FAME-II does not provide incentives to private car buyers unlike FAME-I, where buyers benefited from a direct subsidy of Rs 1.38 lakh
Two months after FAME-II, car manufacturers are now voicing their disappointment over certain exclusions in the second phase of the electric vehicle incentive scheme rolled out by the government.
FAME-II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) has been in force since the start of April. The scheme does not provide incentives to private car buyers, unlike FAME-I, where buyers benefited from a direct subsidy of Rs 1.38 lakh.
With a three-year budget totalling Rs 10,000 crore, FAME-II provides an even higher subsidy of Rs 1.5 lakh, but is limited to those buyers who want to put their electric car to commercial use.
This is also the first time the government made a differentiation in the vehicle's end-of-use for availing subsidy. Several countries have pledged to move to green mobility by a specified period, with state subsidies to buyers regardless of the vehicle's end-use.
The government’s decision to exclude private buyers is a setback for companies, who are in the final phase of launching electric and hybrid vehicles, as less than 10 percent of car buyers at present put their vehicles to commercial use. Maruti Suzuki, Tata Motors, Mahindra & Mahindra, among others are looking to launch EVs and hybrid cars in India.
Korean car maker Hyundai, which unveiled the Venue, is a few months away from launching its first fully EV Kona for the Indian market. The second largest car maker in India was even contemplating manufacturing the Kona electric in India.
Speaking to Moneycontrol, SS Kim, President and Managing Director, Hyundai Motor India, said, “The cost of manufacturing an electric vehicle is much higher than making those with an internal combustion engine because the battery cost is extremely high. To aggressively go after EVs and hybrids, government support is critical in promoting its sales.”
The share of car buyers that put their vehicle to commercial use has been on a decline for the last few years. From around 15-20 percent during its peak, their share has fallen to below eight percent as per estimates provided by car makers. The primary reason behind the fall is oversupply and falling incentives. These cars are put to use under Ola, Uber and other app-based and off-line taxi operators.
Venkatram Mamillapalle, Managing Director, Renault India, said, “Today, there is regulation in the form for FAME-II, but how well will it be accepted by the market (we don’t know). We have no clarity on whether it favour fleet or not favour fleet and will it be for everyone or only for manufacturers.”
Renault is one of world’s leading manufacturer of electric vehicles. Its ousted CEO Carlos Ghosn had talked about plans of introducing the Kwid electric in India after launching it in China. However, there is no guarantee of the launch now looking at the subsidy structure.
“We are talking to the government through SIAM and are getting positive feedback,” said another executive of one of the largest car manufacturing companies in India.AffordabilityWithout subsidies, consumers would struggle to afford EVs. State governments that offer different aid schemes to promote EVs have not discontinued their offers. Maharashtra, for instance, does not levy road tax and registration fees on EVs.
“Customer are not ready to buy EVs in today’s market. I can throw in an EV into the market, but it will not sell. That cannot be the strategy. The size and weight of the car plays an important factor in determining its price. We have to see how the business model emerges when EVs actually become a reality,” Mamillapalle added.
Another rider in FAME-II states that only those EVs priced under Rs 15 lakh can benefit from this subsidy. A majority of electric and hybrid cars will be priced above that limit given that their local manufacturing or assembly will take time.
A section of car makers believe that the Centre will come out with a revised FAME-II scheme after the new government assumes office in a few months.“Once the next government assumes office, FAME–II will undergo a revision with or without the intervention of NITI Aayog. The current scheme has been formulated in a hurry,” said a top ranking executive at a domestic car manufacturer.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.