Re-auction Starts for 10 GWh Battery Cells PLI

India Re-auctions Battery PLI Incentives

Source and Citation: ET Bureau, The Economic Times. ‘Re-auction Starts for 10 GWh Battery Cells PLI.’ January 25, 2024.

Layman’s Analysis

India’s heavy industries ministry has launched a fresh round of bidding, termed a re-auction, to allocate a 20 Gigawatt Hour (GWh) production-linked incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery manufacturing. This move comes after earlier auctions saw lower-than-expected capacity bids.

The re-auction covers the allocation of 10 GWh, with another 10 GWh to be allotted separately. The scheme offers incentives of over Rs 3,600 crore to shortlisted firms for establishing battery factories locally. ACC batteries, advanced lithium-ion cells used commonly in electric vehicles and energy storage systems, play a crucial role in India’s shift towards sustainable mobility by securing reliable domestic supply chains.

Currently, India heavily depends on imports for components in the clean energy value chain. The success of public adoption of electric vehicles also depends on the economics of battery prices compared to traditional fuels.

In summary, the re-auction aims to attract greater private investment commitments for scaling India’s battery manufacturing capacities. The fiscal support provided over 5-10 years, linked to production milestones, is expected to boost the growth of the electric vehicle industry.

Re-auction Starts for 10 GWh Battery Cells PLI

Impact on Retail Investors

For stock investors, this development benefits alternative energy-linked stocks in areas such as electric vehicles, components, and metals extraction. Companies like Tata Motors, Amara Raja Batteries, and Coal India (for anode materials) stand to gain from enhanced domestic capacities, securing reliable future input supplies.

However, companies over-committing capital expenditures led by the PLI’s fiscal incentives may face financial risks if demand lags behind capacity investments. Investors should carefully analyze debt metrics and return ratios before reacting to capacity creation announcements.

Impact on Industries

The Rs 3,620 crore battery PLI scheme directly influences India’s electric mobility and associated manufacturing ecosystem, spanning areas from upstream metal/mineral extraction to downstream storage systems, battery swapping models, and EV original equipment.

Domestic sourcing security in the long run de-risks export ambitions, given global scrutiny on environmental compliance. Auto majors benefit from stabilizing input costs. However, ancillary industries around traditional combustion engines may face redundancies requiring reskilling interventions.

In the near term, services around battery waste management and recycling see a policy fillip, allowing new business creation as volumes rise. Grid management for renewable power integration also gains impetus with scaling up storage capacities.

Long Term Benefits and Negatives

In the 5-10 year horizon, achieving domestic ACC battery manufacturing sufficiency improves the stability of India’s electric mobility transition roadmap. It offsets geopolitical supply shock risks as global EV adoption simultaneously picks up pace.

This move allows India to position itself as an export hub in the component and lithium refining space leveraging competitive labor costs and specialized scientific talent pools.

However, excessive dependence on fiscal incentives risks asset stranding if underlying cell chemistry economics remain uncompetitive compared to imported counterparts. Viability without subsidies needs careful tracking to prevent a drain on public capital.

Short Term Benefits and Negatives

In the 1-3 year horizon before capacities stabilize, the PLI re-auction improves visibility for augmenting investments in critical ACC manufacturing, securing the ‘Make in India’ priority. Short term fiscal burden is well-countenanced.

However, these benefits hinge on the participation of technical players, not just crony loan defaulters misusing incentives. The litmus test lies in measuring genuine efficiencies created, as misplaced subsidies have shown before.

Broadly, this move aligns capital flows closer to strategic national priorities, securing self-sufficiency in emerging industries where global niches can be India’s competitive advantage. Execution remains key.

Potential Impacts of Re-auctioning 10 GWh Battery Cell PLI:

Indian Companies Likely to Gain:

  • Existing PLI Bidders: Companies like Reliance Industries, Ola Electric, and Mahindra & Mahindra, who bid in the first round but were not awarded the full capacity, have another chance to secure PLI support for their battery manufacturing plans. Increased capacity could accelerate their EV battery production and potentially boost market share.
  • Start-ups and New Entrants: Smaller companies and new entrants in the battery manufacturing space could participate in the re-auction, providing wider opportunities for domestic battery production and fostering competition.
  • Minerals and Mining Companies: Increased demand for lithium, cobalt, and other battery raw materials could benefit Indian companies exploring and mining these resources, like Hindustan Zinc and NALCO.
  • Renewable Energy Companies: Increased adoption of EVs and focus on domestic battery production could boost demand for renewable energy to power battery manufacturing facilities, benefiting companies like Tata Power, Adani Green Energy, and ReNew Power.

Indian Companies Potentially Impacted (Neutral/Mixed):

  • Traditional Auto Component Manufacturers: While the PLI scheme focuses on EV batteries, traditional auto component manufacturers might initially face slower growth as the automotive market transitions towards EVs.
  • Power Grid Companies: Increased demand for electricity from battery manufacturing facilities could put pressure on existing grid infrastructure, potentially requiring upgrades and investments by companies like Power Grid Corporation of India.

Global Companies Likely to Gain:

  • Technology and Equipment Providers: Global companies with expertise in battery manufacturing technology and equipment, like Siemens, ABB, and Panasonic, could benefit from increased demand for their solutions in India.
  • Raw Material Suppliers: Global companies with lithium, cobalt, and other battery raw material reserves could see increased demand from Indian manufacturers, potentially benefiting companies like Albemarle, Glencore, and Livent.

Global Companies Potentially Impacted (Neutral/Mixed):

  • Imported Battery Manufacturers: Increased domestic battery production might eventually reduce dependence on imported batteries, potentially impacting some global battery manufacturers’ market share in India.

Market Sentiment:

The re-auctioning of the 10 GWh Battery Cell PLI is likely to be viewed positively by the Indian market, particularly for companies involved in EVs, battery manufacturing, and renewable energy. The potential for accelerated domestic battery production and EV adoption could boost overall market sentiment. However, some traditional sectors like auto components and power might face short-term challenges during the transition. Global companies with relevant technology and resources could also benefit from this initiative.

Disclaimer: This analysis is based on limited information and should not be considered investment advice. Please conduct your own due diligence before making any investment decisions.

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