The Price hike in EVs is due to an update in the FAME-II scheme.
Electric two-wheelers in India will get costlier from June 1, 2023. The incentive is now reduced to 15% of the EV's ex-factory price instead of the 40% advantage previously offered. The Ministry of Heavy Industries has revised the FAME-II subsidy amount to Rs 10,000 per kWh, against Rs 15,000 per kWh earlier. Due to this reason it is expected that the most electric vehicles can be costlier by around Rs 25,000 to Rs 35,000.
The FAME-II scheme was launched three years ago, for which the government fixed an amount of Rs 10,000 crore. It was launched on April 1, 2019, and received a two-year extension in June 2021, increasing the effective period of the subsidy scheme to March 31, 2024. In June 2021, MHI increased the incentive amount from Rs 10,000 per kWh to Rs 15,000 per kWh to accelerate the demand for electric two-wheelers. Now, the incentive will become the same as before, resulting in price hikes for Electric Vehicles.
As a result of this latest revision, all-electric two-wheeler manufacturers eligible for the FAME-II subsidy may have to increase their product prices by around Rs 25,000-35,000. For example, the subsidy amount available for Ather 450X and Ola S1 Pro currently ranges between Rs 55,000 - 60,000. The new revised rates will reduce the subsidy amount available to less than half. In such a situation, their prices will increase by Rs 25 to 30 thousand per unit.
With the sudden rise in electric two-wheeler prices, sales will also be affected. If somebody is planning of buying a new electric two-wheeler, buy it by the end of May; otherwise, you may have to pay Rs 25,000-35,000 more after June 1, 2023. However, the automakers have not given any official information to make their products costlier.
The analysis provided by industry experts suggests that the reduction in the FAME-II subsidy could have varying effects on electric vehicle (EV) makers in India. Companies that have invested under the government's Production-Linked Incentive (PLI) Scheme may be better competitive than those that did not.
The PLI scheme provides financial incentives to boost domestic manufacturing and increase the production of EVs in India. Larger players, such as Hero MotoCorp, Ola Electric, TVS, and Bajaj, who already qualified for PLI scheme benefits, may offset a part of the subsidy loss through these incentives. This could lead to better market share for these established players.
On the other hand, smaller players and start-ups who still need to qualify for PLI scheme benefits may face challenges due to the reduction in the FAME-II subsidy. They may experience a loss of market share as they need help to compete with the larger players who can leverage the PLI scheme's advantages.
The impact on valuations for companies that rely on the transition to electric vehicles may also be affected by the slower pace of EV penetration resulting from the subsidy cut. It is expected that before the FAME-II subsidy comes into effect. Buyers will be in a hurry to buy these zero-emission vehicles for maximum benefits.
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