A minimum 50% domestic value addition (DVA) is a crucial requirement for companies to be eligible for subsidies under the scheme. The objective is to promote local manufacturing of new technology products like electric vehicles (EV) instead of relying on imports.
However, the formula for calculating DVA is based on the ex-factory price of vehicles, rather than the cost of production. This approach is resulting in a lower DVA score for companies selling vehicles at discounted prices, which are often below the production cost. As a result, reaching the 50% threshold becomes challenging.
So far, only Mahindra Last Mile Mobility has received a certificate of compliance for the PLI scheme for advanced automotive products.
The scheme has been in operation since April 2022, with approximately 95 companies admitted to the scheme. However, companies do not receive incentives until they obtain a certificate of compliance. Auto companies have urged the government to introduce a separate formula for calculating DVA based on the ex-factory cost in cases where vehicles are sold at a loss. They believe this approach would provide a more accurate representation of local value addition and assist them in meeting the 50% DVA requirement.
The challenge arises because most EV manufacturers are currently selling vehicles at a loss to remain competitive with traditional vehicle manufacturers and attract consumers.
The scheme has been active since April 2022, with approximately 95 companies admitted to it. However, companies will not receive incentives until they obtain a certificate of compliance.
Auto companies have requested the government to implement a separate formula for calculating DVA based on the ex-factory cost in situations where vehicles are sold at a loss. They argue that this approach would provide a more accurate representation of local value addition and help them meet the 50% DVA requirement.
The challenge exists because most EV manufacturers are currently selling vehicles at a loss to remain competitive with traditional vehicle manufacturers and attract consumers.
While individual companies have made representations to the government on this matter, the Society of Indian Automotive Manufacturers (SIAM) also wrote to the heavy industries secretary in May. A copy of this letter has been seen by ET.
“In the current context, where the costs of producing the vehicle are higher and greater than the ex-factory price – EVs being still in the innovation phase – the ex-factory cost is a more accurate reflection of the true domestic value addition,” the letter stated.
The calculation of DVA based on the ex-factory price results in an underestimation of the actual local value added, according to SIAM. “Therefore, we propose that the DVA% should be calculated based on the ex-factory cost in the event of a loss-making situation.”
The Ministry of Heavy Industries (MHI), which oversees this PLI scheme, did not provide a comment.
“The industry would greatly appreciate suitable adjustments being made to the DVA calculation mechanism,” said Saurabh Agarwal, partner at EY. “This would significantly strengthen the localization dynamics.”