Pure-play electric two-wheeler firms may fail to ride auto PLI scheme

The government's newly-minted productivity-linked incentive (PLI) scheme for the automotive sector has left pure-play electric two-wheeler firms, including start-ups, disappointed. The policy structured for the big players leaves start-ups out of its ambit, making it “non-inclusive", rued executives at these companies.

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

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. Two-wheeler players also have to invest Rs 1,000 crore in five years.

Pure-play electric two-wheeler companies, including market leader Hero Electric, Ather Energy, and Okinawa Autotech, are ineligible for the PLI and will have to make do with just the FAME (Faster Adoption and Manufacture of Electric Vehicle) 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 it. But they 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 past couple of years and trigger a wave of consolidation in the industry, pointed out Gill.

An executive at an e-two wheeler company agreed: “It's right that on the face of it, the revenue qualification criterion is way too high for any pure EV company to qualify for a while.”

The CEO of a leading only electric 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 it appears to be only for the big players”.    

The scheme mandates that the aforementioned investment be made by group company(ies) -- which it defines as two or more enterprises that directly or indirectly are in a position to exercise 26 per cent or more of voting rights in the other enterprise or appoint more than 50 per cent of members of the board of directors of the other enterprise as defined in the FDI Policy Circular of 2020.

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

Encouraged by demand, EV makers in India, including start-ups and conventional automakers, have committed over Rs 9,000 crore over the past year as they seek to ride on the opportunity thrown open by e-mobility.

Unsurprisingly, the maximum investment has gone into creating capacities for electric two-wheelers, followed by the rest.

Companies that should benefit from the auto PLI scheme are Bajaj Auto, TVS, and Hero Motocorp. But Bajaj Auto MD Rajiv Bajaj, when asked whether his company would 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 -- may be considered as 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 (which 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 can participate in the PLI, especially in the auto component space, supplying for both domestic and global OEMs, bringing in new entrants in the game, according to experts.

Saket Mehra, partner and auto sector leader in Grant Thornton Bharat, said: “What we will see is a disruption in the automobile market with many global OEMs coming to this area; this may turn 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. Harshvaardhan Sharma, auto retail practice head at Nomura Research, said: “The scheme -- with the promise of lucrative return -- may 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 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 has targets to serve 10 per cent of the world's requirement for components and services in EVs by 2025, has plans to manufacture an electric car for American start-up Fiskar.