The push to boost the electric vehicle (EV) industry comes at the right time, especially for electric two-wheelers. The interim budget for FY25 lays out plans to strengthen the EV ecosystem by improving manufacturing capacity and charging infrastructure.
However, the effectiveness of these initiatives to accelerate EV penetration remains to be seen, given the large cut in funding for the FAME scheme for the fiscal year 2025, which has been reduced by more than 44% to ₹2,671.33 crore as compared to the revised estimates for FY24.
Although this indicates an increase in the FAME subsidy, the reduction in funding could hurt EV penetration, albeit in the short term.
On the other hand, the budgeted expenditure for production-linked incentive (PLI) scheme for cars and batteries has been increased to ₹3,500 crore and ₹250 crore, respectively, from ₹484 crores and ₹12 crore in FY24. This indicates the government’s intention to move from demand-side subsidies to supply-side incentives, noted Jefferies India.
“The pace of electrification, especially in 2Ws, could face some short-term impact if quantum of FAME subsidies is reduced before PLI disbursements start,” Jefferies analysts said in a report. This could be negative for electric two-wheeler start-ups and positive for the incumbents, it added.
The adoption of electric 2Ws in the Indian market hit roadblocks in 2023 when it was blocked by the cut in FAME II subsidies effective on 1 June.
According to e-services portal Vahan, the share of electric 2Ws remained range-bound at 3-5% during June-December after touching highs of 7% in May. Currently, Ola Electric holds the highest market share in the electric 2W segment at around 31% in 2023, followed by TVS Motor Co. Ltd, which captured 19% share. Bajaj Auto Ltd’s market share stood at around 9% while Hero MotoCorp Ltd’s was over 1%. In the recently held December earnings call, Bajaj and TVS emphasized their focus on expanding their electric vehicles.
Needless to say, the government’s push towards EVs would also benefit other automotive segments such as electric passenger vehicles and electric three-wheelers. The government has also emphasized adoption of electric buses for public transport networks through a payment security mechanism.
Further, the allocation for the PM-eBus Sewa scheme has been increased to ₹1,300 crore in FY25 from mere ₹20 crore in FY24. Automakers like Tata Motors Ltd and Ashok Leyland Ltd stand to gain. Crisil Ratings expects electric bus penetration to double to about 8% by FY25, from about 4% in FY23.
For investors, the government’s initiatives are promising, but the true measure of success will be the resulting volume growth in the EV sector. For now, the industry’s response to these policy changes will be closely monitored.
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