FAME 2: India Offers More Incentives To Boost Demand For Electric Scooters

India has increased subsidy under its electric vehicle policy as it failed to boost sales of battery-powered scooters.

The government tweaked the second phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicle. According to fresh changes:

• Demand incentives have been raised to Rs 15,000 per kilowatt-hour from Rs 10,000 per KWh for electric two-wheelers.
• The cap on incentives for electric two-wheelers doubled to 40% of the cost of the vehicle.

Battery-powered scooters by companies such as Ather Energy Ltd., Hero Electric Pvt., Okinawa Autotech Pvt., Ampere Scooters, and Revolt Motors are expected to get cheaper by Rs 7,000-30,000 based on the battery size.

The world’s biggest two-wheeler market targeted to sell 10 lakh electric scooters by the fiscal year 2021-22 via FAME 2. But it managed to achieve 5% of the target in the first two years of the three-year plan. An overall subsidy of Rs 8,596 crore did not boost demand because of sudden changes in policy and lack of a long-term road map.

"The revision in incentives makes the policy much better than what we had earlier, and is far superior," Naveen Munjal, managing director of Hero Electric, said over the phone. “There were issues with FAME 2 but with the pricing down because of more incentives, the customer adoption should improve, and thus the demand.”

ICRA said in a note that an increase in upfront incentive will incrementally reduce the price for high-speed e-2Ws by at least 10-12%.

Suraj Ghosh, associate director at Powertrain and Compliance Forecast, said the biggest impact of the tweak could be on the models worth up to Rs 1 lakh as the prices would be brought within a comparable range of internal combustion engine counterparts. He said the increased incentives would also result in companies coming up with better battery power.

Low-speed vehicles earlier exempt from the policy will become expensive compared to the city-speed EVs, Munjal said. “Players can invest and focus more on high-performance vehicles. Either the price of the products will come down or will remain same but the performance will improve.”

Hero Electric, with half of its portfolio of 13 models under FAME 2, will see a 12-33% reduction in prices.

The total cost of ownership of an electric two-wheeler will be almost on a with the internal combustion scooter.

The cost for a monthly usage of 500 kilometres will come down to Rs 6.5/km from Rs 7.2/km, Emkay Global said in a note. For an ICE scooter like Honda Activa, it stands at Rs 5.7/km, the brokerage said. If the monthly usage is 700 kilometres, the cost of ownership will be similar, it said, adding that increased incentives could attract commercial customers.

Ghosh, however, cautioned that just incentives aren’t enough. “Course correction is good but without a long-term term road map, the pace of transition to electric mobility will be slow and investments in the sector may get adversely affected.”