The government has approved the Production Linked Incentive (PLI) scheme for automotive industry with key focus on new energy vehicles (NEVs), enhancing local manufacturing capabilities of advanced automotive technologies.
PLI scheme – Key takeaways: Financial incentives worth Rs 260.58 billion to be provided to the industry over five years.
As per the policy makers, PLI scheme is expected to add Rs 475 billion in fresh investments and incremental production of over Rs 2.3 lakh crore over five years. These investments are likely to create 760k additional employment opportunities.
The PLI scheme for auto sector is open to existing automotive companies as well as new investors who are currently not in automobile or auto component manufacturing business.
The scheme has two components viz. Champion OEM Incentive scheme and Component Champion Incentive scheme.
The OEM incentive scheme is a ‘sales value linked’ scheme, critically applicable only for NEVs (e.g. battery electric vehicles, hydrogen fuel cell vehicles). The Component incentive scheme is also ‘sales value linked’ scheme, applicable only for 22 advanced automotive technology components (details awaited) across all vehicles.
To qualify for PLI incentives, following conditions need to be satisfied: 1) For champion OEMs: global group revenues should be minimum Rs 100bn and investments (not necessarily NEV related) of Rs 30 billion(starting 1st Apr’2021); 2) champion component manufacturer with revenues of Rs 5bn and investment of Rs 1.5 billion. For new non-automotive investor, global net worth should be >Rs 10 billion.
To qualify for incentives other auto OEMs must have minimum new domestic investments of Rs 20 billion for OEMs, Rs 10 billion for 2/3W OEMs, Rs 2.5 billion for component manufacturers and Rs 5 billion for new non-automotive investors over five years.
PLI scheme will be additional to the already launched PLI for Advanced Chemistry Cell (Rs 181 billion) and Faster Adaption of Manufacturing of Electric Vehicles (FAME) scheme (Rs 100 billion) to boost manufacturing of electric vehicles in India. The cumulative incentives being offered across the three schemes would be amounting to Rs 541.54 billion targeting both the demand and supply side.
Our view: The PLI scheme provides a clear direction that policy makers remain focussed on promoting NEVs vis-à-vis traditional ICE vehicles. However, on the component side a list of 22 advanced technologies (details awaited) which have been identified for aggressive localisation in India. Various OEMs have raised concerns on ICE vehicles being excluded from the incentives scheme. We believe, amongst the OEMs Tata Motors, M&M, TVS Motors and Ashok Leyland (have announced investment plans for NEV’s) would likely be able to avail benefit from the PLI scheme.