Strategic and financial investments are pouring into the Indian automotive sector after a lull of almost half a decade.

Increased electrification and aggressive growth plans by global auto players are paving the way for renewed investor confidence.

Earlier this week, Japanese multinational Kubota Corp said it would inject 9,400 crore yen into the Nanda family-owned farm machinery and tractor maker, Escorts Ltd, to become its majority shareholder.

In October, Texas-based TPG Capital Management said it would invest 7,500 crore in a newly formed electric vehicle (EV) subsidiary, in what could be one of the largest private equity investments in the Indian automotive sector.

Agencies

Significant investments are flowing in specific segments and sectors as India remains an attractive market for automobiles.

Post-pandemic investment euphoria fueled by a liquidity-induced market rally is believed to support the investment ecosystem, experts say.

“The automotive sector is seeing huge investments,” said RC Bhargava, president,

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Upward growth potential

“… (Investments) related to the infrastructure and technological space for electric vehicles offer greater potential,” said Bhargava of Maruti Suzuki, the country’s largest automaker.

According to data compiled by financial market data provider Refinitiv, auto investment more than doubled in the first 10 months of the year to $ 832 million, compared to the same period a year ago . Data does not include the deals recently announced by Kubota and TPG. “We will see more investment in electrification fleets covering light commercial vehicles and buses, as this will help fleet operators adopt electric vehicles without getting burned (a hole),” said Kaushik Madhavan, vice-president. president, mobility, at the consultancy firm Frost & Sullivan. .

India is expected to be the world’s third largest automotive market in terms of volumes by 2026. It holds a strong position in the international heavy vehicle scene – being the largest manufacturer of tractors, second for buses and third for trucks. heavy trucks. , globally, according to Jato Dynamics, a global provider of automotive business intelligence.

“Strategic and financial investors are optimistic about the automotive sector due to its attractiveness and potential growth opportunities,” said Atul Mehra, deputy managing director and co-managing director of investment banking, JM Financial, who has advised Escorts on the Kubota deal. “India is a major economy, and many companies and private investors are exploring ways to invest and partner with players in the automotive industry. Investors are looking to take advantage of niche technologies, a better R&D, lower production cost, carbon footprint and, more importantly, regulatory stability, compared to other major developing economies, ”added Mehra.

Start wave

India’s auto industry contributes around 40% to the country’s manufacturing gross domestic product (GDP) and 7.5% to its overall GDP. “The industry is also facing the forces of disruption. As mobility evolves towards connected / autonomous and electric mobility, a new competitive landscape is evolving, in which the link between “big” and “successful” seems to weaken, ”said Ravi Bhatia, president of Jato Dynamics. “Investors seem to be rewarding startups at large multiples, while established players are forced to catch up. The consequence is growth in capital spending and investment.”

Private equity firms and venture capitalists are betting big on the automotive segment, particularly electric vehicles and related sectors, on higher traction expected for alternative fuels and a pick-up in demand in the country.

The automotive sector, which recorded foreign direct investment (FDI) of $ 16.5 billion between 2000 and 2016, is expected to see investments of $ 8 billion to $ 10 billion by 2023. This will help the domestic industry to reach $ 300 billion by 2026 – significant growth from $ 118. billions of dollars as of 2020. The funding increase came despite nationwide lockdowns due to the virus outbreak for much of last year, which took a significant toll on sentiment. investment as well as on-demand in the automotive and auxiliary segments.

Electric focus

Industry experts have said that the electric vehicle ecosystem in India is at an inflection point and has become an attractive investment proposition. The new funding is expected to primarily be used to expand production capacity, in R&D and future technologies, and to increase the international footprint.

Many startups in India are focused on Affordable Driver Assistance Solutions (ADAS) and the investments made by Tier I global companies in tech incubators are supporting this cause, said Madhavan of Frost & Sullivan. Electric vehicles, especially two-wheelers, will experience strong growth in the current fiscal year, given the incentive from central and state governments.

According to an independent study by the CEEW Center for Energy Finance, with the Indian electric vehicle market reaching $ 206 billion by 2030, it will take $ 180 billion in investment to build the ecosystem.