TeaHe announced reducing the subsidy amount given by the Ministry of Heavy Industry (MHI) to electric two-wheelers to Rs 10,000 per kilowatt-hour of battery fitted and to a maximum of 15 per cent of the vehicle’s value. Its progress by industry. The issue of subsidy has been in dispute for a few months now, with several investigations, fines as well as voluntary refunds of some manufacturers. And automotive journalists like you in the trenches really sift through emails and ‘whistleblower’ complaints to understand what’s happening in this promising space.
But before we go any further, let me separate the wheat from the chaff.
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subsidy ecosystem
The Government of India has something called the National Mission on Electric Mobility (NMEM) and under it was the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, which gave cash subsidies to end users of electric vehicles ranging from buses to two- wheel. FAME-II, the second phase of the subsidy, had a budget of Rs 10,000 crore for a period of three years from 1 April 2019, but was later extended till March 2024. This money was to be shared between all sectors of the automotive industry.
However, non-commercial buyers were covered only in the two-wheeler segment as the government wanted to encourage increased manufacturing in India under the Phased Manufacturing Program (PMP), which aims to reduce the amount of foreign-made (read Chinese) components in vehicles. had to reduce , India has been the world’s largest two-wheeler market for some time now and has produced companies such as Hero MotoCorp, Bajaj Auto and TVS Motors. Policy-makers believed that creating demand-side subsidies would allow Indian firms to play a leading role in electric two-wheelers as well, just as they did when previous waves of automobile making hit the country.
Often, the road to conflict is paved with good intentions and obstruction. COVID-19 disrupted the construction process. At the same time, China has doubled down on lithium battery manufacturing, while India has taken a very optimistic path. On a small, lightweight product like an electric two-wheeler, the battery is a major part of the cost. To be able to claim subsidy under PMP, manufacturers have to show that 50 per cent of the value-addition to the vehicle is coming domestically. Complaints against certain manufacturers led to claims, counterclaims and raids by various government agencies.
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now what?
What does this reduction in subsidy mean for the industry? Simply put, buying electric two-wheelers is going to be quite expensive. The subsidy, at a maximum of 15 per cent of a vehicle’s value, would mean that manufacturers would hike prices by up to Rs 30,000 for popular high-powered scooters such as the Ola S1 Pro and Ather 450X, which could cost over Rs 1.5 lakh. . , much more expensive than a similar performing 125cc petrol-engined scooter, such as the best-selling Honda Activa 5G, whose prices start at around Rs 80,000.
Given the massive purchasing cost difference due to low subsidies, even the ridiculously low operating cost of an electric scooter (or any electric vehicle for that matter) doesn’t make sense unless there’s a regular Not traveling long distances properly. The average high-powered electric scooter has a range of 25–35 kilometers per kilowatt-hour with a battery that, if one charges at home, can cost anywhere between 10–25 paise per kilometre. The Honda Activa or its equivalent scooter will cost around Rs 2- 2.5 per kilometer on the cost of petrol alone. All of these are using prices as of May 2023. But to make up the difference of Rs 70,000, one would really have to ‘sweat’ the equity, to use trading parlance.
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Should You Still Buy Electricity?
While the FAME-II subsidy may be reduced, there are other ‘hidden’ subsidies that still come into play when going electric – lower GST rates, low or no road tax in some states and no registration fee. And this too cannot go on forever. But for heavy-use vehicles, such as those used by delivery agents and motorcycle taxis, electric makes sense.
Furthermore, the heavy FAME-II subsidy far curtails production and ownership in favor of higher-powered scooters, which have larger battery packs and bigger motors. Scooters that can crack in terms of speed very easily. But such powerful units, meeting the topical need for speed, may not be ideal. Several years ago, a senior executive of a large two-wheeler manufacturer told me about the perfect trifecta, ‘70,70,70’ – a top-speed of 70, a charge of 70 kmph and a price tag of 70,000. Rupees.
While that price may no longer be achievable, technological advances and increased domestic production of lithium batteries may still make ‘90,90,90’ possible. The need is not for powerful, fast electric vehicles but for practical medium-powered products. There can always be a demand for powerful two-wheelers and the success of the likes of Royal Enfield proves that. But they do not need subsidy. India needs viable products until it gets its Electric Manufacturing Act together and while one appreciates subsidies continuing, the targeting has to be improved.
@kushanmitra is an automotive journalist based in New Delhi. Thoughts are personal.
(Editing by Anurag Choubey)