Owing to the uptick in demand passenger vehicle, Original Equipment Manufacturers (OEM) are revving up capacity expansion plans.
According to ICRA, in FY2023-FY2025, OEMs will invest over ₹65,000 crore in capital expenditures as they expand capacity and develop new products.
With the ease in supply chain constraints and semi-conductor shortage, capacity utilisation of the OEMs improved to healthy levels over the past few quarters.
ICRA noted that in FY2023, wholesale volumes in the passenger vehicle industry will reach an all-time high of 3.7-3.8 million units, up 21-24 percent from the previous fiscal.
According to the ICRA report, the capacity addition over the past two years (3.5-4.0 million vehicles) was driven by the commencement of a third line at Suzuki Motor Gujarat and the commencement of assembly operations of Citroen India (in collaboration with CK Birla Group’s production facility in Tamil Nadu).
Before that, Kia India and MG Motors had commenced operations in FY2020. The capacity utilisation levels of the industry was significantly impacted (most pronounced in H1 FY2022) as a result of the pandemic-induced disruptions and semiconductor shortage.
Expert’s view
Rohan Kanwar Gupta, Vice President & Sector Head-Corporate Ratings, ICRA, said, “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.”
Multiple OEMs have already announced an aggregate outlay of over ₹25,000 crore towards capacity expansion for the next few fiscals, Gupta noted.
Auto component manufacturers are also expected to scale up their investments to support their customers.
Gupta added, “The OEMs are even budgeting for a substantial outlay towards new product development, including the development of capabilities/dedicated platforms for electric vehicles.”