You can install it directly to the studs, but if it is typical thin plywood paneling it is better to install it over drywall. The drywall will provide a great, and inexpensive backing that will stiffen the paneling and make it less likely to break if someone falls into the wall. I'd do a tape coat on the drywall but you wouldn't need to go as far as you would if you were painting the drywall. As far as wall coverings go, it is hard to get cheaper than drywall. I did see that OSB was down to $10 at Lowes over the weekend. Down from a pandemic high of $45.