Beyond the boost to electric vehicles, car manufacturers are on the long term with the PLI program

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The government’s Production Incentive Program (PLI) for the automotive industry would accelerate the adoption of electric vehicles (EVs), but beyond that, Indian automakers would only benefit in the long run.

The total incentive of ??26,100 crore offered under the program is well below the amount originally planned ??57,000 crores. Indeed, gasoline, diesel and compressed natural gas (CNG) vehicles have been excluded, analysts said.

The consequence is that the challenges of rising costs, weak demand and semiconductor shortages facing original equipment manufacturers (OEMs) would persist.

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More wheels to run

The PLI program is clearly aimed at manufacturers who have invested or plan to invest in advanced automotive technologies, in particular electric vehicles. Part of it is also intended to achieve import substitution by encouraging local manufacturing.

“The government has laid a solid foundation for the rapid adoption of electric vehicles in India by offering attractive incentives to manufacturers and consumers,” analysts from Kotak Institutional Equities said in a note. The electric vehicle segment, particularly two-wheelers, may see rapid adoption over the coming years and incumbents will need to step up their efforts, they said.

Electric vehicles in the passenger vehicle segment can also benefit, although the incentives in this space are limited.

“The program is expected to help bring the breakeven point of the total cost of car ownership to around 30-35 km per day of driving, we estimate, now close to the 30 km per day of average car use in India,” Credit analysts said. Swiss.

However, since there is no subsidy for the adoption and faster manufacture of electric vehicles (Fame) for electric cars, unlike other vehicle segments such as two-wheelers, the PLI regime would help improve profitability but would not tilt it massively in favor of electric. as it does with two-wheelers, they said.

For original equipment manufacturers the incentive levels range from 13% to 16% of the average sale price and for suppliers they range from 8% to 11% for non-EV components and 13% to 16% for EV parts.

The main beneficiaries in the field of automotive components are mainly global multinational companies such as Bosch, Continental, Delphi Automotive and Denso Corporation, according to analysts.

Other domestic automotive auxiliaries such as Minda Industries, Endurance Technologies, Varroc Engineering and Schaeffler India can also benefit, they said.

However, analysts are of the opinion that existing two-wheeler OEMs in the conventional internal combustion engine segment could be negatively affected if the country rapidly adopts electric vehicles.

“For the historic two-wheeler OEMs Hero MotoCorp Ltd, Bajaj Auto Ltd and TVS Motor Company Ltd, we would remain cautious given the threat to margins, market shares and multiples of the inflection of electric vehicles in two-wheelers, ”Credit Suisse analysts said. .

In short, manufacturers who have invested in improving capabilities will come away with benefits. The PLI scheme imposes minimum investments that a company must make to be eligible for the scheme. Companies must pay between ??300 crore and ??2000 crore in the five year period beginning FY23 to obtain incentives.

This explains the rather moderate reaction of the actions of car manufacturers following the announcement of the device on Wednesday. The Nifty Auto index has gained 2% since the announcement.

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