Electric Scooters May Get Costlier by Rs. 45,000 in India as FAME Incentives Taper Off: Crisil

A Crisil report highlights that the penetration of EV has been largely driven by subsidies.

By ANI | Updated: 3 March 2022 19:44 IST

Electric Scooters May Get Costlier by Rs. 45,000 in India as FAME Incentives Taper Off: Crisil

Photo Credit: Unsplash/ Ather Energy

The brisk adoption of EVs is likely to continue now due to better cost economics

Highlights

Incentives have risen to 85 per cent under FAME second phase
FAME incentives likely to get exhausted by fiscal year 2024
The motorcycle segment, too, would be eligible for the PLI benefit

With a strong pick up in the adoption of electric two-wheelers which is translating into robust sales of e-two wheeler companies, there is also a possibility of electric scooters becoming costlier by Rs 45,000 in fiscal 2025, says a Crisil report, which can be offset by the Production Linked Incentive (PLI) for EVs.

The brisk adoption of EVs is likely to continue now due to better cost economics, availability of multiple models, and feasibility of home-charging options.

The sentiment reflects in the quick turnover of e-two wheeler companies. WardWizard, a manufacturer of e-two wheeler called Joy e-bike, registered sales of 4,450 units of the vehicle in February 2022, by recording a robust growth of 1,290 per cent as compared to February 2021 when the company sold 320 units of e-two wheelers, on the back of surging demand in the country.

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In the current financial year (April-February FY 2022), the company crossed the 25,000 sales mark. Another player, Hero Electric has been the first in the industry to develop and launch the first lithium-ion based e-scooters in India and has over 4.5 lakh electric two-wheelers on the roads.

The total sales of electric two-wheelers, including high-speed and low-speed, in the 12-month period (January-December) in 2021 increased by 132 per cent over the corresponding year 2020.

However, the Crisil report highlights the penetration of EV has been largely driven by subsidies, especially the Faster Adoption and Manufacturing of Hybrid and Electric Vehicle (FAME) scheme under the National Electric Mobility Mission Plan and subsidies offered by various states. These incentives have bridged the gap between the purchasing cost of a traditional, internal combustion engine (ICE) vehicle and that of an EV, the report notes.

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From 60-65 percent of total outlay under FAME first phase, the incentives have risen to 85 per cent under FAME second phase. Over the past five fiscal years, subsidies have accelerated EV sales rapidly (more than 20 per cent on-year growth in most segments) on a low base of fiscal 2017 and despite the pandemic, the Crisil analysis shows. Owing to the FAME incentive, the total cost of acquisition (TCA) of electric scooters would be lower than that of ICE variants by Rs 7,500-9,500 in fiscal 2022 and fiscal 2023. Given that sales are expected to spike over the next few years, the FAME II subsidy is expected to get over in fiscal 2023, as against the government deadline of a year later.

This, according to Crisil, means that in fiscal 2025, electric scooters could become costlier by Rs 45,000 compared with fiscal 2023 (Rs 45,000 FAME subsidy and Rs 10,000 registration incentive, even as economies of scale afford a reduction in vehicle prices). The TCA is also expected to increase by Rs 18,000-20,000 between fiscals 2023 and 2025, considering 25 per cent down-payment on the cost of vehicle (plus registration and insurance cost). This will make the TCA of electric scooters higher than that of ICE variants, which can potentially affect penetration, though this can be offset somewhat if electric two-wheeler makers share the benefits of PLI with customers.

As the FAME incentives get exhausted — likely by fiscal 2024 — the PLI scheme could drive EV adoption. The latest PLI scheme for EVs and hydrogen fuel cell vehicles, which is aimed at enhancing India's manufacturing capabilities for advanced products for five fiscals beginning 2023, can restrict any steep increase in TCA and keep it around ICE variant levels, the report suggests.

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So, as FAME II rides into the sunset, PLI could step in to support demand and subsequently push manufacturers to make investments in capacity building. To cite an example, an electric scooter with an ex-showroom price of up to Rs 1.4 lakh (without FAME incentive) and on-road price of Rs 1.04 lakh (net of FAME incentive, and inclusive of registration, insurance and other miscellaneous costs) could realise incentives up to Rs 17,000 per vehicle over the period of the PLI scheme. This is approximately 10-12 percent of the ex-showroom cost of the electric scooter.

Additionally, the TCA of electric scooters could be similar to ICE variants if 75 percent of the expected PLI benefit is passed on to customers. In a scenario where 100 per cent of the PLI benefit is passed on to buyers, the TCA of electric scooters would be Rs 1,000 lower than that of ICE variants.

Overall, the PLI scheme is expected to push up adoption of electric scooters, given the availability of more models and significantly lower pricing. As such, vehicle makers will have enough incentive to invest in the manufacturing of electric scooters, which will boost supplies.

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The motorcycle segment, too, would be eligible for the PLI benefit where, after the FAME II incentives get over, TCA is expected to increase by Rs 15,000 from fiscal 2023 to fiscal 2025. However, limited models and higher price will remain a deterrent versus electric scooters.

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