The 25% tariff imposed by the Trump administration on foreign-made vehicles, as well as auto components, presents an opportunity for growth for the country’s thriving electric vehicle ecosystem, according to industry leaders.
The 25% tariff on foreign-made vehicles took effect on April 3, 2025, whereas the 25% tariff on auto components will take effect from May 3, even as the industry awaits clarification on the components included under the tariff.
According to Pratik Kamdar, co-founder and CEO of Neurone Energy, the tariff is likely to increase the cost of EVs, which will encourage companies to use local manufacturing. Maharashtra, a key EV hub in India, plays a significant role in both imports and exports within the sector. The newly announced 25% tariff on auto components by the U.S. government is expected to impact global supply chains, potentially increasing costs for manufacturers that rely on U.S. imports, notes Kamdar.
“This situation could drive growth opportunities for Maharashtra’s EV sector. The increased costs may push companies to invest in local manufacturing, reducing dependency on imports and strengthening India’s domestic EV industry,” says Kamdar.
According to Rohan Dewan, co-founder and CEO of LeafyBus (a Delhi-based electric bus operator), the tariff on imported cars and auto components could present a significant opportunity for India to strengthen its automotive supply chain and establish itself as a global hub for electric vehicles (EVs). “With higher tariffs on Chinese auto components, India’s growing auto components industry could step in to fill the gap. This shift could boost exports and attract investments in local manufacturing. India can also capitalise on the opportunity by ramping up the production of EV components and batteries, aligning with government incentives like the Production Linked Incentive (PLI) scheme,” notes Dewan.
In 2024, India’s auto component exports to the US stood at $8.2 billion, accounting for 27% of its total auto component exports. As per export-import data from the Department of Commerce, a significant surge in EV exports was observed during the first seven months of the calendar year 2023. From January to July 2023, EV exports increased by 246.3%, rising from Rs 7,988.62 lakhs in 2022 to Rs 21,391.40 lakhs in 2023, primarily driven by strong demand from Nepal and European countries such as France and Germany.
“With US automotive tariffs rising, India’s electric vehicle sector has a prime opportunity to capture a larger share of the US market, especially in the budget car segment. China’s 2023 auto and component exports to the US stood at $17.99 billion, while India’s were only $2.1 billion in 2024, highlighting the growth potential. To accelerate this, the government should enhance the PLI scheme by including more auto components, opening it to new players, and extending it by two years,” says Saurabh Agarwal, Partner & Automotive Tax Leader at EY India.
Alternate markets
Industry leaders observe that the tariffs could also present an opportunity for Indian auto component manufacturers to explore new markets. “While higher tariffs on imports in the U.S. may increase costs and make Indian EV components less competitive in that market, India has the opportunity to diversify and expand its global footprint. Exploring newer markets in Europe, Southeast Asia, and the Middle East can help offset export losses and drive sustainable growth,” says Kamdar.
“This shift could also attract global manufacturers to set up production facilities in India, aligning with the country’s Make in India and Aatmanirbhar Bharat initiatives. By investing in local manufacturing, foreign companies can bypass tariff-related costs while gaining access to India’s rapidly growing EV market. Additionally, the PLI scheme can further support EV manufacturers by encouraging investment in domestic production,” he adds.
Need policy support
With the 25% tariff announced by the Trump administration, the call for policy support has grown louder amongst industry stakeholders. As per Leafybus’s Dewan, the government can enhance policies like FAME II, lower GST rates for EVs, and promote local manufacturing through import duties and the PLI scheme.
According to Kamdar, government subsidies can help offset the impact of higher tariffs by reducing costs for both consumers and manufacturers. “ Initiatives like the extension of the FAME scheme and the Production-Linked Incentive (PLI) program can play a crucial role in accelerating market growth. Additionally, incentives for local battery production and direct purchase subsidies can help stabilize demand and promote domestic manufacturing, strengthening India’s EV ecosystem,” says Kamdar.
