The reduction in FAME subsidy is slowing down demand for electric two-wheelers and the manufacturers will now have to focus on achieving price reduction through R&D and innovation, CARE Ratings said in a report.
The report said the core segments of two-wheelers, specifically the 75 cc – 110 cc range in motorcycles and the 75 cc – 125 cc range in scooters, have shown a sharp sales volume decline from FY19 to FY22, with a slight recovery seen in FY23.
Sales of electric two-wheelers also significantly declined in Q1 FY24 due to the government withholding FAME subsidies for certain Original Equipment Manufacturers (OEMs), the report added.
Furthermore, the report said that a subsidy reduction to Rs 10,000 per kWh from Rs 15,000 per kWh and 15% of the ex-factory price from 40% earlier, adds to the uncertainty in two-wheeler sales. “Manufacturers of electric two-wheelers will now have to focus on achieving price reduction through R&D and innovation, rather than on government subsidies,” it added.
In June 2021, the government hiked the subsidy on EVs to Rs 15,000/kwh from Rs 10,000/kwh with the maximum cap increased to 40% from 20% of the ex-factory price of the vehicle. Apart from this subsidy, various state governments also introduced their own incentives such as a subsidy amount per Kwh of battery capacity, and discounts or complete exemption on payment of road tax. As a result, demand surged in FY22 and FY23, the report said.
However, the government reduced the subsidy amount to Rs 10,000/kWh with a cap of up to 20% of the ex-factory price, effective June 1 this year. This action has had an immediate impact on electric two-wheeler sales as was witnessed in the current year’s volumes, the ratings agency said.
“Over the long-term, technological developments leading to a reduction in battery costs which makes electric two-wheelers comparable in price with ICE vehicles (after disregarding subsidies for EVs) would be the key factor driving electric two-wheeler sales,” Sudarshan Shreenivas, Director at CARE Ratings, said.
(With PTI inputs)
