Auto Sector Braces for Profit Squeeze as 12% Steel Duty Kicks In

India’s move to impose a 12% safeguard duty on select steel imports is set to dent the auto sector’s profitability in FY26, with commercial vehicle (CV) makers expected to bear the brunt.

Steel is a major cost driver for CVs comprising 60% of their commodity input costs—making this segment particularly vulnerable. Analysts warn that companies like Ashok Leyland, Tata Motors, and Mahindra & Mahindra could see margins shrink by 60 to 100 basis points in the first quarter of FY26 alone.

Ashok Leyland has already sounded the alarm. CEO and MD Shenu Agarwal, during the company’s post-Q4 earnings call, admitted that rising steel prices would pressure margins in the short term. However, he pointed out that the safeguard duty is temporary set for just 200 days and the company’s long-term strategies such as premiumisation, cost control, and after-sales service will help cushion the blow.

Others may not be as shielded. “The entire CV segment will face profitability headwinds in the near term,” said Ajit Mishra, Senior Vice President at Religare Broking. Passenger vehicle (PV) makers too are likely to feel the heat, albeit to a lesser extent, while two-wheeler makers may escape with minimal impact due to lower steel content.

OEMs face a tough choice absorb the cost or pass it on to consumers. But price hikes could be risky, especially with demand already softening. “Passing on higher costs might not be feasible in the current environment,” warned Shridhar Kallani, Auto Analyst at Axis Securities. If automakers do raise prices, they risk slowing sales further, triggering fresh discounting and deeper profitability challenges.

The real impact is expected to show up in Q1 FY26 results, with the pain likely intensifying in Q2 as older, lower-cost steel inventory runs out. Relief may come in the second half of the fiscal, but until then, automakers are in for a rough ride.