Subsidy Cuts Push E2W Makers Towards Budget Models

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Electric two-wheeler manufacturers face reduced government subsidies and growing competition from established petrol vehicle brands in the upcoming fiscal year. These challenges compel them to introduce more affordable products for potential customers.

India’s electric two-wheeler (e2w) industry is facing a pivotal moment as government subsidies start to dwindle, prompting manufacturers to focus on launching more affordable models with fewer features and shorter ranges. Starting April 1, the purchase subsidy for e2w will be further reduced, following a previous cut in June 2023. Additionally, a new subsidy scheme will only be valid for four months, creating uncertainty in the industry. This situation raises the question: Will this uncertainty drive innovation?

e2w manufacturers are grappling with reduced government support in the next fiscal year and increased competition from well-established petrol vehicle companies. These challenges are pushing them to introduce more budget-friendly products for potential customers. As subsidies became increasingly difficult for some manufacturers in FY24, some former market leaders nearly ceased operations, with monthly sales plummeting compared to the previous fiscal year. These manufacturers maintain minimal production to fulfil past commitments on service and warranties.

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The most severely impacted manufacturers are those accused of subsidy misappropriation. The government has halted subsidies for them and demanded the return of the disputed subsidy amounts. As a result, FY25 begins on a sombre note for India’s e2w industry.

The Electric Mobility Promotion Scheme 2024 (EMPS), effective from April 1, introduces new requirements for vehicle certification, excludes four-wheelers and buses from subsidy eligibility, and reduces the overall subsidy amount for two-wheelers. The scheme has a budget of INR 500 crore for four months, until July 31, and aims to provide subsidies for about 3.72 lakh electric two and three-wheelers. Under EMPS, e2w are eligible for a subsidy of INR 5000 per kWh, capped at INR 10,000 per vehicle, with the factory price of the vehicle not exceeding INR 1.5 lakh.

Industry leaders express concerns about the impact of subsidy reductions on inventory management and electric vehicle adoption targets. While some manufacturers have shifted their focus to more affordable bikes to benefit from reduced price pressures, they may require capital support to manage working capital crises post-subsidy. The current situation has led to popular electric two-wheeler brands being sold at significant discounts due to high inventory levels with dealers. However, prices may increase once subsidies are reduced or removed, potentially dampening electric vehicle adoption in the short to medium term.

Experts suggest that government support in areas other than direct purchase subsidies, such as easier financing options, could help sustain the industry’s growth. The Production Linked Incentive (PLI) scheme, which aims to support various sectors, including automobiles, is seen as an alternative to direct demand subsidies. However, the PLI scheme’s impact on the electric vehicle industry has been limited so far, and the industry is still recovering from the investigation into the alleged misappropriation of funds under the previous FAME scheme.

In conclusion, India’s e2w industry is at a crossroads, with manufacturers adapting to a changing subsidy landscape and seeking new ways to maintain growth and competitiveness.

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Aryaman Raghuvanshi
Aryaman Raghuvanshi
Aryaman Raghuvanshi is a Journalist at EFY. His passion is to explore the future of mobility, which gets him to cover latest technologies shaping the future of automobiles and EVs. But, at times he writes on broader technologies too. LinkedIn: https://www.linkedin.com/in/aryaman-raghuvanshi-2431b7153

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