 "auto parts, automobile parts, car parts")
Indian automobile and auto component manufacturers are likely to face renewed margin pressure over the coming quarters as a sharp rise in key raw material prices offsets relief from softer steel, rubber and crude-linked inputs, analysts and industry executives said.
Kotak Institutional Equities notes that the recent rally in aluminium, copper and platinum group metals has re-emerged as a key cost headwind for the auto sector, even as steel, crude-linked plastics and rubber prices continue to soften. While easing steel and rubber prices offer partial relief, analysts believe this is insufficient to offset the sharp increase in base and precious metals, especially for segments with higher exposure to these inputs.
Why are input costs rising again for automakers?
Prices of base metals such as aluminium and copper have climbed 10–25 per cent over the past three months, driven by supply constraints, trade disruptions and stronger demand from energy transition-linked sectors. At the same time, prices of platinum group metals (PGMs) used in catalytic converters have surged more than 50 per cent amid mine underinvestment and supply bottlenecks. The spike comes at a time when auto companies are already navigating a fragile demand environment, limiting their ability to pass on higher costs to consumers.
“Input cost inflation remains a potential margin risk. Over the past few weeks, base metals and PGMs have rallied sharply due to supply constraints, tariff shocks and safe-haven demand,” Kotak Institutional Equities said in a December report.
How will higher metal prices affect margins?
“While steel and rubber prices have eased, the sharp escalation in aluminium, copper and precious metals is emerging as a significant cost headwind, particularly for two-wheeler and passenger vehicle manufacturers,” said an analyst at a domestic brokerage firm. “Net-net, the cost relief from softer inputs is getting outweighed.”
According to brokerage estimates, two-wheeler and passenger vehicle makers could see operating margin compression of 65–75 basis points from recent levels if current spot prices sustain. Commercial vehicle (CV) manufacturers may see a relatively lower impact of around 30 basis points, while tractor makers are expected to remain largely insulated.
Why does the impact differ across vehicle segments?
The divergence stems from differences in material composition. Steel, rubber and plastics, whose prices have moderated, account for a larger share of input costs for CVs and tractors. In contrast, passenger vehicles and two-wheelers have higher exposure to aluminium, copper and PGMs, which have seen sharper inflation.
According to Kotak’s analysis: “At current spot prices, we expect margin pressure of around 70 basis points for two-wheeler and passenger vehicle OEMs and around 30 basis points for CV OEMs, with tractor OEMs largely remaining unaffected.”
What does this mean for auto component manufacturers?
Auto component manufacturers are also feeling the pinch, particularly those supplying engine parts, exhaust systems and electronics. Several component makers operate on fixed-price or semi-fixed contracts with OEMs, delaying cost pass-through and compressing near-term margins.
“Input cost inflation tends to hit component suppliers first,” said a senior executive at a Tier-I auto ancillary firm. “OEMs renegotiate prices with a lag, and in a competitive environment, suppliers often absorb part of the increase.”
Can companies offset the renewed cost pressure?
The margin pressure comes after a period of relative stability, when declining steel and commodity prices helped auto companies expand profitability despite modest volume growth. That trend is now reversing, analysts said.
Passenger vehicle makers, which have already seen growth slow after a strong post-pandemic run, may find it harder to push through price hikes without denting demand. Two-wheeler companies, meanwhile, continue to face price-sensitive rural customers, limiting pricing flexibility.
“Input cost volatility is back on the radar,” the analyst said. “While balance sheets remain healthy, earnings upgrades will be difficult unless commodity prices cool or demand strengthens meaningfully.”
As global commodity markets remain volatile amid geopolitical and supply-side uncertainties, auto companies may need to rely more on cost efficiencies, localisation and supplier renegotiations to protect margins in the months ahead.
