As EV subsidies transition from FAME to EMPS, how is the industry coping?

In July, electric vehicles sales in the country were nearly 28 per cent higher than in the previous month and the highest for a month in the current financial year, according to Vahan data from the Ministry of Road Transport and Highways. If you look at the calendar year 2024, EV sales have crossed a million in the first seven months. 

The July sales, say experts, were driven by widespread discounts and customers hurrying their purchases. Both can be attributed to the imminent expiry, due on July 31, of the Electric Mobility Promotion Scheme (EMPS) 2024.

In a twist, though, the government has extended the EMPS by two months to the end of September. The scheme’s outlay has gone up from Rs 500 crore to Rs 778 crore for subsidising electric two-and three-wheelers. This once again puts into focus how much the country’s EV industry’s fortunes are linked to the government’s incentive schemes, even though EMPS, which replaced the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, has faced stiff challenges. As of July 15, only 8.6 per cent of the targeted vehicle sales had been realised since April 1, utilising just 3.8 per cent of the Rs 500 crore outlay.

FAME era

The FAME scheme, launched in 2015 with an initial outlay of approximately Rs 900 crore, was followed by FAME II, which had its outlay increased to Rs 10,000 crore. These schemes played a pivotal role in propelling the growth of the EV industry, driving sales from less than 7,000 units in 2014-15 (FY15) to 1.5 million units in FY24, constituting 6.8 per cent of all automobile sales. However, with the conclusion of FAME II in March 2024, the industry experienced a slowdown.

The government’s efforts to promote electric vehicles also led to an increase in the number of players in the industry, from 124 in FY15 to 731 in FY24.

Government data shows that under FAME I, approximately 278,000 pure EVs received support through demand incentives totalling Rs 343 crore. Under FAME II, more than 1.6 million vehicles were supported. The government had to increase the subsidy outlay from Rs 10,000 crore to Rs 11,500 crore to meet the demand until March 31, 2024.

Transition to EMPS

However, the industry witnessed a decline after the expiry of FAME-II, despite the introduction of EMPS.

“The sales are down after FAME-II’s expiry, and if the EMPS incentives also end, it might come below the 100,000 mark. Stringent guidelines and reduced incentives are hindering manufacturers from seeking benefits,” said Preetesh Singh, specialist CASE and alternate powertrains, NRI Consulting & Solutions.

Under EMPS, incentives for electric two-wheelers (e2Ws) were slashed from Rs 66,000 to Rs 10,000, and for electric three-wheelers (e3Ws) from Rs 111,505 given in FAME to Rs 50,000. Moreover, EMPS focuses on providing incentives for electric two- and three-wheelers, whereas FAME included provisions for buses and cars as well.

Experts say the stringent domestic value addition and Aadhaar authentication guidelines dissuade original equipment manufacturers from enrolling under the scheme. The lack of interest from OEMs is evident in the number of models available under EMPS and FAME. FAME-II featured 234 models, excluding e-buses, whereas EMPS currently offers 134 models.

“OEMs find more profitability in selling products manufactured from imported parts. Additionally, they are apprehensive about potential breaches of guidelines following the FAME investigation,” explained Singh.

Government’s response

Government officials say the stringent guidelines were implemented in response to OEMs wrongfully claiming incentives under FAME-II.

In 2023, the ministry conducted two investigations which revealed violations by several companies: Hero Electric, Okinawa Autotech, Ampere Vehicles (Greaves Cotton), Benling India, Revolt Intellicorp, and Amo Mobility breached the phased manufacturing program guidelines, while Ola Electric, Ather Energy, TVS, and Hero MotoCorp’s Vida violated the ex-factory guidelines.

The government instructed the violators of the PMP guidelines to reimburse Rs 469 crore, and the ex-factory violators were ordered to return Rs 288 crore to more than 200,000 customers. The ex-factory violators complied. Hero Electric, Okinawa, and Revolt are contesting the government’s order in court.

“Aadhaar authentication has been made mandatory to ensure that only one EV per category per individual can claim incentives,” stated a government official, noting that this action follows complaints about individuals buying multiple vehicles under a single identity to claim subsidies.

Government officials are optimistic. One of them said: “Registrations are going on. With monthly sales consistently exceeding 100,000 since the conclusion of FAME, it’s a positive indication that the industry is gaining independence.”

A query sent to the Ministry of Heavy Industries remained unanswered till the time of going to press.

Industry concerns

Industry players worry about the future. “The government should provide the industry with reassurance by introducing policies that cater to longer time frames and support the industry for at least three to five years through the introduction of FAME-III or similar policies,” said Ayush Lohia, CEO of Lohia, a Delhi-based e-rickshaw company. Experts argue that though subsidies can be beneficial, government support should now prioritise critical areas, such as the charging infrastructure, mineral processing, and mining, rather than solely providing subsidies for product sales.

Puneet Gupta, director, S&P Global Mobility, says the subsidy has significantly propelled the EV industry’s growth and spurred demand. Its partial withdrawal will have a negligible impact, thanks to strong alternative support mechanisms like the production-linked incentive (PLI) scheme, goods and services tax (GST) concessions, and road tax rebates. “Future efforts should concentrate on enhancing EV financing, expanding charging infrastructure, advancing mineral processing, improving mining operations, and ultimately developing a comprehensive ecosystem to support the burgeoning EV fleet,” Gupta said.

During the launch of the EMPS, the heavy industries minister at that time, Mahendra Nath Pandey, had said the subsidy reduction addressed the high demand. “The objective is to bolster the industry while preparing it for a post-subsidy era, as subsidies cannot be sustained indefinitely,” he had said.

The government has existing PLI schemes for automotive and auto components, with a budget allocation of approximately Rs 25,938 crore. Furthermore, there is a Rs 18,100 crore PLI scheme specifically for advanced chemistry cells.

To boost the adoption of e-buses nationwide, the government has unveiled the Rs 57,613 crore PM-eBus Sewa scheme, which aims to deploy 10,000 electric buses across 169 cities. The Centre also plans to introduce a payment security fund of approximately Rs 4,126 crore to increase penetration of e-buses. This fund aims to facilitate the procurement of 38,000 electric buses nationwide.

FAME to EMPS

> FAME scheme began in 2015 with an outlay of Rs 900 crore

> FAME II came in 2019 with an outlay of  Rs 10,000 crore

> FAME envisioned phased manufacturing: Imports followed by local sourcing

> EV industry sales increased from less than 7,000 units in FY15 to 1.5 million in FY24

> EMPS replaced FAME; it was to run from April 1-July 31, 2024

>  EMPS had strict local sourcing conditions from Day 1

> EMPS extended by two months to September 30 

> EMPS outlay up from Rs 500 crore to Rs 778 crore