According to the report, automakers are increasingly investing in flexible manufacturing lines capable of catering to both domestic and export demand, helping improve asset utilisation and reduce earnings volatility.India’s passenger vehicle (PV) industry is entering a major investment cycle, with cumulative capital expenditure expected to reach ₹3.2 -₹3.5 lakh crore over FY26-FY30, according to a latest report by India Ratings and Research released on Monday.
The agency said the capex cycle will be driven primarily by electric vehicle (EV) transition, export expansion and premiumisation, although returns may remain under pressure in the near term due to gradual EV adoption and front-loaded investments.
India Ratings estimates that 60-70 per cent of the planned investments will be directed towards EV platforms, battery technology and ecosystem development. The top five original equipment manufacturers (OEMs) are expected to account for over ₹2 lakh crore of the announced investments.
“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,” said Shruti Saboo, Director, Corporate Ratings, India Ratings and Research.
The report noted that while return on capital employed (ROCE) remained healthy at 15-20 per cent during FY23-FY25, it is likely to moderate in the near term as companies invest ahead of earnings generation. However, returns are expected to improve over the medium term with EV scale-up and operating leverage gains.
Exports as growth driver
The agency highlighted exports as a key structural growth driver for the industry. Passenger vehicle exports accounted for 18.7 per cent of volumes in FY26 and expanded at a compound annual growth rate of around 12 per cent during FY23-FY26.
According to the report, automakers are increasingly investing in flexible manufacturing lines capable of catering to both domestic and export demand, helping improve asset utilisation and reduce earnings volatility.
India Ratings also said strong balance sheets and internal accruals would support the sector’s investment plans without materially weakening credit profiles. As of FY25, the sector’s net leverage remained at negative 0.8x, while cash flow from operations to capex stood at nearly 2.4x.
However, the agency cautioned that risks remain around EV demand ramp-up, charging infrastructure bottlenecks and execution challenges, particularly for new EV-focused entrants and global automakers entering the Indian market.
