Electric two-wheelers weigh the cost of subsidy cuts

The subsidy cut will take up the price of electric scooters by  ₹5,000-12,000, although manufacturers may decide to absorb some of it.
The subsidy cut will take up the price of electric scooters by 5,000-12,000, although manufacturers may decide to absorb some of it.

Summary

  • The subsidy for electric two-wheelers has been halved from 10,000 per kwh to 5,000 per kwh. The maximum subsidy per vehicle has also been capped at just 10,000.

A steep reduction in subsidies on electric two-wheelers is set to increase prices for the second time in a year, by up to 12,000 in FY25. Will it undermine growth in an industry that is already facing multiple headwinds? Mint finds out.

Why has the subsidy been slashed?

The electric mobility promotion scheme was announced by the ministry of heavy industries in March with a duration of four months from April to July 2024. It acts as a bridge scheme between Fame 2, which expired on 31 March 2024, and the likely announcement of a new scheme in the full budget in July after the new government is sworn in post the general elections. Under this scheme, the subsidy for electric two-wheelers has been halved from 10,000 per kilowatt hour (kwh) to 5,000 per kwh. The maximum subsidy per vehicle has also been capped at just 10,000.

Is the subsidy revised often?

Since the announcement of the Fame 2 scheme in 2019, this is the third time the subsidy on electric two-wheelers has been revised. The original scheme, announced with an allocation of 10,000 crore for five years, provided a subsidy of 10,000 per kwh, which was capped to 20% of the ex-factory price of a vehicle. This was hiked to 15,000 per kwh in June 2021 and the cap was also increased to 40% of the cost of a vehicle. In June last year, the government reversed the subsidies back to the original levels. The new scheme reduces it further and subsidies are now at their lowest level since 2019.

 

How does it impact electric two-wheelers’ price?

The subsidy cut will take up the price of electric scooters by 5,000-12,000, although manufacturers may decide to absorb some of it. For example, the subsidy on the Ola S1 Pro now comes down to a flat 10,000 from 22,268. Till June last year, the scooter received a subsidy of almost 60,000. For now, Ola has decided not to increase the price of the scooter.

How have electric two-wheeler sales grown?

Spurred by the incentives under Fame 2, electric two-wheeler sales have jumped from under 20,000 units per annum in 2018-19 to over 910,000 in 2023-24. With the caveat of high base, the pace of growth slowed down last fiscal to 20% from 65% in 2022-23. This is partly due to the subsidy cut last year, which resulted in a sharp decline in sales for at least four months between June and September. This is likely to be repeated this year as sales could be subdued till a new policy is announced in the budget in July.

How is the industry adapting to it?

It is gradually coming to terms with the subsidy cuts and preparing for a non-subsidized regime in the not-too-distant future. While E2Ws are more expensive than their petrol counterparts, higher subsidies in the past meant consumers could use the lower running cost of an EV to break even in just 4 years. That has gone up to over 5 years now. With not much incentive on offer for vehicles with bigger batteries, firms are selling smaller battery variants to reduce the price while cash discounts are rare.

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