On 11th June 2021, the Ministry of Heavy Industries announced incentives for a few segments of electric vehicles by making an amendment to the FAME II scheme. This welcome move by the government has come at a very opportune time and will provide the much-needed impetus for the faster adoption of electric vehicles. The most far-reaching of these announcements pertain to the increase in incentives for electric two-wheelers (E-2Ws) from Rs 10,000/ kWh to Rs 15,000/ kWh with a cap at 40% of the cost of the vehicle. At a time of distress for the auto industry, this move comes as a beacon of hope and has the potential to revolutionise the nascent indigeneous E-2W industry in the country.
Notwithstanding the slowdown last year, the consumer sentiment in the E-2W segment has remained high, especially with the pandemic-induced consciousness towards sustainability and self-reliance. E-2Ws have lower maintenance and running costs, zero tailpipe emissions and a host of broader societal benefits including, but not limited to, reduction in import dependence on fossil fuels, provision of an investment mandate worth millions as well as an increase in job creation and upskilling prospects.
Despite the cognisance of such benefits, mass adoption has proved elusive. For a price-sensitive market like India, the high upfront cost differential with respect to internal combustion engine (ICE) two-wheelers has thus far hindered the translation of interest into sales. The battery pack currently constitutes 40-50% of the cost of an electric vehicle. With a 50% increase in subsidy per kWh, the Government is rightfully subsidising the most cost-critical component of the vehicle, while also cementing the idea that the range of electric vehicles is crucial. The announced changes to the incentive and subsidy regime can help significantly offset the upfront cost differential and act as a watershed moment for the industry, tipping the scales towards E-2W mainstreaming.
Launched in April 2019, FAME II set out an ambitious target to generate the sale of 1 million high-speed E-2Ws by March 2022. The pace of progress has, however, been rather sluggish. Only 27,224 and 25,735 such vehicles have been sold in 2019 and 2020 respectively. For the year 2020, that constitutes approximately 21% of the total registered EV sales but less than 0.2% of the total two-wheeler sales for the year. The sales under the scheme are even lower at just 31,813 units in the two-year period. The fact that the sales figures dipped by only about 5% despite widespread mobility restrictions on account of the pandemic offers more than a glimmer of hope. The announced amendments should galvanise the entire EV ecosystem and help assuage anxieties towards the switch to electric for both the customers as well as the manufacturers. The gap between the actual and targeted numbers should come down fast.
The increase in subsidy per kWh for E-2W also unambiguously reflects the Government’s commitment to prioritise the two-wheeler segment for electric transition and pivot India’s EV adoption strategy around it. At present, less than 5% of E-2W in the country are eligible for FAME II subsidies which mandate a minimum single-charge range of 80 kilometres and a minimum top speed of 40 km/hr, among other engine, price and localisation requirements.
The recent move has the potential to exponentially increase sales volumes for manufacturers and should thus act as a clarion call, nudging them towards producing high-quality, high-range E-2Ws to leverage the business opportunity afforded by the new subsidy regime. With predefined localisation levels a must for products to be eligible for subsidies under FAME II, the recent move should act as a fillip for domestic production. It should give wings to the country’s “Made in India” dreams by catalysing investments for component manufacturing and helping build an India-centred, globally competitive EV value chain.
The auto sector has undergone a rough period over the last year and a half or so. Reduced mobility in the lockdown precipitated a demand shortfall for nearly all vehicle segments and forced a reconsideration of our broader mobility imperatives.
Lockdowns improved air quality across various Indian cities and reiterated the need for a sustainable, inclusive and resilient mobility ecosystem. India’s post-COVID mobility future must foreground these learnings. The post-pandemic economic recovery needs focused and selective decision-making to bet on the right growth drivers. The newly announced measures make for an assertive first step in this direction. With the sectoral demand expected to pick up soon, the path is laid for India to usher in a shared, electric, autonomous and connected mobility future.
Yash Narain, Research Associate, Electric Mobility and Energy, Ola Mobility Institute
Shilpi Samantray, Senior Manager & Lead of Electric Mobility and Energy tracks, Ola Mobility Institute
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