Whalesbook
THE SEAMLESS LINK
The findings from the Centre for Digital Economy Policy Research (C-DEP) reveal a significant unintended consequence of India's auto Production Linked Incentive (PLI) scheme. While designed to accelerate domestic manufacturing and export competitiveness, the current framework is primarily driving scale for approved electric two-wheeler (e2W) makers, rerouting their cost advantages towards capturing domestic market share rather than fostering export-ready platforms.
The Cost-Advantage Conundrum
Approved PLI beneficiaries currently enjoy an estimated 13-16% cost advantage. This financial buffer has enabled them to pursue aggressive pricing and rapid capacity expansion within India. However, this has led to a stark market distortion. The C-DEP report highlights that innovation-led players, crucial for early market development and R&D investment, are being marginalized. This shift is evident in the performance of non-PLI e2W manufacturers, whose growth has dramatically contracted from a robust 407% in FY22 to a negative 33% in FY24 and a further decline to -11% in FY25. This suggests the scheme's incentives are not effectively translating into broader industry competitiveness or export strength, as intended.
Export Performance Disconnect and Competitive Shift
Despite the objective to enhance export capabilities, data indicates a significant divergence. Non-PLI models continue to drive the majority of India's e2W exports, accounting for 77% of the total volume, while PLI-approved models contribute less than a quarter, despite their cost advantages. This disparity raises concerns about India's long-term global standing in advanced clean mobility. Concurrently, the domestic competitive landscape has seen a dramatic realignment. Legacy manufacturers like TVS Motor and Bajaj Auto have consolidated their positions, leveraging extensive networks and after-sales support. TVS Motor, for instance, secured a 29% market share in the scooter segment during April-December 2025, up from 25% the previous year. Bajaj Auto's Chetak also demonstrated strong performance, claiming the number one spot in March 2025 sales with 25% market share and achieving 29% market share in Q4 FY25. Agile players like Ather Energy have shown considerable growth, surpassing Ola Electric in market capitalization and quarterly revenue by Q2 FY26, with its market share rising to 18.8% nationally by early 2026. In contrast, Ola Electric, once a market leader, saw its market share halve in 2025, dropping from over 35% in 2024 to 16.1% by year-end, and further to 5.87% by January 2026, grappling with operational challenges and customer service issues. Hero MotoCorp's Vida brand has also emerged as a notable volume player, experiencing substantial year-on-year growth. This dynamic suggests that while PLI beneficiaries are scaling production, the broader competitive environment is favoring established players and those focusing on product quality and service reliability, rather than solely cost-driven scale.
The Forensic Bear Case
The structure of the auto PLI scheme, with its emphasis on scale-based eligibility, inadvertently disadvantages innovation-driven companies heavily invested in R&D. These early-mover entities, which pioneered e2W technology and achieved high domestic value addition, risk being excluded from the scheme's benefits. This has led to a sharp contraction in sales growth for non-PLI players, from over 400% pre-scheme to negative growth post-rollout. C-DEP President Jaijit Bhattacharya warned that a policy framework solely focused on scale undermines the sector's long-term competitiveness and India's potential to lead in advanced clean mobility. Furthermore, the scheme's slow disbursement pace—only Rs 2,321.94 crore disbursed by December 2025 against a target of Rs 3,754 crore—raises questions about the efficiency of capital allocation and the timely realization of intended benefits. The risk of losing key traditional export markets, such as Nepal, parts of Latin America, and Africa, to Chinese EV manufacturers like Yadea and Sunra, is amplified as domestic non-PLI manufacturers struggle domestically and are less equipped to compete globally. The scheme has attracted substantial cumulative investment of Rs 35,657 crore by September 2025, and Rs 2,321.94 crore in incentives have been disbursed as of December 31, 2025, but the benefits appear unevenly distributed and not effectively channeled towards export competitiveness or fostering deep technological innovation among a wider base of manufacturers.
The Future Outlook
C-DEP recommends recalibrating the PLI scheme to address these distortions. Proposals include opening a targeted window for innovation-led OEMs demonstrating strong localization and suggesting a first-come-first-serve mechanism to prevent approval hoarding. Periodic performance reviews to exit non-performing beneficiaries are also advised, aiming to reallocate fiscal space more efficiently. Such adjustments are crucial to ensure the auto PLI scheme fosters both production scale and robust technological depth, thereby strengthening India's long-term position in the global electric mobility market.