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Input cost inflation remains a potential margin risk

Over the past few weeks, base metals and PGM have rallied sharply due to (1) supply constraints, (2) tariff shocks and (3) safe-haven demand. This pressure has been partly offset by continued weakness in steel, crude-linked plastics and rubber prices. Due to their higher exposure to steel and rubber, we believe that CV and tractor OEMs are relatively insulated. At current spot prices, we expect margin pressure of ~70 bps for 2W/PV OEMs and ~30 bps for CV OEMs, with tractor OEMs largely remaining unaffected.

Base and PGM inflation partially offset by steel and rubber

Over the past three months, copper and aluminum prices have rallied by 10-15%, which is driven by supply constraints, tariff shock, green energy transition and China stimulus. In addition, the precious metal pack (platinum, palladium and rhodium) has seen a sharp surge (>50-70%), driven by constrained production due to underinvestment in mining, persistent power and logistics disruption, and increased safe haven demand. However, steel, plastic (crude derivative) and rubber prices continue to see a downtrend driven by weak demand, surplus supply (high inventories) and macro uncertainty.

The Good: Steel, crude and rubber prices continue to ease

Steel, plastic and rubber form 10-21% of ASPs across all the automotive segments, which is roughly 59%/77%/84%/88% of overall metal content for 2Ws/PVs/CVs/tractor segments, respectively. As a result, we expect CV and tractor OEMs to have limited impact of inflation in base metals and PGM as compared to 2W and PV OEMs.

The Bad: Aluminum and copper inflation reemerge as cost headwinds

Aluminum and copper form 3-5.5% of ASPs across all the automotive segments, which is roughly 32%/24%/16%/13% of overall metal content for 2Ws/PVs/CVs/tractor segments, respectively. In terms of inflation, we expect a 60-100 bps negative margin impact across segments at current spot prices.

The Ugly: PGM inflation remains the key cost risk

While PGM content is around 0.3-2% of ASPs across all the automotive segments, which is roughly 9%/9.5%/8%/1% of overall metal content for 2Ws/PVs/CVs/tractor segments, respectively. Despite marginal exposure, >50% price appreciation over the past few weeks will result in a 100-120 bps negative margin impact of 100-130 bps across 2W, PV and CV OEMs.

PV and 2W OEMs to get impacted more relative to CV and tractor OEMs

Our analysis suggests that at current spot prices, 2W and PV OEMs can see overall margin pressure of 67-74 bps from 2QFY26 levels, whereas CV OEMs can see a negative margin impact of 32 bps. The impact on gross margin of tractor OEMs on account of RM movement will be minimal given higher content of steel and rubber. PV and 2W segments are relatively impacted more, as they have higher content of base metals and PGM as compared to CVs and tractors.

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