Daimler, Maruti Suzuki and Mahindra & Mahindra are set to lead an estimated $30-billion investments by automakers in the next four years to meet the galloping demand in the world’s second fastest-growing market after China.
Global auto companies facing a sedate growth in existing markets are investing to tap the growing demand in India as investment spending and the government’s social programmes raise incomes in smaller cities and rural areas too.
These investments by automakers is set to trigger expansion of capacities by component suppliers too such as Amtek Auto and Bharat Forge.
“The Indian automobile industry is geared up to invest up to Rs 80,000 crore in fresh capacity in the next four years,” Vishnu Mathur, director-general at the industry lobby group Society of Indian Automobile Manufacturers, told ET. “The components industry will also invest $12 billion up to the end of the Automotive Mission Plan.”
The Automotive Mission Plan is a 10-year road map prepared by the Indian government in 2006 to make India an automobile hub, raise the industry contribution to 10% of the gross domestic product from 5%, and provide additional employment to 25 million people.
Car and motorcycle sales in India are setting records with rising incomes, cheap lending by banks and launch of new models such as Volkswagen’s Polo and Fiat’s Linea. Car sales rose 25% last year, the fastest in six years, to 19.5 lakh and domestic motorcycle sales climbed 26% to 94 lakh. Domestic passenger car sales gained 40% in April, despite price increases. The growth rate has hastened plans of many manufacturers such as Germany’s Volkswagen and France’s Renault.
Daimler India Commercial Vehicles plans to invest Rs 4,400 crore in five years to make light, medium and heavy duty trucks at its 160-hectare plant in Oragadam, near Chennai. Tata Motors, maker of world’s cheapest Nano cars, will invest about Rs 8,000 crore. Toyota is putting up a second plant at its Bidadi complex in Karnataka at a cost of Rs 3,200 crore to produce the Etios, an India-friendly model with two versions—sedan and a hatchback. Hero Honda, the biggest motorcycle maker and Ashok Leyland-Nissan are planning new factories.
“We believe in aggressive growth of the industry and are investing heavily both in creating new products as well as fresh capacity,” said Pawan Goenka, president (farm & auto division) at Mahindra. “M&M and its auto subsidiaries will invest Rs 5,000 crore in the next three years.”
Car manufacturing capacity is set to rise to 57 lakh units by 2015, according to consultants Ernst & Young. “The growth momentum in the industry will continue at at least 10-15% compounded annual growth rate and the capacity build-up is not just for domestic but also export growth,” said Rakesh Batra, national leader, automotive sector, at Ernst & Young.
Maruti, which hit peak capacity of 1 million units a year, is investing Rs 1,700 crore in a new plant which will can produce 250,000 units by early 2011. The Indian unit of Japan’s Suzuki also exports from India.
But the current demand is making the top brass at the company that sells half the cars in India wonder whether the investments would be enough to meet the needs. Cars that used to be delivered in a day-or-two a few months ago, now have waiting periods even running for months. “If the growth continues at this rate, we will certainly need to look at more capacity beyond the 250,000 unit new plant already announced,” said RC Bhargava, chairman, Maruti Suzuki.
While some expect higher interest rates in coming months to reduce the demand for automobiles, others believe that it may not impact much.
“With banks keen to lend and order books for auto companies full, we think it is difficult to see a slowdown in the auto space,” Goldman Sachs said in a note clients on Thursday.