'Significant downside risks': 3 auto stocks that may hit by US tariffs

The US is all set to impose a 25 per cent tariff on imported cars and parts from next week, March 3. It will not only be applicable to finished cars and trucks, but also imported parts that are assembled in the US. The impact of these tariffs could be $3,700 or 8 per cent of average selling price. 

Even with a 50 per cent pass on via price hikes of 4 per cent could impact US auto demand by 8 per cent or 10 lakh vehicles. This is against 1.6 crore new US car sales in 2024.  

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. 

Nomura said Tata Motors (JLR), Sona BLW Precision Forgings Ltd (Sona Comstar) and Bharat Forge are the most exposed Indian companies to the US sales. 

"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," Nomura said.

The brokerage said it is not clear at the moment whether country-specific trade agreements have the potential to reduce these tariffs. There is a risk that reciprocal tariffs may apply on top of these tariffs but both the Indian and UK governments are engaged with the US government for trade deals.

Nomura said Tata Motors' (JLR) 23 per cent revenue and 26 epr cent of the total wholesale volume came from the US. JLR’s volume exposure to the US market in fact increased to 33 per cent in the first nine months of FY25. JLR’s cars are manufactured in the UK, except for the Defender which is manufactured in the EU.

Among auto components, Bharat Forge, Sona Comstar and Motherson Sumi Wiring India Ltd are the major suppliers of auto parts with a significant exposure to the US market. 

In FY24, Bharat Forge's 25 per cent consolidated revenue and 35 per cent standalone revenue (28 per cent/37 per cent in 9MFY25); Sona Comstar's 40 per cent revenue (43 per cent in 9MFY25) and Motherson Sumi's 18 per cent revenue came from the US. 

"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," Nomura said.

At present, the US imposes 3.4-4 per cent tariffs on imports from India, which is lower than the Indian duty of 10-15 per cent. Nomura said it would wait for the fine print to understand if the 25 per cent tariffs apply to tyres.

"Overall, there are significant downside risks for JLR, Sona Comstar and Bharat Forge in particular," Nomura said.

CLSA also in a note cited export links of Tata Motors, Bharat Forge, Sona Comstar and Samvardhana Motherson (SAMIL) to the US. 

Unlike others, SAMIL has manufacturing facilities in the US including a larger one in Alabama, which could cater to demand from the US car manufacturers and therefore would see relatively lower impact, it said.

This foreign brokerage noted that close to 31 per cent of JLR's retail sales come from the US and that models are made in the UK. Tata Motors is,  thus, exposed to the higher duty. It noted that the US in the past has been a relatively lower-margin market for JLR. 

"Sona BLW derives 43 per cent of its revenue from the US and Bharat Forge 38 per cent, with products being made largely in India and not in the US," CLSA said.