PLI Scheme for auto sector to promote electric vehicles needs a relook

The government should have a relook at its recently announced automobile PLI scheme. Consider this: We Indians predominantly travel on two wheels. Two-wheelers accounted for 81 per cent of the domestic automobile market in 2019-20. In fact, India is the world’s largest market for two-wheelers.

Domestic market share in 2019-20:

Passenger Vehicles: 13%

Commercial Vehicles: 3%

Three-wheelers: 3%

Two-wheelers: 81%

According to SIAM data, while the share of two-wheelers in the domestic automobile market in 2019-20 was 81%, passenger vehicles accounted for 13%, and three-wheelers and commercial vehicles 3% each.

So, if we were looking to shift our vehicle fleet to EVs anytime soon, electric two-wheelers would have to play a large role.

This is why it's bad news that the government's productivity-linked incentive scheme for the auto sector has little for pure-play electric two-wheeler firms, including start-ups.

Shortcomings in automobile PLI scheme:

The policy has left pure-play electric two-wheeler firms disappointed

The policy is structured only for the big players

The policy leaves start-ups out of its ambit

Only large auto firms or new entrants with financial muscle will benefit

In particular, executives from the companies concerned say that the policy, structured mainly for the big players, leaves start-ups out of its ambit.

They claim that the stiff criteria regarding annual revenues and fixed asset block for eligibility mean that the policy's benefits will only be enjoyed by large existing auto companies or a new entrant that has financial muscle.  

To be eligible as automotive champions, automobile OEMs must have a minimum revenue of 10,000 crore rupees with a fixed asset block of 3,000 crore rupees. Two-wheeler firms also have to invest 1,000 crore rupees in five years.

Two-wheeler EV firms ineligible for PLI scheme:

Hero Electric

Ather Energy

Okinawa Autotech

That leaves pure-play electric two-wheeler firms out in the cold.

For example, market leader Hero Electric, along with Ather Energy and Okinawa Autotech, is ineligible for the PLI scheme.

They will have to make do with just the FAME and state-led incentive schemes.  

Fame stands for "Faster Adoption and Manufacturing of Hybrid and Electric Vehicles", and is the name of a scheme whose first phase began in 2015.

According to sources, Ola Electric may be considered a "new player" under the PLI scheme. It has invested 2,400 crore rupees into the sector and has just launched its scooters.

Incentive slabs for Champion OEM and New Non-Automotive Investors

Let’s take a look at the incentive slabs for Champion OEM and New Non-Automotive Investors. Their determined sales value has to be Rs 2,000 to Rs 4,000. The incentives would be 13% to 16% of their determined sales value. A cumulative determined sales value of Rs 10,000 crore over 5 years would get another 2%. A minimum of 10% year-on-year growth has to be achieved in determined sales value to receive incentives.

For the cost-conscious Indian customer, two-wheelers will always be a viable mode of transport.

Consider the following...

Recently, Ola Electric said that it sold e-scooters worth over 1,100 crore rupees in just two days, during its sale of the Ola S1 and S1 Pro scooters.

The company said that this was unprecedented not just in the automobile industry, but also represented one of the highest sales in a day, by value, for a single product in Indian e-commerce history.

Clearly, there is demand for electric two-wheelers, and the government should keep that in mind while framing its policies.