What are the key risks for growth for the Indian auto components industry at present? 

India’s auto component industry faces mounting risks as EV-led technology shifts outpace MSME capabilities. At the same time, trade and cost pressures are intensifying in key export markets, while dependence on imported critical materials such as rare earths remains high. Together, these factors threaten the industry’s global competitiveness and its integration into future automotive value chains. 

First, technology transition risks are intensifying. As electric mobility accelerates, non-traditional components, such as batteries, power electronics and semiconductors now account for 40–50 per cent of an EV’s value, while connected-car technologies are reshaping vehicle architectures1. India’s auto component industry, comprising MSMEs that account for ~70 per cent of firms and ~40 per cent of industry revenue, has limited R&D depth and investment capacity in advanced areas such as lightweight materials, high-efficiency e-motors and next-generation powertrains. This weakens the sector’s ability to meet global standards and keep pace with evolving EV-led value chains. 

Second, trade and cost competitiveness risks are growing. India’s auto component exports to the EU, valued at around $ 4.6 billion, could face mounting pressure as carbon costs get institutionalised under mechanisms such as Carbon Border Adjustment Mechanism (CBAM). In addition, Mexico’s decision to impose import duties ranging from 5 per cent to as high as 50 per cent from January 1, 2026 on non-FTA partners poses a direct threat to India, as auto and auto components accounted for the largest share at 33.8 per cent of exports to Mexico in FY253. Auto parts exports to Mexico stood at $ 834 million in FY25, with $ 370 million shipped in the first half of FY26, indicating continued demand, making this a significant near-term growth risk. 

Third, supply-chain dependence on critical materials remains a structural risk. Rare earth magnets, crucial for EV motors, sensors and braking systems, are almost 100 per cent import-dependent, with India importing ~2.3 kilotons in 2024, about 65 per cent from China, and demand expected to triple to ~6 kilotons by FY30. While the government’s RS 72.8 billion rare-earth permanent magnet manufacturing programme is a welcome step, delays in localisation could limit domestic value addition and constrain the pace of electrification.

How do you see the short-to-medium term impact of the high US import tariffs on India’s auto components industry? 

In the short-to-medium term, very high US import tariffs could weigh meaningfully on India’s auto components industry by weakening export competitiveness, compressing margins, and disrupting established supply chains. According to the Automotive Component Manufacturers Association of India (ACMA), the US is India’s single largest export destination for auto components, accounting for 27 per cent of total exports valued at $ 22.9 billion in FY25, making the sector particularly vulnerable to adverse trade actions. According to ratings agency ICRA, high US tariffs are expected to affect close to 8 per cent of India’s overall auto component production, with the impact concentrated among firms that are heavily dependent on the US market and operate on thin margins, especially MSMEs.  

The imposition of tariffs of up to 50 per cent on Indian goods places Indian auto component exporters at a clear disadvantage relative to Asian competitors, such as China, Japan, Vietnam, and Indonesia, which face significantly lower tariff levels of 15 per cent–30 per cent. This differential erodes India’s price competitiveness in labour-intensive and standardised components, where buyers are highly cost-sensitive, and switching suppliers is relatively easy. Competitive pressures are further intensified by the fact that manufacturers in Mexico and Canada remain exempt under the United States-Mexico-Canada Agreement (USMCA), encouraging US Original Equipment Manufacturers (OEMs) to deepen near-shoring and source more components from North America.  

The effect already seems to be visible; exports of auto components to the US fell from $ 183.3 million in May 2025 to $ 142.5 million in October 2025, registering a decline of nearly 22 per cent. 

In response, Indian exporters may attempt to diversify markets, absorb part of the tariff impact, or shift towards higher-value components, but these adjustments take time and capital. However, much will depend on the outcome of the ongoing India–US trade discussions, which could determine whether the tariff shock proves transitory or structurally damaging for the sector.

What is the effect of the recent GST rationalisation on the auto components industry? 

The recent GST rationalisation implemented from 22 September 2025 has had a notable effect on India’s auto components industry by simplifying the tax structure and reducing the overall tax burden on both vehicles and parts. This is expected to boost demand along the entire automotive value chain. Under the reforms, the GST slab structure was simplified to primarily 5 per cent and 18 per cent, with most auto parts standardised at 18 per cent, irrespective of their HS code classification, down from multiple slabs, including 28 per cent and associated cesses. This has reduced compliance complexity and lowered input costs for manufacturers and suppliers. The uniform 18 per cent rate on auto components directly lowers production expenses for a large number of ancillary firms, especially MSME suppliers, who form a significant part of the industry. It is also expected to improve competitiveness and margin stability.  

Lower taxes on small cars, two-wheelers, and commercial vehicles also help stimulate end-vehicle demand, which in turn increases orders for components, creating a positive upstream effect across the supply chain. For example, total vehicle sales in October 2025 rose 41.3 per cent compared to the same month last year.  

