Rush Hour At Automaker Factories As Demand For New Cars Soars
The rush to increase manufacturing capacity in the automotive industry is primarily driven by the imperative not to miss out on the electric vehicle (EV) revolution. Automakers are acutely aware that size matters in this context.
Maruti Suzuki India, the country”s leading passenger vehicle manufacturer, recently announced an ambitious plan to invest Rs 1.25 trillion over the next seven years, leading up to FY31. This hefty investment is nearly five times the capital expenditure incurred over the preceding eight years until FY23. A significant chunk of this new investment, approximately Rs 45,000 crore, is earmarked for doubling production capacity to reach an annual output of 4 million vehicles. The remainder will be allocated towards developing and launching 11 new vehicle models featuring various fuel options, expanding sales and marketing teams, and embarking on an extensive export drive.
This substantial capital expenditure is deemed necessary by industry experts to help fortify Maruti”s market leadership, a position it has held for decades. The automotive landscape is rapidly evolving, with new technologies making electric vehicles and hybrids increasingly viable as alternatives to traditional internal combustion engines that run on gasoline.
Maruti is not the only major player taking this approach. The second, third, and fourth-largest companies in the market—Hyundai, Tata Motors, and Mahindra & Mahindra—have all outlined their capacity expansion plans. These companies are collectively investing around Rs 50,000 crore, bringing the total investment by the top four players in the market, who together dominate over four-fifths of the industry, to a staggering Rs 1.75 trillion.
The hiatus in capacity expansion brought about by the pandemic between 2020 and 2022 has now caught up with automakers. While investments were put on hold during those uncertain times, demand for vehicles rebounded significantly in FY23, leaving companies with production constraints. Therefore, expanding capacity has become a pressing necessity.
The automotive sector is currently experiencing a post-pandemic resurgence, with record-breaking monthly sales figures and robust domestic demand. Last month, automakers achieved a new high in monthly sales by delivering 363,733 vehicles. The surge in sales was prompted by a desire to ensure adequate dealer stock for the upcoming festival season, traditionally spanning from Onam to Diwali. Domestic sales in FY23 registered remarkable growth, reaching 3.8 million units—a 21% increase over the previous year and surpassing the previous high of 3.3 million units in FY19. The current financial year could potentially see the industry surpass the 4-million-unit milestone.
However, the pause in capacity expansion during the pandemic is now causing challenges for automakers. Maruti, in its endeavour to meet surging demand, is leveraging Toyota”s unutilised capacity—a strategic move facilitated by their partnership. Additionally, the company is reconfiguring its Manesar plant to address the supply-demand gap effectively.
