Several EV makers may be forced to file for bankruptcy post imposition of FAME II penalties

Amid rising challenges on the FAME-II subsidy and its resultant violations and penalty, multiple electric vehicle companies may be forced to file for bankruptcy. 

As the deadline for penalties looms, three out of the seven OEMs Hero Electric, Benling Motors and Ammo Mobility, have requested the Prime Minister's Office (PMO) to press the Ministry of Heavy Industries (MHI) to resolve the issue.

In a letter to the PMO and MHI, which has been reviwed by by Autocar Professional, they have said that fair reasoning should prevail. "In the wider interests of all stakeholders, or the OEMs signatory to the letter will be forced to file for bankruptcy,” Sanjay Kaul, the newly appointed Chief Evangelist of the Society for Manufacturing of Electric Vehicles (SMEV) said. 

“It seems they believe they (OEMs) are being arm twisted into accepting wrongdoing, or face the pain of business closure, Kaul said in his letter to the Minister of Heavy Industries and the PMO. 

The deadline for paying the Rs 500 crore penalty for violating the phased manufacturing programme (PMP) norms that require 50 percent of manufacturing to be done with locally sourced components, is this week.

The note further said, "It is in the interest of the component makers, investors, and other ecosystem providers who have made substantial investments of over Rs 3000 crore, that the government “develop a settlement mechanism to pay the Rs 1500 crore that the government owes to the industry players and Rs 500 crore that the industry must pay for policy violations.”

According to the letter, MHI's refusal to reinstate their accreditation to the National Automotive Board website, which has been blocked, has hampered the OEM's ability to apply for FAME II subsidies.

OEMS fear they will go belly up
Should the dialogue fail to happen in the next few days, the impacted OEMs told Autocar Professional, that "they will be forced to go belly-up in the aftermath of the crisis.”

According to Kaul, if there is misconduct by any of the OEMs and their actions are shown to be incoherent with the policies, they should be penalised. 

It is not in the spirit of fair governance if the government refuses to consider the Rs 1,500 crore in pending dues, owed to manufacturers and wants to penalise the OEMs thrice for one mistake, says SMEV’s Kaul.

Regarding the fines imposed, the OEMs informed MHI and ARAI through several letters that in the early 2020 period, the EV component ecosystem had not been developed and COVID had limited their ability to manufacture at scale," Kaul adds.

While the MHI Minister Mahendra Nath Pandey stated that the FAME scheme has benefited the auto industry as a result of the government's pro-industry policies, SMEV has questioned why the government has not blocked Ola, Ather, and TVS's NAB access, despite finding these companies guilty of falsely claiming subsidies.

The MHI investigation discovered that these OEMs kept their vehicle prices low in order to claim subsidies and that they mispriced their scooters by billing integral parts separately.

"Is overcharging a customer a lesser crime than passing on a subsidy to the customer?" an SMEV spokesperson inquires. "The government cleared the legacy manufacturers and even though the incumbents established that the OEMs did not receive the subsidies, they will continue to prohibit the ones who have passed, and continue to pass on subsidies, which is unfair," the SMEV spokesperson says.

What does MHI have to say?
According to the Ministry of Heavy Industries, over seven enterprises were found guilty of not following the Phased Manufacturing Programme (PMP), based on an inquiry conducted by the Automotive Research Association of India on behalf of the MHI.

As per the MHI sources, these firms have broken the FAME-II subsidy norms, by failing to comply with OEMs, indicating that at least 50% of the components in their vehicles are manufactured and sourced in India. 

 "They have been found guilty. So there is no witch-hunting going on here. Pay first, and then we will consider reestablishing NAB certification," MHI sources added.

The government has issued notices worth Rs 500 crore to Hero Electric, Okinawa, Greaves Electric Mobility, Benling India Energy, Revolt Intellicorp, and AMO Mobility.

The individual amounts of Rs 249 crore from Okinawa Autotech (Rs 116 crore) and Hero Electric (Rs 133 crore), Revolt (Rs 44 crore), and Amo Mobility (Rs 80 lakh), have been demanded by the government for infringement of PMP norms.

FAME II has impacted investor and startup sentiment
Mumbai-based electric motorcycling firm Odysse Electric, which had plans of raising money to set up multiple factories, has decided to slow down its plans amid uncertainties over subsidies for EVs.

Nemin Vora, CEO and Founder of Odysse Electric said that potential investors have deferred their plans to invest as they awaiting clarity from the government on future policies. “There is a talk of Fame III, no one knows how and when it is going to make its debut,” he says.

“The government should make up its mind once and for all what they want to do with the policy making, and once they have made up their mind, there should be consistency, basis which OEMs can also plan their future," he stated.

An industry spokesperson said that the original goal of FAME was to convert the greatest number of (polluting) scooter users to Electric Vehicles, at the mid- or entry-level customer buyers, by offering them subsidies and making it affordable - bringing it as close to that of fuel-powered scooter prices.

The industry spokesperson rued, however, that the government under the influence of some other large manufacturers upped the subsidies to also include premium electric scooters with battery packs up to 4kw, by which the subsidies which were around Rs 15,000 per kwhr jumped to Rs 60,000 for batteries up to 4kwhr and ended up emptying the FAME subsidy coffers. The government then was forced to cut the outlay to Rs 10,000 per kwhr and from 40 percent to 15 percent on July 1, 2023.

Besides Odysse, Electric Motorcycle maker Matter, which has invested more than US$ 30 million in its EV plant in Ahmedabad, is worried by a series of changes that have increased the pricing of electric motorcycles by more than Rs 50,000, putting its products out of reach for customers.

Arun Pratap Singh, Matter’s Chief Operating Officer, stated recently that the frequent changes in government policy have put OEMs that are eager to introduce new products in a bind because their calculations have gone awry.

"As start-ups accelerate technological development for EV transition, government subsidies will be a key enabler for widespread adoption," he added.