Electric Two-Wheelers: Manufacturers May Be Betting Big, But It Will All Boil Down To Subsidy

E2W sales, meanwhile, have been setting all-time records. In March 2024, over 1.29 lakh units were sold, as per the data aggregated by Clean Mobility Shift in its Vahan Dashboard.

But even that hangs in the balance as manufacturers are looking to the government for continued subsidies, especially those under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME). 

The Heavy Industries Ministry cut the FAME II subsidy for electric two-wheelers from Rs 15,000 per kWh to Rs 10,000 per kWh in June 2023. Apart from the Rs 5,000 per KWh reduction, the ministry also lowered the maximum subsidy cap from 40 per cent of the ex-factory price of the vehicle to 15 per cent.

This move by the government led to a decline of 56 per cent in the sales of electric two-wheelers in June 2023. However, the setback of the FAME II subsidy cut wasn’t long-lived by the manufacturers as the sales rose again in November 2023 by nearly 50 per cent, which witnessed electric two-wheeler sales reaching 91,243 units. 

These figures, coupled with the sales figures of March 2024, paint a bright picture for the E2W market.

While the FAME II subsidy ended on March 31, 2024, the Ministry launched an alternate scheme, the Electric Mobility Promotion Scheme (EMPS), for four months from April 1 to July 31, 2024. For E2Ws, the EMPS subsidy was capped at Rs 10,000 per vehicle and is expected to announce a FAME III in the upcoming budget in July. 

The sales outlook under FAME II led many companies to bet on E2Ws in a big way. Manufacturers planned higher production capacities and some have even set out to raise money from the stock market through initial public offerings (IPO), indicating a greater confidence in the product and the market. 

Ather, an Indian electric mobility firm, that manufactures and sells electric scooters, has chosen Maharashtra’s Chhatrapati Sambhajinagar for its third plant, which can produce 1 million two-wheelers per annum. Ola Electric has got the Securities and Exchange Board of India's nod to launch its Rs 5,500 crore IPO. 

Recently, Ola Electric Chairman Bhavish Aggarwal hinted that the company is looking to get into solid-state batteries. This move also notes how the company is trying to diversify to maintain its lead in the market. With so many eggs in the E2Ws basket, the future hinges on the continuation of subsidies for E2Ws. 

In an interview, Ather Energy CEO Tarun Mehta said the FAME II subsidy should be continued for a few more years before it can be tapered down. He said the sudden cut in subsidy had cost his company one year’s growth in 2023. Mehta said if the subsidy is discontinued, it would affect the industry for another year or two.

Unlike Mehta, Ola Electric’s Aggarwal seemed to have reconciled to a possible reduction in subsidy. This could also be due to Ola Electric’s bid to get into the battery pack market, which is likely to net good budgetary outlay in FAME III. 

Speaking on the resilience in E2W sales, P Tharyan, Editor, of Motown India, an automotive portal, told The Secretariat, “Indeed, electric two-wheeler sales are still going up, and there are more sales of two-wheelers among electric vehicles but when we compare it with ICE (Internal Combustion Engine), it is fractional.”
 
He said people still have fears surrounding E2Ws, which has kept people from buying them. Incidents of E2Ws catching fire or blasting have given them a bad rap, Tharyan pointed out.

“Some significant factors include range anxiety and the lack of charging infrastructure. Many people prefer to charge electric two-wheelers at home rather than at a public charging station. However, to do so, they would need access to parking spots, which is a concern for many two-wheeler owners as many of them do not have allocated space for parking, where they can install charging points.”

He pointed out another reason for better E2W sales is the gig economy. “The growth of electric two-wheeler sales is getting a push from gig economy companies as they buy in fleets to equip their riders while also meeting their environmental goals. So far, a good part of E2W sales has been piggybacking on gig economy companies,” Tharyan said.

Others attribute more reasons for the rise in E2W sales. Anantharam Varayur,  an investor in EV start-ups, told The Secretariat that the vehicle scrapping policy and the high inflated price of petrol have pushed people towards electric two-wheelers as well. 

However, Tharyan said the gig economy pushing electric two-wheeler sales comes as a caveat because it highlights how private users are still subdued.

Experts said that Ola's IPO move and even Ather's expansion project indicate they are hopeful about the future of the E2W segment. “These moves by the manufacturers indicate they are hopeful of how the future of electric two-wheelers would be. I believe the sales figures will grow even more going forward,” said Varayur.

That said, experts noted there is still a disconnect between the consumers and the manufacturers. “There is a big gap between the supply and demand in electric two-wheelers,” said Tharyan.

In all, the question for E2Ws boils down to this: Will this segment withstand another subsidy cut if the government reduces the budgetary allocation of the subsidy in FAME III? 

“The government needs to handhold electric two-wheelers a little more before letting them walk on their own. This means the government needs to continue its FAME support a little longer,” said Tharyan.

He reiterated that it would be the only way the government can shift consumers’ focus from ICE two-wheelers to E2Ws.

Varayur doesn't agree. “The reduction of FAME subsidy won’t prove to be a deterrent in sales figures. The adoption will still be optimistic in the future,” he added.

He said FAME III budget allocation should focus on and support the manufacturing and infrastructure end. “The market for E2Ws is also evolving and moving towards luxury since high-performance electric bikes are also entering the market,” Varayur said range anxiety continues to hold people back from switching to E2Ws.

Lamenting that India might have missed the bus on taking mitigative climate action measures with electrification, Tharyan added, “The bigger picture for this subsidy is for emissions to be curbed and therefore the government needs to go all out.”

The future of E2Ws and India's goals to curb emissions must go hand in hand. The government needs to consider that consumers are still hesitant to buy E2Ws. 

People are less likely to buy electric vehicles because it is good for the environment and more likely if the cost is competitive. At the end of it all, the Indian consumer is very cost-conscious. Without the subsidy, the cost of E2Ws is not going to come down. 
 
With that thought in mind, the upcoming budget needs to support electric two-wheelers until their manufacturers and the markets are ready to switch off the subsidy.