India Ratings and Research said the top five original equipment manufacturers (OEMs) are expected to account for over ₹2 lakh crore of the planned investments.
India’s passenger vehicle (PV) industry is entering a major investment cycle, with capital expenditure (capex) projected to reach ₹3.2–3.5 lakh crore between FY26 and FY30. Electric vehicles (EVs) are set to be the primary driver, alongside export expansion and premiumisation trends, according to a report by India Ratings and Research (Ind-Ra).
This ambitious capex cycle reflects the industry’s structural shift toward electrification and global competitiveness, even as near-term pressures on returns and utilisation are anticipated.
Ind-Ra estimates that 60-70% of the planned investments will flow into EV platforms, battery technologies, and ecosystem development. The top five OEMs alone are expected to account for over ₹2 lakh crore of this total planned capex.
Industry capex has already accelerated significantly, rising to ₹64,400 crore in FY25 from ₹25,900 crore in FY22. Capex intensity has remained disciplined at 6-8% of revenues in recent years.“The Indian PV sector is currently in the midst of a structurally driven capex cycle, led by EV transition and export scale-up, with investments increasingly front-loaded relative to demand,” said Shruti Saboo, Director, Corporate Ratings, Ind-Ra.
While the investments promise long-term growth, OEMs may face pressure on return metrics in the short term. Return on Capital Employed (ROCE), which stood at 15-20% during FY23-FY25, is likely to moderate due to higher capital deployment ahead of full earnings realisation. EV adoption in the PV segment currently hovers at 3-4%, constrained by charging infrastructure gaps and battery supply chain limitations.
However, as EV volumes scale and operating leverage improves, returns are expected to strengthen over the medium term. Most investments are likely to be funded through internal accruals, parent company support, and equity infusions into EV subsidiaries, keeping debt dependence low. The sector maintained a healthy net leverage of negative 0.8x in FY25, with strong cash flow generation.
Exports are emerging as a key growth lever. PV exports accounted for 18.7% of total volumes in FY26 and grew at a CAGR of around 12% between FY23 and FY26. OEMs are investing in flexible, globally compliant manufacturing lines to serve both domestic and international markets.
On the capacity front, the industry is adding 3–3.5 million units of manufacturing capacity on top of the existing base of 6.1 million units. This could lead to temporary under-utilisation in the near term as additions outpace immediate demand growth.
The Production-Linked Incentive (PLI) scheme for automobiles is playing a supportive role. The ₹25,900 crore PLI-Auto scheme has approved 82 companies with committed investments of around ₹35,700 crore. However, incentive disbursements have been gradual so far.
Ind-Ra maintains a stable outlook on most PV OEMs for FY27, while closely monitoring EV adoption rates, capacity utilisation, and capital allocation efficiency. The success of this massive capex cycle will ultimately hinge on faster EV penetration, infrastructure development, and supportive policies.
This investment surge positions India’s passenger vehicle industry for a transformative decade, strengthening its role as a global manufacturing hub while accelerating the shift to sustainable mobility. As OEMs ramp up EV offerings, the coming years will be critical in determining how effectively these investments translate into market leadership and profitability.
