Home >Auto News >PLI scheme to help reduce cost of electric vehicles in long term

New Delhi: The production linked incentive (PLI) scheme, announced by the government to promote manufacturing and subsequently exports of advanced chemistry cell (ACC) batteries, will cut cost of lithium-ion batteries required for electric vehicles, said analysts at brokerage firm Motilal Oswal Instituional Equities in a note.

“Apart from the PLI benefit, lithium battery manufacturing was offered investment-linked income tax exemptions u/s 35AD and other indirect tax benefits in the July 2019 Budget. The PLI incentive, coupled with expected decline in lithium prices, would lower the cost of lithium cells to below USD70/Kwh within the next 4–5 years," said analysts.

They also said this scheme would drive a substantial reduction in the cost of batteries, which would prove critical in driving electrification.

According to the scheme, manufacturers would have to commit to set up a manufacturing facility of minimum capacity of 5 GWh and ensure a minimum 60% domestic value addition within five years at a ‘project’ level.

Subsequently, the battery or cell manufacturer will have to achieve a domestic value addition of 25% and will have to show a minimum investment of 225 crore per GWh, within two years and raise it to 60% domestic value addition within 5 years “either at Mother Unit, in-case of an integrated unit, or at the project level, in-case of "Hub & Spoke" structure". Indian government is eyeing direct investments of around 45000 crore from leading domestic and global manufacturers in the coming decade.

“While the interest in PLI for ACC batteries is expected to be high, the gradual electrification of autos may pose a risk for potential bidders from the demand perspective. In this context, a global player with tie-ups with OEMs and the capability to export would be better positioned to benefit from this PLI scheme," added the analysts.

They also mentioned that some representations have been made to the government to lower the eligibility criteria (net worth and minimum capacity requirement). If the minimum capacity requirements are, indeed, reduced from 5GW, then there is scope for existing battery makers to benefit by targeting industrial segments.

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