The government’s Rs 26,000-crore PLI (Production Linked Incentive) scheme will lay a strong foundation for rapid adoption of electric vehicles
(EVs) in India, believe analysts. The move, they say, will give a fillip to two-wheeler manufacturers while incumbents will have to step up.
On Wednesday, the Union Cabinet approved a PLI scheme
with a budgetary outlay of Rs 25,938 crore to boost domestic manufacturing capabilities of the automobile industry, including electric and hydrogen fuel cell vehicles.
The scheme will be effective from FY23 for five years and the base year for eligibility criteria would be FY20.
Further, to avail the scheme, original equipment manufacturers (OEMs) should have a minimum of Rs 10,000 crore in revenue and Rs 3,000 crore investment in fixed assets and auto component makers should have minimum revenue of Rs 500 crore and Rs 150 crore investment in fixed assets. READ MORE
Reacting to the development, the Nifty Auto Index climbed nearly a per cent on Thursday with stocks such as Bosch (up 5.5 per cent), Hero MotoCorp and Bajaj Auto (1.9 per cent each), Tube Investments of India (1 per cent), and Eicher Motors and TVS Motot Company (0.5 per cent each) leading the rally at 10:15 AM. In comparison, the benchmark Nifty50 index was up 0.25 per cent.
Here’s how analysts view the scheme:
Motilal Oswal Financial Services
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.
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 Rs 57,000 crore, we believe it is well-directed to improve competitiveness in the nascent segment,” the brokerage said.
After FAME-II policy (subsidy for consumers) and PLI scheme
for advanced chemistry cell (subsidy for batteries manufactured in India), the PLI scheme for autos provide incentives in the range of 13-18 per cent of sales value to OEMs for manufacturing EVs in India, which is very attractive.
The scheme promotes cleaner technologies as OEMs will be incentivized to manufacture EVs and fuel cell electric vehicles
(FCEVs). However, faster transition from internal combustion engine (ICE) vehicles to EVs is a negative for traditional auto OEMs.
Geojit Financial Services
The timing of the PLI scheme for autos has to be seen in the context of investment leaving China due to regulatory crackdown. India is firmly on the road to become part of the global supply chains for auto industry.
The Finance Ministry, in the budget, had announced the PLI scheme for three sectors. In Wednesday’s Cabinet meeting, the government has approved the PLI scheme for the auto sector to promote domestic manufacturing and create job opportunities.
Under the auto component PLI scheme, a total of 22 components will be covered such as Battery Electric Vehicles, Hydrogen Fuel Cell Vehicles, Advanced Automotive Technology, vehicle aggregates of two-wheelers, three-wheelers, passenger vehicles, commercial vehicles, and tractors, etc. However, the scheme does not cover the conventional automotive makers and would focus on advanced automotive technologies.
Source: Brokerage reports
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