Ola Electric's S1 Air e-scooters are pictured inside its manufacturing facility in Pochampalli in the southern state of Tamil Nadu.
Credit: Reuters Photo
The boom in electric two-wheeler sales in recent years has hit a speed bump this quarter after the government slashed the FAME II subsidy. The subsidy amount was lowered to Rs 10,000 per kWh compared to the earlier amount of Rs 15,000, with effect from June 1, 2023.
Various electric two-wheeler makers are trying to find a way around the slump by introducing lower priced models in their product line to attract a wider consumer base. This, after electric two-wheeler sales dropped from about 54,000 units in July to 46,000 units in June. The drop is starker when compared as May saw sales of a whopping 1.04 lakh units.
Ola recently launched its lowest priced e-scooter S1 X priced at Rs 79,999. Ather Energy also introduced three variants of its 450 e-scooter platform in different price segments, “enabling the brand to reach out to a much wider set of buyers” who are seeking an accessible price point, the company said in a written response without divulging further. The most affordable among them is the 450S model with a starting price of Rs 1.30 lakh, while it's top variant, the 450X (without the pro pack) is now priced at a revised Rs 1.45 lakh, up from Rs 1.15 lakh before the subsidy cut.
“Sales of electric two-wheelers significantly declined in Q1FY24 due to the government reducing FAME subsidies. A subsidy reduction to Rs. 10,000 per kWh (from Rs. 15,000/kWh) and 15% of the ex-factory price (from 40% earlier) further adds to the uncertainty in two-wheeler sales,” said a report by CareEdge earlier this week.
“FAME was one of the important aspects of creating demand. In July 2021, when the FAME amount was increased, there was a substantial growth in the sales volume of all the companies because the demand incentive was sufficient enough to take care of the price difference between an ICE vehicle and an EV,” said Saurabh Agarwal, partner and auto tax leader at EY India. However, almost all companies (except a few) saw a dip in sales this year after the subsidies were slashed, he added.
FAME was first introduced by the government in 2015 with a capital outlay of around Rs 895 crore to set up 427 charging stations and Rs 359 crore in subsidies for electric and hybrid vehicles. After the first phase ended in March 2019, FAME 2 was brought with a bigger allocation of Rs 10,000 crore for a period 3 years, with an emphasis on creating demand incentives.
The move was intended to not only build out charging infrastructure and an indigenous supply chain but also to nudge buyers towards the nascent market considering the entry point for owning EVs is substantially higher than internal combustion engine (ICE) vehicles.
“June and July were bad, but now we are back to our April numbers. People bought the vehicles in May because they realized that the subsidy is going to go away.” said Kapil Shelke, chief executive of Pune-based electric motorcycle manufacturer Tork Motors. However, sales have started to stabilise in August, as buyers understood the subsidy revision is here to stay, he added.
The company last week announced the addition of a new budget-friendly Urban trim on its Kratos-R electric motorcycle, keeping in mind the markup in prices after FAME-2 was slashed.
Going forward, vehicle manufacturers may have to rethink their business strategies to wean off dependence on subsidies to drive sales, industry experts believe, noting that companies will come up with lower end models to maintain demand.
“FAME can’t live for eternity. But it is required till the time the local supply chain is developed and the cost of manufacturing comes down. Since the localisation process is still on, FAME should continue for some more time. It’s required so that the manufacturers do not continue to sell the product at a loss just to penetrate the market,” Agarwal noted.
“Subsidies are there right now, but once the market is mature, there should not be a subsidy and everybody's planning for that day,” Shelke said. However, there are still clarifications that the industry requires to maintain growth momentum. For instance, charging services for two-wheelers should have a separate subsidy and DC fast chargers should have some level of incentivisation in the two and the three wheeler format so that it can reach customers directly, Shelke opined.