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Auto sector disruptor PLI scheme to re-energise incumbents, charge up new players
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SME Times News Bureau | 19 Sep, 2021
Government's productivity linked incentive (PLI) scheme for auto and
auto component industry is set to disrupt the industry in a big way
pushing existing large players to open their game plan on electric
vehicles (EV) and vehicles made using newer technologies while also
bringing in several newer players into the fray competing for a share of
expanded market.
Sources indicated that large auto players such
as Hyundai, Tata Motors, Maruti Suzuki have already started studying
their production plan keeping in mind the PLI scheme. Several smaller
players and the startups, who have just recently begun their journey in
the EV space, have also begun discussions to push up production in line
with the PLI scheme.
"Government support for newer technologies
and EVs will continue. Post FAME II and PMP, PLI will further unleash
the potential for EVs in 2 and 3 wheelers. PVs and CVs will have to wait
till they attain viability from a Total Cost of Ownership (TCO)
perspective. Automotive component companies to see further improvement
in cost competitiveness and will help position India as an export hub,"
said Hemal Thakkar, Director, CRISIL Research.
Another analysis
done by Kotak Institutional Equities that the PLI scheme would see rapid
adoption by the EV segment, especially two-wheelers and incumbents will
have to step up. For auto component manufacturers, the government will
provide incentives in the range of 8-13 per cent with additional 5 per
cent incentive for manufacturers of battery cell and hydrogen fuel cell
components.
"Key beneficiaries in the auto component space will
be mostly global MNCs such as Bosch, Continental, Delphi Automotive,
Denso Corporation. In our coverage universe, Minda Industries, Endurance
Technologies, Varroc Engineering and Schaeffler India can benefit from
this scheme," the brokerage said.
The commercial vehicle segment
is also steering the opportunity offered under PLI scheme with
interest. "As a leading manufacturer and exporter of commercial
vehicles, as well as a front runner in technology since inception,
Daimler India Commercial Vehicles welcomes the opportunities offered by
the newly announced PLI scheme. This initiative will encourage
investment in vital technologies related to sustainability, carbon
neutrality and more." said Satyakam Arya, Managing Director & CEO,
Daimler India Commercial Vehicles (DICV).
Auto is one of the most
important sectors contributing to 7.1 per cent of our GDP and employs
about 37 million people directly and indirectly. The sector has been
under stress even before CO and then subsequently has been hit hard due
to chip shortage. As per a CRISIL overall capacity utilisation rate at
the four-wheeler makers dropped to 50-55 per cent at the end of FY21
from 70-75 per cent in FY19. The future of the industry would be driven
by new technologies and it is here that PLI pushed manufacturing would
come to aid.
"This PLI scheme was much awaited and will help in
boosting production of new age vehicles which are more clean and
environment friendly. It will also help in boosting additional capacity
for safety related high tech components which is very critical given the
high number of road accidents in the country," said Rajeev Singh,
Partner and Automotive Leader, Deloitte India.
The government on
Wednesday approved the PLI scheme for the auto industry with an outlay
of Rs 26,400 crore which has been slashed from the initial outlay of Rs
57,000 crore. The current PLI scheme is targeted to enable India to
leapfrog to EVs and incentivize emergence of an advanced automotive
technologies supply chain in India. The PLI scheme for the auto sector
is open to existing automotive companies as well as new investors who
are currently not in the automobile or auto component manufacturing
business.
The scheme has two components, viz. Champion OEM
Incentive Scheme -- 'sales value linked' scheme, applicable on BEVs and
hydrogen fuel cell vehicles of all segments, and Component Champion
Incentive Scheme - 'sales value linked' scheme, applicable on advanced
automotive technology components of 2-wheelers, 3-wheelers, passenger
vehicles, commercial vehicles and tractors.
The scheme will be
effective from FY2023 for five years and the base year for eligibility
criteria would be FY2020. A total of 10 OEMs, 50 auto component makers
and five new non-automotive investors will benefit from the scheme. To
avail the scheme, OEMs should have a minimum of Rs 10,000 crore in
revenue and Rs 3,000 crore bn investment in fixed assets, auto component
makers should have minimum revenue of Rs 500 crore and Rs 150 crore
investment in fixed assets.
New non-automotive investors must
have a global net worth of Rs 1,000 and a clear business plan for
investment in advanced automotive technologies to be eligible under the
PLI scheme. Incentives under the auto PLI scheme will range from 8-13
per cent, with additional 5 per cent incentive for electric and hydrogen
fuel cell vehicles.
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