New Delhi: The lowering of subsidy on electric two-wheelers (E2Ws) under the FAME-II (phase two of the Faster Adoption of Manufacturing of Electric Vehicles in India) scheme has the industry divided. While some stakeholders and experts have urged the government to relook at the decision, fearing it may significantly dent the demand for E2Ws, others have argued that this is a step in the right direction and will allow the manufacturing ecosystem to grow.
“Two-wheelers are very price sensitive. It was in any case difficult to sell an electric two-wheeler to a common man compared to an ICE [internal combustion engine] vehicle, but with subsidies and factoring of lower running costs, people were accepting E2Ws at prices of up to about Rs 1.3 lakh,” Sohinder Gill, global CEO of Hero Electric, told ThePrint.
He added: “But post-subsidy reduction, the prices of all E2Ws are going beyond 1.5 lakhs. So, how can anyone say that in the short term, it will be favourable to customer adoption. If there is a 20 per cent price increase, suddenly there will be a demand reduction.”
Under the modifications to the FAME-II scheme announced Sunday, for electric two-wheelers, the demand incentive will be Rs 10,000 per kilowatt-hour (kWh) from the current Rs 15,000 per kWh. The cap on incentives for electric two-wheelers will be 15 per cent of the ex-factory price of vehicles, down from the 40 per cent at present. The scheme with a total outlay of Rs 10,000 crore — of which Rs 2,000 crore was for two-wheelers, was launched on 1 April, 2019, and is to continue till 31 March, 2024.
Gill, who is also the director general at the Society of Manufacturers of Electric Vehicles (SMEV), added that people may, as a result, opt back for petrol vehicles, instead of electric vehicles.
Latest data from Federation of Automobile Dealers Associations (FADA) show that E2W sales in April 2023, stood at 66,466 units. For the previous financial year (2022-23), the sales were 7,26,748 units, as against sales of 2,52,541 units in 20221-22.
While industry sources told ThePrint that E2W prices are expected to rise by about Rs 25,000-Rs 30,000 because of the modifications to the subsidy rules, they said it is difficult to immediately peg the possible percentage dip in demand pf E2Ws because of this.
With the amendments — which will be in effect from 1 June — the upfront price differential of an E2W vis-a-vis an ICE vehicle is expected to increase materially, given the reduced subsidy benefits, Rohan Kanwar Gupta, vice president and sector head, corporate ratings at ICRA Limited, said in a statement.
“The payback period for a premium E2W, which had declined to about three years post amendments made to the FAME II guidelines in June 2021 [which included increase in demand incentive for electric two heelers from Rs 10,000 per kWh to Rs 15,000 per kWh and maximum cap hike from 20 per cent to 40 per cent of the cost of vehicles] would increase to about five years post the latest revision in FAME II benefits, in the scenario wherein the E2W manufacturers decide to completely pass on the subsidy reduction amount to the consumers in the form of price hikes,” said Gupta.
ThePrint reached ministry of heavy industries on email for comment on the move and the concerns surrounding it, but received no comment till the time of publication of this article. The copy will be updated once a comment is received.
Not everyone in the EV sector is, however, critical of the government’s subsidy slash, choosing to see it as an indication of the industry’s “maturing phase” and the likely boost to battery-swapping.
‘Market will not accept models above Rs 1.5 lakh’
Even as the total cost of ownership (TCO) for E2W remains favourable, aided by substantial savings on running costs, the lower subsidy benefits are likely to curtail the segment’s growth pace over the short term and would exert pressure on the cost structure of original equipment manufacturers (OEMs), Gupta added.
While Gill agreed that the industry believes that government subsidies can not go on forever, he felt there needs to be a mid-long-term plan, instead of “10 day, 15 day, or a one-month decision of removing subsidies”.
The Hero Electric CEO acknowledged that that there isn’t much that the government could have done at this point, given that the funds allocated under the scheme for E2W were exhausted, but added that the government should have kept a better eye on depleting funds and worked out a mechanism for gradual reduction of subsidies.
“This would have given time to the industry to work on relatively lower-priced models. For example, now people are running to redesign their models to create a low price point which will take at least one year or more. The market will not accept models above Rs 1.5 lakh so we need models that are priced lower,” Gill said.
