India’s passenger vehicle (PV) industry is expected to witness a capital expenditure cycle of ₹3.2 lakh crore–₹3.5 lakh crore between FY26 and FY30, driven largely by electric vehicle (EV) investments, export expansion and premiumisation trends, according to India Ratings and Research (Ind-Ra).
The ratings agency said the investment cycle would support long-term structural growth for the industry, although original equipment manufacturers (OEMs) may face pressure on return metrics and capacity utilisation in the near term as investments are being front-loaded ahead of demand growth.
EV Investments To Lead Capex Push
Ind-Ra estimates that 60-70% of the planned investments will be directed towards EV platforms, battery technologies and ecosystem development. The top five OEMs alone account for more than ₹2 lakh crore of the planned capex pipeline.
Industry capex rose to ₹64,400 crore in FY25 from ₹25,900 crore in FY22, while capex intensity remained relatively disciplined at 6-8% of revenues in recent years compared with 9-10% during FY15-FY20.
“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. “Near-term return metrics, especially for the EV segment, are likely to remain under pressure given the gradual pace of EV adoption.”
According to the agency, return on capital employed (ROCE), which remained at 15-20% during FY23-FY25, may moderate in the near term due to higher capital employed ahead of earnings generation. Over the medium term, however, returns are expected to improve as EV volumes scale up and operating leverage strengthens.
Exports Seen As Key Growth Lever
Ind-Ra also highlighted exports as a major structural growth driver for the sector. PV exports accounted for 18.7% of total volumes in FY26 and expanded at a compound annual growth rate of about 12% between FY23 and FY26.
The agency noted that OEMs are increasingly investing in globally compliant and flexible manufacturing lines that can cater to both domestic and export markets, helping improve asset utilisation and reduce earnings volatility.
Capacity Addition May Outpace Demand Initially
At the same time, the report cautioned that capacity additions are expected to outpace demand in the short term. The industry is adding 3 million–3.5 million units of manufacturing capacity over an existing base of 6.1 million units, which could temporarily weigh on utilisation levels.
Despite the elevated investment cycle, Ind-Ra said the financial profiles of major OEMs remain stable. The sector reported net leverage of negative 0.8x in FY25, while cash flow from operations to capex stood at around 2.4x, indicating strong internal funding capacity.
The agency expects most investments to be funded through internal accruals, parent support and equity infusions into EV-focused subsidiaries, limiting dependence on debt.
PLI Support And EV Adoption Risks
Government support through the Production-Linked Incentive (PLI) scheme was also identified as an important factor supporting project viability. The ₹25,900 crore PLI-Auto scheme has approved 82 companies so far, with committed investments of around ₹35,700 crore as of December 2025. However, incentive disbursement has remained relatively gradual, with ₹2,380 crore released by February 2026.
Ind-Ra said EV adoption remains the key variable that will determine the success of the current capex cycle. EV penetration in India’s PV market remains at 3-4%, constrained by charging infrastructure gaps and supply chain limitations, particularly in battery cell manufacturing.
The agency maintained a stable outlook on most PV OEMs for FY27, while continuing to monitor execution risks related to EV adoption, utilisation levels and capital allocation strategies.