Component companies stay on road to Mexico despite tariff fears

Mumbai: Indian auto parts makers with presence in Mexico are worried amid erratic decision-making on tariffs by the US government but are continuing with their expansion plans. The prevailing uncertainty may, however, prompt some companies to rethink future investments in Mexico, said analysts.

"More than anything else, it seems like a negotiating tool. Mexican manufacturing cannot be replaced," said Naresh Jalan, managing director, Ramkrishna Forgings. The company earns 40% of revenue from exports split equally between the US and Europe. It recently opened a new plant in Mexico.

"We are on track with our plans. The facility has already commenced supplies. We expect a total revenue of $25 million from the unit over the next three years," said Jalan.


On Tuesday, US President Donald Trump announced a 30-day suspension of his threatened 25% tariff on imports from Mexico and Canada.

Any imposition of the levy would have impacted cumulative annual revenues of more than ₹5,000 crore from Mexico of about a dozen Indian component makers.

Bain Capital-backed RSB Group, which makes parts in Mexico for supplies to Tier-I automakers there, is looking to expand capacity in a few months with a target of doubling its business in Mexico from $20 million currently. It is planning expansion in the US too within the next few months, with a likely acquisition.

Indian component manufacturers having a manufacturing presence in Mexico include Samvardhana Motherson Group, Anand Group, Sona Comstar, Rane Group, and Uno Minda. These firms have become integral to the supply chain of the North American auto industry over the years and are hoping that an amicable solution is reached between the US and Mexico. The ₹98,000 crore Samvardhana Motherson Group garners about 4% revenue from Mexico.

"With manufacturing facilities all across the region, the company is well positioned to switch supplies from Mexico to other locations like Brazil, should there be a disruption from trade wars," said an industry executive, asking not to be named.

To be sure, Mexico has a modest 1-4% share in these companies' consolidated revenues, but it holds strategic importance due to its proximity to the US, the world's second largest auto market.

Indian companies exported parts worth $21.2 billion in the last fiscal year, a 5% increase. The US was the second-biggest export destination after Europe, purchasing components worth $6.79 billion during FY24, according to the Auto Component Manufacturers Association of India (ACMA).

The Trump administration's decision to temporarily pause tariffs brought relief to auto component makers. However, going forward, companies are likely to tread with more caution regarding their investments in Mexico, said experts.

"The US and Mexico auto industry have very closely integrated supply chains, so a viable solution will have to be found to avoid chaotic disruptions," said Ashok Taneja, former president ACMA, who also serves as an advisor to some auto component firms. "Companies may look at alternatives to Mexico as part of their de-risking strategy. This may affect investments and growth of the auto component manufacturing sector there and some of the manufacturing may move back to the US over a period of time," he said.

Ashim Sharma, senior partner, Nomura Research Institute noted the US government's move to pause the tariff action has created uncertainties.