Electric vehicle (EV) manufacturers say that the government’s decision to reduce the incentives granted under the FAME-II scheme for electric two-wheelers was inevitable and, in the long run, will encourage companies to improve their offerings and financial performance.

In May, the Ministry of Heavy Industries announced a reduction in the subsidy provided under FAME-II applicable to two-wheelers registered on or after June 1, 2023. The cap on incentives was reduced to 15 per cent from 40 per cent of the E2W’s ex-factory price. Additionally, the demand incentive provided to vehicles, aimed at reducing purchasing costs, has been decreased from ₹15,000 to ₹10,000 per kWh

Despite the fact that prominent electric two-wheeler (e2W) original equipment manufacturers (OEMs), including Ola, Ather Energy, Matter, TVS, and others, have resorted to hiking prices after the subsidy change, companies believe that the move to cut subsidies is aimed in a positive direction.

According to Bengaluru-based EV manufacturer River, although the initial response may lead to a decline in sales, they perceive this impact as transient, expecting the market to rectify itself in the near future. In May, e2W sales were recorded at 1,05,122, which dropped to 32,488 in June.

Also read: Centre likely to extend FAME-II scheme or retain some benefits: MHI

Ultimately, the goal for any OEM should be to achieve profitability without relying on subsidies, and that is precisely our objective. “The shift is certainly beneficial for the sector and for companies like ours that are focused on building technology,” notes Aravind Mani, Chief Executive Officer and co-founder of River.

As far as the impact is concerned, he said that only product prices have gone up. “The price will undoubtedly increase in line with industry trends; vehicle prices have increased from ₹15,000 to ₹30,000, and we lost a subsidy of nearly ₹40,000. Although we are not attempting to recover the full amount from the buyers, the prices will surely go up,” he added.

In February, River announced the price of its first e-scooter at an ex-showroom price of ₹1,25,000, with sales starting in August.

Simple Energy, which launched its EV in May, states that the FAME-II scheme subsidy is only a support given to the business and cannot be the foundation of the firm. Currently, the EV maker’s business model is independent of FAME-II scheme subsidies.

“We were always cost-conscious and have taken engineering measures and supply chain planning to be independent of FAME, and we keep on improving the product and process, which also includes the new products planned to improve margins and profitability,” said Suhas Rajkumar, Founder and CEO, Simple Energy.

Another EV player claims confidence in its product roadmap. “Our product roadmap is independent of any subsidy and is created based on the market dynamics and competitive positioning of our products,” said Dinkar Agrawal, Co-founder at Oben Electric. It currently offers its EVs for ₹1,49,999.

Also read: Investment and vehicle registrations dip in electric two-wheeler segment

Measures to boost ecosystem

Additionally, the ecosystem at large believes that regulatory measures targeted towards supporting cell manufacturing in the country and enhancing the charging infrastructure will bolster the EV ecosystem. “Such moves will bring cost parity for the consumer and less dependency on imports, reducing supply chain issues for the OEMs,” noted Agrawal.

Furthermore, although it is too early to comment on the price of the battery as it is dependent on various factors, localisation of cell manufacturing will certainly reduce the price.

Globally, a lot of innovations are taking place, including improvements in battery performance and the use of cheaper materials and processes to manufacture batteries. According to Anurag Singh, Managing Director, Primus Partners, “Looking at the technology pipeline, we expect the prices to come down and performance to go up every year for at least a decade.”

Moreover, the ecosystem would be greatly enhanced if the government intensified its efforts to curb import kits and expanded the availability of production-linked incentive (PLI) schemes, such as Advanced Chemistry Cell (ACC) Battery Storage, to include not only the major OEMs but also smaller players, said Mani.

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