New Delhi: India’s electric two wheeler (e2w) growth story has taken a turn. As the subsidy regime begins to unravel, OEMs now focus on launching cheaper models, with fewer features and a shorter range. From April 1, the purchase subsidy available on sale of e2w will be reduced further (second cut after the one done in June 2023) and even the new subsidy scheme is valid only for four months, throwing the industry into uncertainty. Is this uncertainty leading to innovation?
The e2w OEMs have to contend with lower financial support from the government in the next fiscal. They also have to face increasing competition from the petrol counterparts of the companies which have distribution and brand strength. These factors drive the e2w OEMs to launch products more affordable to prospective customers.
As subsidies become tough to be available for some OEMs in FY24, factories of some of the erstwhile market leaders have nearly been shuttered, said an industry observer. Monthly sales have dropped to a fraction of the numbers in last fiscal, and these OEMs maintain minimum production for past commitments on service and warranties.
The worst affected OEMs are those facing allegations of subsidy misappropriation. The government has stopped subsidies and asked them to return the disputed subsidy amount. Thus, FY25 starts on a sombre note for India’s e2w industry.
Subsidy arithmetic
The Electric Mobility Promotion Scheme 2024 (EMPS), applicable from April 1, requires vehicle manufacturers to get fresh vehicle certification, disqualifies four-wheelers and buses from availing subsidy and reduces the overall quantum of subsidy for two-wheelers. The scheme has an outlay of INR 500 crore for four months till July 31. About 3.72 lakh electric two and three-wheelers will be provided subsidy. Under EMPS, e2w are eligible for INR 5000 per kwH and the subsidy is capped at INR 10,000 per vehicle with the factory price of the vehicle not exceeding INR1.5 lakh.
Industry pain
Sohinder Gill, CEO of Hero Electric Vehicles, told ETAuto that for the e2w OEMs, “warning bells rang when subsidy was reduced from an average of INR 50,000-INR 60,000 to a maximum of INR 22,000. Again clear signals were given in early March that that subsidies would end after March 31, 2024. OEMs have managed inventories through attractive schemes and reduced production, anticipating the subsidy end on April 1. While inventory management is possible, EV adoption targets may have to be brought down for the next few years.”
Gill said six OEMs, which have been affected by subsidy cuts, have focused on affordable bikes and stand to benefit from reduced price pressures “compared to premium bike manufacturers. However, they may need capital support to manage working capital crises post-subsidy.”
So most popular electric two-wheeler brands are being sold at steep discounts, as inventory levels are high with dealers. But Gill said that this situation cannot last and prices may increase once subsidies are reduced or removed. “With a relatively small market size and customers still evaluating total cost of ownership, a sudden subsidy withdrawal could dampen electric vehicle adoption in the short to medium term,” he said.
At the ETAuto Conclave earlier, Sulajja Firodia Motwani, founder and chief executive of Kinetic Green, who also pitched for continued subsides, said that India began well on the EV trail, but has not half done yet. The overall EV penetration is low and demand creation within the electric vehicle space still remains as a challenge. “We need to ensure that the customer sees a benefit in buying EVs and it is certainly too early to withdraw any incentive,” she said. Motwani had given the example of several other countries where incentives continued till their penetration reached 25%.
However Ravi Bhatia, CEO and Director of global market research firm Jato Dynamics, said consumer pull, more choices and affordable products drive e2w growth. “The current EV penetration is at 4.8% for FY23-24 versus 4.25% in FY23 and 1.84% in FY 22. We believe the industry is on the verge of tipping point and despite some reduction in subsidies, there is underlying demand for electric two-wheelers.” Jato tracks 11 OEMs, 20 models and 43 unique variants.
Bhatia said that while old policies may be withdrawn, the government has been focusing on EVs to support the industry. “The government could move to offer lower cost financing for electric two-wheelers and four-wheelers…so the subsidy could be in e2w finance instead of manufactured goods.”
How fortunes turned
According to data put out by the Society of Manufacturers of Electric Vehicles (sourced from the government’s Vahan portal), Ola Electric remained market leader by far in FY24, accounting for nearly every third e2w sold. In the previous fiscal, Ola accounted for every fifth vehicle and in FY22, it accounted for just 6% of the market. The market share upheaval has also seen the fortunes of legacy players, Bajaj Auto and TVS Motor Co, revive. In FY24, Bajaj more than doubled share from 5% to 11% year on year.
TVS cornered nearly a fifth of the market from just 11% in FY23. Hero Electric, Okinawa and Ampere have seen their shares shrink dramatically in FY24, most likely due to the subsidy saga and government’s subsequent action. These three OEMs commanded more than a third of the market in FY23 but this fiscal, their combined share has fallen to 10%.
Way forward
As the purchase subsidies are expected to slowly wither away, experts suggest government handholding in different areas. Bhatia of Jato spoke about easier financing options.
And Rahul Mishra, Partner (Automotive Practice) at Kearney, said that the alternative to direct demand subsidies is the Production Linked Incentive (PLI) scheme announced by the government for various sectors, including automobiles. “The PLI scheme for Automotive is yet to fully achieve its objective for the year, in terms of the scale and number of companies they wanted to help. But a slow start in the Initial operationalisation of the scheme, checking for eligibility of companies, paperwork etc were expected. Also, the investigation on the earlier FAME scheme’s alleged misappropriation also slowed down industry last year. We must invest money on the supply side to assist the electric vehicle industry to build wherewithal and scale.”
