Riding FAME to higher EV adoption

By: |
June 15, 2021 6:00 AM

The changes to the scheme will bring down the cost of the vehicles; govt must now focus on getting home-charging right

The increased subsidy offered to two-wheelers is likely to bring down the cost of vehicles by 10% to 25%, though the numbers can vary depending upon variable parameters like battery capacity, cost of vehicles, etc.The increased subsidy offered to two-wheelers is likely to bring down the cost of vehicles by 10% to 25%, though the numbers can vary depending upon variable parameters like battery capacity, cost of vehicles, etc.

The increaseD subsidies and bulk tendering plans under Phase II of FAME (Faster Adoption and Manufacturing of EVs) scheme could be a gamechanger, bringing forward the electrification of automobiles in India by a few years. Notably, the demand incentive for two-wheelers has been raised to `15,000 per Kwh, a 50% increase, capping it at 40% of the cost of the vehicles (ex-showroom price to the customer). This brings down the cost of a vehicle—which ranges between Rs 80,000 and Rs 1.7 lakh—by at least 10%, incentivising demand.

In fact, the specifications, which have been viewed to be somewhat stringent, may not be such a bottleneck now; in a two-wheeler, for example, the minimum driving range needs to be 80km. Some manufacturers have complained about the high localisation level of about 40-50%, but the government is justified in pushing for indigenisation. Right now, the penetration of electric two-wheelers is low, at about 1.5%, but the expected drop in the price of batteries will help.

The PLI scheme for ACC batteries, with incentives amounting to Rs 18,100 crore, should encourage local manufacturing, critical for the ecosystem, since lithium-ion batteries account for 40-50% of the cost of the vehicle. The automobiles-PLI scheme—aimed at exports—too is expected to help manufacturers gain scale. Currently, the total cost of ownership—acquisition and running costs—for an electric two-wheeler, roughly at Rs 7.20/km, assuming a monthly usage of 500 km, is much higher than that for an ICE scooter (about Rs 5.7/km).

However, when the additional incentive of Rs 5,000/km is thrown in, the TCO falls to about Rs 6.50/km, narrowing the price differential. Indeed, commercial users, driving the vehicle for Rs 700/month, might find it worthwhile to switch to EVs since the TCO will now be more or less equal. What is critical now is the charging infrastructure, especially home-charging. India needs 4,000 charging stations and NITI is working to build the infrastructure.

The department of heavy industry (DoHI) has also said the state-owned Energy Efficiency Services Limited (EESL) will put out bulk tenders for 3 lakh electric three-wheelers, across user-segments. This should give manufacturers the confidence to set up large capacities and create economies of scale; over time, this would bring down the cost of production and products. More critically, manufacturers need to be encouraged to invest in R&D and develop technology indigenously.

Unless they are supported in the initial stages of manufacturing, with some assured offtake, companies would be hesitant to make sizeable investments. The DoHI also intends to encourage production of e-buses via a BOOT-kind of model; the advantage of such an approach is that smaller manufacturers can participate by roping in partners who can run the operations and collect the revenues as well as others who can provide the financing. This will address funding constraints of states.

The original allocation under FAME II, launched with much fanfare more than two years back, was Rs 10,000 crore but the incentive distributed so far is less than Rs 500 crore. In mid-2019, NITI Aayog’s steering committee on transformative mobility had suggested considering bans on ICE three-wheelers starting March 31, 2023, and on two-wheelers below 150cc by March 2025. At the time analysts had forecast that about 28% of automobiles—excluding CVs—would be electric and plug-in hybrid models by FY30, with scooters, three-wheelers and buses leading the way. Despite the pandemic, this timeline might be achieved or even beaten.

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