Two-wheeler stocks in red after Interim Budget skips FAME III, cuts FAME II outlay by 44%

To encourage EV adoption, auto industry insiders had also hoped for parity in Goods and Services Tax (GST) rates between EVs with fixed batteries and those with swappable ones.

Two-wheeler automobile stocks remained a mixed bag, with the majority trading lower after the government reduced the budget allocation for the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle (FAME) scheme by nearly 44 percent to Rs 2,671 crore for FY25, potentially hampering EV adoption in the country.

Shares of Bajaj Auto pared pre-budget gains of over 2 percent and were trading 0.1 percent higher at Rs 7,67. Hero Motocorp shares were down almost half a percent to Rs 4,605, while TVS Motor Company was trading at Rs 1,997, down 0.2 percent from the previous close. Eicher Motors was the only stock that remained unaffected after its January sales impressed investors.

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In FY24, the government allocated a revised estimate of nearly Rs 4,807 crore for FAME schemes, the government’s budget allocation document published on February 1 showed.

In the previous Budget, the allocation had seen a sizeable increase of 78 percent year-on-year. The 2023 allocation accounted for 85 percent of the total allocation made for the Ministry of Heavy Industries.

Before the FM's announcement, media reports had suggested that the Budget may set aside Rs 10,000-12,000 crore for FAME-III.

The reports quoted an anonymous ministry official who said that the focus of FAME-III would be on mass transport and personal mobility with two wheelers, while also encouraging the use of alternative fuels such as hydrogen-powered vehicles. The reports had suggested that the goverment planned to replace 8 lakh diesel buses with electric ones by 2030 including 2 lakh buses running for the state transport service. That is a massive increase from the 4,000 electric buses currently plying on the Indian roads.

A CNBC report had said that, under FAME-III, the ministry was considering a 50 percent domestic value addition (DVA) requirement and doing away with the phased manufacturing programme (PMP). The latter was conceived after various two-wheelers were found to have claimed PMP incentives despite using imported parts. These two wheelers were later fined for the violation.

Government sources had even said that two-wheeler makers may be exempted from the FAME scheme since they they were the largest beneficiaries of the scheme so far.

To encourage EV adoption, auto industry insiders had also hoped for parity in Goods and Services Tax (GST) rates between EVs sold with fixed batteries (taxed at 5 percent) and EV sold with swappable lithium-ion batteries (taxed at 18 percent).

Analysts had also recommended that import duty on lithium-ion battery cells be removed since the cells are not being manufactured in India now.