Click it and Unblock the Notifications
Electric Two Wheeler Sales Dip Following FAME II Subsidy Reduction - Explained
The FAME subsidy is a significant initiative introduced by the Indian government to promote the adoption of electric mobility in the country. This subsidy program aims to incentivize the production and use of hybrid and electric vehicles (EVs) by providing financial support to manufacturers and buyers.
Now reports suggest that the decrease in FAME subsidy is causing a decline in the demand for electric two-wheelers. As a result, manufacturers will need to emphasise on using research and innovation to lower prices.
The sales outlook for two-wheelers, including electric ones, in the medium term is expected to be moderate and uncertain due to various influencing factors, according to the report.
CARE Ratings' report highlighted that the main categories of two-wheelers, particularly motorcycles in the 75 cc - 110 cc range and scooters in the 75 cc - 125 cc range, have experienced a significant drop in sales volume between FY19 and FY22, with a slight improvement observed in FY23.
The report noted that sales of electric two-wheelers experienced a notable decrease in the first quarter of FY24 due to the government's decision to withholdFAME subsidies for specific Original Equipment Manufacturers (OEMs).
Furthermore, the report indicated that the reduction in subsidies from Rs 15,000 to Rs 10,000 per kWh and from 40 to 15 per cent of the ex-factory price has contributed to the uncertainty in the sales of two-wheelers.
The report mentioned that electric two-wheeler manufacturers will need to emphasise lowering prices through research and development (R&D) and innovation, rather than relying on government subsidies.
The FAME subsidy scheme was introduced by the central government in April 2015 with a budget of Rs 75 crore to support electric vehicle sales. The scheme involved providing cash subsidies to Electric Vehicle (EV) dealers in order to reduce the overall cost of ownership.
Over the years, the budget for the scheme was progressively raised annually as the scheme was extended. By FY19, the budget had reached Rs 145 crore.
Starting in April 2020, the FAME II scheme replaced the earlier version, with a substantial budget increase to ₹10,000 crore. Originally planned for three years until March 31, 2022, the scheme's duration was extended in June 2021 for an additional two years, now lasting until March 31, 2024.
In June 2021, the government raised the subsidy for electric vehicles to Rs 15,000 per kWh from Rs 10,000 per kWh. Additionally, the maximum subsidy cap was increased from 20 per cent to 40 per cent of the vehicle's ex-factory price.
In addition to the incentives provided through the FAME scheme, different state governments also introduced their own benefits. These include subsidies based on the battery capacity per kWh, as well as discounts or full exemptions from road tax payments.
The electric two-wheeler sector, which played a significant role in the rapid increase of EV sales in India, is experiencing a slowdown due to the reduction of FAME II subsidies by the government this year.
CARE Ratings mentioned that due to the FAME II subsidy, which allowed for a subsidy of up to Rs 60,000, the total cost of electric two-wheelers reduced to a point where it became competitive with the prices of petrol-powered two-wheelers. As a result, demand surged in FY22 and FY23.
But the government decreased the subsidy to Rs10,000 per kWh with a maximum limit of 20 per cent of the ex-factory price, starting from June 1 of this year. This had an instant effect on the sales of electric two-wheelers.
At first, CARE Ratings predicted that the expansion in the two-wheeler sector would be powered by electric vehicles, even though the starting point was smaller when compared to vehicles using internal combustion engines.
Nevertheless, the decrease in FAME subsidy, which took effect on June 1, 2023, has restrained the earlier strong progress in this sector, as mentioned in the report.
Sudarshan Shreenivas, Director at CARE Ratings, mentioned that in the long run, advancements in technology will lower battery expenses, making electric two-wheelers competitively priced with ICE vehicles and will propel the sales of electric two-wheelers.
He stated that if the government effectively establishes interoperability standards for electric vehicle (EV) batteries, it could significantly boost the sales of electric two-wheelers. This is due to the convenience of replacing depleted batteries with fully charged ones at charging stations.
Thoughts On Demand Drop On Electric Two Wheelers Post FAME II Subsidy Reduction
The reduction in demand for electric two-wheelers following the decrease in FAME II subsidies is a clear reflection of the significant impact that government incentives have on the adoption of electric vehicles.
The initial surge in demand, fueled by attractive subsidies, highlighted the affordability of electric two-wheelers in comparison to traditional internal combustion engine vehicles. However, the reduction in subsidies has led to a noticeable drop in demand, indicating that affordability remains a crucial factor in consumers' decisions.
Continue with Google