The Indian government is contemplating an extension of the FAME scheme to promote the adoption of electric vehicles, but a crucial aspect is undergoing scrutiny.
Subsidies for electric two-wheelers may cease, potentially resulting in a substantial 17-20% price hike. Industry experts, including Dr. Anshul Gupta, acknowledge the challenges this transition poses but foresee declining costs in the long run due to increased production volumes.
As reported on December 26, the government’s plan to extend the FAME scheme comes with a notable caveat. The anticipated extension does not encompass subsidies for electric two-wheelers.
The rationale behind this decision is that major e-two-wheeler manufacturers are deemed self-sufficient and, given limited resources, the government is reluctant to extend support to personal buyers capable of affording cars or two-wheelers.
Understanding the FAME Scheme:
The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME-India) Scheme was launched by the Indian government in 2011 under the National Mission on Electric Mobility. Initially approved for two years, the scheme has been extended multiple times, with the current iteration, FAME II, in effect until May 2024.
FAME II, with an outlay of INR 10,000 crore from FY20 to FY22, aims to accelerate the adoption of electric and hybrid vehicles by providing upfront incentives on purchases. Subsidies were reduced in May 2023, leading to a decline in demand incentives and an adjustment of the incentive cap.
The Immediate Impact and Recovery: Following the subsidy reduction, there was a notable slowdown in electric two-wheeler sales. However, the industry rebounded and is poised to conclude the year with record-breaking sales figures.
The Road Ahead Without FAME:
Managing Director of one of Electric Vehicles company, anticipates a potential price hike of 17 to 20 percent in electric two-wheelers if FAME subsidies are discontinued.
He notes that while this prospect poses a challenge, increased production volumes may lead to a gradual decline in the cost per unit over time. Gupta emphasizes the industry’s confidence in ongoing cost reduction, driven by robust demand and the advantages of economies of scale.
Under the existing FAME II guidelines, the government offers a subsidy of INR 10,000 per kWh of the battery, with a cap of up to 15 percent of the electric two-wheeler’s ex-factory price. Without subsidies, the cost per unit is expected to rise, impacting the overall market dynamics.
Drilling down into the numbers, an electric scooter with an ex-showroom price of INR 1 lakh, including subsidy benefits, may cost INR 1,15,000 without subsidies. For instance, the Ola S1 Pro, with an ex-showroom price of INR 1,47,499 (inclusive of FAME subsidy), could see an increase to INR 1,69,767 without subsidies. This scenario applies across various electric scooters.
