Automobiles Sector Update : Tariff-led turbulence ahead by Kotak Institutional Equities
The recent tariffs are set to raise the landed costs, pressuring margins across global auto suppliers. The competitive intensity may increase, as global peers with US plants gain an edge, especially for Sona Comstar. Demand slowdown in US autos may indirectly weigh on SAMIL, BHFC and SONACOMS. Sona Comstar faces added pressure from a weakening EV outlook and customer concentration risk. Overall, we believe that near-term headwinds remain across cost, pricing and demand dynamics, leading to rating downgrades.
Global suppliers to face multiple challenges in the near ter
The imposition of 25% tariffs on auto parts and 26% reciprocal tariffs will weigh on global auto ancillary suppliers. First, the 25% tariff will raise the landed cost, forcing the suppliers to partly absorb the hike, putting pressure on margins. Second, competition may intensify as several global peers with manufacturing bases in the US gain cost and logistical advantages, increasing the risk of share loss over time. Last, the tariffs will most likely drive up vehicle prices, potentially leading to a slowdown in US auto demand, which could create a cascading effect through global supply chains
SAMIL: Slowdown in global automotive market remains the key risk
The company derives ~20% of its revenues from the US market. The 25% tariff is expected to increase vehicle prices, reducing consumer demand and leading to a downturn in the US automotive market. This could indirectly impact SAMIL’s performance. In addition, these tariffs may disrupt global supply chains, leading to increased manufacturing costs and near-term margin pressures for SAMIL. Downgrade to REDUCE with a revised FV of Rs120.
Bharat Forge: Rising tariffs and weak-end market demand pose threat
The company faces near-term headwinds, as recently imposed auto parts and reciprocal tariffs may raise the pricing pressure across key export segments. While its cost-efficient operations limit the risk of immediate market share loss, competitive intensity from players such as American Axle and Thyssenkrupp needs to be monitored. Demand moderation across key end-markets in the US (Class 8 trucks, PV and O&G) could put pressure on revenues, while rising cost pressures and underutilized overseas capacities could weigh on margins. The recently announced ATAG order was baked in our expectations, which will start contributing from FY2027. Retain SELL with a revised FV of Rs850
Sona Comstar: Margin risk and EV headwinds cloud near-term outlook
Challenges for the company have further aggravated in the near term due to the elevated cost structure from US tariffs, which may weigh on margins if partly absorbed to stay competitive. Despite efficient India-based manufacturing, competition from US-based peers could impact pricing power. In addition, the EV segment outlook remains weak amid policy uncertainty, slowing demand and the underperformance of its key customer due to competitive intensity, which should weigh on growth prospects. Downgrade to REDUCE with a revised FV of Rs430.
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