupting export plans to the US market.
Industry analysts note that commercial vehicle exports already faced headwinds in 2024 due to the Red Sea crisis and surging freight costs. The tariff uncertainty adds another layer of complexity, potentially forcing manufacturers to reconsider their export strategies and focus more on markets in Africa, Latin America, and Southeast Asia where Indian commercial vehicles enjoy strong brand recognition.
The tractor and agricultural equipment segment appears vulnerable to the new tariff regime. With no specific exemption mentioned in the Federal Register notice, India's tractor manufacturers—including Mahindra, John Deere India, and Sonalika—face potential challenges in maintaining their US market presence.
India exports well over 1 lakh tractors every year, with companies like Sonalika and Mahindra establishing significant presence in the US market for compact and sub-compact tractors. The 50% tariff could severely impact price competitiveness, particularly in the sub-50 HP segment where Indian manufacturers have carved out a niche serving hobby farmers and rural property owners.
Interestingly, tractors, essential for American agriculture, face tariffs while luxury passenger vehicles receive exemptions. This could force Indian manufacturers to accelerate localization plans, with companies potentially establishing assembly operations in the US to circumvent tariffs, similar to Japanese manufacturers in the 1980s.
The construction equipment sector receives mixed treatment under the new tariff structure. While the notice doesn't explicitly exempt all construction equipment, the exemptions for passenger vehicles and light trucks could extend to certain wheeled construction equipment sharing similar classifications.
India's construction equipment market, valued at $19.5 billion in 2023 and projected to reach $44 billion by 2035, has significant export ambitions. Companies like JCB India, Escorts Construction Equipment, and L&T Construction Equipment manufacture backhoe loaders, excavators, and other equipment that could face varying tariff treatments depending on their specific classifications.
The lack of clarity creates planning challenges for manufacturers who have invested heavily in meeting global emission standards and safety requirements. The potential 50% tariff could make Indian construction equipment uncompetitive against established players from Japan and Europe, potentially forcing companies to focus on domestic and other international markets.
Despite passenger vehicle exemptions, the auto component sector faces significant risks. Worth $21.2 billion in exports during FY24, with substantial shipments to the US, component manufacturers could see their products subject to the 50% tariff if not directly linked to exempted vehicle categories.
This creates a paradox where finished vehicles enjoy protection, but the components used in their manufacture or as replacement parts face punitive tariffs. The Automotive Component Manufacturers Association of India (ACMA) has expressed concerns about this disparity, noting it could disrupt established supply chains and hurt smaller manufacturers who lack the resources to establish overseas operations.
The component sector's predicament highlights the complexity of modern automotive supply chains. Many Indian suppliers provide parts for vehicles assembled in Mexico or Canada under USMCA arrangements. The tariffs could force a reconfiguration of these relationships, potentially benefiting competitors from countries with more favorable trade terms with the US.
As the August 27 implementation date has passed, India's automotive sector must navigate this new reality with strategic agility. The 21-day grace period for goods in transit provides temporary relief, but long-term adjustments are inevitable. Industry leaders are exploring multiple strategies, including accelerating free trade agreement negotiations with other markets, increasing local value addition for exempted categories, and potentially establishing manufacturing presence in third countries to circumvent tariffs.
The selective nature of exemptions—protecting passenger vehicles while potentially exposing two-wheelers, tractors, and components—reveals the calculated nature of US trade policy. It suggests Washington recognizes the importance of maintaining certain supply chains while using tariffs as leverage in broader geopolitical negotiations.
For India's automotive sector, the message is clear: diversification is no longer optional but essential for survival. While the passenger vehicle exemption provides breathing room, the industry must prepare for a future where access to the US market cannot be taken for granted. The companies that successfully navigate this crisis will be those that view it not merely as a challenge but as a catalyst for global competitiveness and innovation.