India’s $1.4 bn Electric Vehicle dream (FAME II) is born!

Within one week of PM Narendra Modi mentioning that the Government wants to make India a world leader in Electric vehicles at the Global Business Summit, 2019, the government published a press release announcing that the much anticipated and talked about scheme, Faster Adoption and Manufacturing of Electric Vehicle (FAME II), is finally approved by the cabinet.

FAME II Approved by Cabinet

Against the earlier expectations that the value of the incentives would range around INR 5500 cr (~USD 770 mn), the total incentives have been marked at INR 10,000 cr (~USD 1.4 bn) for next three years. The focus points of the scheme are public transport vehicles, two-wheeler personal transport vehicles and charging infrastructure. This opens a whole lot of new doors for the up-and-coming EV industry players in India.

According to the press release, a total of 1 million two wheelers, half a million of three wheelers, 55000 four wheelers and 7000 buses would be incentivized in next three years. These numbers are significant, considering that the Indian EV adoption rates have been lagging behind other large economies, such as China. One million 2Ws will constitute nearly 1.5% of total market for the three years period whereas the 3Ws will cover 25%. The other major focus is on installation of 2700 charging stations with an aim to provide a charging station in every grid of 3*3 km.

However, the four-wheeler industry players might not have been pleased as the 55000 4Ws will constitute a very meagre percentage of the market. There could be several reasons behind this: unlike Western markets, two-wheelers are the primary source of personal transport on Indian roads. Also, the entry barrier for electric two wheelers is lower for the consumers against four wheelers since one of the major challenges for adoption of EVs is overcoming the consumer perception and bigger initial investment.

In addition to other measures, like no special license for charging stations, Low customs duty on EV components and various state level policies by many states like Delhi, Andhra Pradesh, Karnataka etc., this scheme will ensure the necessary boost to push more the adoption of EVs in India. This would also encourage new players to enter the market, setup more manufacturing units locally and bring good products to the market.

What’s Next?

One of the areas that the governments should look to support is promoting local manufacturing. Incentives, capital subsidies, infrastructural support is needed specially for new entrants in the industry. Also, the strategy of incentivizing the products should be linked to the performance of the vehicle like China has been doing. Below certain mileage of the product, no incentives should be offered. This would lead the OEMs to improve the technologies and bring in better products for the consumers.

We believe FAME II would act as the turning point for the Indian Electric vehicle industry.

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