Electric vehicles are the buzzword today. In fact, there are two ways for the government to boost any sector. Either subsidise the prices so that demand increases or incentivise production so that supply increases. Let us look at the electric vehicle sector in India in this context.
According to Bloomberg, in 2023, only 2.3% of total passenger cars sold in India were “electric” cars. India thus, needs to adapt to electric vehicles more proactively. Not to forget, our Net Zero Target completion depends largely upon electric vehicle adoption. In this backdrop, the government seems to be smashing both, demand and supply boost buttons at a time to promote electric vehicles in the country.
Recently, the government announced tax concessions to companies investing $500 million for local EV production. As a result, Tesla, Audi, MG motors and JSW are all planning to set up electric vehicle manufacturing units in India.
Additionally, there is already the Production Linked Incentive (PLI) scheme for Automobile and Auto Components, 2021 that supports production of EVs.
On the demand side, we have FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) schemes ongoing since 2015.
The journey of demand side policy measures looks somewhat like this:
FAME I > FAME II > EMPS ’24
- FAME 1 = [1st April 2015 to 31st March 2019.- 4 years] Rs 795 Crore. The scheme benefitted 128 models.
- FAME II = [1st April 2019 to 31st March 2024 – 5 years] Rs 11,500 crore. The scheme benefitted 196 models as per the government website data.
- EMPS = [1st April to 31st July 2024.] Rs. 500 Crore. All OEMs (Original Equipment Manufacturers) will have to re-register, so models count will be clear post March end.
Notably, EMPS 2024 is only for electric two wheelers & three wheelers. The policy explicitly excludes four wheeler cars and heavy electric vehicles.
Let us first look at how EV penetration took place in India over the past decade.
If we check the impact of FAME subsidies, it is clear that two wheelers have benefitted the most. The underlying reason for this could be range anxiety. Range anxiety is consumer worry that his/her vehicle may run out of fuel/power before reaching the destination.
People generally use two wheelers for smaller distances and owners are thus not much concerned about charging stations.
However, for four-wheeler private cars, charging station facilities really matter. There were just 6586 publicly accessible EV Charging Stations in India, as of March 2023, when India will need at least millions of those to address range anxiety. [India has about 66.71 lakh km of road network]
Clearly, this is a long term goal.
That’s why it looks like during this transit time to FAME III, the government wants the electric 2 wheeler momentum to continue. Hence, EMPS is all about electric 2 wheelers and electric 3 wheelers.
Under EMPS, the government is offering a subsidy of Rs 5000 per kWh. [Basically, subsidy is based on battery power]
However,
- Electric 2 wheeler subsidy is capped at Rs 10,000.
- Light Electric 3 wheeler subsidy is capped at Rs 25000
- Heavy Electric 3 wheeler subsidy is capped at Rs 50000
Further, there is a cap of 15% of the ex-factory price, like the revised FAME II.
Also, under EMPS, EV vehicles batteries must comply with AIS156 phase II norms. That means, only advanced battery vehicles can claim the subsidy.
Another major difference between FAME II and EMPS is about warranty. While FAME II had no directive about battery warranty and after sales service, EMPS explicitly makes this mandatory.
ICRA has shared some interesting views on the impact of EMPS ‘24.
- Initial purchase cost will increase by 10% compared to the time when FAME II subsidy is live.
- Initial purchase cost will increase by 70% compared to a petrol scooter.
- Moreover, the payback period will increase by 6 months compared to the FAME II era provided the manufacturer passes on the entire subsidy to customers.
- In spite of the price increase, ICRA also said that they expect e 2W penetration to increase to 6-6.5% compared to 5% currently.
Since it is very much clear that EMPS ‘24 is just a stepping stone to a greater policy action, the industry and consumers await FAME III eagerly.
Surely, the government wants the industry to stand on its own feet as soon as possible. While subsidies are not bad, too much subsidies for too long definitely kill the free market spirit.
We can thus expect policy interventions in some of the following areas in the coming months:
- EV credits: One school of thought suggests that EV policy should make EV manufacturing compulsory. Like there is a system of carbon credits, governemnt can issue EV credits to car manufacturers to incentivise EV production. However, how can we use EV credits system along with PLI remains to be seen.
- Clear Scrapping policy – What happens when an EV’s life runs out? Essentially, there is only one prominent component – battery. Can EVs have substantial scrap value? (We can recycle battery components and use them in other industries.) To bring stability to any such scrapping procedure, there needs to be a clear scrapping policy.
- EV charging infrastructure: As we have seen, while electric 2 wheelers sales are picking up, EV cars/ private vehicles still need a boost. To address this, efficient charging infrastructure is a must. We can also explore models like BOT (Build-Operate-Transfer) to expand the charging station network.
Once we have addressed the range anxiety issue, we can expect private sector manufacturers to build more and more models to serve different consumer needs.
Besides, the government is also actively promoting other green alternatives like Hydrogen fuel cell EV.
Lastly, it is still 5 months until any new policy initiative can be undertaken. A lot of deliberation will take place before the final policy comes out.
One thing is inevitable though. EV is the future. The earlier we can adopt, the better!
Note: The post is for educational purposes only. Not advice.
