The recent announcement by the Ministry of Heavy Industries in India states the incentive cap for electric two-wheelers will be reduced from 40 percent to 15 percent of the ex-factory price starting from June 1, 2023. Electric two-wheelers will become costlier as the reduced subsidy will result in higher vehicle prices.
Additionally, the FAME-II subsidy amount has been revised to Rs 10,000 per kWh, down from the previous amount of Rs 15,000 per kWh. The FAME-II scheme, which began on April 1, 2019, and received a two-year extension until March 31, 2024, was designed to promote the adoption of electric vehicles in India.
The reduction in subsidies is expected to affect the prices of most electric two-wheelers by approximately Rs 25,000 to Rs 35,000. However, manufacturers who have invested in the government’s Production-Linked Incentive (PLI) Scheme may be less impacted than those who haven’t qualified for PLI benefits.
The decline in electric two-wheeler sales in recent months, coupled with the subsidy cut, has raised concerns about the pace of electric vehicle penetration in the Indian market. More prominent players such as TVS, Bajaj, Hero MotoCorp, and Ola Electric, who qualify for PLI benefits, may have a competitive advantage and could offset some subsidy losses.
Industry analysts suggest the subsidy reduction may shift market share, favouring established players and potentially affecting the valuations of companies benefiting from the electric vehicle transition. However, it is worth noting Ola Electric had previously stated its preparedness to operate without subsidies, as the company develops in-house technologies and conducts large-scale manufacturing.
With the reduced FAME-II subsidy set to take effect soon, buyers are expected to purchase electric scooters and motorcycles to take advantage of the maximum benefits available under the current subsidy rates.