The auto component industry is often considered an indicator of shifts in global trade dynamics, and current disruptions in international trade patterns are beginning to affect this export sector.

Despite the potential for increased US tariffs, the Indian auto component industry appears structurally equipped to manage the situation.

A recent report by a financial holdings company noted that India accounted for 3% of the US$ 97 billion in auto components imported by the United States from outside North America in 2024.

This share is small compared to other exporters to the US market, including the European Union (US$ 22 billion), China (US$ 18 billion), Japan (US$ 16 billion), and South Korea (US$ 13 billion).

The tariff threat

India's main competitive advantage lies in labour cost efficiency. The average hourly wage in India's manufacturing sector is approximately US$ 1.5-lower than Mexico's US$ 2.5 and significantly lower than the United States' US$ 15. This cost difference may provide some buffer against potential tariff measures.

Vinnie Mehta, Director General of the Automotive Component Manufacturers Association of India (ACMA), addressed this at a recent industry event, describing the situation as "very, very fluid" and acknowledging concerns among businesses due to policy uncertainty.

He also stated that even in a scenario where import duties are removed, the industry does not view the United States as a competitive threat, given its high production costs. ACMA continues to project an annual export growth rate of 20-30% to the United States, citing challenges that exporters in China are expected to face. However, trade conditions remain subject to multiple variables.

Currently, the United States imposes a tariff of 2.5% on Indian vehicles and auto components. In contrast, India applies higher duties-110% on fully assembled imported vehicles (including 70% basic customs duty and 40% cess), and 15% on auto parts. This disparity has been a recurring issue in bilateral trade discussions. The possibility of reciprocal tariffs from the United States could create additional challenges for Indian exports.

The Tesla factor

Tesla's entry into the Indian market is also relevant in this context. Although this development has received attention, its short-term impact on the domestic auto component industry is expected to be limited. Industry estimates suggest that Tesla's initial annual sales in India may range between 5,000 and 10,000 units, which constitutes a small proportion of the total market.

In the luxury vehicle segment, Tesla's expected market share remains limited. Ashish Garg, Managing Director of Happy Forgings Ltd, stated that the broader impact would depend on whether Tesla and other electric vehicle manufacturers localise production in India, which may support local suppliers. Experts have also indicated that Tesla's long-term prospects in India will depend on the development of adequate service and charging infrastructure.

A zero-duty trade-off

Future trade negotiations between India and the United States will be a key factor. One possible strategy is for India to reduce tariffs on US-made vehicles that have a high level of value addition within the United States (at least 90%). Another option could involve a reciprocal zero-duty agreement for auto components, similar to existing Free Trade Agreements with countries such as Japan and South Korea.

However, uncertainty surrounding President Trump's trade policies remains a variable. His administration has taken a transactional approach that seeks favourable outcomes for US industries. If the United States secures more favourable terms with Mexico, Canada, or China, India's relative position in the trade framework could be affected.

As one industry observer noted, "Competitiveness is very relative." It remains important for India to maintain access to export markets while continuing to develop its domestic manufacturing capabilities.