In what is a shocking revelation for Indian electric two-wheeler manufacturers, the eligibility criteria for the long-awaited FAME II program will see around 95% of existing electric two-wheelers miss subsidy support, according to a CRISIL report.
On March 28, 2019, the Ministry of Heavy Industry and Public Enterprises issued a notification that outlined the eligibility criteria for electric buses, passenger vehicles, three- and two-wheelers to benefit from the FAME-II incentives. Criteria based on minimum top speed, minimum range per charge, minimum acceleration and energy consumption efficiency of electric vehicles (EVs). He also demanded that all electric vehicles, except rickshaws and electric carts, have regenerative braking capability to be eligible for the incentive.
The report interestingly revealed that about 90 percent of vehicles that received incentives under the FAME I program, which was operational between April 1, 2015 and March 31, 2019, were electric scooters.
CRISIL’s assessment of the product portfolio of various electric vehicle manufacturers indicates that the electric two-wheeler segment would be most affected by the FAME-II rules, estimating that more than 95% of electric two-wheeler models currently produced will not be eligible. for the incentive under FAME-II.
While government spending on Rs 895 crore for FAME-I has increased tenfold to Rs 10,000 crore in FAME-II, which will be implemented over three years from April 1, 2019 and will be applicable to vehicles equipped with “advanced batteries”. About 85 percent of the spending would be in the form of a demand-side incentive for buses, passenger vehicles and three-wheeled vehicles registered for commercial purposes and public transport, as well as private two-wheelers.
The report states that under FAME-I an incentive was provided to all battery-powered vehicles, including those that run on lead-acid batteries. Until September 2018, around 90% of FAME-I beneficiaries were electric scooters powered by lead acid batteries.
The price of these scooters was less than Rs 50,000 (after including the FAME-I incentive of around Rs 9,000), while the lithium-ion battery scooters, which cost around Rs 70,000 after the incentive, and many scooters with internal combustion engines are more expensive. Due to their lower initial cost, detachable batteries (limited need for public charging infrastructure) and the economic benefits inherent in electric vehicles led to a recovery in sales of electric scooters to around 55,000 units during the year. 2018, according to the Society of Manufacturers of Electric Vehicles. (SMEV).
Strict eligibility criteria under FAME-II catch OEMs off guard
FAME-II continues to exclude two-wheelers powered by lead-acid batteries. In addition, according to the latest eligibility criteria, electric scooters must have a minimum range of 80 km per charge and a minimum top speed of 40 km / h, as well as cyclists on the efficiency of energy consumption , minimum acceleration and a higher number of charge cycles. This excludes more than 90 percent of the remaining lithium-ion battery models from the subsidy.
CRISIL says EV manufacturers have been caught off guard by the strict eligibility criteria, leaving them with no time to comply. They should increase the battery size of their offerings for higher range and speed, improve battery technology for more charge cycles and also install electric regenerative cut-off technology in their two-wheelers in order to be eligible for incentives.
In addition, the requirement for 50% localization in manufacturing should also be an obstacle for many OEMs. And in the future, product upgrading and localization would increase the costs of electric scooters, which could hurt demand. OEMs should take time to come up with new models eligible for the FAME-II Incentive-On-Demand as well as the level of localization required. This would only happen after making changes to the production and exhaust inventory of vehicles that are not eligible for the subsidy.
Reduced incentives for electric two-wheelers
Previously, the incentive for lithium-ion battery two-wheelers was Rs 17,000 or Rs 22,000, depending on fuel saving potential and regardless of battery size. With FAME-II linking demand incentive to battery size, the government is providing Rs 10,000 per kWh of battery used for a two-wheeler. As the average size of a lithium-ion battery in electric scooters sold during FAME-I was around 1.5 kWh (average subsidy of around Rs 15,000 per vehicle), this reduced the average subsidy per vehicle by Rs 2,000 to Rs 7,000.
CRISIL notes that the electric scooter industry would experience turbulence in the initial phase of FAME-II. In the short term, inventory liquidation would require higher discounts to compensate for the lack of subsidy. Electric vehicle manufacturers would then focus on locating and building supply chains alongside product development to come up with new models. They also called on the government to reconsider the strict standards, the report concludes.
Negative impact on sales
Commenting on the impact on the industry, Pankaj Tiwari, head of business development at Avan Motors, an electric vehicle start-up, said: Industrial in India. In light of this development, we would like to highlight some concerns that could hinder the progress of the project while offering appropriate corrective recommendations.
As the government aims to achieve a sale of 10 lakh units of electric vehicles over the next three years, it must also provide people with continued subsidies in the electric vehicle segment for a significant period of time. The success of this initiative will largely depend on the feasibility and affordability of government to make electric vehicles accessible to the masses. Conversely, the reduction in the subsidy will have a negative impact on the sale of two-wheeled electric vehicles, dropping it by more than 50% of the current volume of 120,000.
Localization is another magnificent decision taken by the government to strengthen the “Make in India” momentum. However, the best strategy to get the best results from this initiative would be to phase out the localization process over the next year to ensure that manufacturers have enough time to locate their product at a sustainable cost.
In addition, the vehicle specifications mentioned in the current policy will double the cost of electric vehicles. The additional cost will result from purchasing the required vehicle components from low volume suppliers. In order to solve this problem, the government should also introduce a strong financial policy for the benefit of customers to ensure increased and more achievable adoption of electric vehicles. “
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