Carmakers to pump in over Rs 1.2 lakh crore on capacity expansion, product development

As the economy gains momentum and vehicle output witnesses a new record, leading passenger-vehicle makers have lined up big-ticket investments in excess of Rs 1,20,000 crore for the next few years, as per the data collated from all the companies. Credit rating agency ICRA claims that the capex outlay for OEMs is estimated to be Rs 65,000 crore for the next two fiscal years alone, with OEMs budgeting for a substantial outlay towards capacity creation and product development, including development of capabilities/platforms for electric vehicles. The total amount earmarked by all OEMs is in addition to Rs 20,000 crore that carmakers such as Maruti Suzuki, Tata Motors, and Mahindra and Mahindra (M&M), etc. are spending on building additional capacities for Internal Combustion Engine Vehicles (ICEV) to meet unmet demand. The confidence stems from the fact that passenger vehicle sales reached nearly 4 million and are projected to post 10-15% CAGR over the next few years . For instance, CRISIL, in its latest report, claims that overall passenger vehicle (PV) sales will grow 9-10% this fiscal year to nearly 50 lakh units, scaling a new all-time high. This will be nearly 20% above the pre-pandemic peak of 40.5 lakh units. This fiscal year will also see the highest-ever sales by domestic PV original equipment manufacturers (OEMs), the research agency projects. A healthy order book driven by pent-up demand and higher incomes, especially of sport utility vehicles (SUVs), and better availability of semiconductors, will support domestic growth, though exports remain sluggish, the CRISIL report said. “Several OEMs are scaling-up their investments to develop electric vehicles (EV), 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,” said Rohan Kanwar Gupta, Vice President & Sector Head - Corporate Ratings, ICRA Limited. “A majority of the capex outlay (including product development) will be met through healthy cash accruals/parent funding support, apart from inorganic fund raise in some of the recently formed EV subsidiaries.” Here’s a look at how various OEMs are lining up capex for the coming years. Hyundai Hyundai Motor India Limited (HMIL recently announced that it would invest Rs 20,000 crore in a phased manner in Tamil Nadu over the next ten years to make “further inroads into electric vehicles” and “modernisation of vehicle platforms”. The South Korean carmaker revealed that the earmarked amount, which will be funded through internal accruals, will partly go towards establishing a battery pack assembly facility with an annual capacity of 1,78,000 units. “The investment demonstrates our long-term commitment towards the Indian market and how we intend to stay ahead of the curve for e-mobility,” Puneet Anand, AVP & Group Head — Corporate Affairs, Hyundai Motor India Ltd., told Moneycontrol over the phone. “We will be making multiple announcements in the near term and it will all be part of the total Rs 20,000 crore we have earmarked,” he added. He also clarified that some portion of the proposed capex will be spent on ramping up total production volumes to 8.5 lakh units a year and introducing new electric and internal combustion engine vehicles from its factory in Sriperumbudur, outside Chennai. Tata Motors Homegrown automaker Tata Motors has enhanced its investment outlay for the current financial year by 27.7 percent to Rs 38,000 crore .  The Mumbai-based automaker, which had invested Rs 30,000 crore last year, will be deploying the funds towards product and platform development for electric vehicles (EVs) and internal combustion engine vehicles (ICEVs), and freeing up capacity. “The total capex during the current (financial) year will be almost Rs 38,000 crore, out of which it will be about Rs 30,000 crore or £3 billion in JLR and Rs 8,000 crore in Tata Motors’ PV division,” revealed PB Balaji, Group Chief Financial Officer (CFO), Tata Motors, while speaking to reporters in a post-Q4 earnings call. Renault and Nissan Auto majors Renault and Nissan have also announced a Rs 5,300 crore ($600 million) investment in Tamil Nadu as part of their new India strategy. (() While four of their vehicles will be brand new C-segment SUVs, there will be two A-segment cars — one each by Renault and Nissan. Maruti Suzuki Maruti Suzuki, which aims to regain its 50 percent marketshare by the middle of the decade, is expected to invest Rs 42,000 crore on two greenfield facilities in the country. It is still in the process of deploying Rs 18,000 crore (Rs 11,000 crore in the first phase) at its Kharkhoda facility in Haryana, and there is speculation that it will spend Rs 24,000 crore on another location. Both the facilities will have an annual capacity of 2 million units. “Based on an estimation of the market growth till 2030-31, including growth of exports, we estimated that besides installing 1 million units in Kharkhoda we would need another 1million capacity. Actual investment sanctions would be made from time to time taking actual market growth into account,” RC Bhargava, Chairman, MSIL, told Moneycontrol. He stated that the company would be meeting its investment needs through internal accruals, and that it had cash reserves of Rs 45,000 crore as of March. MG Motor India MG Motor India also recently announced that it will invest over Rs 5,000 crore to beef up its manufacturing operations by 2028.  The Chinese-owned British carmaker, revealing a five-year roadmap, said that it would be setting up a second manufacturing plant, which would have a dedicated battery assembly unit to bring down the cost of “electric vehicle manufacturing” and “mainstreaming EVs”. In an official statement, the company revealed that it will also be spending part of the earmarked outlay for augmenting the installed capacity at its Halol unit from 1.2 lakh units to 3 lakh units per annum. The company intends to launch 4-5 cars, mostly electric vehicles, and achieve 65 to 75 percent of its sales through EV by 2028. Mahindra & Mahindra Late last year, Mahindra & Mahindra Ltd (M&M Ltd) had announced that, through its subsidiary, it will make investments of around Rs 10,000 crore over 7-8 years to set up a manufacturing facility in Pune. In an official release, M&M revealed that the amount will be spent on development and production of its upcoming Born Electric Vehicles (BEVs). Based on the INGLO EV Platform, these include e-SUVs under the ‘XUV’ brand and the all-new electric-only brand, ‘BE’. A report by Bain & Company claims that India’s electric vehicles (EV) value chain revenue pool is expected to reach between $76 billion and $100 billion by 2030, potentially translating to an $8 billion–$11 billion profit pool. The same report also indicated that 35-40% of all vehicles sold in India by 2030 will be EVs and that the electric car segment will account for 15-20% of total four-wheeled PV sales by the end of this decade.