PLI scheme for the auto industry to re-energize incumbents and energise newcomers

admin November 8, 2021
Updated 2021/11/08 at 6:52 AM

Pure-play electric two-wheeler companies, particularly start-ups, have been disappointed by the government’s newly-minted productivity-linked incentive (PLI) programme for the automotive industry. The strategy designed for the major players excludes start-ups, making it “non-inclusive,” according to officials at these businesses.

According to them, the strict criteria for qualifying in terms of yearly sales and fixed asset block implies that only big existing car businesses or a new entry with financial clout would profit.

To qualify as automotive champions, automobile original equipment manufacturers (OEMs) must have a minimum revenue of Rs 10,000 crore and a fixed asset block of Rs 3,000 crore. Two-wheeler manufacturers must also spend Rs 1,000 crore over the next five years.

Pure-play electric two-wheeler manufacturers, such as market leader Hero Electric, Ather Energy, and Okinawa Autotech, would be ineligible for the PLI and will have to rely on the FAME (Faster Adoption and Manufacture of Electric Vehicle) and state-led incentive programmes instead.

“This is a large-scale, investment-oriented programme.” It will not be qualified by any of the current pure electric two-wheeler manufacturers. “However, the environment that is established will benefit them,” said Sohinder Gill, director general of the Society of Manufacturers of Electric Vehicles (SMEV)

This will also filter out a number of minor regional companies that have emerged in recent years, resulting in a wave of consolidation in the sector, according to Gill.

“It’s true that on the surface, the revenue qualifying criteria is far too high for any pure EV business to qualify for a while,” said an official at an e-two wheeler company.

According to the CEO of a major electric two-wheeler business, the company must “read the small print,” but the qualifying criteria is much too stringent, and it will not benefit the ecosystem. It could have been more inclusive; right now, it seems to be reserved for the major players.”

The scheme requires that the aforementioned investment be made by group company(ies), which it defines as two or more enterprises that, directly or indirectly, hold 26 percent or more voting rights in the other enterprise or appoint more than 50 percent of the other enterprise’s board of directors, as defined in the FDI Policy Circular of 2020.

It’s unclear if businesses like Ather Energy, in which Hero Motorcorp has a 30% interest, can qualify by combining their revenues. “The issue is whether, if both of them apply, just one of them will be deemed eligible, based on precedence in the PLI for mobile devices.” “There is no certainty in this respect,” says an official from a car manufacturer.

Encouraged by demand, EV manufacturers in India, including start-ups and traditional automakers, have invested over Rs 9,000 crore in the last year to capitalise on the e-mobility potential.

Unsurprisingly, the most money has gone towards developing capacity for electric two-wheelers, with the remainder following.

Bajaj Auto, TVS, and Hero Motocorp are among the companies that could profit from the auto PLI programme. When asked whether his firm will take advantage of the PLI, Bajaj Auto MD Rajiv Bajaj simply said, “We have still to examine it.”

Ola Electric, which has spent Rs 2,400 crore and just debuted its scooters, may be deemed a “new participant” under the PLI eligibility system, according to sources, though the firm refused to comment. New auto players (those who have never done business before) would be required to have a net worth of Rs 1,000 crore and spend Rs 2,000 crore under the PLI programme.

Meanwhile, analysts say that major global electronics contract manufacturers like as Wistron, Pegatron, and Foxconn may engage in the PLI, particularly in the auto component sector, providing both domestic and global OEMs and bringing in new entrants.

“What we will see is a disruption in the automotive industry with many foreign OEMs coming to this region; this may transform India into a worldwide centre for exports,” said Saket Mehra, partner and auto sector head at Grant Thornton Bharat. The strategy seems to be aimed toward assisting the major players.”

Others anticipate new IT firms entering the market as well. “The plan — with the promise of a handsome return — may see the entrance of non-auto technology firms that have developed their application programming interface to the whole market,” said Harshvaardhan Sharma, auto retail practise head at Nomura Research.

In a recent interview, David Shen, president of Wistron Smart Devices, said that the firm would explore possibilities in the electric vehicle sector in India with its Indian partner Globally Wistron. Wistron has been providing electronics components to Chinese automakers such as NIO and is currently in discussions with Japanese OEMs. It has already used the PLI method to manufacture mobile devices for Apple Inc.

Pegatron, for example, is already providing Tesla with components. Foxconn intends to produce an electric vehicle for American start-up Fiskar, with a goal of serving 10% of the world’s demand for EV components and services by 2025.



Source: Business Standard

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