FAME II subsidies on electric two-wheelers reduced, prices set to rise from June 1

A lineup of Ola electric scooters. (Representative Image)

The government has decided to lower the incentive under the Faster Adoption and Manufacturing of Electric Vehicles in India (FAME) Phase II scheme. As a result of this, electric two-wheelers (E2Ws) are expected to become more expensive.

The Ministry of Heavy Industries (MHI) in its notification said it has reduced the 40 percent maximum incentive rate for electric two-wheelers to a cap of 15 percent. Additionally, it has been decided to lower the demand incentive from Rs 15,000 per kWh to Rs 10,000 per Kwh.

Amendments are made with effect from June 1, 2023, and would be applicable to all E2Ws registered on or after June 1 2023, the ministry stated in a Gazette statement.

Electric two-wheeler sales registrations in April were impacted amid worries of rollback on subsidy. The domestic electric vehicle (EV) industry saw the total two-wheeler numbers decline by nearly 23 percent to 66,468 units in April 2023 compared to about 86,000 registrations in March2023.

According to Society of Manufacturers of Electric Vehicles (SMEV), electric two-wheeler sales in India rose over two-and-half fold to 8,46,976 units in 2022-23 over the previous fiscal. Total sales of e-two-wheelers were at 3,27,900 units in 2021-22.

Also Read: Govt considers reducing subsidy for EV two-wheelers in FAME scheme

The government has taken the action on tax incentive rollback following reports that E2W manufacturers are being investigated for allegedly claiming FAME-II subsidies in violation of the minimum localization criteria. There are also allegations against companies like Ola Electric, Ather Energy, TVS Motor and Hero MotoCorp for allegedly keeping the prices of their vehicles lower by charging the vehicle's essential components, including charger and proprietary software, separately.

Following the announcement that incentives under FAME-II will be lowered, Kapil Shelke, Founder & CEO, TORK Motors, said, in order to achieve high levels of customer satisfaction, they have concentrated their efforts on offering their customers a wonderful product and ecosystem experience, and will continue to follow this course regardless of changes to the subsidy slab.

"The revised FAME-II subsidy slab by the government is a step in the direction taken by several nations as markets for EVs start to begin their maturing phase. While penetration of EVs are still much below the desired 10%, it will also allow for the manufacturing ecosystem to gear up for the new reality. For us at TORK Motors, we have focussed our efforts on providing our customers with a great product and ecosystem experience, to provide high levels of customer delight and satisfaction and will continue to stay on this path, irrespective of subsidy slab changes," said Shelke.

In a tweet, Ather Co-founder & CEO Tarun Mehta compared the EV market to a roller coaster.

We live in the most roller coaster of an industry

2019 - subsidy goes to 30K
2021 - subsidy goes ⏫ to 60K
2023 - subsidy goes to 22K

What goes up, must come down.
The industry must stand on its own feet very soon. https://t.co/jH39dUGmjB

— Tarun Mehta (@tarunsmehta) May 21, 2023

Sohinder Gill, Director General of the SMEV, a registered association representing Indian manufacturers of electric vehicles (EV), had already given a hint of the Heavy Industries Ministry not continuing subsidy any further.

Gill had said the ministry was left with no choice but to either suddenly stop the subsidy or somehow manage the rest of the year by greatly reducing the budget and drawing some unspent money from the E3W budget.

The head of the apex body of EV makers reacting on the reduced FAME-II subsidy for electric two-wheelers has said the reduction in incentives may result in a significant drop in EV adoption, affecting the entire sector for a period of time.

"The ground reality is that the Indian market remains price-sensitive, and the total cost of ownership is not firmly established in consumers' minds. With the majority of petrol two-wheelers costing less than Rs.1 lacs there are fewer chances of consumer spending upwards of Rs.1.5 lacs just factoring in the total cost of ownership. A gradual transition with sustained subsidies would have been ideal to ensure market growth and reach the international benchmark of 20% EV adoption (presently just 4.9%) before tapering off the subsidies to the customer. The sudden reduction of subsidy may lead to a major decline in EV adoption, impacting the entire industry for a considerable period of time. In the larger context, this may lead to higher bills of crude oil imports and adding to the ever-increasing air pollution in most of the Indian cities,” Gill said.

The FAME India initiative, which started on April 1, 2019, for a three-year term and was later extended for an additional two years through March 31, 2024, is intended to hasten the adoption and production of electric and hybrid vehicles. The second phase of FAME was extended as the purchase incentive scheme failed to reach the sales target.  The sales target for FAME II was set at 15.62 lakh EVs by March 2022, but only about half the targeted vehicles had been sold till February 2023. The outlay for FAME II was Rs 10,000 crore.

Also Read: E2W Subsidy Phase-out: Manufacturers will be forced to innovate and launch cheaper models

The overall cost of FAME Phase II, which offers incentives to consumers of electric vehicles and promotes their widespread adoption, is Rs 10,000 crore.

Also Read: Promoting EV Sales: FAME scheme targets need to be more realistic

As per the architecture of FAME II, the purchase support was made available to buyers as a subsidy and this amount was to be refunded to OEMs by the government.