Passenger Vehicle Industry Set for ₹3.5 Lakh Crore Capex Surge by FY30: India Ratings and Research

India's passenger vehicle (PV) industry is on the cusp of a significant investment cycle, with cumulative capital expenditure projected at ₹3.2–₹3.5 lakh crore between FY26 and FY30, according to a report by India Ratings and Research released Monday. The rating agency said the investment push will be driven largely by the transition to electric vehicles, export growth, and premiumisation.

However, it cautioned that returns could remain under pressure in the near term given the pace of EV adoption and the front-loaded nature of planned spending. India Ratings estimates that 60–70 per cent of the total investments will go toward EV platforms, battery technology, and ecosystem development, with the top five original equipment manufacturers expected to account for more than ₹2 lakh crore of announced capex.

"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 frontloaded relative to demand," Shruti Saboo, Director, Corporate Ratings, India Ratings and Research, said in a statement, according to ET Auto.

The report noted that while return on capital employed remained healthy at 15–20 per cent during FY23–FY25, it is likely to soften in the near term as companies invest ahead of earnings. Returns are expected to recover over the medium term as EV volumes scale up and operating leverage improves.

Exports were flagged as a key structural growth driver. Passenger vehicle exports made up 18.7 per cent of total volumes in FY26 and grew at a compound annual growth rate of around 12 per cent between FY23 and FY26. The agency noted that automakers are increasingly investing in flexible manufacturing lines capable of serving both domestic and overseas demand, helping improve asset utilisation and reduce earnings volatility.

India Ratings also said the sector's strong balance sheets and internal cash generation would support investment plans without significantly straining credit profiles. As of FY25, net leverage stood at negative 0.8x, while cash flow from operations to capex was nearly 2.4x.

The agency, however, flagged risks around the pace of EV demand ramp-up, charging infrastructure gaps, and execution challenges, particularly for new EV-focused players and global automakers entering the Indian market.