Companies that loved Chinese goods have been excluded from the EV car PLI scheme

Even though relations between India and China have improved. China is India's largest trading partner, India remains very strict about Chinese imports in certain sectors. 

A recent report found that companies using Chinese components in their cars have been excluded from the PLI scheme. Significantly, only 6 out of every 46 cars manufactured in the country were found eligible for the PLI scheme.

According to a report in the Times of India, India's emerging electric car market is being overshadowed by Chinese imports. Indian EV car makers rely on the world's largest exporter for key components such as semiconductors, batteries, and magnets.

This suggests that only six out of every 46 electric vehicle (EV) models sold in India are eligible for benefits under the government's PLI scheme. 

The remaining 87 percent of EV models in India were disqualified for PLI because they contained imported content above the prescribed level, with most components from China.

According to the Ministry of Heavy Industries' PLI scheme for automobile companies and auto components, released in September 2021, vehicle manufacturers must meet a minimum 50% domestic value addition (DVA) and follow a phased manufacturing program similar to the FAME-II scheme. The government has provided exemptions on the import of battery cells, lowering the DVA cut-off to 40%.

Which 6 models got approval

According to TOI sources, the government has approved six models under the scheme, including five from Tata Motors and one from Mahindra. 

The source added that all other models sold in the market, including those from companies like JSW MG, BMW, Mercedes-Benz, Hyundai, Kia, Citroen, VinFast, Volvo, Tesla, and Audi, have more than 60% imported components. 

Electric vehicle models benefiting from the PLI scheme include the Tata Punch, Tata Nexon, and Tata Harrier SUVs, the Tata Tiago hatchback, and Tata Tigor sedan, as well as the Mahindra XEV9E. 

Tata's popular electric vehicle Curve and the Mahindra BE6 Green failed to meet the PLI's local value addition norms, while other models from these auto majors also did.

Why did the companies fail?

Officials from companies whose models were not included told the Times of India that meeting the DVA norms remains challenging at such an early stage of electric vehicle adoption. 

A top official from a leading European automaker told media reports that the local supply chain for EVs is still not as developed as it is in the internal combustion engine (ICE) category. 

"Moreover, with limited sales of eco-friendly vehicles, asking our supply chain partners to come to India is quite challenging and practically impractical."

What are EV makers importing?

EV makers in India import a variety of auto components from China and Taiwan, some of which are crucial for the smooth functioning of the industry. 

Citing a PwC study on the localization of the electric vehicle component supply chain in India, an industry official said these include lithium-ion battery cells; rare earth magnets; DC motors; laminated stators; semiconductor chips; printed circuit boards and electronic child parts, all of which are coming from China. The official added that connectors, contactors, relays and DC-DC converters also come from China and Taiwan.

The government launched the PLI scheme, recognizing the need to reduce supply chain volatility and promote localization in electric vehicle production. 

The PwC study emphasizes that a strong effort to build a capable local ecosystem through various government initiatives over the next few years, along with the need for EV OEMs to stabilize and control the ever-increasing expenditure on EV components, will drive localization of the EV supply chain in India. 

The PLI scheme aims to build 50 GWh of manufacturing capacity with 60% value addition over a period of 5 years. However, the pace of this capacity expansion may be slow due to the high investment required and the complexities involved in cell manufacturing.

What are the difficulties?

The study noted that localisation has always been a strong plus for India's automotive sector due to several inherent advantages, and added that global tensions and COVID-induced disruptions in the auto sector have further reinforced the need for the growth of strong local supply chains.

Localizing EV manufacturing in India is particularly challenging due to the nature of components, assembly lines, and infrastructure available in India. 

According to PwC estimates, at least 50-60% of the advanced chemical batteries, electric motors, power electronics, and software currently required for EVs are not available in India.

Why more dependence on China?

Most locally manufactured motors rely on Chinese components for auxiliary components, while local value addition is limited in brushless DC (BLDC) motors. 

While India must import rare earth magnets from China, other components such as laminated stators are also primarily Chinese imports. 

China and Taiwan control the majority of the global supply of electrical components such as connectors, contactors, relays, and DC-DC converters, which are crucial parts of EV high-voltage circuits.

Furthermore, black box assembly holds significant value in EV manufacturing, but it is difficult to localize without the support of tier-1 manufacturers or internal capabilities. 

India's auto sector is heavily dependent on Chinese imports, leading to instability and price increases in the industry. While the government is taking significant steps to promote the localization of EV production, the private sector can also play a vital role in making India an EV superpower through collaboration and investment.