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A report by rating agency ICRA said the wholesale volume of the passenger vehicle industry is expected to hit a record high of about 3.7 million units in FY23, up 21.24% compared to the previous fiscal year, amid strong demand.

Demand for passenger vehicles has remained healthy since the start of the calendar year, supported by strong demand and easing shortages of semiconductors, the rating agency said. Backed by rising demand and easing supply chain shortages, passenger vehicle original equipment manufacturers (OEMs) accelerated capacity expansion plans.

According to the report, Maruti Suzuki expects to add 100,000 passenger car capacity by end-FY24 and 250,000 PV modules by end-FY25, spending Rs 7,000 crore in FY23. Mahindra & Mahindra expects to increase capacity by adding 120,000 passenger vehicles in the years to FY24 and FY25, spending Rs 7,900 crore in the three years to FY24. Tata Motors expects to increase production capacity by adding 300,000 to 350,000 more passenger vehicles, investing Rs 6,000 crore in the next few years. By the end of FY22, Hyundai Motor has increased its production capacity to about 850,000 units, planning to invest Rs 4,000 crore as part of its plan to launch electric vehicles by 2028.

“ICRA expects capex to be close to Rs 200-2300 crore per annum for the next 3-4 years. Apart from capacity ramp-up, OEMs are also spending capex on new platform development and requirements to comply with upcoming emissions ( OBD[1]II, CAFÉ-II and ethanol blends) and safety specifications,” the rating agency said.

Several original equipment manufacturers have expanded their investments to develop electric vehicles (EVs), including hybrid platforms. While the initial introduction of electric vehicles is based on existing internal combustion engine platforms, OEMs are now developing new electric vehicle platforms to accommodate optimal battery capacity and ensure light weight.

Notably, total capex by OEMs is estimated at Rs 6,500 crore during FY23-FY25.

Rohan Kanwar Gupta, vice president and head of corporate ratings at ICRA, said: “Even amidst the uncertainty caused by the pandemic and the semiconductor crisis, OEMs continued to invest in capacity enhancements and new product development, thanks to their Strong financial risk profile. OEMs are now accelerating capacity expansion plans in order to ramp up capacity to meet continued strong demand and expectations of healthy volume growth going forward. Several OEMs have announced aggregate spending of over Rs 25,000 crore , for capacity expansion in the next few fiscal years.”

“In addition to capital expenditures by OEMs, auto parts manufacturers are also expected to expand their investments to support their customers. While adding new capacity will slightly reduce capacity utilization levels in the coming years, given the healthy demand environment, utilization rates Likely to remain at a comfortable level (i.e. around 70%) Total OEM capex is expected to It remains at about Rs 65,000 crore during FY23 to FY2025,” Gupta added.

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