Impact of Subsidy Reduction and Its Impact on Sales Performance
The FAME 2 (Faster Adoption and Manufacturing of Electric Vehicles) scheme, which was launched by the government of India in April 2019, has been one of the key drivers of the electric vehicle (EV) market in the country.
The scheme provided financial incentives in the form of subsidies for purchasing electric two-wheelers, which helped to reduce the cost gap between electric and conventional vehicles.
However, on June 1, 2023, the government announced a reduction in the FAME 2 subsidy for electric two-wheelers, citing the need to rationalize the subsidy allocation and ensure that a larger number of people benefit from the Rs 10,000 crore allocated subsidy.
The subsidy was reduced from Rs 15,000 per kWh of battery capacity to Rs 10,000 per kWh, and the cap on the maximum subsidy was lowered from 40% to 15% of the ex-factory price of the vehicles.
This decision has had a significant impact on the EV sales of various companies, as well as on consumer sentiment and the industry outlook. We will try to analyze the impact of this subsidy reduction on different aspects such as:
Sales performance and market share
According to the data from VAAHAN, the official portal for vehicle registration in India, the sales of electric two-wheelers witnessed a sharp decline in June 2023, compared to May 2023. The table below shows the sales numbers and percentage change for five major EV companies in India:
|SR. N.||Company Name||Sales in May||Sales in June||MOM Growth (%)|
As can be seen from the table, all the companies suffered a loss in sales numbers after the subsidy reduction, ranging from 10% to 70%. Ola Electric, which was the market leader in May 2023 with a share of 36%, saw its sales drop by 38.62%, losing its top position to TVS Motor. TVS Motor also faced a steep decline of 61.80%, but managed to retain its second position with a share of 23%. Ather Energy and Bajaj Auto saw their sales plummet by more than 70%, losing their third and fourth positions respectively to Okinawa Autotech and Hero Electric. Okinawa Autotech was the least affected by the subsidy reduction, with a loss of only 10%, while Hero Electric gained from its low-cost models and increased its sales by 12%.
The overall sales of electric two-wheelers in June 2023 stood at 33,131 units, which was a drop of 56% from May 2023’s figure of 75,305 units. This shows that the subsidy reduction had a negative impact on the demand and growth of the EV market in India.
Price and affordability
One of the main reasons for the drop in sales was the increase in prices of electric two-wheelers due to the lower subsidy. The prices of some popular EV models before and after the subsidy reduction are given below:
|SR.N.||Company Name||Sales in May||Sales in June||MOM Growth (%)|
While higher EV prices may temporarily slow India’s electric two-wheeler industry, it is expected that customers will begin to absorb the price increases and retail sales will gradually recover.