Auto stocks continue to be in focus as the US announces a 25% tariff on auto imports. 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. Given the significantly higher wages, Nomura pointed out that it will not be easy for the companies to shift their manufacturing base to the US. They see maximum impact on Tata Motors given its JLR exposure along with component providers like Bharat Forge and Sona Comstar.
Nomura on auto tariff: Higher cost of operation in US
Both the Indian and UK governments are engaged with the US government for trade deals. However, it is not clear at the moment whether country-specific trade agreements have the potential to reduce these tariffs. However, Nomura pointed out that there is a risk that reciprocal tariffs may apply on top of these tariffs. Wages in the US are 5x that of India. According to Nomura, “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.
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One needs to also note that the US imposes import tariffs on steel and aluminium as well, and Nomura believes “setting up these plants will take approximately two years. Thus, all players need to conduct a cost-benefit analysis. Any appreciation of the dollar Vs other currencies could also negatively impact US competitiveness.
Nomura on Tata Motors: Most exposed
As per a research note by Nomura, Tata Motors’ subsidiary Jaguar and Land Rover (JLR) is the most exposed. The company’s more than 25% of business comes from the US. In FY24, JLR’s 23% revenue and 26% of the total wholesale volume came from the American market. “Recently, JLR’s volume exposure has increased to 33% (9M FY25). JLR’s cars are manufactured in the UK, except for the Defender which is manufactured in the EU (25.9% of US volumes in 9MFY25F),” read the research note.
After the US imposed new tariffs,
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