Industry bodies and analysts have welcomed the move, noting that the rationalisation should support affordability, logistics efficiency, and sector growth, especially in rural and semi-urban markets, while reducing long-standing GST classification disputes for parts. In short, the reforms are broadly viewed as a growth stimulant for the auto components sector by reducing costs and enhancing demand prospects.

As India negotiates trade agreements with major markets such as the US and EU, what opportunities and challenges do you foresee for Indian auto component makers? 

As India negotiates trade agreements with major markets such as the US and the European Union, the auto components industry faces both significant opportunities and notable challenges. On the opportunity side, deeper market access under a bilateral trade deal could mitigate the recent tariff shocks that threaten industry competitiveness: high US tariffs are expected to affect close to 8 per cent of India’s overall auto component production according to ICRA, and exports to the US alone account for 27 per cent of total component exports according to the Automotive Component Manufacturers Association of India (ACMA), highlighting the value of tariff relief or preferential access in this market. A comprehensive trade pact with the EU could similarly unlock larger export flows into Europe by lowering tariffs and non-tariff barriers, while also attracting foreign direct investment and technology partnerships that help Indian firms climb global value chains. 

However, there are clear challenges. Negotiations with both the US and EU are complicated by market access demands, regulatory standards, and tariff reduction expectations. For example, the EU has pressed India to cut auto tariffs significantly as a part of its trade discussions, creating tensions over protecting the domestic industry versus securing export opportunities. In the US context, unresolved trade talks have already resulted in tariff increases that erode Indian exporters’ competitive pricing against Asian rivals with lower trade barriers. Manufacturing exemptions under agreements like the United States–Mexico–Canada Agreement (USMCA) further disadvantage India. Moreover, industry bodies, such as the Automotive Component Manufacturers Association of India (ACMA), caution against blanket duty cuts on auto components that could hurt MSMEs unless accompanied by safeguards, phased timelines and reciprocity. 

In summary, while trade agreements with the US and EU could expand export opportunities, enhance competitiveness and attract investment, the ultimate impact will depend on the final terms negotiated, especially on tariffs, regulatory alignment, and protections for domestic component makers.

What are some of the emerging trends in the Indian auto components industry? 

The Indian auto components industry is undergoing a structural shift, driven by four major emerging trends. First, the rise of EVs is reshaping component demand, with batteries, power electronics, e-motors, and thermal systems gaining prominence, as EV sales in India are projected to reach 10 million units by 2030. This transition is being reinforced by both domestic electrification targets and rising global sourcing of EV components from India. Second, there is growing adoption of recyclable and lightweight materials to improve fuel efficiency and reduce emissions. Indian manufacturers are increasingly using high-strength aluminium alloys, engineered plastics and advanced composites that deliver durability while lowering vehicle weight, supporting sustainability goals, and improving operating economics for fleet owners and logistics operators. 

Third, the rise of connected and autonomous vehicles is driving the demand for smart, electronics-intensive components, such as Advanced Driver Assistance Systems (ADAS), smart braking systems, sensors, and connected infotainment modules, fundamentally increasing the electronics content per vehicle. Finally, customer buying behaviour is evolving, with buyers prioritising vehicle experience, technology, and features over upfront cost, and showing willingness to pay a premium and accept longer waiting periods. This shift is evident in changing vehicle preferences, as the share of SUVs nearly doubled from 28 per cent in FY20 to over 55 per cent in FY25, driving higher demand for premium, technology-rich components. 

What is your outlook for India’s auto component industry in FY26? 

India’s auto component industry outlook for FY26 remains cautiously optimistic despite near-term headwinds. India has now surpassed Japan to become the world’s third-largest automobile market, and the government has set an ambitious target of becoming No. 1 within the next five years, providing a strong structural demand base. Policy support continues to be a key tailwind, with 82 approved applicants under the Production Linked Incentive (PLI) Scheme for Automobile and Auto Components (as of 30 November 2025), encouraging investment in advanced technologies, such as EV drivetrains, power electronics, and high-value components. 

Domestic demand is expected to remain resilient, supported by improving vehicle penetration, rising SUV share, and continued electrification. However, external challenges could temper export momentum. Higher US import tariffs pose risks to price competitiveness for Indian component exporters, while outcomes of ongoing trade negotiations with the US and EU will be critical in shaping market access and cost structures, particularly amid tightening carbon and regulatory norms in Europe. Overall, while global trade uncertainties warrant caution, strong domestic fundamentals, policy incentives, and localisation efforts underpin a cautious moderate growth outlook for FY26.

About the author:

Tushar Bhaskar is Chief Business Officer at Rubix and is responsible for growing the company’s revenues across multiple channels. He has 17 years of experience in Information Services, Risk Assessment, and Analytics verticals.