EV makers should learn to survive sans support

Photo: iStock
Photo: iStock


Electric two-wheeler makers may face uncertainty with a big subsidy cut, but they should get used to a level playing field. That might be just the nudge they need to turn competitive

Starting 1 June, the subsidies given to electric two-wheelers under the government’s Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme will stand sharply cut to 10,000 per KwH from 15,000 per KwH, with the maximum subsidy permissible slashed to 15% of the overall cost of a two-wheeler from 40%. This has understandably disappointed many manufacturers. With the economies of EVs still significantly below those of conventional fuel vehicles, the price increases this subsidy cut will result in could significantly hurt demand. EV two-wheelers are expected to get expensive by as much as 30,000. That could take prices close to the 150,000 mark, substantially widening the gap with conventional two-wheelers, many of which sell for well under 100,000. In India’s price-sensitive market, this could tilt the consumer’s value proposition curve. Manufacturers of conventional two-wheelers are expectedly hailing the move for correcting the distortive effect in market pricing these subsidies caused. Of course, their motivation may owe to the threat that EVs pose for their future.

Nevertheless, there’s no denying that subsidies distort the playing field to the disadvantage of those who don’t get them and in favour of those who do. India’s retail fuel market is an example. It hasn’t seen private participation grow due to subsidies for state-run retailers. The aim here is to keep inflation in check as fuel prices feed into the prices of just about all goods through transport costs. But for consumers, this has restricted choice, depriving them of the benefits—by way of better products and lower prices—that a free and competitive market ought to bring. In the two-wheeler market, too, these distortions are present. While EVs may yet have a small share of the overall market, conventional two-wheeler makers may have reason to claim that it has come, at least partly, at their cost. Besides, the subsidy has been cut, not eliminated. So, the incentive continues, even if limited, aside from other state benefits such as rebate in registration taxes and a lower rate of goods and services tax that EVs still enjoy.

To be sure, subsidies can be a legitimate policy tool to incentivize demand and production in areas where policy focus is called for. In this case, the government has been unambiguous in stating its intent of seeing a shift to green mobility. It committed to subsidizing sales of 1 million electric two-wheelers, which has been substantially achieved. This probably was why it scaled the support back. But it may also be seeing the industry at fault for failing to increase local production as much as it was expected to, in lieu of its support. So, while it grew on the back of state support, it might have let policy down. Despite this growth, though, their share of under 10% of overall two-wheeler sales still is small, and points to the long way electric two-wheelers have to go in the green transition. Ideally, subsidies should be withdrawn once sales reach an inflection point from where the industry is able to sustain itself on its own. Admittedly, that point may not have been reached yet. The costs of batteries that form the bulk of EV costs are quite high. Also, India’s EV infrastructure hasn’t kept pace. But subsidies can’t continue in perpetuity. The government has broadly kept its end of the promise. It may now be time for EV makers to start getting used to surviving without state support. That might actually be the nudge they need to get competitive.

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