Tariffs, Trade & Tailwinds: Indian Auto Components at an Inflection Point

The Indian auto component industry faces a complex yet potentially advantageous situation as the US implements a series of tariffs affecting global automotive supply chains. According to a recent Motilal Oswal research report featuring insights from industry expert Mr. Vinnie Mehta, these tariffs have arrived in three phases since early 2025.

The first wave came on February 10, 2025, with 25% tariffs on steel and aluminum derivatives, affecting forgings, castings and wheels. The second phase hit on February 26, with 25% tariffs on vehicles and auto parts under Section 232 of the US Trade Expansion Act, covering engine parts, transmissions and electrical components. The third phase introduced region-specific reciprocal tariffs, with India falling into a 26% category for components not covered in the earlier phases.

While the US has recently indicated potential relief for the auto industry given the substantial domestic impact, significant uncertainty remains regarding the extent and duration of any relaxations. Industry experts estimate that without relief, vehicle prices in the US could increase by $2,500-12,500 per unit, potentially triggering a major correction in the US auto market.

This disruption creates potential opportunity for India's $74 billion auto component industry, which currently exports around $21.2 billion annually. The US and EU each account for approximately $7 billion of these exports, primarily in engine components and drive transmissions.

"Indian auto component players are 10% more competitive than their Chinese counterparts," the report notes, citing a recent BCG study. The primary competitive advantage Mexico holds over India in serving the US market is geographic proximity, accounting for just a 4% cost difference.

Unlike after the pandemic when Indonesia, Thailand and Vietnam captured more reshoring business than India, current conditions may favor Indian manufacturers. Global tensions between the US and China have intensified, with China restricting exports of rare earth metals for permanent magnets and imposing controls on lithium ion and cobalt supplies critical for electric vehicles.

The report highlights increased inquiries from global players looking to diversify supply chains away from China. However, shifting automotive supply chains requires significant time—product approval typically takes 2-3 years, with another 1.5-2 years needed for capacity setup and production launch.

The Indian government is actively engaged with US counterparts to negotiate a bilateral trade agreement that could benefit both nations. Industry experts are hopeful such a deal might materialize within six months.

Currently, the US imports approximately $230 billion worth of auto components globally. Mexico accounts for 35% of these imports, followed by China (15%), Canada (10%), Japan (10%), Germany (7.5%), and India (3%). This indicates substantial room for growth in India's market share if manufacturers can scale up capacity while meeting global quality standards.

The report concludes that eventual winners in this trade realignment will only emerge once policy certainty is established and trade agreements are finalized across regions. For Indian manufacturers, the opportunity is significant but hinges on policy stability, scaling capability, and competitive positioning in a rapidly evolving global trade landscape.