MHI's Rs 800 crore recovery crackdown on EV OEMs is first step towards detangling FAME II subsidy resolution

The Ministry of Heavy Industries (MHI) is in action-mode to ensure that the electric vehicle (EV) companies that have been found of unfair marketing practices are made to refund excess money charged from consumers. The same also applies to the companies that were found to have wrongfully claimed FAME II subsidies as per an investigation by the authorities.

The companies under investigation included Ola Electric, Ather, TVS, and Hero MotoCorp. According to Autocar Professional's estimates these companies had claimed around Rs 292.32 crore as refund to the customers. Now, they will have to return the aforementioned amounts first before the FAME II benefits can be resumed. 

In addition, the ministry has also levied penalties and for Ather it is Rs 20 crore. For Hero Electric, Okinawa, and the rest of the EV players, the total dues are estimated to be around Rs 540 crore.

"MHI is in settlement mode as it owes the industry subsidy payments, but these payments will be regularised only after they repay their penalties, as per recovery notices sent to Hero Electric and Okinawa. The rest of the players are under final stages of investigation from ARAI and ICAT with a few OEMs likely to get a clean chit too," said an official.

The Ministry of Heavy Industries is likely to come up with a complete analysis and way forward for the FAME II subsidy issue on Monday, in a briefing which will be given by MHI Minister Mahendra Nath Pandey, officials stated.

According to Autocar Professional’s estimates, a total of Rs 837 crore in the industry will have to be paid to MHI. The total amount to be realised from the FAME II subsidies stands at Rs 1,500 crore.

Responding to the inputs of whistleblower CA Akash on Ola, Hero MotoCorp, Ather and TVS, MHI took involved testing agencies, ARAI, ICAT, and IFCI for fact finding. The agencies discovered that these OEMs indeed overcharged consumers by selling portable chargers separately, which were supposed to be included in the price of the electric vehicles.

Following the MHI report, Ola Electric has agreed to refund Rs 130 crore, and Ather Energy will refund Rs 140 crore to MHI. TVS Motors will refund Rs 20 crore, while Hero Moto Corp will pay Rs 2.23 crore.
Electric two-wheelers costing up to Rs 1.50 lakh per unit are eligible for benefits under the Rs 10,000 crore programme, according to the FAME II policy document.

The mentioned companies have announced in their respective letters to the ARAI that "on their own volition, they will reimburse 100 percent of the cost of the off-board or portable charger to all consumers who purchased the off-board charger as an accessory while purchasing an e-two-wheeler from the company's authorised dealerships."

Who will refund how much

The following are the reimbursements that companies will provide to their customers: Ather Energy will reimburse Rs 140 crore to 95,000 customers who purchased the Ather 450X electric two-wheeler between January 1 and April 12, 2023.

Furthermore, MHI will recover Rs 25 crore from Ather for reduced battery capacity, as a result of the failure to purchase the upgraded software.

TVS will refund Rs 15.61 crore to 87,000 customers who purchased the TVS iQube S between May 2022 and March 2023.

Hero MotoCorp will reimburse Rs 2.23 crore to the 1,100 customers who purchased VIDA V1 Plus and VIDA V1 Pro e-2W models from the start until March 2023.

Ola Electric will refund Rs 130 crore to 1 lakh customers who purchased the Ola S1Pro model between the beginning of the year and March 30, 2023.

OEMs like Ola Electric and Ather Energy declined to comment on the current developments, while TVS Motors applauded MHI's decision. TVS Motor Company's Director and CEO, KN Radhakrishnan said "TVS Motor will offer a goodwill benefit scheme to customers who have paid more than the FAME-set threshold limit." TVS Motor Company will incur a total cost of less than Rs 20 crore. Furthermore, as a responsible corporation, TVS Motor has fully adhered to all government regulations outlined in FAME II. "We're taking steps to reduce ambiguity and ensure a clear policy direction."

Future of EV players regarding pending dues

Other EV manufacturers, such as Hero Electric and Okinawa will have their pending subsidies activated once they pay close to Rs 220 crore in penalties (see table) for violating domestic value-added norms, importing components from China and other markets, and falsely claiming subsidies. It has been learned from MHI sources that there were letters from the Ministry of Heavy Industries, asking for the recall of subsidies close to Rs 220 crore, with Okinawa having to pay in excess of 120 crore.

Hero Electric has confirmed that they have received such a letter from MHI. Sohinder Gill CEO of Hero Electric told Autocar Professional that an MHI letter dated April 1, 2023, has made such demands. Explaining the logic behind the demand he stated, "The issue arose as a result of a difference in interpretation of the validity of FAME certificates versus the policy's stipulated deadlines. We checked the FAME localisation guidelines during the applicable period and discovered that our bikes fully comply with the CMVR and FAME certificates and their extensions during the applicable period. As a result, the issue of refunds and the like is moot. We are in active discussions with the CMVR testing agencies and MHI to resolve this as soon as possible. We are confident that there will be no problems or disagreements with the Ministry on this account." 

While MHI sources confirm that a similar letter has been sent to Okinawa, company officials denied having received such communication. 

Okinawa Autotech's MD and Founder, Jeetender Sharma, denied receiving any notice from the government to refund subsidies for 2019-20 and expressed surprise at the media questions.

Okinawa Autotech has always followed government regulations. In fact, Okinawa was the industry's first to receive FAME II certification in 2019.

Sharma of Okinawa, on the other hand, is optimistic that the problem will be resolved soon. "We believe the government will be fair in its assessments, and that its decision will be consistent across all industry players, not just Okinawa Autotech." Meanwhile, we expect the government to resolve the issue of pending subsidies that have been on hold for the last 12 months."

The total pending recoveries for failure to comply with FAME II norms for the remaining 63 manufacturers registered under the government's FAME scheme are close to Rs 350-400 crore.

Meanwhile, MHI has also directed its testing agencies to conduct investigations into other EV manufacturers to resolve the pending subsidy issue once and for all.

The SMEV spokesperson said that the news about the Ministry issuing clean chits to various companies was a step in the right direction, adding that 'the sector was desperate for a resolution to the subsidy blockade that had all but choked the sector for the previous 15 months.'
 
The EV industry's governing body has stated that MHI must now take a more sympathetic stance towards early adopters of the EV ecosystem, such as Hero Electric, Okinawa, and Ampere, which were market leaders with 82% market share in FY19 and FY20, but have reported a drastic drop in sales and can only muster a 24% market share in April '23.

There are various ways to look at the subsidy and pricing issues, but at their most basic level, they are simply the teething troubles of a nascent industry, said an SMEV representative. 

The Centre provides financial assistance to electric vehicle manufacturers through its FAME II incentive scheme. These firms can offer up to 40% off the cost of locally manufactured vehicles and claim a subsidy from the Ministry of Heavy Industry, which has set aside a total of Rs 10,000 crore for demand-based incentives to drive clean energy into the sector.