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Business News/ Industry / Manufacturing/  Subsidy on electric vehicles may not cheer manufacturers
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Subsidy on electric vehicles may not cheer manufacturers

Low fuel cost, high local taxes can keep demand in check even as many firms think incentives have come a little late

A file photo of the Mahindra Reva plant in Bommasandra, Bengaluru. Sohinder Gill of SMEV says only 16,000 electric cars and two-wheelers will be sold in FY15, down from 100,000 in FY12. Photo: Aniruddha Chowdhury/MintPremium
A file photo of the Mahindra Reva plant in Bommasandra, Bengaluru. Sohinder Gill of SMEV says only 16,000 electric cars and two-wheelers will be sold in FY15, down from 100,000 in FY12. Photo: Aniruddha Chowdhury/Mint

Mumbai: The government’s green subsidy on electric vehicles, starting on 1 April, may do little to help their manufacturers—the current low fuel costs and high local taxes could combine to keep demand in check. And going by past experience, firms are sceptical about how long the government’s support for the electric vehicles will continue.

Starting 1 April, buyers of electric and hybrid vehicles, depending on the speed and efficiency of the vehicle, will get an upfront discount of one-third of the difference between the price of that particular vehicle and a comparable petrol model.

For instance, the price of a Hero Wave DX, a high-speed electric scooter from Hero Electric is 44,500 (ex-showroom, Mumbai) while that of the Honda Activa from Honda Motorcycle and Scooter India Pvt. Ltd is 65,000. The buyer of the Wave DX will get it at a discount of 7,166.

The manufacturer will be reimbursed by the government for this discount in 60-90 days, said Sohinder Gill, president, at Society of Manufacturers of Electric Vehicles (SMEV), the industry lobby. The higher the efficiency of the electric/hybrid vehicle, the greater the subsidy.

“The incentives will help but is unlikely to swing demand in favour of electric vehicles in a big way given the high acquisition costs and the technology related issues," said Rakesh Batra, head of automotive sector at consultancy EY, adding that softening oil prices further weaken the incentive to buy electric vehicles for customers.

“Whenever oil prices drop, sales of hybrid vehicles fall, that’s been the global trend," said Batra.

Petrol prices have been cut by 17.11 a litre in 10 reductions since August 2014 and diesel by 12.96 a litre since its deregulation in October, following a steep drop in global crude oil prices, bringing down the effective cost of owning a conventional vehicle.

Along with a change in fuel pricing, levies such as value added tax (VAT) are also creating some ambiguity for manufacturers.

States such as Uttar Pradesh, Punjab, Chandigarh and Goa have a VAT ranging from 12-14% levied on electric vehicles, while Maharashtra levies a 5% VAT and other taxes, including Octroi, of up to 4.5% to make a total of up to 9.5%.

This, said Gill, will defeat the very purpose of the subsidy and make vehicles all the more expensive.

Ambuj Sharma, additional secretary, department of heavy industry, the nodal ministry which is implementing the NEMMP, said his ministry is in talks with various state governments to sort out the issue regarding VAT and registration charges, among other things.

“We are meeting on 8 April. We will request them to consider best practices of states like Delhi," he said, adding that the government is also in discussions with various stakeholders to set up charging points in shopping malls, offices and other public spaces thus addressing a major hindrance in the spread of such vehicles in India.

“What has been announced in the budget is the first step," said Sharma, while trying to allay apprehensions regarding the adequate allocation of funds for schemes meant to promote electric vehicles.

Manufacturers are hopeful the subsidy scheme will push up volumes to some extent but remain cautious about committing additional investments until the market picks up.

“Presently, a lot of manufacturers are on the fence to see how the policy pans out," said Chetan Maini, chief executive officer of Mahindra Reva Electric Car Co. Ltd, adding that he expects the incentive to spur sales by 30%—a substantial growth rate, albeit a small base, that will benefit further from expansion into newer cities.

The company also expects the incentives to allow it to launch the model in cities other than Bengaluru, Mumbai and Delhi, where it is currently sold.

Mahindra Reva manufactures the model E2O which is India’s only pure electric car.

Mahindra also offers an innovative battery rental scheme for the E20. The scheme, called Goodbye Fuel Hello Electric (GFHE), “has been received well" as it addresses concerns over battery life, lowers initial investment and guarantees performance and support, Maini said in an email response.

C.V. Raman, executive director (engineering) at Maruti Suzuki India Ltd, said the company has been showcasing models, including SX4, Eco and Swift with alternative powetrain at various events over the last two to three years.

However, it would consider them launching commercially only after “getting further clarity on key aspects, including technology development fund, charging infrastructure and demand incentive," he said. “While we are encouraged by the move, better clarity on the road ahead will help," said Raman.

Officials at Tata Motors Ltd and Ashok Leyland Ltd also echoed similar sentiments.

“We are in the state of readiness," said T.V. Venkataraman, head-global bus at Ashok Leyland. The Chennai-based truck and bus maker has been showcasing its hybrid and other technologies, even though the viability of commercial launch will depend on the way the incentives fructify, he said.

In an email response a Tata Motors spokesperson said, “Tata Motors has been working on many new technologies to address current and future customer needs," adding that the firm is ready to accept orders for larger buses propelled by hybrid technologies, for delivery in early 2016. “Bangalore Metropolitan Transport Corporation has floated a tender for 30 hybrid diesel city buses, for which we have quoted and emerged as the sole qualifier," said the spokesperson.

Some experts, however, feel that the government’s efforts to kick-start the market for electric vehicles has come a little too late.

The number of electric two- wheeler makers has fallen from 28 in 2011-12 to seven in 2014-15 and their existing 10,000 dealers have an unsold stock of 30,000 units, said Gill, adding that only 16,000 electric cars and two-wheelers will be sold in fiscal year 2014-15, down from 100,000 in 2011-12.

“The delay in policy implementation has almost wiped out the industry," said Gill.

EY’s Batra believes sales of pure electric vehicles will not take off in a big way unless there is a technological breakthrough related to charging and the range of batteries, which remains a key deterrent for such vehicles.

“Subsidies alone might not work," he said, pointing out that even globally the adoption of electric vehicles has been weaker than originally anticipated.

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Published: 01 Apr 2015, 12:58 AM IST
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