Proposed Reduction in Electric Two-Wheeler Subsidies Sparks Concerns Over Affordability

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The Ministry of Heavy Industries has submitted a recommendation to a high-level inter-ministerial panel suggesting a significant reduction in subsidies for electric two-wheelers. The proposal aims to decrease the existing subsidy from 40 percent of the total sales price to 15 percent. While the government argues that this adjustment will allow for a broader distribution of subsidy benefits among electric vehicle (EV) buyers, it raises concerns about the diminished post-purchase advantages for those investing in electric two-wheelers. Although the proposal is still awaiting approval, its potential impact on new electric scooter customers is already being scrutinized.

Currently, under the FAME II guidelines, a subsidy of Rs 15,000 per kWh of battery (up to 2kWh) or up to 40 percent of the electric scooter’s cost is adjusted in the ex-showroom price. While there have been no reported changes to the Rs 15,000 subsidy per kWh, the 15 percent cap on the vehicle’s value will inevitably limit the subsidy amount provided. To illustrate the consequences, let’s consider the Ola S1 scooter, which presently costs Rs 99,999 ex-showroom, inclusive of subsidy benefits. Taking into account the 40 percent value of the scooter (Rs 39,999) and the cap on the subsidy for a 2 kWh battery pack (Rs 15,000 per kWh), the S1 scooter would cost Rs 1,29,999 without subsidies. However, under the proposed changes, with subsidies capped at 15 percent of the vehicle value, the price of the S1 base model would rise by approximately Rs 19,499. Consequently, the ex-showroom price of the S1 would increase to Rs 1.2 lakhs, offering savings of only Rs 10,000 compared to the previous Rs 30,000. This reduction in subsidies would result in diminishing benefits for buyers who opt for more expensive electric scooters as well. For instance, an Ather 450X Pro, priced at Rs 1.28 lakhs ex-showroom, currently receives a subsidy adjustment of Rs 30,000. However, if the proposed 15 percent subsidy limitation is implemented, the ex-showroom value would rise to approximately Rs 1.34 lakhs, with only Rs 23,000 to Rs 24,000 worth of subsidy included.

Similarly, a Hero Vida V1 buyer selecting the top-of-the-line Pro model, with an on-road price of Rs 1.39 lakhs ex-showroom including subsidy, would witness the ex-showroom cost increase to around Rs 1.64 lakhs, with a subsidy of Rs 25,000 instead of Rs 30,000. While it is understood that no government can sustain subsidies indefinitely, this proposal signifies a reduction in the benefits that have played a crucial role in driving EV adoption in recent years. Government sources suggest that the total fund allocation for electric two-wheelers under the FAME II scheme will be increased to Rs 3,500 crore, utilizing the unspent Rs 1,000 crore allocation originally intended for electric three-wheelers. However, the impact of this increased allocation on wider adoption of electric scooters remains uncertain, as the proposal, if approved, would require end consumers to shoulder a greater financial burden. Overall, the recommended subsidy cut raises concerns about the affordability of electric two-wheelers and the potential consequences it may have on the adoption of these vehicles.

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