In a significant development, the United States and the United Kingdom signed a new trade deal yesterday that could provide much-needed relief to Tata Motors. The agreement includes a key clause: the US will now reduce tariffs on UK-made vehicles from 25% to 10%, applicable to the first 100,000 units exported annually from the UK.

This move is particularly positive for Tata Motors because its subsidiary, Jaguar Land Rover (JLR), has manufacturing plants based in the UK. JLR exported approximately 1.04 lakh vehicles to the United States in 2024. Although this number slightly exceeds the 1 lakh-unit limit under the new trade policy, the reduced tariffs on a major portion of exports could still provide significant cost savings and margin support.

The backdrop to this policy change traces back to the change in US administration. Under previous presidents, including Joe Biden, the tariff on foreign-made vehicles was only 2.5%. However, after Donald Trump assumed office again in January 2025, his administration raised auto tariffs to 25%. This sudden hike had a direct impact on JLR and Tata Motors, leading to a 22% crash in Tata Motors' stock since Trump took office.

Tata Motors had earlier projected that JLR could achieve an operating margin of 10% in FY26. However, with the 25% tariff in place, analysts and the market had expressed doubts about achieving that margin, considering the increased cost burden would likely be passed on to consumers, thereby affecting demand.

Following the trade agreement, UK Prime Minister Keir Starmer visited the Jaguar Land Rover plant in the UK. During his visit, he stated, "Last month, I promised workers at Jaguar Land Rover that I would protect their jobs. I kept that promise." His remarks signal strong political support for the UK auto sector, reinforcing the importance of the US market for manufacturers like JLR.

Now, with the recent US-UK trade deal, there’s a renewed sense of optimism. Though the tariff relief applies only to a capped number of vehicles, it is still expected to offer breathing space for JLR’s profitability. Given that JLR contributes a substantial 78% to Tata Motors' overall revenue, any easing of trade pressures is strategically important for the parent company.

The United States remains a key market for JLR, contributing 23% of its global revenue. Hence, tariff relief in this region will not only help Tata Motors stabilize its US operations but also support its broader financial goals for the upcoming fiscal year.