PLI for auto sector non-inclusive, say pure-play e-two wheeler makers

The government’s new productivity linked incentive (PLI) scheme for the automotive sector has miffed the pure e-two-wheeler firms including startups. The policy structured for the big players, leaves the startups out of its ambit making it “non-inclusive,” rued officials at these companies.

The stiff criterion on annual revenues and fixed asset block for the eligibility means, only large existing auto companies or a new entrant with a financial muscle will benefit.

Automobile original equipment manufacturers (OEMs) must have a minimum revenue of Rs 10,000 crore with a fixed asset block of Rs 3,000 crore to be eligible as automotive champions. The two wheeler players also have to make an investment of Rs 1000 crore in the five years.

All the pure play electric two-wheeler companies including market leader, Hero Electric, Ather Energy, Okinawa Autotech, among others, are ineligible for the PLI and will have to make do just with the FAME (faster adoption and manufacture of electric vehicles) schemes and state-led incentive schemes.

“The scheme is very large-scale and investment-oriented. None of the existing pure e-two-wheeler makers will qualify. But the e-two-wheeler firms will benefit from the ecosystem that gets created,” said Sohinder Gill, Director General, Society of Manufacturers of Electric Vehicles (SMEV).

This will also weed out several small regional players that have cropped up in the last couple of years and trigger a wave of consolidation in the industry, pointed out Gill.

An executive at an e-two-wheeler company who did not want to be named agreed. “It’s right that on the face of it, the revenue qualification criteria is way too high for any pure EV company to qualify for a while.”

A CEO of a leading only e-two wheeler firm said the company has to “see the fine print but the eligibility criterion is far too high and it is not going to promote the ecosystem. It should have been more inclusive, at the moment as it looks it for the big players”.

The scheme mandates that aforementioned investment be made by Group Company(ies) which it defines as two or more enterprises which, directly or indirectly, are in a position to exercise twenty-six percent or more of voting rights in the other enterprise or appoint more than fifty percent of members of Board of Directors in the other enterprise as defined in the FDI Policy Circular of 2020).

It isn’t clear whether companies like Ather Energy in which Hero Motorcorp has a 30 per cent stake can become eligible by adding their revenues. “Question is if both of them apply based on precedents in the PLI for mobile devices only one of them will be made eligible. There is no clarity on this,” says an auto company executive.

Encouraged by the demand, EV makers in India including start-ups and conventional automakers have committed over Rs9,000 crore in the past one year as they seek to ride on the opportunity thrown open by e-mobility.

Not surprisingly, the maximum investment has gone into creating capacities for the electric two-wheeler, followed by the rest.

The companies that will benefit are Bajaj Auto, TVS and Hero Motocorp. But Bajaj Auto MD Rajiv Bajaj when asked whether they will avail the PLI merely said: “We are yet to study it.”

According to sources Ola Electric, which has invested Rs 2,400 crore and has just launched its scooters, might be considered a “new player” under the PLI eligibility scheme, though the company declined to comment on the issue. The PLI scheme envisages that new auto players (who are not in the business) will require a net worth of Rs 1,000 crore and commit an investment of Rs 2,000 crore.

Meanwhile, leading global electronics contract manufacturers like Wistron, Pegatron and Foxconn could participate in the PLI especially in the auto component space-supplying both for domestic as well as global OEMs bringing in new entrants in the game say experts.

Says Saket Mehra partner and auto sector leader in Grant Thornton Bharat: “What we will see is disruption in the automobile market with many global ODM players coming into this area and could make India into a global hub for exports. The policy is clearly geared to support the big players ”

Others also see new tech companies taking the plunge. Says Harshvaardhan Sharma auto retail practice head in Nomura Research : “The scheme with the promise of lucrative return could see the entry of non auto technology companies that have built their application programming interface to entire the market”

David Shen president of Wistron Smart Devices in a recent interview said that the company will be exploring opportunities in the electric vehicle space in India with its Indian partner Globally Wistron. Wistron has been supplying electronics components to vehicle makers like NIO in China and is now in talks with Japanese OEMs. It has already taken advantage of the PLI scheme for making mobile devices for Apple Inc.

Pegatron for instance is already supplying components to Tesla. Foxconn which is aiming to produce 10 per cent of the world’s requirement for components and services in EVs by 2025, has plans to manufacture an electric car for US start up Fiskar.