Volatile currency: Fall in rupee win some, lose some for auto industry

While exporters benefit, import-dependent firms expected to struggle

For India’s automobile industry, the depreciation of rupee against dollar is expected to be a mixed bag.

 

Export-driven domestic manufacturers are likely to benefit, while companies reliant on imports, including electric vehicle (EV) makers, luxury carmakers, are expected to be affected the most. However, experts suggest that an immediate impact on components is unlikely, as most imports are insured, with some covered by long-term contracts that shield them from currency fluctuations.

 

This depreciation is advantageous for companies like Bajaj Auto, which exported 1.37 million two-wheelers and commercial vehicles from April to November, and Maruti Suzuki, which posted a 21 per cent rise in exports — 247,496 units from April to December compared to 204,327 units during the same period last year. Other export-focused players are also expected to benefit.

 

On the other hand, luxury carmakers, such as Mercedes-Benz, BMW, Audi, and Volvo, face added cost pressure as most of their components are imported. Amid inflationary pressures due to the rupee’s depreciation, rising material costs, and escalating operational expenses, Mercedes-Benz India and BMW India have announced price hikes of up to 3 per cent across their model ranges, effective January 1. 

 

“It’s a mixed bag... EV makers importing several components for high-end EVs will face challenges. In 2025, the upcoming launches are all higher-end EVs. One saving grace is that the crude prices are declining, which offsets some inflationary pressures,” said Puneet Gupta, director, S&P Global Mobility.

 

Rajesh Jejurikar, executive director and chief executive officer of Mahindra & Mahindra’s (M&M’s) auto and farm sectors, echoed a similar sentiment. 

 

“Usually, with our suppliers, the forex is indexed with a lag, so it’s an automatic correction that happens. We also hedge ourselves on the things we directly import. So not much of a net impact we see,” said Jejurikar.

 

Between April and December 2024, M&M’s exports rose 22 per cent to 24,101 units.

 

In January, Union Minister for Commerce and Industry Piyush Goyal said India exports roughly 14 per cent of the vehicles produced domestically, with a goal to reach 25 per cent.

 

Passenger vehicle (PV) exports during the first 11 months of 2024 grew 7.79 per cent, while two-wheeler shipments surged nearly 22 per cent. Currently, the country exports about 14.6 per cent of the PVs and 16.34 per cent of the two-wheelers manufactured between January and November, according to an analysis of data from the Society of Indian Automobile Manufacturers (Siam).

 

“The exchange rate is an outcome of inflation differential and interest-rate differential. There are positives and negatives to this. Exports will get better realisation, imports in any case are coming down as there is a lot of focus on Make in India,” said Vinod Aggarwal, MD and CEO of Volvo-Eicher Commercial Vehicles.

 

However, several other players told Business Standard that the rupee’s depreciation is unlikely to have an immediate impact on India’s automotive sector, as most importers are insured against currency fluctuations. 

 

“Unless the crisis persists for a longer period, it will not have any major impact on the components sector. In FY24, the value of automobile components exported from India amounted to $21.2 billion, while our imports stood at $20.9 billion. This means it is almost equally split for us as a country. However, companies heavily reliant on imports may face challenges in the long run,” said a source from the Automotive Component Manufacturers Association of India.

 

Deven Choksey, MD of DRChoksey Finserv, a wealth management company that tracks auto companies closely, said a declining rupee is not good news overall. “The inflationary pressures increase and that raises input costs," he said.