FAME – The journey so far

With just 10 months remaining for FAME II Scheme, the government has announced a reduction in subsidy benefits for two-wheeled EVs to Rs 10,000/kWh from Rs 15,000/kWh, along with a revision of the cap on vehicle cost to 15% from 40% from 1^st June’2023. This move will significantly impact E2W prices.

India Electric Mobility Council (IEMC), an industry alliance focussed on E-mobility, is actively engaged with senior MHI officials to advocate a consistent, holistic and sustainable approach to faster adoption of E-Mobility. In this article, Gurusharan Dhillon (Director, E-Mobility at Customized Energy Solutions) takes stock of the progress of Faster Adoption and Manufacturing of Electric Vehicles (FAME) and gleans insights into the journey so far.

About FAME scheme

The scheme’s first phase began on 1 April 2015 and was extended till 31 March 2019. The second phase (Fame-2) commenced on April 1, 2019, for a period of three years, which was further extended for a period of two years up to March 31, 2024.

Demand incentive (example only for E2W) and total EV sales during FAME are as below:

Source: Vahan, MHI, CES Analysis

In June 2021, MHI, in an effort to accelerate demand for electric two-wheelers, increased the demand incentive from Rs 10,000/kWh to Rs 15,000/kWh, with the maximum cap increased from 20 per cent to 40 per cent of the cost of the EV.

Source: Vahan, MHI

The Ministry of Heavy Industries has now reduced the demand incentive from INR 15,000/kWh to INR 10,000/kWh and cut the incentive cap from 40% of an electric two-wheeler’s ex-factory price to 15%, bringing back the incentive amount to the same level as it was till May 2021.

Incentives to push EV penetration

Price is one of the important factors in influencing customer decisions in favour of an EV. ICE vehicles have had a head start of more than a century in optimizing production at scale and in building an ecosystem, allowing customers to buy and operate vehicles affordably and conveniently. Therefore, policymakers have introduced various EV incentives to compensate for ecosystem readiness, which can be clustered into three broad categories:

1. Sales price incentives (tax reduction or lump sum)

2. Ownership incentives (mostly reduction of motor vehicle tax)

3. Operations incentives (lower energy prices, reduced tolls, exclusive parking)

EV incentives in the EU and China

The European Union is the global frontrunner in the adoption of electric vehicles. Its member countries are responsible for more than a quarter of the world’s EV production. Purchase incentives for electric vehicles are currently available in 21 EU member states.    

                   Source: European Automobile Manufacturers Association

On the other hand, there is the example of China, which in the year 2023 officially ended its 13-year-long policy of subsidizing purchases of new energy vehicles (NEVs, pure and hybrid electric vehicles and fuel-cell EVs.). Car buyers, till 31/Dec/2023, could receive a one-off subsidy for buying a NEV as long as it conformed to certain eligibility criteria. The NEV subsidy plan was set to end in 2020, but authorities began cutting the subsidies far earlier.

Source: China Association of Automobile Manufacturers

The end of subsidies means that the sale of NEVs now depends exclusively on market factors. Concerningly, EV sales have dropped, with consumers waiting to sit on the sidelines.

The current situation in India

The Economic Survey 2022–23 says that by 2030, the Indian market for electric cars (EVs) will sell one million units per year and directly and indirectly create five million jobs. By 2030 the government plans to have EV sales penetration of 40% for buses, 30% for private cars, 70% for commercial vehicles, and 80% for two- and three-wheelers.

The future of mobility for India is at a critical point, and operationalizing a mass transition to electric mobility in our country of 1.3 billion people is not an easy task. A shift towards electric mobility is essential for India, considering the high amount of petroleum imports, its adverse impact on the trade balance, valuable foreign exchange and the environment. A holistic approach balancing factors like Supply Chain localisation, Charging Infrastructure, Policy, Financing etc, will help enhance the enabling ecosystem and support our EV adoption goal.

– Lithium-ion cells – India remains largely dependent on imported lithium-ion (Li-ion) cells owing to limited local manufacturing. Cells are the most critical part the of e-mobility value chain, and with large-scale manufacturing of LiBs, a significant cost reduction is envisaged with domestically manufactured batteries.

To fulfil the forecasted demand for LiBs, the government has set an ambitious target for battery manufacturing. It aims at setting up a cumulative 50 GWh of capacity for advanced chemistry cells (ACC) by 2024. However, the local Battery manufacturing ecosystem is scheduled to start production around 2025-2026, and in the interim, it is important to maintain the price parity of Battery till local commercial supply is stabilized.

– Charging infrastructure – A total of INR 1000 crore has been allocated under FAME II for the provision of EV charging stations. However, our availability of EV charging stations is comparably lower as compared to leading EV adoption markets (1 public EV charger per 154 vehicles as compared to 1 public EV charger for 6 to 20 vehicles globally).

The development of the electric mobility ecosystem in India may follow a different growth trajectory as compared to global EV markets. As reflected in our 2030 goal, the transition is expected to be driven by private two-wheelers and public three-wheelers, making battery swapping a significant business model for India as it reduces upfront EV costs and increases commercial run time.

EV Battery Swapping policy needs to be finalised on priority addressing crucial concerns like GST rate and simplification of the homologation process.

– Financing – Close to 77% of all vehicles are financed through banks and non-banking financial corporations (NBFCs), though this share varies across different segments. Banks and NBFCs currently hesitate to finance EVs due to product risk in addition to credit risk and the lack of a second-hand market for electric vehicles. There is a need to encourage Banks and Financing institutions to develop customized offerings to encourage EV adoption.

In conclusion

With the Government directive on reduction in Fame subsidy, or should we say reverting back to pre-June 2021 levels, it is with careful trepidation that I wait and watch how EV OEMs and EV customers respond to this change and how the market aligns itself to meet our 2030 mobility goals. With just 10 days to go for the reduced FAME II subsidy, the question on my mind is – Are EVs on a self-sustainable momentum with incentives only working as sweeteners incentivising purchase, or are they still playing a very important role in promoting EV adoption? As Bob Dylan famously sang, “The answer, my friend, is Blowin in the wind”!