NEW DELHI: The electric two-wheeler industry has hit a speed bump following the changes in the Fame 2 Subsidy scheme. At about 54,000 units, e2W sales in July were better than June’s 46,000 units. However, these figures are nowhere near the 1.04 lakh units retailed in May and over 86,000 units sold in March.
“Despite the improvement (in July), the volumes remain impacted by material price hikes taken by electric two-wheeler OEMs (original equipment manufacturers) to help offset the impact of the reduction in FAME II subsidy from June 1, 2023,” said Rohan Kanwar Gupta, Vice President & Sector Head - Corporate Ratings, ICRA Limited.
The government revised the FAME-II subsidy amount to Rs 10,000 per kWh as against the earlier amount of Rs 15,000 per kWh. It also capped incentives on e-2Ws at 15% of the ex-factory price of vehicles from 40% earlier. These changes increased e-2W prices by up to Rs 30,000 a unit.
A big jolt to subsidy-dependent first movers
The changes in the fame scheme along with the government’s decision to halt the subsidies of many OEMs for violating the norms have been a big blow to some companies which till last years were seen as the torchbearers of India’s EV industry.
For example, Hero Electric and Okinawa AutoTech, which not so long - ago were among the top three players, have seen a sharp drop in sales. Hero Electric sold less than 800 units in July 2023, which is one-tenth of its average monthly sales in 2022. Similarly, Okinawa Autotech, which sold over 17,000 units in October 2022 sold little more than 2,000 units.
“The prospects of the industry have been materially impacted over the short term on account of the subsidy reduction. OEMs, who relied heavily on subsidies to push sales and had relatively low domestic value addition, would be more impacted,” said Gupta of ICRA.
According to the founder & CEO of an EV battery company, this fallout may lead to market consolidation and even exits of some players. “We have seen sharp drop in orders from OEMs in the last few months and are aware of their struggle. Of the 100-plus players in the e2W space, I am sure that more than half will either be acquired to cease operation,” the CEO said while requesting anonymity.
One million target – A difficult task
The sharp drop in sales following the price hike is now expected to push the industry’s effort to log 1 million (10 lakh) unit sales in a single calendar or financial year. In FY23, the sale of electric two-wheelers has achieved only 71% of the target of one million units set by the NITI Aayog.
“The ability of the industry to achieve 1 million sales milestone in this fiscal would remain dependent on multiple factors, which include the ability of OEMs to bring down the cost of vehicle on the back of value engineering initiatives, vendor discounts/renegotiations etc,” said Gupta of ICRA.
The CEO of the battery company said a lot will depend on the acceptability of lower battery pack vehicles to be launched by OEMs at affordable prices. Market leader Ola Electric recently launched its most affordable EV at Rs 79,999.
A lower battery pack in the vehicle means that the vehicle is powered by less number of battery cells, which will impact its performance and range. Ketan Mehta, co-founder & chief executive officer – HOP Electric Mobility, says the adoption of EVs, coupled with advancements in related technology, has driven OEMs to innovate.
Mehta is hopeful that with the upcoming festive season, brands are strategically gearing up to leverage the traditionally strong market demand during this period. “This leads us to be optimistic that the latter half of the year will witness continuous and even growing sales trends, eventually reaching the ambitious target of 1 million sales…,” he said.