New Delhi, April 28 (NationPress) Debt metrics and liquidity are expected to stay robust for the majority of auto component exporters, even though there might be a drop in margins and an uptick in working capital requirements due to the recently announced US tariff hikes by President Donald Trump, according to a report by ICRA released on Monday.

The demand for the Indian auto component industry continues to thrive, driven by a diverse mix of end-user segments and global markets, with over 70% of revenues generated from domestic sales. The US market accounted for merely 8% of the overall industry revenues in FY2024, as per the report.

Exports of auto parts to the US experienced a Compounded Annual Growth Rate (CAGR) of 15% from FY2020 to FY2024.

Factors such as increased supplies to new platforms due to vendor diversification by global original equipment manufacturers, enhanced value addition, and favorable Forex movements have positively impacted Indian auto component manufacturers, despite a slowdown in new vehicle registrations in the US compared to pre-Covid levels, according to the report.

Shamsher Dewan, Senior Vice President at ICRA Limited, remarked: "Auto component suppliers indicate that most of the additional costs will be transferred to consumers. However, as in any buyer-supplier negotiation, the degree of pass-through will depend on the supplier’s importance, business share, competition, and the technological sophistication of the components supplied."

He added, "If Indian auto component exporters absorb an average of 30-50% of the increased tariff costs, we predict an earnings impact of approximately Rs. 2,700-4,500 crore, which represents 3-6% of the operating profits for the industry and 10-15% for the exporters."

Some companies have manufacturing facilities in the US, where supplies from those units will be insulated from the tariff's cost implications.

"Nonetheless, the heightened economic uncertainty, dwindling automobile sales volumes, and sluggishness in the US replacement market pose significant downside risks. Pricing pressures may also emerge in other export markets like Europe and Asia, where competition from Chinese manufacturers is expected to escalate," he noted.

A 25% tariff was imposed on key imported automobile parts (including engine, transmission, powertrain, and electrical components) as per an order dated March 26, 2025, effective no later than May 3, 2025. Approximately 65% of India’s auto component export portfolio is anticipated to be affected by this 25% import tariff.

ICRA is confident that the loss of market share among customers is unlikely in the short term due to high switching costs and lengthy product development, testing, and approval cycles.

Moreover, there could be additional opportunities for India stemming from cost competitiveness relative to Chinese components (if the current tariff levels persist), albeit in the medium term. Some market players have reported increased inquiries from US importers over the past few weeks.