BMW, Mercedes Prices To Fall? Not Trump, But India May Cut Tariffs By 70% On Cars From EU; Auto Stocks Alert

Automobile stocks will be in focus on Tuesday, January 27, as India is likely to slash its duty on imported cars from the European Union by a whopping 70%. This move comes amid India's own grimmer trade relations with the United States of America after President Donald Trump passed a bill that could impose 500% tariffs on countries that buy Russian oil. Also, Trump and the EU do not meet eye-to-eye currently due to the Greenland issue. Hence, a sharp cut in tariffs between India and the EU is called the mother of all deals.

India To Cut Tariffs On Cars From EU?

According to a Reuters report, sources said India plans to slash tariffs on cars imported from the European Union to 40% from as high as 110%, in the biggest opening yet of the country's vast market as the two sides close in on a free trade pact that could come as early as Tuesday.

Two sources further told Reuters that Prime Minister Narendra Modi's government has agreed to immediately reduce the tax on a limited number of cars from the 27-nation bloc with an import price of more than 15,000 euros ($17,739).

Not just that, the tariffs are further expected to fall down to a meager 10% over the period of time ahead. Such comes as a major relief for foreign automobile companies like Volkswagen, Mercedes-Benz, and BMW.

However, it needs to be noted that this is just speculation, and India's commerce ministry and the European Commission declined to comment to the said news agency. Hence, GoodReturns could also not confirm the same.

Auto Stocks In Focus:

India, which is currently the third-largest automobile market in the world, has levied 70% and 110% tariffs on imported cars from global companies, a move that has kept domestic players well-protected in the competition at home.

However, how the new tariff cuts impact domestic players will be keenly watched.

This is because lower tariffs could also lead to a reduction in foreign brands' prices and enable them to grow production-wise in the Indian automobile market. That could come as good news for European carmakers like BMW, Volkswagen, Stellantis, Renault, and Mercedes-Benz, among others, who have local manufacturing facilities in India. Sales will likely boost for these carmakers.

At present, European automobile companies have less than a 4% share in the Indian market with 4.4 million units a year. The Indian car market is mostly dominated by players like Japan's Suzuki Motor, Mahindra & Mahindra, and Tata Motors, who together hold two-thirds of the market share in this industry.

Another point that the sources revealed is that the electric vehicles are not included in the current 40% tariff plan for the first five years, a move to protect investments of homegrown companies like Mahindra and Tata Motors and enable them to expand in the market.

The 40% tariff will reportedly be levied on at least 200,000 combustion-engine cars per year. This is still one of the most aggressive cuts in tariffs by India.

EVs will be included in similar import duty cuts after five years.

Currently, Nifty Auto index is at 26,804.55, down by nearly 4% in the past month. In a year, however, the index has surged by over 20.3%.

In the past month, except for Ashok Leyland and Bajaj Auto, all other auto stocks are in deep red. For instance, M&M is down by 2.3%, while TV Motor has plunged by 3.7%. Tata Motors Passenger Vehicles (TMPV) shares have dropped by nearly 5.2%, while Bosch Limited has plunged by nearly 2.9%. Eicher Motors stock is down by over 4.5%, while Bharat Forge has tumbled over 3.5%. Stocks like Maruti Suzuki and Hero MotoCorp have nosedived by 6.7% and 6.3%, as per NSE data.

Major declines were recorded in stocks like UNO Minda, which dropped by 12.51%, while stocks like Exide Industries dipped 12.12%, Sona BLW Precision slipped by 6.7%, and Motherson Sumi contracted by nearly 10%. The biggest fall is seen in Tube Investments shares, by nearly 14.6%.

Among the positives, Ashok Leyland has outperformed its peers with 8.44% upside in the past month, followed by Bajaj Auto, which gained by 3.5%.

India-EU Mega Deal Vs Trump

The Indian government and European Union could announce a trade pact as early as Tuesday, and their deal is expected to go beyond automobiles. Reports also suggest that the bilateral trade between the EU and India could stretch to goods such as textiles and jewelry, which could drive Indian exports that have taken a major hit from the current 50% tariffs levied by the US since August last year.

This buzz comes at a time when expectations of a trade deal between India and the USA have been impeded. According to leaked audio recordings of the Texas Republican Senator Ted Cruz's donor meeting, Trump likely has stalled a trade deal with India.

Last year in August, Trump imposed an additional 25% tariff on certain goods and services from India, taking the total to 50%.

Intensifying the geopolitical tensions, earlier this month, Trump 'greenlit' the bipartisan Russia Sanctions Bill, which could impose humongous tariffs on Russia and its allies, including India, China, and Brazil.

If the bill passed, it would open the gates for the US president to slap up to as high as 500% tariffs on countries that knowingly buy Russian oil or uranium, which in result is fueling the Kremlin's war against Ukraine.

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