Over the past two years, there has been a significant improvement in the prospects for the electric vehicle (EV) category, driven by increased product introductions, increased awareness, and government subsidies under the FAME-II program.
The VAHAN website states the total sales of EVs (including two-wheelers) in the sector. The number of three-wheelers (passenger cars, commercial vehicle sub-segments, and three-wheelers) sold in the first ten months of 2023 was 12,34,325; this is a 55% increase in comparison to the 798,196 units sold from January to October of 2022.
The two-wheeler market is driving the surge in EV sales
The rating agency ICRA reports that while the pace of adoption has slowed recently due to the reduction in subsidies, the penetration of electric two-wheelers in total two-wheeler sales grew to roughly 5% in FY23. With effect from June 1 of this year, the government lowered the subsidy amount to INR 10,000/kWh with a maximum of up to 20% of the ex-showroom price. This had an instant effect on sales of electric two-wheelers.
In August 2015, the national government launched the FAME subsidy initiative with a budget of INR 75 crore with the goal of increasing sales of electric vehicles. The plan called for crediting EV dealers with cash subsidies in order to lower the purchase price for car buyers. Following the program’s renewal, the budgetary allotment was further raised yearly till FY19, when it totalled INR 145 crore.
This was superseded starting in April 2020 by the FAME-II plan, which had a significant budget increase of INR 10,000 crore and was first implemented for three years, ending on March 31, 2022. In June 2021, this was extended for an additional two years, ending on March 31, 2024.
The government upped the EV subsidy to INR 15,000/kwh from INR 10,000/kwh in June 2021, and the maximum cap was raised to 40% from 20% of the vehicle’s ex-showroom price. In addition to the FAME scheme’s subsidies, a number of state governments have implemented their own programs, such as discounts on road tax payments or a flat subsidy per kilowatt-hour of battery capacity.
According to experts, OEMs are aware that large subsidies won’t be given out again, therefore they’re still concentrating on value-engineering projects to create more reasonably priced goods. In the medium run, adoption is probably going to benefit.
Electric two-wheeler OEMs including Ather Energy, Ola Electric, and Tork Motor recently released de-spec versions of their current electric scooters into the market to help offset the increase in vehicle costs caused by the loss in subsidies. This is intended to guarantee car sales while simultaneously controlling costs because better features come at a higher cost.
Vice President & Sector Head of Corporate Ratings at ICRA Rohan Kanwar Gupta stated, “It is critical that the volumes increase and the economy of scale occurs because that is when the vendor negotiation or the vendor discounts will actually come in, which will eventually help in reaching economies of scale and thus profitability.”
According to the rating agency, OEMs should prepare to make large investments in the creation of entirely new EV platforms and increased production capacity as part of the continuous trend toward electrification.
It is anticipated that during the short to medium term, the industry’s return indications will be somewhat moderated by the increasing expenditure on product development. In the EV industry, profitability is still a ways off. Achieving economies of scale, localization, R&D projects, battery costs, and the sustainability of the FAME-II subsidies are important variables that will affect profitability.
