The Central Government's decision to slash FAME subsidy for electric two wheelers will definitely retard the growth of the electric vehicle industry. Speaking exclusively to CNBC-TV18, Rakesh Sharma the Executive Director of Bajaj Auto said, "The announcement on subsidy reduction has been abrupt, and we will see a shock for over two to three months".
Sharma said that for Bajaj Auto, the restructuring of FAME will lead to a Rs 20,000 reduction in subsidy per scooter. The company is evaluating how to address this subsidy cut in vehicle pricing.
With the 2,000 crore allocation for electric two wheelers drawing to a close, the government has decided to allocate an additional 1,500 crores for electric two wheelers for FY24. But the increased allocation has come at a price.
In order to extend the FAME scheme till March'24, the government has reduced subsidy per scooter from 40 percent of vehicle cost to 15 percent of the vehicle cost. Several electric two wheeler makers had opposed the move and are likely to announce price hikes in the coming days.
"There are enough signals from the government that the FAME scheme is on its last legs. Therefore tempering down of incentives, which lead to tempering of growth rates are steps in the right direction. Breakneck growth in EV sales, with ambiguity skews decision making regarding capital investments. Many customers coming into the consumption cycle who are not strong enough to buy the products. This lead to dissatisfaction later as subsidies are not sustainable", said Sharma to CNBC-TV18.
The senior executive of Bajaj Auto said that the slowdown in growth will be seen for a few month after 1st June, 2023, when the new FAME structure comes into effect. After the first few months, we will see EV sales growing at a saner level, he said.
Bajaj Auto is looking to ramp up electric two wheeler production to 10,000 units per month in H1 and gradually take it to 15,000 units per month in the second half of the year. Sharma said that the electric vehicle industry will see consolidation in FY24, with some of the weaker players looking to sell a minority stake or exit the market.