In September 2021, the Government of India (GoI) launched the Production-Linked Incentive (PLI) Scheme for Auto and Auto-Component manufacturers which were focused on battery-related vehicles and fuels cells vehicles. Recently, GoI has released the qualified applicants of Auto and Auto-Component manufactured under the said scheme. Which companies will be part of this scheme, what is the target of the PLI scheme, and how this will benefit the Auto sector, let’s discuss this all in this article as we move ahead.
Automobile and Auto Components PLI Scheme:
- The PLI scheme for Automobile and Automobile components has managed to attract a proposed investment of Rs. 74,850 crores surpassing the target estimate of Rs. 42,500 crores for the next 5 years.
- The scheme will commence from FY22-FY23.
- Total companies which applied for the scheme were 115 out of which 95 companies have received approval. 5 OEM companies had applied for both schemes.
- The government was expecting investments of around Rs. 42,000 Cr. from these applicants, but now with such an overwhelming response by the manufacturers, the target has crossed the mark and has reached around Rs 75,000 Cr.
- Additional policies include the FAME-II scheme, PLI scheme for ACC battery, and policy initiatives for energy as a service, and battery swapping technology.
- Apart from Indian businesses approved applicants include business entities from the USA, Germany, Japan, Republic of Korea, Ireland, France, Belgium, Netherlands, UK, and Italy.
- The Scheme is divided into two parts: For Original Equipment Manufacturers (OEMs) and Component Manufacturers.
Champion OEM Incentive Scheme:
Original Equipment Manufacturers (OEMs) are those companies who manufacture vehicles by themselves. For these OEMs, the Government has announced Champion OEM Incentive Scheme. Details of this scheme are as follows:
- The government has approved 20 applicants under the Champion OEM Incentive Scheme.
- Approved applicants under the Champion OEM Incentive scheme have proposed an investment of Rs. 45,016 crores.
- This scheme is a ‘sales value linked’ scheme applicable for Battery Electric Vehicles and Hydrogen Fuel Cell vehicles. This scheme can be simply understood that incentives will be provided based on sales of the OEMs.
- Companies under this Champion OEM Scheme in 4 Wheelers category are Ashok Leyland Limited, Eicher Motors Limited, Ford India Private Limited, Hyundai Motor India Limited, Kia India Private Limited, PCA Automobiles India Private Limited, Pinnacle Mobility Solutions Private Limited, Suzuki Motor Gujarat Private Limited, Tata Motors Limited, and Mahindra & Mahindra Ltd.
- Companies under this Champion OEM Scheme in the 2&3 Wheelers category are Bajaj Auto Limited, Hero MotoCorp Ltd., Piaggio Vehicles Private Limited, and TVS Motor Company Limited.
- Companies under this Champion OEM Scheme in the New Non-Automotive Investor OEM category are Axis Clean Mobility Private Limited, Booma Innovative Transport Solutions Private Limited, Elest Private Limited, Hop Electric Manufacturing Private Limited, Ola Electric Technologies Private Limited, and Powerhaul Vehicle Private Limited.
Component Champion Incentive Scheme:
The second category of the PLI scheme is Component Champion Incentive Scheme which will be awarded to those companies which manufacture auto components. A few details of this scheme are:
- Out of the 92 auto component players who had applied for the PLI scheme, 75 players received approval from the government for incentives.
- Approved applicants under the Component Champion Incentive scheme have proposed an investment of Rs. 29,834 crores.
- BHEL and Ceat received approval for the new non-Automotive investor (Components). These companies are not generally in auto component manufacturing, but will now proceed with the same.
- Some common names of the companies under this scheme are Maruti Suzuki India Limited, Bharat Forge Limited, Hero MotoCorp Ltd., Bosch Limited, Cummins Technologies India Private Limited, Hero Cycles Limited, Lumax Auto Technologies Limited, Minda Industries Limited, Minda Corporation Limited, Sona BLW Precision Forgings Limited, Tube Investments Of India Limited, and others.
Benefits and Incentives:
i) For Champion OEM Incentive Scheme:
- An approved applicant will be beneficial for benefits for 5 consecutive FY where FY20 is being treated as a base year.
- The companies will be provided incentives based on some % of Determined Sales Value (DSV).
- If the DSV of the company is around 2,000 Cr., then the incentive for the OEM manufacturer will be 13%
- While if the DSV of the company is between Rs. 2,000 Cr. to Rs. 3,000 Cr., then the incentive for the company will be 14%, and if the DSV of the company is between Rs. 3,000 Cr. to Rs. 4,000 Cr., then the incentive for the company will be 15%.
- If the company’s Cumulative determined sales value is Rs. 10,000 crores over 5 years., then the incentive will be provided 2% additionally.
ii) For the Component Champion scheme:
- The companies will be provided incentives based on some % of Determined Sales Value (DSV).
- If the DSV of the company is around Rs. 250 Cr., then the incentive for the component manufacturer will be 8%
- While if the DSV of the company is between Rs. 250 Cr. to Rs. 500 Cr., then the incentive for the company will be 9%, and if the DSV of the company is between Rs. 500 Cr. to Rs. 750 Cr., then the incentive for the company will be 10%.
- If DSV is more than Rs. 750 Cr., then the inventive will be 11%
- If the company’s Cumulative determined sales value is over Rs. 1,250 crores over 5 years., then the incentive will be provided 2% additionally.
- Besides this, if the company is dedicated to battery electric vehicles and hydrogen fuel cells vehicles, then the company can also take the benefit of an additional 5% incentive.
Examples of the Incentive:
- Firstly we will look at the example of the Champion OEM Incentive Scheme (Example 1) were in Year 1 if the company is having DSV of Rs. 200 Cr., and the eligible sales value is Rs. 300 Cr., then the company will get the incentive of Rs. 26 Cr. as 13% incentive scheme. Then in the next year, the company earns an incentive of Rs. 195 Cr. for the sales of Rs. 1,600 Cr.
- In Year 3, where the company sales value is Rs. 3,000, hence the company earns an incentive of Rs. 260 Cr. for the 13% incentive scheme as well as Rs. 126 Cr. under the 14% scheme.
- Over the years, as the company falls under the respective slab rate of incentive scheme, the company is awarded benefits accordingly.
- But if we see example 3, then we will see in Year 3 the company is not awarded with any incentive as it falls to expected DSV where the reason is that the Government has established a certain threshold value for each year.
- The threshold value for each year is provided in example 4.
What Should Investors Do?
The overachievement of the target of the PLI Scheme from around Rs. 42,000 Cr. to Rs. 75,000 Cr. is an indication of the great sign of the success of the Auto PLI scheme. Many existing auto and auto components companies have been approved for the scheme as well as there are some new entrants have also made their entry into this scheme.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.
Originally Published On: https://blog.investyadnya.in/how-pli-scheme-is-beneficial-for-auto-sector/
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