EV Makers In India Say Incentive Continuity Issues Could Hurt Sales

(MENAFN- Live Mint) New Delhi: The upcoming Union budget may not have any new schemes or budgetary support for the electric mobility sector, according to people aware of the matter in the government and in the industry, even as the Centre and companies navigate questions around what technologies and vehicle segments should be offered subsidy support, in what manner, and to what extent.

Currently in action is the ₹500-crore Electric Mobility Promotion Scheme (EMPS), which is meant to be a bridge between two versions of India's primary subsidy programme for electric vehicles-Faster Adoption and manufacturing of Electric and Hybrid Vehicles in India or FAME.

FAME-II, which concluded on 31 March, was succeeded by EMPS that in turn is scheduled to expire on 31 July. The next version of FAME or FAME-III has still not received final cabinet nod.

According to one of the persons cited above, the Ministry of Heavy Industries (MHI) is likely to announce the FAME-III scheme in the next few weeks. That could lead to a gap in the implementation of successive schemes and create problems for both industry and consumers.

EV makers, including electric two and three-wheeler makers, as well as manufacturers of electric trucks and buses, are worried that the lack of clarity around the timeline of implementation of FAME-III, and the re-certification process that OEMs will have to undertake for vehicles will lead to several operational challenges, including potential subsidy losses or sales loss in the interim period between July 31 and the introduction of the new scheme.

They may have to take production cuts till clarity emerges regarding the new scheme, or continue to sell vehicles to customers at post-subsidy prices, and absorb the difference in cost themselves, multiple industry executives Mint spoke to said.

On the other hand, some industry executives said that the MHI might announce an extension of the EMPS scheme before 31 July, with FAME-III to be announced by mid-August. In such a case, continuity won't be an issue.

At the same time, industry sources expect incentives in FAME-III to be lower than its earlier version. While that's a concern for many, some like Bajaj Auto are not worried.

“Cell costs have reduced over the last year and along with other supply chain opportunities, is enabling us to price E2Ws lower," said Rakesh Sharma, executive director, Bajaj Auto.“Tax systems and structural incentives are more long-term and help to mobilize capital to the sector.”

Sharma pointed out that subsidy in the hands of the customer is a temporary thing. It achieves a temporary outcome and distorts purchase decisions. "It makes the customer artificially lean towards a certain choice,” he said.

Discussions are ongoing between industry stakeholders and various departments of the government on whether to include electric four-wheelers for the fleet segment in FAME-III. Battery swapping players are also pushing for the solution to be incentivized by the scheme, according to a senior government official, but so far, these segments have not found their way in yet.

To be sure, the EMPS scheme halved the subsidy support for electric two-wheelers compared to FAME-II, and removed subsidies for electric four-wheelers altogether.

“Demand incentives, linked to localization, have played a strong role in the growth of the EV industry,” said Ravneet S. Phokela, chief business officer of electric two-wheeler maker Ather Energy, adding that it was important to continue with demand incentives for another 2-3 years to maintain market momentum.

“These incentives accelerate consumer adoption, which in turn provides a strong impetus for investments in R&D, manufacturing capacity and supply chain,” he said.

The FAME and EMPS schemes offer demand incentives to electric vehicle buyers in the form of an upfront subsidy which lowers the on-road price of the vehicle.

It is expected that in FAME-III, subsidy offered per vehicle will be lower than existing levels, according to the official cited earlier, though EV makers are making a case for them staying at the same level as that in the EMPS.

“I think the expectation is whatever we had in FAME-II, at least that has to be restored," said Mahesh Babu, chief executive officer of electric truck and bus maker SWITCH Mobility.

Babu cites an example of the company's IeV4 light commercial vehicle (LCV), which would get close to ₹3 lakh subsidy under FAME-II. "That would have been a comfortable TCO (total cost of ownership) for our customers, because electric commercial vehicles (four-wheelers) have only a meagre 0.7% penetration, compared to electric three-wheelers, which already command 50% market share.”

For electric commercial vehicles to reach 15-20% market share by 2030, government subsidy support is required for the next three years, Babu added.

"We know after 5-6 years this subsidy is not going to be there, But for now, we need certainty so customers don't delay purchases in the expectation of subsidy. Electric LCVs are high-value purchases and to scale up this penetration, the government has to intervene,” he said.

To be sure, Mint has reported earlier that the government has a focus on electric trucks, as well as inter-city electric buses in its upcoming EV demand incentive policy.

As far as other EV policies go, the production linked incentive scheme (PLI) scheme for advanced automotive technologies, as well as the PLI scheme for advanced chemistry cells has yet to see any disbursements, more than two years since they were notified.

Electric bus makers such as Tata Motors and Ashok Leyland have also not received FAME benefits in over six months, people aware of the matter told Mint.

The Scheme for Manufacturing Electric Cars (SMEC) announced as part of India's new EV policy to attract foreign manufacturers to set up shop in India, announced in March 2024 is also yet to see any takers, according to a government official.

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