The US government has imposed a 25 per cent tariff on passenger vehicles and light trucks. Given that passenger vehicle exports to the US constitute less than 1 per cent of the total passenger vehicle exports, the imposition of the tariff does not have any material impact on the automotive OEMs, finds ICRA
Chennai: Unperturbed by the US tariffs, automobile demand is expected to remain stable in FY26 as the domestic market for two-wheelers, passenger vehicles and commercial vehicles is estimated to register positive growth.
The US government has imposed a 25 per cent tariff on passenger vehicles and light trucks. Given that passenger vehicle exports to the US constitute less than 1 per cent of the total passenger vehicle exports, the imposition of the tariff does not have any material impact on the automotive OEMs, finds ICRA. The industry is also likely to witness marginal to healthy growth in passenger, commercial and two-wheeler sales in the domestic market.
Two-wheeler industry volumes witnessed strong growth in 11M FY2025 supported by improved rural demand post a healthy monsoon precipitation. Rural demand for the industry is expected to remain healthy, with strong Rabi sowing. A reduction in income tax outgo post changes in tax slabs in the Budget is likely to support an increase in disposable income and support demand. ICRA estimates the two-wheeler volumes to grow at a healthy 6-9 per cent in FY2026, following an estimated 8-10 per cent in FY2025.
The commercial vehicle industry is set to register a marginal growth in FY26. Factors like improvement in economic activity, continued budgetary support towards infrastructure spend, healthy freight availability and rates, and regulations such as scrappage policy and push towards cleaner vehicles could drive replacement demand. Mandatory scrapping of older government vehicles and replacement demand would drive growth in buses, while growth in Light Commercial Vehicles is expected to be lower, impacted by cannibalisation from e-three-wheelers and slowdown in ecommerce among other factors. Medium and heavy commercial vehicles are expected to grow by 0-3 per cent, LCVs by 3-5 per cent and buses by 8-10 per cent in FY2026.
Passenger vehicle (PV) industry volumes reached an all-time high of 4.2 million units in FY2024. In 11M FY2025, wholesale volumes remained stable with 2 per cent growth due to waning replacement demand and high inventory levels. ICRA estimates the industry's growth in FY2025 at 0-2 per cent. Though demand drivers like higher disposable incomes are favourable, the base being high, the PV industry volumes may grow at a moderate pace of 4-7 per cent in FY2026.
