Ford has withdrawn its application from the Centre’s production-linked incentive (PLI) scheme for the auto sector and is the poor profit-sharing math responsible for the American auto giant’s exit?
So, what is this profit math? This is something that shows how much profit a car manufacturer can make for every car it sells in India.
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| Ford Ecosport SUV is a popular car in India -- Source: Autos Maxabout. |
Ford’s move comes just after Tesla chose Indonesia over India to set up an auto manufacturing hub for electric vehicles (EVs).
This is despite India’s Union minister Nitin Gadkari assuring all help in setting up a Tesla manufacturing facility in India.
Ford was one of the first auto manufacturers that was given the go-ahead for the PLI scheme.
Now, the American giant will not use any of its existing facilities in the country — Maraimalai Nagar in Tamil Nadu and Sanand in Gujarat — to make cars again. The future of these plants is uncertain now.
Barely six months after it revealed that it will be shutting down its local manufacturing, Ford India said that it was contemplating using one of India’s plants to manufacture EVs for the export market. This, it wanted to do under the PLI scheme.
This central government scheme incentivizes the production of electric vehicles (EVs) and hydrogen fuel cell EVs (FCEVs) in India and Tata Motors, Maruti Suzuki, Hyundai along with Ford had got a green light to be a part of the scheme.
Why Ford dropped out
Ford is betting big on the EV space and production at the Maraimalai Nagar factory may not be feasible for the automaker in the long term, especially as it was looking to make this facility a place to manufacture cars for the global market.
Also, the Russian invasion of Ukraine and China lockdowns have led to skyrocketing costs. So, at this point, Ford may have put on hold its plan to go full throttle on EVs.
Earlier, there was buzz that the Maraimalai Nagar plant would be used for making cars while the Sanand facility would be sold to Tata Motors.
About profit-sharing math
Another big reason why not only Ford, but even other carmakers feel that India may not be the best place for car manufacturing is the profit factor.
Just a couple of days ago, an expert had revealed something that came as a shocker to even prospective car buyers. He gave an example to simplify a car company’s profit math.
According to him, when Toyota sells a Fortuner (worth Rs 40 lakh or Rs 40,00,000), for instance, the central and state governments make a whopping Rs 18 lakh (Rs 18,00,000) earnings.
The dealer gets around Rs 1 lakh (Rs 100,000) while the manufacturer makes only Rs 40,000 profit.
This is because of two factors — a goods and services tax (GST) component of 28 per cent and a GST cess of 22 per cent on the car price.
Conclusion
So, the Centre should immediately take steps to alter this profit-sharing math to make it in favour of auto firms or else we will see more exits from the likes of Ford and Tesla will also shun India by shelving any future plan.
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