Indian Electric Two-Wheeler Sector Sees ₹9,000 Crore Loss Due To Subsidy Discontinuation

Seven electric two-wheeler manufacturers have encountered combined losses exceeding Rs 9,000 crore due to unpaid dues and market loss after the discontinuation of their subsidies last year, according to the Society of Manufacturers of Electric Vehicles (SMEV). These companies have also been instructed by the government to reimburse the subsidies they received.

A preliminary audit conducted by SMEV’s chartered accountants indicates potential cumulative damages exceeding Rs 9,000 crore on a cautious basis. This cursory audit estimates the cumulative losses, encompassing unpaid dues, interest, debt, market share loss, reputation damage, capital expenses, and potential recapitalization, to be around Rs 9,075 crore since the Ministry of Heavy Industries suspended their subsidies starting from 2022, SMEV explained.

The situation is dire for some companies, which might not recover, and others could face closure, SMEV added. Emphasizing the urgency of resolving this issue, SMEV Chief Evangelist Sanjay Kaul underscored the paradox that while the industry discusses attracting $1 billion in investments to the Indian EV sector, the losses incurred nearly match this sum.

In a letter to Union Minister Mahendra Nath Pandey, Kaul highlighted that the OEMs are on the verge of collapse due to increasing daily losses. The letter suggests that if the ministry’s intention was to penalize these OEMs, the prolonged delay is essentially crippling them, as this penalty has persisted for over 22 months, which is, in itself, a significant issue.

“It appears that the OEMs are facing a grave dilemma because, apart from the funds withheld for 18-22 months as outstanding subsidies, and the subsequent demand by MHI to recover older subsidies, their new models have not been permitted for listing on the NAB portal – effectively barring them from conducting business at competitive rates,” Kaul remarked.

SMEV proposes the establishment of a Sinking Fund by the ministry to assist OEMs that are on the brink of closure, providing them with soft loans, grants, or other mechanisms to rejuvenate their operations, as it falls within MHI’s purview to foster the EV ecosystem through financing initiatives.

The government is seeking reimbursement of subsidies from companies like Amo Mobility, Ampere EV, Benling India, Hero Electric, Okinawa Autotech, Revolt Motors, and Lohia Auto.

An investigation by the Ministry of Heavy Industries uncovered that these firms had obtained fiscal incentives under the scheme by disregarding the regulations. The scheme’s rules allowed incentives for electric vehicle production using ‘Made in India’ components; however, the investigation revealed that these seven firms allegedly utilized imported components.

The ministry initiated the investigation following anonymous emails alleging that multiple EV manufacturers were availing subsidies without adhering to the Phased Manufacturing Plan (PMP) rules, designed to boost domestic EV manufacturing.

Consequently, subsidies’ disbursement was delayed in the last fiscal year. To promote electric and hybrid vehicles, the FAME-II scheme, a Rs 10,000 crore program, was introduced in 2019, expanding on the existing FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles) India I scheme launched in 2015 with a total allocation of Rs 895 crore. Incentives primarily apply to three-wheeler and four-wheeler vehicles used for public transport or registered commercial purposes, while the focus in the two-wheeler sector centers on private vehicles.