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PLI scheme for Auto focuses on advanced technology

Incentives at 13–16% for OEMs and 8–16% for components on incremental sales

(domestic as well as exports)

* The government has approved the PLI scheme for the Automobile industry – with a focus on pre-approved advanced automotive technology vehicles and components (for all vehicles) – with total outlay of INR259.4b over the five years starting FY23.

* The objective of this scheme is to develop local capabilities and capacities in advanced technologies for the Automotive industry by incentivizing the industry to make fresh investments. The Ministry of Heavy Industry would determine the list of advanced technology vehicles and components and periodically evaluate them to factor in for technological changes.

* Incentives offered under this scheme are very attractive and linked to the level of incremental determined sales of advanced technology vehicles/products in both domestic as well as export markets.

The details are as follows:

* For OEMs, the minimum incentive is 13% of the determined sales value of INR40b. There is an additional 2% incentive for the cumulative determined sales value of INR100b over five years.

* For components, the minimum incentive is 8% of the sales value of INR7.5b. There is an additional 5% incentive for components for battery electric vehicles and hydrogen fuel cell vehicles. There is an additional 2% incentive for the cumulative determined sales value of INR12.5b over five years.

* Under this scheme, incentives would be provided on incremental sales on the base year of FY21.

The eligibility criteria are as follows:

* For existing OEMs: Global group revenues of INR100b and global investments in fixed assets of INR30b

* For existing component companies: Global group revenues of INR5b and global investments in fixed assets of INR1.5b

* For new non-automotive investors: Global networth of INR10b

* To be eligible for this scheme, a minimum new domestic investment (from Apr’21 to Mar’27) of INR2.5b is required for components, INR10b for 2W/3W OEMs, and INR20b for other OEMs. New non-automotive component manufacturers/OEMs would have to invest INR5b/INR20b. Preference would be given to companies committing to front-ending their investments.

* Companies would have to a) make mandatory minimum domestic investments for each year to be eligible for the incentive, b) generate a minimum 10% annual revenue growth, and c) achieve a minimum 50% domestic value add.

* These incentives would be paid in the subsequent year – for example, for FY23, it would be paid in FY24.

* The government envisages cumulative investment of INR425b over a five-year period, with cumulative incremental production of INR2.31t and the creation of 0.75m jobs.

Our view:

Substantial incentives on offer to make local manufacturing competitive

* The Auto PLI scheme is consistent with the government focus on clean energy vehicles. Coupled with the PLI for advanced chemistry cells (INR181b) and FAME-2 subsidies (INR100b), this provides substantial incentive (total of INR~539b) to make the local manufacturing of advanced technology components and vehicles competitive.

* We believe the eligibility criteria on both revenues and expected investments over five years are very reasonable, ensuring eligibility for most of the OEMs / component manufacturers.

* While the incentives offered under the Auto PLI scheme are lower than the originally planned incentive of INR570b, we believe it is well-directed to improve competitiveness in the nascent segment. Unlike the draft scheme, which focused on exports, this scheme is focused on the localization of advanced technologies.

* While this scheme seems to be straightforward from an OEM perspective, we believe it is difficult to judge possible winners among the auto component players as it aims to incentivize components that are not currently made in India.

* In the OEM Universe, BJAUT and TVSL would benefit on their e-scooters and TTMT on its electric PVs. While details regarding approved products are awaited, from our coverage universe, players such as BOS may benefit (for EV components). Based on the current product portfolio, we do not see any other auto components under our universe to be a major beneficiary of this scheme.

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