EV start-ups up in arms over FAME 2 subsidy delay

Disbursement delays of the FAME II subsidies are seriously impacting cash flows and production schedules of electric two-and three-wheelers

By Amit Vijay M calendar 21 Oct 2022 Views icon9646 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Lack of subsidy will impact EV production

Lack of subsidy will impact EV production

EV start-ups involved in two-wheeler and three-wheeler production are facing a double whammy. They claim that on the one hand, their cash reserves are dwindling and on the other hand, the huge amounts of FAME II subsidies that they are entitled to are not being paid even though their vehicles are listed as ‘active’ in the latest FAME II subsidy list.

This non-payment of subsidies for over four months has resulted in discontent brewing among the players. The abrupt halt in subsidies, reportedly in the range of Rs 200 crore to Rs 300 crore, which had been fuelling the production and sales for over a year and half, have forced several start-ups to reduce or modify their production schedules.

The Ministry of Heavy Industry (MHI) that is responsible for the FAME subsidy disbursal maintains that it has been reimbursing the subsidies to the companies and that there has been no delay from their end, a senior official at MHI said.

Founders of several e-mobility firms believe that “there is a lot more than what meets the eye”. They claim they are being targeted at the legacy manufacturers’ behest.

Over 80 percent of smaller manufacturers' cash flows have been severely impacted owing to the non-payment of subsidies, according to the new EV Federation that has been formed (See accompanying box).

This is even as large firms — majority of them being the legacy manufacturers — continue to receive subsidies albeit with minor hiccups. Companies like Tata Motors, Mahindra & Mahindra and TVS have confirmed to Autocar Professional that they continue to receive the subsidies.

The issue came to the limelight after whistle-blower, CA Akash Shah exposed the electric two-wheeler start-ups. In his deposition to the government, Akash alleged companies like Hero, Okinawa, Ampere Vehicles and Benling India were importing vehicles stripped down as auto parts, re-assembling them and selling them as finished products to claim subsidies and defrauding the government on tax payments like customs and GST.

Akash, through his communique, called for suspending the Fame II subsidies for the manufacturers mentioned as the voluntary documentation offered by OEMs given for subsidies on the basis of certification issued by Automotive Research Association of India (ARAI) and International Centre for Automotive Technology (ICAT) was misleading. At least 50 percent of the components have to be made in India to qualify for the government subsidy.


The problem with ARAI is that it doesn't have the testing facilities to certify the localisation levels of the OEMs. However, it has been sanctioned a budget of Rs 44 crore to acquire the necessary equipment for certification and testing. ARAI will only be able to commence testing from April 2023 onwards.

Given this handicap, the MHI ended up purchasing the electric scooters from the dealers and they have told ICAT to strip them down and do the verification protocol.

In the interim period, the government is also implementing a new digital process in response to complaints from various stakeholders. Under this mechanism, domestic value addition data must be calculated and kept in OEMs’ ERP (enterprise resource planning) systems. It will be necessary to upload this data to the FAME-II portal.

Saera Automotive which was in the news recently after it inked a deal with LML for making two-wheeler scooters and motorcycles is also one of the casualties. “We haven't got our subsidies for the last four months despite several reminders to MHI to disburse them. If you go to the MHI website, it says our subsidies are active, however, we haven't been paid for the last four months. We are in the midst of the festive season, and getting timely cash flow is critical,” said Nitin Kapoor, managing director of electric-rickshaw maker Saera Electric Auto. 

"We have already reduced production in the range of 30-50 percent and if subsidy dues continue to remain unpaid, within two to three weeks we will be forced to further curtail or even stop production," said Amitabh Saran, Founder and CEO of the Bengaluru-based Altigreen Propulsion Labs Experience.

The founder of Sixth Sense Ventures, Reliance New Energy Xponentia Capital, Accurant International, USA, and Momentum Venture Capital-backed firm says that Altigreen is adequately funded but beyond a point, it would also have to scale down. “I don’t know at whose behest we are being penalised,” he said.

Uday Narang, who founded the firm Omega Seiki Mobility (OSM), hasn’t received any subsidy for five months and he is exasperated with the government for turning deaf ears to his pleas. He has also written to the MHI to register his side of the story.

“We are giving the advantage of subsidies to our customers. This delay is impeding sales and building of the ecosystem. A third of our money is locked up, which is putting a huge spanner in our growth,” said Narang.

Altigreen and OSM are among the several start-ups that fear they will choke if the lifeline of subsidy is not restored soon.

“It is just not us alone, but the entire EV ecosystem is getting threatened,” said Saran.

The FAME-II subsidy on an e-two-wheeler to three-wheeler ranges from Rs 20,000 to Rs 50,000 and for e-three-wheelers, it ranges from Rs 75,000 to Rs one lakh. To avail of the benefits, manufacturers must do 50 percent of value addition locally. A government audit at a few electric two-wheeler companies is underway for alleged non-compliance with localisation norms under FAME II.

Meanwhile, the Society of Manufacturers of Electric Vehicles (SMEV) which has been lobbying for the industry’s interest all these years seems to have run out of favour with the smaller EV players. The apex body's stoic silence over the subsidy logjam has also irked its members.

Murmurs in the ranks
The silence of SMEV (Society for Manufacturers of Electric Vehicles) which was the torchbearer for the issues of EV makers and their indifference has upset several members of SMEV who have now decided to represent themselves actively. In the latest development, some members of SMEV have officially formed an independent outfit called EV Federation in a bid to get their issues noticed by the government. The EV Federation was founded on October 15 and has representation from more than 100 EV component manufacturers, two and three-wheeler OEMs, and battery makers and dealer associations.
Meanwhile, conspiracy theories are being circulated within the community it seems. "It is clear that Hero is held up with the Directorate of Revenue Intelligence (DRI) on import duty evasion. Their EV subsidies have also been withdrawn and they don't want to further upset the government. But this is good for them, not for the industry," said a battery manufacturer CEO who is also a member of SMEV.
Naveen Munjal, President, SMEV is also the managing director of Hero Electric. The majority of office bearers of SMEV are Hero Electric company officials. Hero Electric, Okinawa, Revolt are the three EV players who are facing government scrutiny. According to an EV manufacturer, “the trust between the government and industry was broken due this incident. Now, it’s all about damage control”.
Getting into action mode, the EV federation has requested for a formal meeting with MHI minister Mahendra Nath Pandey.  A formal letter highlighting the challenges of the subsidy log jam was sent by EV Federation to the ministry in mid-October. "We have discussed the issues and the department has taken note of our concerns, with a rider stating that this is not intentional, and any pending subsidies will be cleared as per procedure," said Nitin Kapoor, Vice President of EV Federation and Managing Director of Saera Automotive.

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