Automakers have lined up capital investments of close to Rs 60,000 crore in the next couple of years as they redesign vehicles to comply with new regulations and up R&D spends to come up with new models.
The industry spent an average of Rs 22,000 crore in 2016-17 and 2017-18 as it added capacity, upgraded technology and products. For instance, Maruti Suzuki’s Hansalpur plant in Gujarat which can roll out 250,000 units annually, became operational in February 2017. In March that year, Hero MotoCorp started production at its greenfield plant in Vadodara; equipped to turn out 1.2 million units. Again, Honda Motorcycle & Scooter India added a production line at the company’s Narsapura plant with a capacity of 600,000 units.
The biggest chunk of investments, in the next couple of years, will be made products, including electric vehicles, apart from preparing for a host of regulatory changes like BS-VI emission norms and improved safety features. Almost all automakers have plans to launch an EV around 2020. This is true across the three categories — passenger vehicles (PVs), two-wheelers and commercial vehicles (CVs).
Sector experts at rating agency Crisil said companies would be compelled to invest to develop better products, including EVs, given the keen competition and rising aspirations of consumers. Anuj Sethi, senior director, Crisil Ratings, said companies would attempt to leverage existing capacity. “The top two players in the PV segment, for instance, are operating at close to optimum levels and are even resorting to lowering exports to meet domestic demand. Leading players in other segments are operating at utilisation levels of over 70-75%,” Sethi explained.
Most of the investments in 2018-19 and 2019-20 —close to 70% — are expected to be cornered by the PV space; CVs will get a relatively small share of 20% and two-wheelers even less with 10%.
MSIL, India’s largest carmaker, has set aside around Rs 5,000 crore to design products and also overhauling its plants and expanding the dealer network. The company will foray into EVs in 2020 to make as many as 35,000 electric cars. Hyundai Motors India Limited (HMIL) will roll out its first EV in 2019; the Korean carmaker is also planning half a dozen new models by FY20. Kia Motors, a division of Hyundai Motor Group, will enter India with the launch of an SUV in 2020 and it plans to invest Rs 10,000 crore on a new plant in Andhra Pradesh.
Except for HeroMotoCorp, other two-wheeler makers aren’t really planning to add much capacity over the next two years. Hero plans to spend some Rs 2,500 crore in the next two years to develop premium motorcycles and scooters, the management told investors recently. It added Andhra Pradesh would be ready for production towards the end of FY20. The Gurgaon-headquartered firm has an annual capacity of 9.2 million units which will increase to 11 million units after 2020.
HMSI, which commands a 57% share in the scooters market, will make its plants more efficient; they currently produce 6.4 million vehicles a year. HMSI president and CEO Minoru Kato said a sum of Rs 800 crore had been earmarked for BS-VI emission regulations as well as brand consolidation in FY19. “HMSI will expand on the current production capacity and upgrade 18 existing models and launch one brand new model in 2018-19,” Kato said.
Pune-based Bajaj Auto’s capex will be modest at Rs 300 crore and made on new launches and R&D. Bajaj can roll out 6.6 million units every year across plants; its plans to focus on the premium segment and grow new markets.
Tata Motors has said it proposes to invest close to Rs 1,500 crore in the current year and told investors the amount would go into R&D, capacity expansion and towards making products compliant with BS-VI emission norms. Ashok Leyland, which has a market share of just under 20%, will spend close to Rs 1,000 crore this year; the Chennai-based firm has said it will re-launch some and will launch 20 new products.