The central government's Department of Heavy Industry June 11, 2021, revised incentives linked with two-wheelers under the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) incentive scheme: Incentive given to per kilowatt-hour (kWh) battery capacity of vehicle models was increased, and the maximum incentive that a vehicle model can receive was doubled.
Before the change, electric two-wheelers were given a Rs 10,000 incentive per kWh, capped at 20 percent of the vehicle cost. This was increased to Rs 15,000 per kWh, capped at 40 percent of the vehicle cost.
FAME II (the revised FAME scheme) in India has been incentivizing electric vehicles (EV) since 2019. According to the live counters on the official website, the scheme has managed to stimulate sales of over 76,000 vehicles in the last two years, amounting to more than Rs 221 crore total incentive.
FAME incentivizes all categories of vehicles: Two-wheelers, three-wheelers, four-wheelers (commercial only), and buses. As many as 34 of the 124 models available under this scheme are electric two-wheelers sold by 10 original equipment manufacturers (OEM) in India, including EV industry leaders like Ather, Okinawa, and Hero Electric.
The decision came amid the country’s slow recovery from the novel coronavirus disease (COVID-19) pandemic to improve electric two-wheeler sales. This was announced when more commuters were expected to look at personal vehicles as their primary mode of transportation to avoid the risk of infection in public and intermediate public transport services.
Apart from personal use, electrification of small-format mobility, especially two-wheelers, can also be leveraged due to an increase in various emerging-use cases after the pandemic, such as ride-hailing, last-mile delivery services, and rentals.
A commuter’s preference towards electric mobility can play an important role in achieving India’s target of 30 percent electrification by 2030 (30@30 target).
Mainstream electric micro-mobility
Electric two-wheelers offer significant cost advantages over their internal combustion counterparts. A 40 kilometer (km) battery range electric two-wheeler running 60-75 km every day can save up to Rs 95 per 100 km in its total cost of ownership over seven years. This was claimed by management consultants McKinsey & Co in comparison with a two-wheeler with a 45 kilometers per liter internal combustion engine (ICE). This amounts to saving more than ₹25,000 every year.
The two-wheeler segment presents an increased consumer willingness to shift to electric than any other segment due to the easy charging options with smaller battery packs. Most electric-wheelers sold in India can be charged by 15-ampere electrical sockets available in every Indian residence.
Alternatively, some OEMs such as Ather also provide an option to purchase a small wall-mounted charger to charge their vehicles in their garages and apartment parking areas.
The electric two-wheeler segment saw significant growth in 2020-21 despite the downturn caused in the Indian automobile industry due to the pandemic due to these advantages. Between fiscal years 2020 and 2021, a 65 percent increase in electric two-wheeler registrations was recorded, and the market share of electric two-wheelers improved slightly, according to Vahan, a road transport ministry database.
The vehicle stock, however, is still too low to consider this a proper win. In 2020-21, only 41,000 electric two-wheelers were registered in the country instead of the 1.1 crore conventional ICE two-wheelers. This means the former had a market share lower than 0.50 percent.
Consumer demand and industry reaction
According to an analysis by the Center for Science and Environment, an average two-wheeler eligible for incentives received a 22 percent reduction in the purchase cost of the vehicle under FAME through June 10, 2021, according to an analysis by the Centre for Science and Environment, a Delhi-based non-profit.
After the revision in the incentive structure under FAME, an eligible two-wheeler can enjoy an average cost reduction of 35 percent, which is a major improvement for the segment.
In India, 16 states now have either a notified or a draft public EV policy aligned with the electrification target of the nation. To achieve the objectives stated in these policies, many states are also offering fiscal incentives to the buyer and the FAME incentives.
Tarun Mehta, CEO of Ather Energy, termed the day as a “demonetizing moment for the EV industry” on the microblogging site Twitter. Electric two-wheelers are expected to disrupt the market due to this additional incentive, reaching 6 million units by 2025, he added in an interview.
This change can induce indigenous development of future technology as manufacturers will invest more towards sustainable mobility solutions due to the increased consumer demand, said Sudhanshu Venu, joint managing director at TVS Motors.
Euler Motors ' founder and CEO, Saurav Kumar, said that relaxation and revision would ensure more OEM participation and more vehicle models can be subsidized under the scheme.
Two-wheelers have the maximum potential for rapid electrification in India due to the increased consumer readiness to adopt than other segments. The decision to prioritize two-wheelers and increase incentives for the segment was a good mix of careful attention to the trends and rapid response by the government.
The two-wheeler segment had seen a boom in market share starting in 2019 when FAME II was notified. The scheme gave both commercial and private two-wheelers (the only vehicle segment to receive incentives for both) registered in India.
This change, combined with the resurgence of small-format mobility after the pandemic, can recreate a similar market disruption for two-wheelers.
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