Electric two-wheelers in India are set to get costlier from June 1, 2023 as the cap for the incentive has been brought down to 15 percent of the EV’s ex-factory price as against the 40 percent benefit extended earlier. That's a huge cut, which will naturally translate into higher vehicle prices.
- This comes at a time when EV 2W sales are declining month-on-month
- Most EVs will become more expensive by around Rs 25,000 to Rs 35,000
- Those who have invested in PLI schemes will not be impacted as much
FAME-II subsidy: a little history
Furthermore, as per the gazette notification issued on May 21, the Ministry of Heavy Industries has revised the FAME-II subsidy amount to Rs 10,000 per kWh as against the earlier amount of Rs 15,000 per kWh.
The three-year FAME-II scheme, for which the government earmarked an amount of Rs 10,000 crore, kicked in from April 1, 2019 and received a two-year extension in June 2021, thereby extending the effective period of the subsidy scheme up to March 31, 2024.
In June 2021, in an effort to accelerate demand for electric two-wheelers, MHI increased the demand incentive from Rs 10,000 per kWh to Rs 15,000 per kWh, with the maximum cap increasing from 20 percent to 40 percent of the cost of the EV. The government’s latest move rewinds the subsidy to even lower than what it was two years ago.
As per the FAME India dashboard, a total of 9,88,676 EV two-wheelers have been sold in India as of today (May 22, 2023). The FAME-II Scheme has outlined subsidy for 10 lakh EV two-wheelers, 5 lakh EV three-wheelers, 55,000 e-passenger vehicles and 7,090 electric buses. The two-wheeler segment is just 11,324 units shy of its target.
EV sales across vehicle segments hit a record high of over 1.17 million units in FY2023, of which the two-wheeler industry accounted for 61 percent (7,20,733 units).
Two-wheeled electric mobility to become dearer
As a result of this latest revision, all electric two-wheeler manufacturers that are eligible for the FAME-II subsidy will likely have to increase their product prices by approximately Rs 25,000-35,000. For instance, the subsidy amount available for the Ather 450X and the Ola S1 Pro currently range between Rs 55,000-60,000, and with the revised rates, the subsidy amount will be slashed by more than half.
This reduction in FAME-II subsidy comes at a time when the domestic electric two-wheeler market, which had surpassed 7,00,000-unit sales in FY23, is witnessing a month-on-month sales decline. Retail sales have dropped to 66,810 scooters in April 2023 compared to a monthly average of 75,000 units in the preceding quarter.
An Ola Electric spokesperson said, "No decision has been taken on the price hikes and the team will be meeting on Monday [May 22] to take into account an appropriate decision on the pricing in light of the renewed situation.”
Previously, Ola Electric CEO Bhavish Aggarwal had said that the company was bracing itself to live without subsidies. "Even if the subsidies are stopped, Ola has prepared itself to live in a world without subsidies, as we are developing technologies in-house and doing large-scale manufacturing from day one," he had said.
PLI Scheme to benefit some EV manufacturers
Industry analysts say this latest move may put some EV makers, who have invested under the government’s Production-Linked Incentive (PLI) Scheme, in a better competitive position compared to those who did not.
Raghunandhan NL, equity analyst at Nuvama Institutional Equities, told our sister publication Autocar Professional that this subsidy cut will impact the pace of EV penetration and increase vehicle prices. However, large players such as TVS, Bajaj, Hero MotoCorp and Ola Electric may offset part of subsidy loss through PLI scheme benefits.
“This would lead to better market share for these players, and loss of share for smaller players/start-ups who haven’t qualified for PLI scheme benefits. The reduction in pace of EV penetration may impact valuations for companies that benefit from EV transition,” added Raghunandhan.
With just a few days to go before the reduced FAME-II subsidy kicks in for electric two-wheelers, expect buyers to make a beeline for zero-emission scooters and motorcycles to avail the maximum benefits possible.
With inputs from Ketan Thakkar.
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