Your next car could cost more as price pressure grips India’s auto industry

Commodity prices are climbing again after a softer second half of FY25, prompting Indian auto companies to make small price hikes to cushion the impact. Analysts have warned of rising raw material costs, particularly steel, through the last quarter and into the current one. While automakers are attempting to absorb some of the pressure through cost reduction and changes in product mix, industry leaders say the upward price trend could become a challenge in the months ahead.

Speaking during Mahindra & Mahindra’s (M&M) first-quarter earnings call, Rajesh Jejurikar, executive director and CEO of the company’s auto and farm sector, said: “Steel is up 6% over last quarter and so far we have taken some price hikes to neutralize it. But if steel inflation continues it will be a head wind.” Analysts noted that precious metals have also become costlier, partly driven by US pre-purchase activity.

Rohan Kanwar Gupta, vice-president and sector head for corporate ratings at ICRA, said: “There has been some increase in select raw material prices over the past two quarters, post a softening in prices in H2 CY2024. Some hardening in raw material prices is expected over Q2-Q3 FY26, which could exert pressure on margins to an extent.”


For now, the financial hit is not significant, with chief financial officers estimating the impact at around 0.5%. Bharat Madan, CFO of Escorts Kubota, said: “The commodity increase is severe for PV companies but this quarter there was some pressure on us as well and Q2 may see some inflationary impact of around half a percent.”

Despite the cost rise, analysts believe the effect on automakers’ profits is limited. Gupta said: “Despite the increase in prices, the gross margins for OEMs across automotive segments continue to remain at steady levels, aided to an extent by price increases taken by OEMs at the start of the calendar/fiscal year.”

While raw material costs rise, the auto sector is also facing slowing demand in one of its strongest segments. Monthly SUV sales in India fell for the first time in over five years in June, as IT sector layoffs, geopolitical tensions and broader macroeconomic challenges weighed on buyer sentiment. SUVs have been the main driver of passenger vehicle sales growth for nearly a decade.

Industry data accessed by ET shows that SUV sales dropped 2.1% from last year to about 175,000 units in June. Passenger vehicle sales data for July is yet to be compiled.

Experts said this is the first monthly decline in SUV sales after years of uninterrupted growth, signalling buyer fatigue. SUVs now account for about 55% of all passenger vehicles sold domestically, covering micro, compact, mid-sized and large models to cater to a broad customer base.

SUV sales had grown in strong double digits between FY20 and FY25. However, during the first quarter of the current fiscal year, sales increased just 5.6% to 572,000 units, down from an 11.3% rise in FY25.

(wth ToI inputs)