MHI considering raising budget for e-2 wheelers under FAME II scheme

May 18, 2023
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New Delhi, May 18, 2023: The Ministry of Heavy Industries (MHI) recently conducted stakeholder consultations with e-2 wheeler original equipment manufacturers (OEMs). The meeting, chaired by a senior official of the Ministry, covered various topics, including the issue of demand incentives for e-2 wheelers under the FAME II scheme.

The budget allocated for e-2 wheelers stands at Rs. 2000 crores, intended to support the production of 1 million e-2 wheelers. As the subsidy amount is nearly exhausted, most OEMs expressed the need to increase the scheme's budget while reducing the subsidy per vehicle. This would provide them with a longer-term assurance of government support, even if the demand incentive per vehicle is decreased.

Reliable sources indicate a consensus among the stakeholders that the demand incentive should be set at Rs. 10,000 per kilowatt-hour (KWh) of battery capacity, with a maximum limit of 15% of the ex-factory price. Additionally, it is reported that the Ministry is considering raising the scheme's budget for e-2 wheelers from the current Rs. 2000 crores.

Sohinder Gill CEO Hero Electric

Sohinder Gill , CEO Hero Electric

"MHI had already announced few months back that they are about to achieve their target of the 1 million sales in 4 years and subsidy may not continue thereafter. However Industry felt that it is too premature to withdraw subsidy as the E2W had hardly reached 4.9% adoption rate against a target of at least in 3 years and subsidies must be continued at least for 3 years before tapering off. In absence of any additional budget MHI was left with no choice but to either suddenly stop the subsidy or to somehow manage the rest of the year with greatly reducing the budget and drawing some unspent money from the E3W budget. On top of it there is no clear indication of FAME 3 support. The Industry also had no choice but to accept this else the subsidies would have finished instantly.

We feel this sharp reduction in the subsidy is going to hurt the market and the adoption of E2Ws may go down substantially. The premium bikes enjoying a subsidy of around Rs.60000 were having a dream run of sucking almost 80% of the subsidy in last few months because of near absence of start-ups/incumbents were nearly absent in the market due to their more than Rs.1200 Cr subsidy stuck. These premium bikes may now see the biggest decline because the reduction in their subsidy is also the highest. These OEMs may now rush to launch stripped down versions of their models to try and keep the market shares.

The ground reality is that the Indian market remains price-sensitive, and total cost of ownership is not firmly established in consumers' minds. With the majority of petrol two wheelers costing less than Rs.1 lacs there are less chances of consumer spending upwards of Rs.1.6 lacs factoring the total cost of ownership. A gradual transition with sustained subsidies would have been ideal to ensure market growth and reach the international benchmark of 20% EV market share. However, the sudden massive reduction of subsidy will likely lead to a major decline in sales, impacting the entire industry for a considerable period of time. In the larger context this may be a retrograde step leading to higher bill of crude oil imports and adding to the ever-increasing air pollution in most of the cities."

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