US Tariffs Impact Auto Trade in H2 Amid Contract Uncertainty; ACMA Highlights Margin Pressure
The auto component industry is bracing for the effects of U.S. tariffs as the second half of the financial year approaches, according to the Automotive Component Manufacturers Association (ACMA). While the sector experienced steady growth in the first half of FY26, with a notable increase in turnover and exports, the looming tariffs are creating uncertainty for new contracts. Existing supply chains remain intact for now, but the future of new business appears uncertain.
Growth Amidst Challenges
In the first half of FY26, the auto component sector reported a 6.8 percent year-on-year increase in turnover, reaching Rs 3.56 lakh crore, up from Rs 3.33 lakh crore during the same period last year. Exports also saw a positive trend, rising by 9.3 percent to $12.1 billion. However, imports surged even more, climbing 12.5 percent to $12.3 billion, resulting in a trade deficit of $180 million, a stark contrast to the $150 million surplus recorded in the first half of FY25. Despite these figures, the industry faces significant challenges, including supply-chain disruptions and rising raw material costs.
Impact of U.S. Tariffs
The introduction of a 25 percent tariff on auto component exports to the U.S. has raised concerns among manufacturers, who struggle to absorb such costs due to thin operating margins. ACMA Director General Vinnie Mehta highlighted that the full impact of these tariffs will likely be felt in the latter half of the financial year. While existing supply chains continue to function, the outlook for new contracts is less optimistic. ACMA President-Designate Sriram Viji noted that new business opportunities are currently in a state of uncertainty, which could hinder future growth.
Domestic Demand and Future Prospects
Despite external pressures, domestic demand has provided some relief to the auto component industry. Sales to Original Equipment Manufacturers (OEMs) increased by 7.3 percent, totaling Rs 3.04 lakh crore, driven primarily by passenger and light commercial vehicles. The aftermarket sector also grew by 9 percent, reaching Rs 53,160 crore, thanks to a growing vehicle base and improved repair and maintenance services. Electric vehicles now account for 4.6 percent of total OEM supplies, indicating a gradual shift towards new mobility technologies.
Looking ahead, ACMA President Vikrampati Singhania expressed optimism about potential improvements in demand conditions during the second half of FY26. Factors such as enhanced retail sentiment, seasonal trends, and infrastructure development could contribute to this positive outlook. Additionally, a reduction in Goods and Services Tax (GST) on select vehicle categories post-September may further stimulate demand for passenger vehicles and two-wheelers, benefiting component manufacturers.
Ongoing Risks and Considerations
Despite the positive indicators, the auto component industry continues to face several risks. Geopolitical tensions, rising freight costs, and raw material price volatility pose significant challenges. High GST rates on auto components and the limited availability of critical inputs, such as rare-earth magnets, further complicate the landscape. As the industry navigates these complexities, stakeholders remain vigilant in seeking solutions to ensure sustainable growth in the face of evolving market dynamics.
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