Electric Two-Wheeler Growth Slows To 25% Amid FAME-II Subsidy Reductions


Following a substantial surge to 7.3 lakh units in the previous fiscal year, the growth rate of electric two-wheelers (e2Ws) is expected to decelerate to approximately 25% this fiscal year. This slowdown is a result of the recent reduction in subsidies under the FAME-II scheme, leading to price increases in existing e2W models.

However, e2W manufacturers are adjusting to the new subsidy framework by introducing more affordable variants with smaller battery sizes. Over the medium term, the adoption of e2Ws is set to increase due to a favorable total cost of ownership (TCO), projected reductions in acquisition costs driven by economies of scale and increased localization of components.

The subsidy change, effective June 1, 2023, reduced the FAME II subsidy to INR 10,000 per kWh of battery with a cap of 15% of the ex-factory price, down from INR 15,000 and 40% previously. As a result, manufacturers passed on the subsidy reduction to customers through price hikes of up to 15-20% for existing models, making e2Ws more expensive than conventional petrol-driven counterparts.

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Despite the initial impact on e2W registrations, the industry has seen gradual growth in the second quarter, with a monthly average of approximately 60,200 units, a 36% year-on-year increase for the first half of this fiscal year.

Vaidyanathan, Director at CRISIL Ratings Limited, noted that favorable economics for e2Ws continue to support industry growth, as the total cost of ownership remains lower than petrol variants, even with the current subsidy regime. E2Ws have lower running costs per kilometer, making them cost-effective over their lifespan.

Moreover, the top four e2W manufacturers have introduced models with smaller battery sizes and maintained performance in terms of top speed and power. The new models offer a lower upfront cost, enhance affordability, and are suitable for intra-city commutes.

These steps, coupled with expected festive-season demand, are expected to support e2W growth in the second half of the fiscal year, resulting in a total growth of approximately 25% in e2Ws for the fiscal year.

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This will translate into a modest increase in e2W penetration, reaching around 5.3% of the overall two-wheeler market for the fiscal year 2024, up from 4.5% in the previous fiscal year and less than 2% in fiscal 2022.

Looking ahead, the trajectory and penetration of e2Ws are expected to accelerate over the medium term, driven by increasingly favorable TCO, government policies, and the production-linked incentive scheme. Internal combustion engine (ICE)-based vehicle makers are also entering the e-2W market.

The road ahead will see the impact of regulations, government support, and technological evolution, with the FAME-II scheme’s sunset being a key development to watch.

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