EV penetration may slow from 13% to 10% by 2025 if FAME II subsidies are not extended: ICRA

If the FAME II subsidy does not continue by March 2024, the sector adoption rate will slow further, affecting EV makers' profitability.

By Amit Vijay M calendar 03 Nov 2023 Views icon1764 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
EV penetration may slow from 13% to 10% by 2025 if FAME II subsidies are not extended: ICRA

If the Government of India's FAME II incentives are not extended beyond March 2024, the penetration of electric vehicles may fall to 10-12 percent by the end of 2025, compared to the previous guidance of 13%, according to ICRA. 

"The reduction of FAME II subsidies has resulted in a marginal drop in monthly volumes because the pre-subsidy payback period of an electric two-wheeler has now been revised to five years, with each manufacturer being forced to revise prices ranging from Rs 25 to Rs 30,000 on all models," said Rohit Kanwar Gupta, Vice President and Sector Head, Corporate Ratings, ICRA.

The decrease in subsidies has led to EV manufacturers increasing prices by up to Rs 30,000, effectively translating to higher ticket prices as well as longer loan tenures at a higher interest cost. 

“If the FAME II subsidy does not continue by March 2024, the sector adoption rate will slow further, affecting EV makers' profitability," Kanwar added.

For the second quarter of this fiscal year, total EV registrations stood at 371,106 units when compared with 372,244 units in Q1 of this fiscal year. The total registrations of electric two-wheelers in the July–September quarter were at 1,80,976, lower than 218,446 units in the June 2023 quarter. 

Aside from the reduction in FAME II subsidies, ICRA has stated that the slowing down of EV sales is not likely to reflect well on electric two-wheeler makers, who are battling multiple fronts. 

ICRA said electric two-wheelers are facing several challenges including the high cost of batteries, and domestic cell manufacturing which will take 2-3 years, impacting the profitability of electric two-wheeler makers. 

Despite the various challenges, ICRA has stated that it has not changed its long-term growth target for electric two-wheelers because "India will be able to maintain the 20–25 percent sales increase in electric two-wheelers, as a greater model mix will drive competitiveness.”

According to ICRA, cost engineering efforts and the introduction of lower-cost models will ensure that adoption rates will eventually improve.

The Society of Manufacturers of Electric Vehicles (SMEV) previously claimed that seven electric two-wheeler manufacturers collectively lost more than Rs 9,000 crore due to unpaid subsidy dues and market losses following the cessation of their subsidies last year.

It is worth noting that Greaves and Rattan Intellicorp-based Revolt Motors have returned 175 crores as penalties for violating the Ministry of Heavy Industries' phased manufacturing plans guidelines, which require EV makers to have a 50 percent domestic localisation.

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