On May 21, 2023, the Ministry of Heavy Industries (MHI) announced certain amendments to its flagship scheme (FAME II) for electric vehicle (EV) adoption. Under this, both the capping on demand incentive and incentive per kWh of battery size were lowered from the current levels, with the amendments coming into effect from June 1, 2023. This development comes in the wake of a positive development for the sector with Government deciding to re-allocate an additional Rs.1,500 crore under the FAME II scheme to the E2W segment.
The latest amendment materially lowered the subsidy available per vehicle, with the cap on demand incentive lowered to 15% of ex-showroom price from the earlier level of 40%; the subsidy benefits available per Kwh were also lowered to Rs.10,000/ Kwh from Rs.15,000/ Kwh. Even as the price increases undertaken by E2W manufacturers to combat the subsidy reduction remain monitorable, the upfront price differential of an E2W vis-à-vis an internal combustion engine (ICE) vehicle is expected to increase materially.
The pay-back period for a premium E2W, which had declined to ~3 years, post the amendment to the FAME II guidelines in June 2021, would increase to ~5 years, post the latest revision in FAME II benefits, in the scenario wherein the E2W manufacturers decide to completely pass on the subsidy reduction amount to the consumers in the form of price hikes. Nonetheless, the Total Cost of Ownership (TCO) for E2W remains favourable, aided by substantial savings on running costs.
The lower subsidy benefits are likely to curtail the segment’s growth pace over the short term and would exert pressure on the cost structure of the original equipment manufacturers (OEMs). Over the medium term, however, benefits from economies of scale and value engineering initiatives being undertaken by OEMs, are expected to help lower the upfront price and aid adoption/ penetration.
Subsidy benefits for leading E2W models:
| Model | Battery Size | Earlier FAME II Subsidy | Revised FAME II Subsidy | %Change |
| OLA S1 Pro | 3.97 | Rs 59,500 | Rs 22,500 | -62% |
| Ather 450X | 3.7 | Rs 55,500 | Rs 22,500 | -59% |
| TVS iQube | 3.4 | Rs 51,000 | Rs 22,500 | -56% |
| Bajaj Chetak | 2.9 | Rs 43,500 | Rs 22,500 | -48% |
| Tork Kratos-R | 4.0 | Rs 60,000 | Rs 22,500 | -63% |
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