EV sales could fall by over 50% if FAME subsidy not extended, says Corporate India

With only three months left for the FAME subsidy to expire, corporate India is concerned that EV sales will see a drop by more than 50% if the FAME subsidy is not extended after March 2024.

Without the demand support from the government, EV sales will see a sharp fall and it will impact the component makers and other allied industries who will feel the impact, said Arvind Goyal, Chairman of Tata Autocomp Systems, during a panel discussion on Electrifying Mobility, Conventional ICE V/s Ev Innovation Adoption and Promotion at the CII. 

The industry is already bracing for an uncertain time unless the government clarifies the future regulatory plan. "If the government decides to discontinue the subsidies, not one electric bus will be sold in the country," he added. 

The government provides a demand subsidy for electric two-wheelers under the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME-II) scheme.

The subsidy amounts to Rs 10,000 per kWh, capped at 15% of the ex-factory price of vehicles. Earlier, the incentive was at Rs 15,000 per kWh with a cap of 40% of the cost of vehicles.

Goyal said that the government's strong incentive program has led Tata Autocomp to localise the battery pack, inverters motors, and charging stations leaving aside the semiconductors, and magnets for motors.

Arup Basu, Managing Director, Greaves Cotton Ltd also said that while subsidies are important, the ICE space industry transitioned from BS IV to BS VI, as it was made mandatory and the industry was given time to adapt he said.

 "The industry needs a sense of direction from the government which is missing. If the government is not looking to extend the subsidies they should openly say that we are discontinuing the subsidies, so there is enough time for the industry to align their plans accordingly,"  Basu added.

According to Nitin Seth, Chief Executive Officer - New Mobility, Reliance Industries, if the goal is to protect the consumer, subsidies are unnecessary, as the government's focus is to minimise the consumer's acquisition cost while purchasing energy.

Seth, who also spoke at the panel discussion, stated that today's consumer is encouraged to buy a 3-4 kWh battery pack scooter with the assurance of 100+ range, when the need is to lower his cost of acquisition for use cases that require range of less than 40 km using battery swapping and solar-powered EV charging.

According to Seth, if the government fails to renew the subsidies, the market would shift towards battery swapping, allowing consumers with daily usage of 40-50 km to buy scooters without batteries and smaller batteries, further lowering his acquisition cost. Recently, Reliance Industries demonstrated removable and swappable batteries for electric vehicles (EVs) that can also be used to power household appliances via an inverter.
 
Responding to Seth's concerns, Sullaja Firodia Motwani, Founder and CEO of Kinetic Green stated that the government has a strong policy in place, with FAME 1  and 2 having generated demand; nonetheless, the continuation of the subsidies will be vital to reaching critical mass.
 
Motwani stated that while battery swapping is a solution that can minimise users' range anxiety and acquisition costs, India still lacks the bandwidth that is needed to make this feasible. 

According to the founder of Kinetic Green, the domestic  component business is well invested for robust EV development, demand might be impacted after March 2024. "Sudden withdrawal of subsidies will impact  consumer affordability and industry propensity to invest further. Incentives should continue to make the EVs more affordable for the consumer," she added.

Anand Kulkarni, Chief Product Officer at Tata Passenger Electric Mobility Ltd, agreed with the necessity for subsidies, stating that the essence of the EV-to-ICE transition is the cost of EVs not surpassing 30% of the cost of an ICE car.

"The consumer believes that the lower cost of operations through fuel savings will offset this initial high cost," he added. 

Anand Kulkarni shared his experience of the Nexon EV. "When we built the Nexon EV, we wanted to ensure that the premium charged over ICE should not be more than 30 percent," he remarked.

"Stability in the government policy which is necessary for the industry to have graded approach to make substantial investments happen post-2024," Kulkarni said.

The CII NexGen Mobility Show is a two-day conference and exhibition that unveils cutting-edge mobility solutions such as the Fast DC Charging Gun, e-powertrain products, e-drivetrain, Engine Cooling Solutions, Battery Thermal Management System, and precision-crafted Suspensions tailored for future vehicles.