Why Reduced EV Incentives May Not Be A Big Setback For Demand
A gradual tapering of these incentives will give time to the industry to lower costs and build infrastructure without disruptions, said Nomura.
The government has reduced incentives on electric vehicles but consumers may not have to pay more.
While the new Electric Mobility Promotion Scheme 2024 offers half of the direct subsidy and capping them at a fixed sum for consumers than previously, cheaper batteries for companies have also brought down the prices since the start of the year.
What that means is that buyers of an electric scooter priced at say Rs 1,00,000 will still pay around Rs 70,000, like they did earlier. That's when the incentive has come down from Rs 10,000/kWh to Rs 5,000/kWh.
Lower incentives under the new scheme are better than nothing at all, according to analysts. More so when sales of EVs declined as the government first halted the subsidies offered under the Faster Adoption and Manufacturing of Electric Vehicles in India Scheme citing misuse by companies and then slashed them.
Demand would have further fallen had the scheme not been extended, Nomura said. A gradual tapering of these incentives, it said in a note, will give time to the industry to lower costs and build infrastructure without disruptions.
The New Scheme
The government has slashed the cap on incentives for electric two- and three-wheelers from Rs 22,000 per kilowatt hour to Rs 10,000/kWh.
To be sure, the overall outlay under the new scheme is much lower than earlier at Rs 500 crore.
The government first introduced FAME I in 2015 for four years, spending Rs 529 crore on incentives. FAME II offered much bigger outlay of Rs 10,000 crore from April 1, 2019, till March 31, 2022, and extended till March 2024.
This scheme initially offered incentives of Rs 10,000 per kWh of battery capacity with a maximum cap of 20% of the vehicle cost. This was later increased to Rs 15,000 per kWh with a maximum cap of 40% of the vehicle cost, helping drive the sale of electric two wheelers in India. The government, however, lowered the caps later in May 2023 to Rs 10,000 per kWh with a maximum cap of 15%. That causes prices of EVs to rise by 15-20%.
Consumers May Not Be Hit
While these incentives for electric two wheelers have come down, the overall price of the vehicle is more or less in a similar range. That's because of the latest price cuts, especially by makers of electric scooters, as global battery prices fell.
Market Leader Ola Electric and Ather Energy—ranked third by sales—have cut prices by Rs 20,000 on select models in 2024. This has led the price remaining in the similar range even for their select electric scooters even after the incentive reduction.
However, TVS Motor Ltd., the maker of I-Qube electric scooter, and Chetak EV manufacturer Bajaj Auto Ltd. have yet to lower prices. It would be key to monitor their respected pricing strategies given the industry has been benefitted by lower battery prices among other benefits.
Who Stands To Gain
EV sales volumes surged 180% in the year through March 2023, driven by incentives. While sales momentum stays steady for Ola Electric, TVS Motors, Ather Energy and Bajaj Auto, growth has tapered after the incentives were lowered.
According to Nomura, component makers like Sona Comstar (Sona BLW Precision Ltd.) and Uno Minda Ltd. will benefit from the government's focus on electrification.
Among original equipment makers, it prefers TVS Motor, Bajaj Auto and Hero MotoCorp.
In the three-wheeler space, Nomura picked Bajaj Auto and Mahindra & Mahindra Ltd.
