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PLI Scheme - EV Advantage Continues

The Union Cabinet has approved Rs 26,058 Cr of Production Linked Incentives (PLI) to encourage domestic production of automobiles and drones and their components to enhance India’s manufacturing capabilities. The PLI scheme for the auto sector will incentivize high-value Advanced Automotive Technology vehicles and products. It will also help in faster adoption of the latest and superior technology along with more efficient and green automotive manufacturing.

PLI Scheme for Automobile and Drone Industries is part of the overall PLI Schemes announced for 13 sectors in the Union Budget 2021-22 with an outlay of Rs 1.97 Lc Cr. The benefits for the auto sector were scaled down by more than half to ~Rs 26,000 Cr from Rs 57,000 Cr announced last year as the focus shifted to producing electric and hydrogen fuel vehicles in conjunction with other incentive schemes.

Of the total amount, Rs 25,938 Cr has been earmarked for manufacturing electric and hydrogen fuel vehicles and components while Rs 120 Cr will be offered to encourage the production of drones and their parts. The PLI scheme for the auto sector will be applicable from FY23 for five years and the base year for eligibility criteria would be 2019-20. The Scheme is open to existing automotive companies as well as new investors who are currently not in the automobile or auto component manufacturing business. A total of 10 vehicle manufacturers, 50 auto component makers, and 5 new non-automotive investors are expected to benefit from this scheme.

The Scheme targets to facilitate the Automotive industry to overcome cost challenges in manufacturing Advanced Automotive Technology products in India. The incentive structure will encourage the industry to make fresh investments for an indigenous global supply chain of Advanced Automotive Technology products. The PLI Scheme is estimated to result in a fresh investment of over Rs 42,500 Cr and incremental production of over Rs 2.3 Lc Cr over five years and will create additional employment opportunities of over 7.5 Lc jobs. Furthermore, this will increase India’s share in the global automotive trade.

This PLI Scheme for the automotive sector along with the already launched PLI scheme for Advanced Chemistry Cell (ACC) (Rs 18,100 Cr) and Faster Adaption of Manufacturing of Electric Vehicles (FAME) (Rs10,000 Cr) will enable India to leapfrog from traditional fossilfuel based automobile transportation system to environmentally cleaner, sustainable, advanced, and more efficient Electric Vehicles (EV) based system.

Automobile OEMs must have a minimum revenue of Rs 10,000 Cr and invest Rs 2,000 Cr over the five years to receive benefits of the scheme. While Two-wheeler companies must invest Rs 1,000 Cr, Auto component makers should have a minimum revenue of Rs 500 Cr and Rs 150 Cr of fixed asset investment to be eligible for the scheme. Furthermore, Nonautomotive investors must have a global net worth of Rs 1,000 Cr and a clear business plan for investment in advanced automotive technologies to be eligible for the scheme.

A total of 22 components have been covered under the scheme including flex-fuel kits, hydrogen fuel cells, hybrid energy storage systems, and electric vehicle parts such as charging ports, drive trains, electric vacuum pumps, and electric compressors. Sunroofs and electronic stability controls have also been added to the scheme coverage. Petrol and diesel engine components including exhaust, after treatment and FIE systems, ECUs, automatic transmission assembly, and electronic power steering system have also been covered under the scheme. The scheme may also incentivise EV parts such as highvoltage connectors and cables and AC and DC charging inlet and outlet ports.

Our View:

We believe the PLI scheme is positive for the sector and will help in the faster transition from traditional fossil fuel-based auto transportation systems to an environmentally cleaner, sustainable, advanced and more efficient technology-based system. However, while the OEMs are proactively investing in R&D for EVs and other technologies, the number of models launched in the market stand limited. Hence the scheme’s benefit on the existing ICE players is yet to be ascertained.

Moreover, this revised scheme does not include CNG, LNG, and other alternative clean fuels which currently have a large presence in the Indian market. The PV players are focused more on the manufacture of Hybrid models as India still does not have the required infrastructure for EVs. Posta shift to complete electrification, it will be interesting to see how the OEMs tweak their model launch plans.

The government plans for a smoother infrastructure layout for EVs will be a key monitorable moving forward. With global economies looking to de-risk their supply chains, the PLI scheme will help make India an attractive alternative source of high-end auto components. From the auto component stocks under our coverage, we expect Minda Industries and Minda Corp to benefit from this scheme.

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