Tuesday, October 3, 2023

Did FAME-II actually diminish electric two-wheeler sales in FY20?


According to a study by ICRA, the FAME-II scheme that was supposed to promote e-mobility actually resulted in reduced sales for electric two-wheelers.

FAME-II, the ambitious project of the Indian government to promote electric mobility in India, has actually done wrong that good for the industry, especially for the electric two-wheelers, which is one of the key sales-driving segment for e-mobility in the country, claims research by rating organization ICRA. According to the study, the terms and conditions of FAME-II have ended up diminishing the sales volumes for electric two-wheelers.

The factors like tough qualification rules to receive a subsidy under FAME-II, minimum localization requirement, excluding the lead-acid battery-powered vehicles from subsidy have been key obstructions for the growth of electric two-wheeler sales in India, claims the research. Besides that, the Coronavirus pandemic too played a key role in the dampened demand and growth of the electric two-wheelers in the country.

According to the research, the situation will remain unaltered in the FY22 as well, due to the low base.

The study also finds that sales of the electric two-wheelers have dropped after the implementation of FAME-II because of the lesser number of models eligible for subsidy under the scheme. For example, the electric two-wheeler sales recorded 21% YoY growth to 1.5 lakh units in FY20, when the FAME-II was first implemented.

However, the number of electric two-wheelers that availed subsidy under the scheme has declined. By September 2020, while completing its half-way mark of three-year tenure, FAME-II has achieved only 2% of its target, which certainly shows the lack of depth in policymaking.

What caused the diminishing sales?

According to the terms and conditions of the FAME-II, only lithium-ion battery-powered electric two-wheelers are eligible for the incentives, not the lead-acid powered models, which account for around 70% of the total electric 2Ws sold in the country. This naturally hurts the main purpose of the scheme, encouraging electric mobility.

According to the FAME-II policy, the manufacturers have to meet 50% localization content for the models to be eligible for the subsidy. This is really tough in the present condition, as the most expensive component of any EV, accounting for around 40-50% of the total cost of the product. India doesn’t produce lithium-ion batteries for EVs, but imports mostly from China, the largest EV battery producer. This has resulted in stress on local EV makers claiming for subsidy.

Indian consumers at large are still skeptical about electric vehicles and their after-sales services. Moreover, there is a lack of consumer awareness about government subsidies under FAME-II. These have been dominant causes behind the lackluster penetration of the scheme. As per research, around 33% of customers lack awareness about FAME-II benefits, while the rest have limited knowledge.

Shamsher Dewan, VP, ICRA, explained that the electric two-wheeler segment was expected to observe quicker penetration among all segments of the vehicle market, given the great financial aspects and limited dependence on widespread charging infrastructure. Nonetheless, the business versus the targets set under the FAME-II scheme, have been tepid until this point, with even less than 1% of total 2Ws sold in FY20 in India attributed to EVs.

Who are the buyers?

According to 80% of the electric two-wheeler sellers, 80% of the customers in the segment are who already own a 2W and looking for a second one. The predominant buyers of these electric 2Ws are the individuals who seek a second model for the family, usually for youngsters and ladies. With schools and universities shut due to the Covid pandemic, buying a subsequent vehicle has been conceded in the current fiscal.

Most of the customers incline toward ease, low-range lead-acid battery-powered electric two-wheelers, notwithstanding avoidance from FAME-II demand incentive, since they are excluded from RTO enrollment, driving license, and helmet regulations. According to the research, almost 60% of the customers go for the lead-acid alternative as a result of the lower upfront costs as compared to the lithium-ion powered EV.

However, around 44% of the respondents to the study accept that improved battery technology and the arrival of more new models in the segment have helped in the expansion of the electric 2W market, which looks like a promising trend.

What’s there in FY21 and FY22?

ICRA points out that the practicality of FAME-II’s target to reach 10 lakh electric two-wheelers by FY22 is in question at this point. The study showed that 80% of dealers expect flattish to moderate development in electric 2W sales in FY21, though on a low base. Despite the increased interest amid the pandemic, conversion rate remains to be seen.

According to research, in the H1 (April-September) of FY21, the high-speed electric two-wheelers registered a 25% YoY sales decline, majorly due to the pandemic induced lockdown. Several state and central governments too have announced respective policies to promote e-mobility in the recent past, which would drive demand and sales in this space.

For example, Delhi and some other markets across the country have registered slightly increased interest for the electric two-wheelers. However, as the pandemic situation is ever-evolving and the successful vaccination drive is yet to start, the study predicts there would be around a 15%-17% YoY decline in domestic two-wheeler sales volume in this financial year. Incidentally, in the first six months of the current fiscal, two-wheeler wholesales recorded a 38% slump as compared to the same period FY20.

Electric scooter FAME-II

Government and, OEM, financiers’ role

According to the research, the government, OEMs, and financiers need to come up pro-actively to revive the situation in this segment. As the study suggests, the government and OEMs should step up to create customer awareness towards the electric vehicle technology, tax benefits under the FAME-II scheme, financing options available for the EV buyers, etc.

Around 80% of the dealers who participated in the survey, opined that easier and greater financing options in the segment will help in bigger penetration of electric 2Ws. While around 40%-50% of the total conventional two-wheeler sales are financed presently, the percentage drops to 20%-30%, when it comes to financing the electric 2Ws. Hence, the financing companies should come up with easier and greater financing solutions for the buyers to promote the e-mobility.

Also Read: Outlook 2021: Future of last-mile electric shared mobility in India

Team AFT
Team AFThttps://autofintechs.com
The jack of all trades behind the Autofintechs.com


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