The electric vehicle (EV) sector is still in its formative stages, Manish Raj Singhania, president, FADA, told ThePrint.
While it has demonstrated remarkable strides, with startups at the vanguard of product innovation and technological breakthroughs, it’s crucial to recognise the immense value of extending guidance and support for a few more years, a move that can substantively fortify the sector and equip it to thrive and expand independently in the future, he added.
“Premature withdrawal of subsidies could potentially instigate undesirable impacts on business prospects and consumer sentiment. It’s essential to acknowledge the unique character of the Indian market, which is particularly sensitive to price fluctuations. Currently, the EV segment has not achieved the level of maturity required to contest the cost of ownership associated with a conventional internal combustion engine (ICE) two-wheeler,” Singhania said.
He added that it was vital to sustain the subsidy programme for EVs, “which serves as a critical bridge to close the cost disparity and ensure market competitiveness. Doing so would facilitate the EV industry’s further evolution and broader acceptance, thereby fostering a more sustainable and environmentally conscious transportation ecosystem”.
Gill meanwhile applauded the government’s decision to reallocate an additional Rs. 1,500 crore under the FAME II scheme to the E2W segment from vehicle segments which were not seeing strong demand.
‘Phasing out subsidies a forward-looking move’
Kapil Shelke, founder and CEO, TORK Motors, in a statement Tuesday said that the revised subsidy slab “is a step in the direction taken by several nations as markets for EVs start to begin their maturing phase. While penetration of EVs is still much below the desired 10 per cent, it [the slash in subsidy] will also allow for the manufacturing ecosystem to gear up for the new reality.”
Echoing similar views, Nikhil Bhatia, co-founder & Chief Operating Officer of HOP Electric Mobility, said in a statement that there was a need to have a more pragmatic approach to the long-term advancement and sustenance of the electric vehicle segment.
“Phasing out the subsidies is a forward-looking move, and it’s time now that the dependence on subsidies is done-away-with gradually. Subsidies are no longer needed for the electric two-wheeler industry to thrive, and reducing and eventually removing FAME II subsidy is a welcome step in the right direction. It is time EV stands on its own and we are ready for it,” Bhatia said.
Another industry insider to welcome the lowering of subsidies was Sushant Kumar, founder, managing director, AMO Mobility, who argued in a statement that the industry’s progress should not solely depend on subsidies. He, however, added that policies need time to be absorbed properly by change-makers.
“EV manufacturers further have their distribution network, dealership network, sub-dealership network and a whole chain of vendors that need to adopt the changes. OEMs like us would only request the government to provide ample time to implement and adopt the policies, and measure the changes. The policy is welcome, but needs time to be adopted properly” Kumar added.
The reduction in subsidies, however, is expected to give a boost to the battery swapping industry in the country, which can help reduce battery costs for customers when buying a vehicle.
Battery swapping or battery as a service model (BaaS) allows EV owners to instantly exchange discharged vehicle batteries for charged one.
“It is imperative we take a holistic view of how the EV sector can grow post the reduction in FAME subsidy… it is clear that the electric vehicle ecosystem in India is growing rapidly and there is demand. While the immediate impact of subsidy reduction will be a rise in price and impact in sales, the government in a way is allowing the industry to become independent,” said Siddharth Kabra, co-founder & CEO, VoltUp, a battery-swapping platform.
Kabra added that this will give rise to infrastructure development for the sector and adoption of the BaaS model will gain prominence.
“Consumers will be able to save more when they opt for a subscription-based model…Moving away from the debate of subsidy reduction, the industry and the government should work towards creating a cohesive infrastructure development policy that provides impetus to the sector and helps in creating products that are efficient and cost-effective without compromising on quality and safety,” said Kabra.
Ankit Mittal, CEO and co-founder of Sheru, a B2B software platform that specialises in providing innovative solutions for the battery industry, said, “The reduction of subsidy will impact the EV two-wheeler sales in the short term. However, the move is expected to help boost the adoption of battery swapping in the country as it will help bring down costs for end consumers.”
Mittal added: “The government is moving from demand-based subsidy to production-based incentives, which I think will be beneficial in the long term. It will help build the EV manufacturing ecosystem in the country which will also help bring down costs. Currently, EVs are also expensive because a lot of components are imported.”
(Edited by Poulomi Banerjee)
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