On June 11th, the Department of Heavy Industries (DHI) announced partial modifications to the Faster Adoption and Manufacturing of Electric Vehicles in India scheme (FAME II), the flagship scheme of the Central Government which paves the way for electric vehicle (EV) adoption in India. As per ICRA, the changes announced by the Government are positive, especially for the e2W segment. A 50% increase in demand incentive (in the form of higher subsidy) will significantly reduce the upfront price gap between an e2W and internal combustion engine (ICE)-based 2Ws and thereby increase the demand for e2Ws.
The changes announced include:
• Increase in demand incentive for electric two-wheelers (e2W) by 50% to Rs.15,000/kwh from 10,000/kwh earlier
• Maximum cap on incentive for e2Ws increased to 40% of vehicle cost from 20% earlier.
• Aggregation of demand for electric three-wheelers (e3W, up to 3 lakh units) and electric-buses (e-buses) through Energy Efficiency Services Limited (EESL, a joint venture under the Ministry of Power, Government of India) with the objective of bringing down the cost of e3Ws at par with ICE-based vehicles and target greater penetration of e-buses in nine key cities in India, respectively.
On this, Mr. Shamsher Dewan, Vice President & Group Head, ICRA Limited, remarked: “As per ICRA’s estimates, the initial cost of ownership for high-speed e2Ws will incrementally reduce by a minimum 10-12%, (when comparing currently available popular models) and result in a lower payback period. Prior to this, the payback period was estimated to be four years (in terms of total cost of ownership), which now stands reduced to three years.”
In its recently released note, ICRA estimated that e2Ws are likely to achieve 8-10% penetration, in terms of new vehicle registrations, by FY2025 and the recent changes will help in achieving those targets. That said, the introduction of new models (to provide more options to customers), the investment in technology (i.e., developing models with faster charging, higher mileage per single charge etc.) and improving acceptance from financiers also remain keys for achieving faster penetration.
The favourable amendment to the scheme has reinforced the Government’s commitment and intent for India’s EV industry. In ICRA’s view, ongoing investments by both start-ups and industry incumbents will also play a vital role towards India’s electrification journey.
“While the modalities for demand aggregation by EESL are yet to be announced, the Government’s intention of accelerating EV penetration is visible from the recent changes. In the e-bus segment, ICRA expects the Public Private Partnership (PPP) model under Gross Cost Contract (GCC) route to remain the preferred route to reduce financial
burden on the SRTUs,” Mr. Dewan added.