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How the new PLI scheme is likely to boost the EV industry

The new scheme is expected to benefit the likes of Tesla and many manufacturers of two, three and four-wheeled EVs.

September 17, 2021 / 12:25 PM IST
Representative Image (Source: ShutterStock)

Representative Image (Source: ShutterStock)

The Union Cabinet approved a PLI scheme (Production-Linked Incentive) which promotes advanced technologies, chief of which is battery electric technology. The scheme, which has been in the works for some time, offers an incentive of Rs 26,058 crore, which will be provided over a period of five years.

Lauded for its timely introduction and the benefits it will bring to the EV space, many industry heads have come forward to show their active endorsement of the scheme. But how exactly does it benefit both the manufacturer and the consumer, and boost local EV technology manufacturing?

What is a production linked-incentive?

A Production-Linked Incentive, or PLI scheme, provides incentives to companies in order to boost domestic manufacturing. This is done by the government in an effort to make products more competitively priced, reduce a country’s dependence on imports and generate employment.

Also Read: PLI scheme for automobile sector | How will it benefit the domestic industry?

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A PLI scheme has eligibility criteria, which in this case, happens to be global revenue from an OEM of Rs 10,000 crore and for an auto-component manufacturer Rs 500 crore. In addition to this, they must also have global investments of companies in fixed assets of Rs 3,000 crore (for OEMs) while the auto-component space needs a minimum of Rs 150 crore. The total amount of Rs 26,058 crore is half of what was earmarked for the auto sector last year and does not include internal combustion automobiles or CNG and LPG.

The incentives in this PLI, like most, are purely percentage based, with a maximum of 18% incentives to be offered by the government, based on the incremental turnover of a company. The idea is to promote the development of technologies that are currently lacking in India and can be availed simultaneously along with the Faster Adoption of Manufacturing of Electric Vehicles (FAME) scheme, PLI scheme for advanced chemistry cell (ACC) among others. With the EV supply and value chain apparatus yet to be fully built, a PLI of this scale can help with its rapid development.

How is it likely to benefit the EV space in India?

The scheme focuses specifically on EVs and Hydrogen fuel cell vehicles and their components. It’s divided into two separate schemes: Champion OEM Incentive Scheme and Champion Component Incentive Scheme. On the component front this includes hydrogen fuel components, flex fuel kits, high voltage connectors and connectors and cables, AC and DC charging inlet and outlet ports, electric motor components, electric compressor among the 22 products specified.

The inclusion of a PLI scheme of this magnitude, combined with existing schemes like FAME, multiple state subsidies and the ACC scheme provide a direct fiscal incentive for the brands and an indirect one in the form of investments that such a scheme is likely to invite. According to the government, it expects the PLI scheme to bring in investments of Rs 42,500 crore. Given that conventional carmakers have been excluded from the PLI entirely, it adds to a growing list of disincentives to invest in conventional power trains, even though they might still occupy most of the market share for the duration of this PLI.

Also Read: How the Auto PLI scheme will nudge the industry towards green vehicles

Given that the scheme is likely to create more employment (expected to create 750,000 jobs) in the EV, fuel cell manufacturer and component space, it’s likely to funnel more engineering and administrative talent towards EV start-ups and manufacturers looking to shift to EVs in a major way. The scheme would also make it more lucrative for companies like Tesla Motors, who have sought relaxations in the tax structure in the past, often citing it as a reason for their reluctance in entering the Indian market.

While schemes like FAME II and other state subsidies have sought to make it easier to purchase EVs and develop EV infrastructure, no scheme until now has focused on streamlining the supply chain. According to Sohinder Gill, Director General of the Society of Manufacturers of Electric Vehicles “the move will strengthen the manufacturing ecosystem and build a self-sustaining framework for the e-mobility industry”

Impediments

Gill also stated that while the scheme allows new entrants to avail the incentives, “most existing small and medium OEMs engaged in the EV automotive business and new startups may not be able to qualify for the scheme and will have to operate under the existing norms”

This is because the scheme has outlined an incremental turnover for OEMs of Rs 2,000 crore to qualify for a 13% incentive, with the incentive rate going all the way to 16%, should the turnover be more than Rs 4000 crore, over a period of 5 years. An additional 2% incentive will be availed only by those with an incremental turnover of Rs 10,000 crore or more. This is simply impossible for fledgling EV startups to achieve in the given timeframe, especially at a time when widespread adoption of EVs is yet to begin.

That said, it’s clear that India is looking considerably further ahead when setting up a PLI of this nature. A scheme like this will go a long way in strengthening India’s foundations as a manufacturer of zero-emission vehicles.
Parth Charan is a Mumbai-based writer who’s written extensively on cars for over seven years.
first published: Sep 17, 2021 12:22 pm

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