US President Donald Trump announcing a 25 per cent tariff on imported cars and parts from April 3, 2025, will impact finished cars and trucks, as well as imported parts that are assembled in the US. “According to our US Autos team, 1) the impact of these tariffs could be $3,700 (~8 per cent of ASP). With a 50 per cent pass on (4 per cent price hike), this could impact demand by 8 per cent or ~1 million vehicles (~16 million new car sales in 2024); and 2) these tariffs further Trump’s objectives to lessen reliance on China, address Chinese investments in third countries to circumvent tariffs, and incubate the redevelopment of the US manufacturing base,” an analysis report by Nomura stated.
Details of new tariff announced
According to the new announcement by Trump, a 25 per cent tariff would be levied on all fully-built light vehicles imported into the US from 3 April onwards. In addition, imports of 1) engines and engine parts, 2) transmissions and powertrain parts, and 3) electrical components would also be subject to a 25 per cent import duty no later than 3 May 2025. Further, autoparts that comply with USMCA requirements will remain tariff-free until the Department of Commerce sets up a process to determine the value of non-US content in such autoparts.
Exposure details
In FY24, Tata’s Jaguar Land Rover’s approximately 23 per cent revenue and around 26 per cent of the total wholesale volume came from the US. Recently, Nomura said, JLR’s volume exposure has increased to 33 per cent (9MFY25). JLR’s cars are manufactured in the UK, except for the Defender which is manufactured in the EU (25.9 per cent of US volumes in 9MFY25F).
Among auto components, Bharat Forge, Sona Comstar and Samvardhana Motherson are the major suppliers of auto parts with a significant exposure to the US market. In FY24, Bharat Forge’s around 25 per cent consolidated revenue and 35 per cent standalone revenue (28%/37% in 9MFY25); Sona’s approximately 40 per cent revenue (43 per cent in 9MFY25) and Samvardhana Motherson’s around 18 per cent revenue came from the US. Samvardhana Motherson already has a manufacturing facility in the US (in Alabama, Michigan and Houston), which could help ramp up production to reduce tariff exposure, thereby lowering the impact. Suppliers will most likely pass on these tariffs to OEMs.
Balkrishna Industries’ 18 per cent of the FY24 revenue (16 per cent in 9MFY25) came from the US. Currently, the US imposes 3.4-4.0 per cent tariffs on imports from India, which is lower than the Indian duty of 10-15 per cent. “We will wait for the fine print to understand if the 25 per cent tariffs apply to tyres,” Nomura said.
A possible impact on US car demand?
According to Nomura, the immediate impact of tariffs could lead to significant price hikes by OEMs, as they will take time to explore alternatives. This may have an impact on demand as well, it added. While it is not clear at the moment whether country-specific trade agreements have the potential to reduce these tariffs, Nomura said, there is a risk that reciprocal tariffs may apply on top of these tariffs. “We note that both the Indian and UK governments are engaged with the US government for trade deals,” it said.
It is worth noting that it will not be easy for all companies to shift their manufacturing base to the US. The average hourly wage in India is $1.5 vs $2.5 in Mexico and $15 in the US. Now for shop floor workers, wages in the US are around 5x compared to that in India. “If all OEMs and suppliers plan to shift their production to the US at the same time, there may be a shortage of labour, leading to a further rise in wages. Suppliers can currently supply to US OEMs at a lower cost due to scale benefits in locations outside the US, which may not be feasible if they set up their manufacturing plants in the US itself,” Nomura said.
The US has imposed import tariffs on steel and aluminium as well, and according to Nomura, setting up these plants will take approximately two years. Thus, all players need to conduct a cost-benefit analysis. Any appreciation of the USD vs other currencies could also negatively impact US competitiveness, it added.
Furthermore, Nomura said, “any sharp rise in tariffs across other consumer products may impact inflation, raise interest rates and affect US consumer sentiment. According to the recent news reports, US consumer sentiment has already hit a 12-year low.”