Apart from promoting EVs, auto makers are in the long run with PLI scheme

total incentive ₹26,100 crore to be given under this scheme is much less than the originally stipulated plan ₹57,000 crores. This is because petrol, diesel and compressed natural gas (CNG) vehicles have been excluded, analysts pointed out.

As a result, original equipment manufacturers (OEMs) will continue to face the challenges of rising costs, weak demand and semiconductor shortages.

The PLI scheme is explicitly for manufacturers who have invested or are planning to invest in advanced automotive technologies, particularly EVs. Part of this is also to achieve import substitution by encouraging local manufacturing.

“The government has laid a strong foundation for rapid adoption of EVs in India by providing attractive incentives to both manufacturers and consumers,” analysts at Kotak Institutional Equities said in a note. The EV segment, especially two-wheelers, is likely to see rapid adoption. He said that in the coming years and office bearers will have to step up.

Electric vehicles may also benefit in the passenger vehicle segment, though incentives are limited in this segment.

Analysts at Credit said, “The scheme should help bring down the break-even to about 30-35 km per day of driving at the total cost of ownership of cars, which we estimate is now more than the average car ridership per day in India. It’s close to 30 km.” Suisse.

However, given that there is no rapid adoption and manufacturing subsidies for electric vehicles (FAME) for electric cars, unlike other vehicle segments such as two-wheelers, the PLI scheme will help improve economics, but it will be replaced with electric vehicles. Will not tilt in favor. As is the case with two-wheelers, he said.

For original equipment manufacturers, the incentive level ranges from 13% to 16% of the average selling price, and for suppliers, it ranges from 8% to 11% for non-EV components and 13% to 16% for EV parts. .

According to analysts, major beneficiaries in the auto component space are global multinational corporations such as Bosch, Continental, Delphi Automotive and Denso Corporation.

Other domestic auto subsidiaries such as Minda Industries, Endurance Technologies, Varoc Engineering and Schaeffler India may also benefit, he added.

However, analysts believe that the existing two-wheeler OEMs in the conventional internal combustion engine segment may be adversely affected in terms of rapid EV adoption in the country.

“For two-wheeler makers, Hero MotoCorp Ltd., Bajaj Auto Ltd. and TVS Motor Co. Ltd., we remain cautious given the threat to margins, market share and multiples from EV segmentation in two-wheelers,” said analysts at Credit Suisse. .

In short, manufacturers who have invested in increasing capacity will walk away with a profit. PLI scheme mandates the minimum investment that a company needs to make to be eligible for the scheme. Companies need to fork out somewhere in the middle ₹300 crore and ₹2,000 crore over a five-year period starting FY23 to get the incentive.

This explains the muted reaction of auto stocks after the plan was announced on Wednesday. The Nifty Auto Index has gained 2% since the announcement.