Published on 10/06/2021 11:24:50 AM | Source: Motilal Oswal Financial Services Ltd

Auto Sector Update - PLI for advanced battery approved by Cabinet By Motilal Oswal

Posted in Broking Firm Views - Sector Report| #Auto Sector #Sector Report #Motilal Oswal Financial Services Ltd

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PLI for advanced battery approved by Cabinet

…55GWh battery capacity target, with total investment of INR450b

* The PLI scheme aims to achieve manufacturing capacity of 50GWh of advanced chemistry cell (ACC) and 5GWh of “niche” ACC, with a total outlay of ~INR181b for incentives. The direct investment from this program is estimated at ~INR450b.

* These batteries would be used across EVs, consumer durables, electricity grids, power storage, etc. The total requirement of such cells is currently imported.

* ACC battery storage manufacturers would be selected through a bidding process. The manufacturing facility would have to be commissioned within two years, and the incentive would be disbursed thereafter over five years.

* Each shortlisted manufacturer would have to commit to set up a capacity of minimum 5GWh and ensure a minimum 60% domestic value addition at the project level within five years.

* It would have to achieve a domestic value addition of at least 25% and incur a mandatory investment of INR2.25b/GWh within two years (at the Mother Unit level). It would have to raise this to a 60% domestic value addition within five years, either at the Mother Unit (in the case of an Integrated Unit) or at the Project Level (in the case of a "Hub & Spoke" structure).

* The incentive amount would increase with increased specific energy density and cycles and increased local value addition. Details are awaited regarding the level of incentive at varied localization levels.

* As per govt estimates, this would lead to the import substitution of ~INR200b p. a. on the battery side. Furthermore, the adoption of EVs based on these batteries would drive net savings of INR2–2.5t – on account of a reduction in the oil import bill for the duration of this program.


Our view

* Assuming the entire 55GWh is used for EVs, this capacity could support volumes of 20–22m e-2Ws p. a. or 1.5–1.8m e-PVs p.a. This capacity is adequate for the expected level of electrification over the next 5–7 years.

* An INR181b incentive for 55GWh over five years implies an average incentive of ~INR658m/GWh/p.a. The govt. estimate of INR450b in investments for the 55GWh capacity implies capex of INR8.2b/GWh – for which the govt. would provide an incentive of ~INR3.3b/GWh over five years.

* In addition to the PLI benefit, lithium battery manufacturers were offered investment-linked income tax exemptions u/s 35AD and other indirect tax benefits in the July 2019 Budget.

* Lastly, the timeline for local value add at 25% within two years and 60% within five years appears reasonable – as it budgets for the lack of local sources for key commodities such as lithium, cobalt, nickel, etc.

* We await details on the quantum of benefit at various localization levels as well as any technical requirements for potential bidders.


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