Tata Motors in the crosshairs of Trump’s auto tariff pressure

The Indian automobile industry is bracing for potential aftershocks as US president Donald Trump’s proposed 25 per cent tariff on car imports threatens to reshape the global automotive trade.

While India is not among the largest exporters of vehicles to the US, the move still poses challenges for domestic companies, particularly Tata Motors and auto ancillary firms with significant American exposure.

Tata Motors, through its luxury arm Jaguar Land Rover (JLR), finds itself at the centre of this tariff storm. In the fiscal year 2023–24, JLR sold over 400,000 units globally, with nearly 23 per cent of its sales originating from the US. This market is clearly a crucial revenue driver for the company, having again contributed over a fifth of JLR’s total earnings last year.

Industry experts suggest that the tariff will leave JLR with limited options: absorb the cost, pass it on to consumers, or implement cost-cutting measures.

However, none of these solutions promise immediate relief.

"With higher costs, JLR will likely have to raise prices or optimize expenses. But such measures take time to reflect in financials, and a near-term hit to both revenue and profitability is expected," said Nirav Karkera, head of research at Fisdom.

Siddhartha Khemka, head of research and wealth management at Motilal Oswal, echoed similar concerns. "If JLR increases prices in line with the tariff, the revenue impact may be limited. However, if demand drops due to higher prices, it could affect both sales volume and margins," he noted.

Morgan Stanley also weighed in on the challenges ahead, estimating that JLR’s operating margins could shrink by 200 basis points if it absorbs the tariff costs.

This could jeopardise the company’s projected 8.3 per cent EBIT margin for FY26 and put pressure on free cash flow (FCF).

A potential countermeasure could be setting up a manufacturing facility in the US to sidestep tariffs, but such a move would require significant capital investment.

Beyond Tata Motors, several Indian auto component manufacturers are also vulnerable. Sona BLW Precision Forgings and Bharat Forge, both heavily reliant on the US market, could face turbulence.

Sona BLW generates 43 per cent of its revenue from the US, while Bharat Forge derives 38 per cent from the region. With most of their production based in India, these companies face direct exposure to the tariff hike.

To mitigate risks, Sona BLW has been diversifying its operations into China, Japan and South Korea, aiming for these markets to contribute over 50 per cent of its revenue within five years. Bharat Forge, however, lacks similar buffers.

Meanwhile, Fortune India said Samvardhana Motherson International Limited (SAMIL) is in a relatively better position, thanks to its manufacturing facility in Alabama, which allows it to supply US-based automakers without being affected by the new import tariffs.

The immediate market reaction reflected investor concerns. At 1:55 p.m. on the day of the announcement, Tata Motors shares fell by over 5 per cent, while SAMIL declined by more than 3 per cent. Sona BLW saw a sharper drop of 7 per cent and Bharat Forge slipped 2 per cent. The broader Nifty Auto index also dipped over 1 per cent, though it remained above its session lows.

While Trump has defended the tariff hike as a move to boost domestic manufacturing in the US, experts warn of broader economic repercussions, including increased vehicle prices and inflationary pressures.

The coming months will determine how companies respond — through price adjustments, cost reductions or long-term strategic shifts like establishing manufacturing units in the US.

For now, Indian players, particularly Tata Motors, remain on high alert as they navigate an increasingly complex global trade landscape.