FAME 2 subsidy on electric 2Ws to reduce starting 1-Jun-2023

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The Ministry of Heavy Industries has issued a notification to modify the demand incentives applicable for electric 2Ws under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) II scheme. The changes (applicable from 1-June-2023) are as follows:

– Subsidy on electric 2Ws to be reduced from INR 15,000/kWh to INR 10,000/kWh of battery capacity
– Maximum subsidy capped at 15% of the ex-factory price of the vehicle, down from 40%

Notably, more than 7,79,000 high-speed electric 2Ws were sold in India in FY 22-23. The move by MHI will drive up the prices of electric 2Ws. It is expected that the prices of the most popular electric scooters will increase by INR 15,000 – INR 30,000 as a result. It will be interesting to see the industry’s course correction on account of these changes.

Dr Deb Mukherji, an automotive expert, feels that the new subsidy rules will help build a stronger EV ecosystem in the country. The industry is replete with all kinds of players, including the ones solely relying on imported CKDs, with hardly any technology or supply chain strengths. “Only serious players with the technology supply chain will sustain in the future”, notes Dr Mukherji.

“I see incumbent ICE players would come up with high-quality products. For them, this will be another product category alongside IC vehicles. Customers will get an option to buy an EV at a higher price band of INR 1-1.5 lakh as a result of subsidy reduction”, he adds.

Dr Mukherji feels that this subsidy reduction at this point will activate the industry to come up with innovative products and a strong supply chain. However, he advocates the need for the manufacturing PLI schemes to be expanded to include MSMEs, who form the backbone of the automotive industry.

Mr Venkat Rajaraman, CEO of Cygni Energy, anticipates that the subsidy reduction will prompt the electric 2W industry to move back to lower battery capacities. After the last FAME II amendment, the battery capacity in the electric vehicles got increased between 2 to 3kWh (on account of demand incentives at INR 15,000/kWh and a 40% cap of the vehicle price). This may fall back to lower capacity with this new notification. Mr Rajaraman also made the following additional observations:

– The EV companies may introduce new models to optimise on the subsidy amount for the end user. With the AIS-156 Rev3 guidelines for battery standards, the testing agencies are already choked. With this amendment, there may be further pressure on these agencies with additional vehicle models coming in for homologation.

– We will need additional testing agencies for battery verification and vehicle homologation. Currently, it is one of the big bottlenecks for the industry.