US tariffs may hit India's auto exports hard
What's the story
The recent decision by the US to impose a 25% tariff on imports from India is likely to hit the Indian automotive sector hard. The move is expected to affect India's exports of auto components and tires, especially those destined for the US market. Currently, the US accounts for 27% of India's auto component exports and 17% of its tire exports.
Competitive edge
Exporters likely to look for geographic diversification
The tariff hike could hurt India's competitiveness in key segments such as off-highway and replacement tires, along with various automotive components. This is because it puts India at a disadvantage against countries like Japan, Vietnam, and Indonesia that have lower or preferential duties. To offset the impact of these tariffs, exporters are likely to look for geographic diversification and cost efficiency improvements.
Market analysis
Passenger vehicle performance in June 2025
The domestic auto sector's performance for June 2025 was mixed across segments. Passenger vehicle (PV) wholesale volumes fell by 9% month-on-month (MoM) and 7% year-on-year (YoY), mainly due to weak consumer sentiment and macroeconomic conditions. This was despite festive discounts and strong SUV demand. For Q1 FY2026, wholesale volumes fell by 1.4% YoY while retail sales remained largely flat with inventory levels rising to 55 days at the end of June.
Market dominance
Outlook for passenger vehicles in FY2026
SUVs continued to dominate the passenger vehicle market, accounting for 65-66% of total PV volumes. ICRA expects a 1-4% growth in PV wholesales for FY2026, driven by festive season recovery and new model launches. However, there are risks such as sourcing rare earth magnets for electric vehicles (EVs). PV export volumes grew by 14% in June, led by Maruti Suzuki and Hyundai brands.
Divergent trends
Commercial vehicle segment's performance and outlook
The commercial vehicle (CV) segment witnessed mixed trends. June 2025 wholesales fell by 3.8% year-on-year, and by 1.7% in Q1 FY2026. However, retail volumes rose by 6.6% in June, indicating a correction in dealer inventories. Retail sales of light commercial vehicles (LCVs) rose 8.8% YoY. For FY2026, ICRA projects 3-5% growth in LCV wholesale volumes, though the segment is likely to face headwinds from rising electric three-wheeler adoption and higher demand for used vehicles.
Market challenges
Two-wheeler segment's performance and outlook
Two-wheeler wholesales fell 4.3% YoY and 4.8% sequentially in June, totaling 1.5 million units. However, retail volumes improved by 5.1%, driven by demand from rural and semi-urban areas. The growth of electric two-wheelers was also impressive with a month-on-month increase of 5% in June to reach 105,282 units while their market share remained stable at 6-7%.
Future prospects
Overall outlook for Indian auto sector in FY2026
The future of the Indian auto sector looks cautious amid global trade uncertainties and ongoing discussions on an India-US bilateral trade agreement. Despite inventory build-up and component shortages posing near-term challenges, domestic retail demand remains resilient. ICRA expects moderate growth across major segments in FY2026, backed by infrastructure development, festive season activity, and rural income stability with busses and two-wheelers expected to lead growth within this sector.