Electric vehicles to drive auto capex up by Rs 70,630 crore in 5 years

Automobile manufacturers, new and old, as well as ancillary suppliers are set to spend a combined Rs 70,630 crore over the next five years on either entering the electric vehicle segment or stepping up their presence in it. Data culled from announcements made by firms shows India, the world’s fifth largest automobile market, is poised to receive one of the biggest capex pushes ever to fuel the transition from internal combustion engines to electric motors and batteries as part of a green drive.

The EV push, egged on by the government’s emphasis on electric mobility to meet its net zero targets, is expected to yield at least 25 electric vehicles — new ones as well as electrified versions of existing vehicles running on internal combustion engines. It also brings in new investors: start-ups, many of which are looking to make their presence felt by taking market shares from incumbents, and private equity investors, which are awake to opportunities arising out of the changeover.

Pawan Goenka, former managing director and CEO of Mahindra & Mahindra and now the chairperson of the government’s Steering Committee for Advancing Local Value Add and Exports, says the current spate of investments “is the culmination of several years of efforts, and production-linked incentives have given it a much-needed impetus”.

The Narendra Modi-led government, looking to reduce the country’s dependence on fossil fuels and reduce pollution out of exhaust pipes, wants electric vehicles to comprise 30 per cent of private cars, 70 per cent of commercial vehicles. and 80 per cent of two- and three-wheelers by 2030. 

Those leading the EV-related capex drive are three carmakers: Tata Motors’ subsidiary, Tata Passenger Electric Mobility, which has earmarked Rs 15,000 crore over the next three years, Suzuki Motor Corp (Rs 10,445 crore from now till 2026), and Hyundai Motor India (Rs 4,000 crore till 2028).

The makers of electric two-wheelers, the segment that is the focus of early consumer enthusiasm, are not to be left behind. Start-ups as well as incumbent two-wheeler manufacturers are investing in capacity expansion and new product development. At the forefront are TVS Motor, Omega Seiki Mobility, Okinawa Autotech, Ather Energy, and others that are in talks with PE funds and sovereign wealth funds for infusion of capital.

“Typically the auto industry incurs a capex of 8-10 per cent of its annual revenue. This time, it’s going to be phased out and will be largely driven by passenger vehicle makers,” said Shamsher Dewan, senior vice-president and group head, ICRA.

The auto component industry, which has traditionally relied on engine parts for the bulk of its business, is ready for the electric shift. Sunjay Kapur, president of the Auto Component Manufacturers Association, said the investment cycle by auto component makers to prepare themselves for electric vehicles has already begun. The 75 companies eligible for the auto components PLI scheme, he says, have to together invest Rs 18,600 crore in five years.

The last big capex push in India’s automobile sector was not too long ago: vehicle makers and component suppliers are estimated to have spent a combined Rs 40,000 crore as part of the upgrade from Bharat Stage IV to VI emissions norms, which came into effect on April 1, 2020.