The passenger vehicle industry’s wholesale volumes are expected to touch an all-time high of around 3.7 million units in FY23, registering a growth of 21.24% as compared to the last fiscal, owing to robust demand, says a report by the ratings agency ICRA.
The ratings agency says the demand for passenger vehicles has remained healthy since the beginning of the calendar year, led by strong demand and an easing up of semiconductor shortages. Backed by an increase in demand and easing of the supply chain shortage, the original equipment manufacturers (OEMs) of the passenger vehicles have revved up their capacity expansion plans.
According to the report, Maruti Suzuki is expected to add one lakh units of passenger vehicles in its capacity by the end of FY24, and 2.5 lakh units of PV units by the end of FY25, at an outlay of ₹7,000 crore in FY2023. Mahindra & Mahindra is expected to enhance its capacity by adding 1.2 lakh units of passenger vehicles for the year ending at FY24 and FY25, at an outlay of ₹7,900 crore over three years ending FY24. Tata Motors is expected to enhance its capacity by adding 3 lakh to 3.5 lakh units of passenger vehicles, with an investment of ₹6,000 crore in the coming years. Hyundai Motors, which has ramped up its capacity to approximately 8.5 lakh units by the end of FY22, plans to invest ₹4,000 crore as part of its plan to introduce electric vehicles by 2028.
“ICRA expects capital expenditure to be nearly ₹200 billion to ₹230 billion per annum over the next 3-4 years. Apart from capacity enhancement, the OEMs would also dedicate capex towards new platform development and requirements to comply with the upcoming emissions (i.e. OBD[1]II, CAFÉ-II and ethanol blending) and safety norms,” the ratings agency said.
Several OEMs have scaled up their investments to develop electric vehicles (EVs), including hybrid platforms. While initial EV launches were based on the existing ICE platforms, the OEMs are now developing greenfield platforms for EVs to accommodate optimum battery capacity and ensure light weighting.
Notably, the aggregate CAPEX outlay of OEMs is estimated to be at ₹650 billion between FY23 and FY25.
Rohan Kanwar Gupta, vice president & sector head of corporate ratings at ICRA, says: “Even amidst the uncertainty caused by the pandemic and the semiconductor crisis, the OEMs continued to invest in capacity augmentation and new product development, aided by their strong financial risk profiles. Intending to build up the capacity to cater to the ongoing robust demand and expectation of healthy volume growth going forward, the OEMs are now ramping up their capacity expansion plans. Multiple OEMs have already announced an aggregate outlay in excess of ₹250 billion towards capacity expansion for the next few fiscals.”
“Besides CAPEX by the OEMs, auto component manufacturers are also expected to scale up their investments to support their customers. While adding new capacities will marginally moderate the capacity utilisation levels over the next few years, given the healthy demand environment, the utilisation is likely to remain at comfortable levels (i.e., around 70%). With the OEMs also budgeting for a substantial outlay towards new product development, including the development of capabilities/dedicated platforms for electric vehicles, the aggregate CAPEX outlay for the OEMs is estimated to remain heightened at approximately ₹650 billion over FY2023-FY2025,” Gupta adds.
