Confident of having hit a strong demand upcycle, vehicle manufacturers and their component partners will spend more this year than any of the earlier years on new capacity creation, new products and development of new technologies.
As per the initial guidance on capital expenditure (capex) provided by some of India’s top-listed automotive and automotive ancillary companies, ₹30,000 crore is earmarked for FY23. New factories from Maruti Suzuki, Tata Motors, Mahindra & Mahindra (M&M), expansion of output at current factories by JK Tyre and Ceat, and ongoing investments for new products and technologies by all manufacturers would consume the capex.
Stepping up investments
“We will be stepping up investments further between commercial vehicles and passenger vehicles and electric vehicles, and for electric in commercial vehicles as well. And therefore, we expect to see close to about ₹6,000 crore of capex spending in FY23,” said PB Balaji, CFO, Tata Motors, in a recent conference call.
Last year, the company had lined up ₹3,500 crore capex. Tata Motors, which has been operating at close to peak capacity, is looking to buy Ford India’s factory in Gujarat to bring readymade infrastructure on board, too.
Meanwhile, sitting on an order book equal to eight months of production at the current rate, M&M would spend ₹2,300 crore for enhancing production capacity for the XUV700, other SUVs and for tractors over this year and next.
Joining the party are...
A host of large unlisted entities, including MG Motor, Hyundai, Toyota Group, Volkswagen Group, and start-up electric vehicle companies like Hero Electric, Wardwizard and Okinawa Autotech, also have robust capex plans for the current year, which would be partly funded through sale of equity as well.
MG Motor, for example, is looking to almost double its production this year to around 70,000 and then nearly doubling again next year to 130,000. Rajeev Chaba, President and Managing Director, MG Motor India, said, “We are committed towards launching our fifth car and increasing production capacity to 130,000 units a year.”
Capacity increase by vehicle makers concurrently will lead to similar increase by their auto parts supplying partners. According to rating agency Crisil, the domestic tyre industry is expected to increase capex to ₹5,000 crore this fiscal compared to ₹3,700 crore in the last financial year.
The increased capex reflects improved business sentiments which was marred for two years by the pandemic and subsequent supply chain challenges led by severe shortages in availability of semiconductors. While chip shortage remains a challenge, automotive companies state the current supply situation is a lot better than it was a year ago. With no more plant shutdowns expected in chip-producing nations given the receding fourth wave of the pandemic, there is a positive guidance on availability.
Dealing with challenges
Rajesh Jejurikar, Executive Director, M&M, said, “We are tracking the semiconductor situation very closely. It will not be as bad as it was two years back. New capacities of semiconductors are a year away, so it going to be tight for everybody until then.”
The car industry is perhaps sitting on an aggregate open booking of 7.5 lakh, almost half of which is held by market leader Maruti Suzuki. M&M has around 178,000 bookings in hand while Tata Motors has over 150,000 bookings. The general waiting period on most in-demand models ranges from 3 to 6 months.
“We are not expecting entire semiconductor plants shutting down in the foreseeable future. During the earlier waves of the pandemic, these plants shut simultaneously worldwide thereby, severely hitting auto production,” said another top executive of a car and SUV making company.