On December 26, the Economic Times reported that the government is planning to extend the FAME scheme next year as well. However, the devil was in the detail. As earlier reported also, the government is, though the, not planning to extend FAME subsidies for electric two-wheelers. The reasoning for the same is that the government thinks that major e-two wheeler makers do not now require govt support. Also since resources are limited, the govt is not willing to extend support to personal buyers who can afford cars or two-wheelers.So supposing there’s no FAME subsidy next year, how costly will electric two wheelers be?
About FAME scheme:
The Indian government launched the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME-India) Scheme, under National Mission on Electric Mobility in 2011/ National Electric Mobility Mission Plan 2020, in 2013. The First Phase of the scheme was initially approved for a period of 2 years, commencing from 1st April, 2015. The scheme has been extended from time to time till 2019. Later, the government brought the second iteration of the scheme, FAME II, from 2019 which has been extended till May 2024.FAME II, which had an outlay of INR 10,000 crore from FY20 to FY22, meant to “encourage Faster adoption of Electric and hybrid vehicle by way of offering upfront Incentive on purchase of Electric vehicles”.
The govt later reduced subsidies in May 2023. The demand incentive per kWh was reduced to INR 10,000 from the previous INR 15,000, while the incentive cap was scaled down from 40% to 15% of the E2W’s ex-factory price.
In the immediate aftermath, there was a significant slowdown of sales of electric two wheelers after the subsidy cut. However, the industry recovered and is infact poised to end the year with record sales figures.
But the big question is that can the industry maintain its sales figures once the subsidies reduced to zero.
Road ahead without FAME
According to Dr Anshul Gupta, Managing Director, Okaya Electric Vehicles, ending subsidies could result in hike of about 17 to 20 percent in the prices of electric two wheelers.
“The looming prospect of FAME subsidy removal could exert a significant impact, potentially resulting in a 17 to 20% uptick in the cost of electric scooters,” Gupta told ET Online.
To give you a perspective, under the current FAME II guidelines, govt offers subsidy of INR 10,000 per kWh of battery with cap of up to 15 percent of the cost of an electric two wheeler’s ex-factory price.
Assume an electric scooter has ex-showroom price of INR 1 lakh including the subsidy benefits. Then if we account for the scooter’s 15 percent value (INR 15,000) and the cap of INR 10,000 subsidy per kWh of battery, the the EV would cost INR 1,15,000 without subsidies.
For instance, Ola S1 Pro has ex-showroom price of INR 1,47,499 inclusive of FAME subsidy of INR 22,268. So, without subsidy, the S1 Pro will cost 1,69,767. The same goes for other electric scooters.
However, note that many states do offer additional subsidies as well.
Dr Anshul Gupta of Okaya Electric also feels that the cost per unit will decline over time due to economies of scale. “With increased production volumes, there is an inherent tendency for the cost per unit to decline. Despite this challenge, our industry stakeholders express confidence in an ongoing reduction in costs over time, driven by robust demand and the benefits of economies of scale. Looking ahead, our evolving landscape maintains an optimistic outlook, envisioning a gradual decline in electric scooter prices as the market matures and technological advancements further refine production processes,” he added.
