July 30, 2023



Kunal Khattar

Thousands of words have been written on the rights and wrongs of the Government of India ‘reducing” the subsidy under the Faster Adoption and Manufacturing of Electric Vehicles phase 2 – FAME II for electric two-wheelers. It was actually an “increase” in subsidy since it had been reset to zero. Hence, I do not want to waste your time by making a long-winded story of what actually happened, but I do want to acknowledge that it is a welcome step that the government has continued with the subsidy under the FAME-II scheme for private buyers of electric two-wheelers.

The total outlay under the FAME-II scheme was Rs 10,000 crore across all vehicle classes, and despite exhausting the Rs 2,000 crore outlay for electric two-wheelers which would have resulted in subsidy going to zero, the government decided to continue with the subsidies, albeit lower, going forward. The reduction of subsidies has made many people disappointed, but as a venture capitalist, if a business is built on a foundation of government subsidies or VC money, how can it be sustainable?

There are of course, other major issues the government and the industry have to deal with, mainly around the failure of FAME-II beneficiaries to adhere to the Phased Manufacturing Program (PMP) aspect. This is a highly controversial issue, but it can be resolved, if both sides, that is the government and electric two-wheeler manufacturers that were empaneled under FAME-II sit down and talk through their issues, instead of arguing through the media.

Coming back to the subsidy retention, this is a good continuation of the FAME-II subsidy, because it is not yet clear if a FAME-III subsidy scheme will be greenlit by the Government once the remit of FAME-II finishes in March 2024. Even if a FAME-III comes to fruition, one still has no idea whether it will include electric two-wheelers or mainly focus on solving for charging infrastructure. Manufacturers, therefore would have had to potentially live without subsidies from next year, going as addicts call it, cold turkey. However, going cold turkey is not easy and many fail. Thus, a gradual reduction of the subsidy will help the industry adapt to a future where there are lower or possibly no subsidies. Just like you do not wean a baby off the milk bottle in one go, you do it slowly, gradually.

The reduction of subsidies will also help the industry adapt with products that users want. The 40 percent subsidy on the total value of electric two-wheelers led to the creation of excellent, albeit high-powered two-wheelers with rapid acceleration, speeds that could easily cross and sustain 100 kilometers per hour and very high ranges. Unsurprisingly, ever since the reduced subsidy has been announced, the two leading electric two-wheeler start-ups in India, Ather and Ola have announced less powerful products based on their existing platforms. The generous subsidies allowed the likes of Ather to sell their powerful scooters like the 450X without making a loss and also funded their development. New products like the 450S might actually be a better fit for India and help electric two-wheelers drive into the mass market.

Despite selling over 100,000 units in May (the last month of the old subsidy scheme), electric two-wheelers are still well under 10 percent of the overall two-wheeler market. But I believe that the electric revolution in two-wheelers has only just begun. These new products, which might be less powerful but more practical and affordable could be the opening that the industry needed and also help them prepare for the eventual weaning of the subsidy completely.

That is not to say that there will be no market for high-powered electric two-wheelers. In fact, two-wheeler market dynamics prove that there is a large market for medium-capacity motorcycles and there are already electric two-wheeler start-ups out there that are addressing this segment. But the buyers of such products are the last people who need subsidies, in fact, they continue to get indirect subsidies in the form of registration and road-tax waivers and even reduced interest rates on vehicle loans. These are all signs that the electric vehicle market in India is in the pink of health and will only go from strength to strength to allow us to end ICE age once again.

This essay was originally published at: https://timesofindia.indiatimes.com/blogs/voices/fame-ii/