Passenger vehicle makers to invest Rs 65,000 crore by FY25 to ramp up capacity

Passenger vehicle makers are expected to invest around Rs 65,000 crore by FY25 to ramp up production capacities to cater to enhanced demand, rating agency Icra said on Monday.

It stated that the demand for passenger vehicles has remained healthy since the turn of the calendar year, aided by strong underlying demand and an easing up of semiconductor shortages.

The passenger vehicle industry wholesale volumes are expected to touch an all-time high of 3.7-3.8 million units in FY23, a growth of 21-24 per cent over the previous fiscal, driven by robust demand, it added.

With ease in supply chain constraints and semiconductor shortage, capacity utilisation of the OEMs (Original Equipment Manufacturers) improved to healthy levels over the past few quarters --factoring in a continuation of strong demand sentiments, the OEMs have now revved up their capacity expansion plans, Icra said.

"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 Rs 650 billion over FY2023-FY2025," Icra Vice President & Sector Head - Corporate Ratings - Rohan Kanwar Gupta stated.

Multiple OEMs have already announced an aggregate outlay in excess of Rs 250 billion towards capacity expansion for the next few fiscals, he added.

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 at around 70 per cent, Gupta noted.

While the capex outlay is likely to increase significantly, a majority of it will be met through healthy cash accruals and parent funding support, apart from inorganic fundraising in some of the recently formed EV subsidiaries, Icra noted.

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