Original gear companies (OEMs) will have to incur capex to the tune of Rs three.five lakh crore, exclusively for electric cars (EVs), in the subsequent 5 to seven years to meet the government’s vision of EVs constituting 30% cars on road in India by 2030.
This quantity is considerable as OEMs at the moment have a capex of about Rs 25,000 to Rs 30,000 crore per year in terms of enhancing their capacity for model launches and upgradation of current models, stated Brickworks Analytics (BWA) investigation.
OEMs will have to incur more capex of Rs 30,000 crore per year for EV capacity creation. It appears unlikely that OEMs will be capable to incur such considerable capex as the organization atmosphere has been badly hit due to the pandemic. Vehicle sales have been currently at their decadal low when the pandemic hit, and the sector is a single of the worst hit for the duration of the pandemic as effectively, BWA stated.
Cash accruals of OEMs have been badly impacted for the duration of FY20 and FY21, and will take a lot more time to return to pre-Covid levels. These two years of continuous slowdown and the subsequent capex currently incurred to meet the BSVI emission norms will restrict OEMs from committing considerable capex towards capacity creation for EVs and meeting the government’s vision of EVs constituting 30% of all round cars on road in India by 2030, it stated.
However, BWA expects bigger OEMs to take the inorganic development path and obtain smaller sized but specialised players in the EV space, specially in the comparatively decrease worth two-wheeler space.
Two-wheelers are the biggest segment in the Indian automotive market, representing 80% of Indian automotive sales. Owing to the vastness of this segment, it has a large prospective to market emission-free of charge mobility in the nation. Two-wheelers are anticipated to be a single of the early adopters of electrification. High car utilisation and straightforward property or workplace charging would drive the uptake in the two-wheeler segment, it stated.
In addition to the policies, tax incentives and subsidies provided by the government to encourage EVs, there is a need to have for upfront weighted deduction on capital expenditure, which can assistance OEMs plough back a lot more capital into expansion and technologies upgrades, BWA stated. The allocation of funds (capital outlay) in Union Budget 2020-21 was negligible at `700 crore and therefore, a great deal a lot more assistance is anticipated from the government.
The Union government desires to come up with a scheme equivalent to the technologies upgradation fund scheme (TUFS) in the textile sector, to assistance OEMs upgrade towards EV technologies.
The amended TUFS envisages interest reimbursement on the loans taken for technologies upgradation and offers a single-time capital investment subsidy of ten to 15% on eligible machines for distinct segments with a subsidy cap. Such a subsidy if proposed for the automobile sector will take away some burden from the OEMs and assistance them reach the EV vision, BWA stated.