 "electric vehicle")
The Indian government's new Electric Mobility Promotion Scheme 2024 will provide a temporary bridge to maintain electric vehicle (EV) adoption momentum after the FAME-II subsidy program concludes at the end of March. However, the new scheme offers lower subsidies compared to FAME-II.
Credit rating agency ICRA expects the initial cost of an electric two-wheeler (e-2W) to increase by 10 per cent due to the reduced subsidy. This would make e-2Ws 70 per cent more expensive than petrol scooters upfront. Despite this setback, ICRA predicts e-2W penetration to reach 6-8 per cent of the overall industry by FY2025, driven by factors like lower operating costs for electric vehicles and continued government support for the EV sector.
The Electric Mobility Promotion Scheme 2024 offers a maximum subsidy of Rs. 10,000 per e-2W, a reduction of 15 per cent from the price under FAME-II. The total outlay for the scheme is Rs. 500 crore and will cover e-2Ws and e-3Ws (including rickshaws, carts, and L5 category vehicles) for a four-month period from April to July 2024.
ICRA expects manufacturers to absorb some of the subsidy reduction through cost-cutting measures and benefit from falling battery prices. The rating agency predicts that the payback period for e-2Ws could lengthen to 5.5 years under the new scheme compared to five years under FAME-II, assuming manufacturers fully pass on the subsidy reduction to consumers.
"The government's new scheme will provide a smooth transition for e-2W manufacturers as FAME-II ends," said Shamsher Dewan, Senior Vice President and Group Head at ICRA. "While the subsidy reduction is a short-term hurdle, manufacturers will focus on cost reduction through localisation and value engineering to offer competitive products."
In the long term, ICRA remains optimistic about the e-2W segment due to factors like narrowing cost gaps between electric and internal combustion engine (ICE) vehicles, improved customer confidence in areas like range anxiety and financing options, and the government's continued push for EVs through other initiatives.
