Mehta believes the subsidy should continue for several more years before being phased out gradually.
Tarun Mehta, CEO and Co-founder of Ather Energy, which ranks as the third largest maker of electric two-wheelers, emphasized the necessity of the FAME subsidy’s continuation for a few more years, followed by a gradual reduction. Addressing the Seminar on EV Manufacturing at the 10th Global Summit of Vibrant Gujarat, Mehta highlighted the adverse impact of a sudden subsidy cut. He noted that Ather Energy experienced a stagnation in growth during 2023 due to an abrupt reduction in subsidy, and he expressed concerns that discontinuing the subsidy after March could lead to another one to two years of stalled growth in the industry.
Mehta explained that without the subsidy, the industry faces a challenging catch-up phase. In the calendar year 2023, they ended with the same sales volume they started with. If plans had proceeded smoothly, their sales could have doubled, indicating a lost year of growth, he detailed.
The FAME II scheme, which began with a budget of Rs 10,000 crore for three years ending in 2022, was extended until March 2024. However, in June 2023, the government cut the subsidy for electric two-wheelers by Rs 5,000 to Rs 10,000 per kWh and lowered the incentive cap for two-wheelers to 15% of the vehicle’s ex-factory price, down from 40%. This reduction occurred after the allocated funds for the two-wheeler segment were depleted. The government also increased the scheme’s budget for electric two-wheelers to Rs 3,500 crore from Rs 2,000 crore to sustain the subsidy.
Mehta believes the industry has evolved to a point where the sudden removal of subsidies won’t be catastrophic, but he warns that an early cessation in April will lead to a period of tight budgeting and hard work, potentially resulting in one to two more years of no growth. This, he asserts, would delay the industry’s progress towards its targets.
Earlier that day, Sullaja Firodia Motwani, Vice Chairperson of Kinetic Green and Chairperson of FICCI’s Mobility Forum, also underscored the importance of demand incentives. She argued that these incentives are crucial for at least five more years until electric vehicle (EV) penetration reaches 20-25%. Once we achieve a 20-25% penetration level, the momentum generated will be sufficient for the sector to sustain itself without external support, Motwani added.