FAME II: E2W makers want govt to delay localisation norms by 12-18 months

The supply chain for electric two-wheelers (E2Ws) is coming into shape but still not ready, argues the industry association SMEV

The Society of Manufacturers of Electric Vehicles (SMEV), the association for electric vehicle makers, is petitioning the government to extend the deadline for reaching localisation requirements by another 12-18 months. According to the association, the supply chain for electric two-wheelers (E2Ws) has now started to come into shape, but it will take 12-18 months for the capacity and capability of vendors to match the exponential growth of E2W.

The government had fixed localisation of 51 per cent of the cost of production of an E2W as a key requirement for companies to be eligible under the FAME II subsidy scheme by April 2021.

The association has also suggested that rather than keeping a time frame for subsidies under the proposed FAME III, the government can also think of linking subsidies to the volumes of E2Ws. Various analyses show that the growth trajectory of the E2Ws can be sustained with tapered subsidies after the E2Ws reach a conversion rate from ICE to electric of around 20 per cent (currently, it is 5 per cent for two-wheelers). As the outlay would be far higher than FAME II, it has suggested generating enough resources through the "green tax" or "polluters pay" principle.

Sohinder Gill, director general of SMEV and global CEO of Hero Electric, says, "Earlier volumes were so low that building a local supply chain was a challenge. Most suppliers were not interested. Now with volumes going up and economies of scale, it is changing and all E2W companies, as well as vendors, are making investments. We are asking for around 12-18 months to reach the localisation norms. It can be done simultaneously with the launch of FAME III for instance."     

The move is significant as the government has hauled up many E2W makers for alleged violation of the localisation norms and has started even withdrawing their subsidy, which ranges from a substantial Rs 30,000 to Rs 50,000 a vehicle.

SMEV officials say that at least two companies, Hero Electric and Okinawa, have been asked not to upload their vehicle sale data for eligibility under the subsidy scheme, which could adversely impact their sales in the coming months if the matter is not settled. According to SMEV, at least six of their members are being scrutinised and have been asked for details.    

SMEV executives say that the problem has arisen as there was not enough data on the cost of production of electric two-wheelers, so the government has worked backwards on the cost based on its ex-factory price to reach a number. However, it isn't easy in such an exercise to calculate variables – like profits. Not only that, it also earmarked the level of localisation from various components making it even more complicated.

The FAME II scheme had earmarked Rs 8,596 crore as subsidy for the E2W industry, which would be for a maximum of one million vehicles and offering Rs 20,000 for every 1KWH of battery. The scheme, which was for three years, has now been extended till 31 March 2024. However, with an increase in volumes, companies expect to hit over 0.75 million by the end of this financial year, and the money will get exhausted by July next year. A new FAME II is required if the government's aim of conversion of 30 per cent of the ICE two-wheelers to E2Ws has to be achieved.      

WHAT MANUFACTURERS ARE SAYING

• It will take 12-18 months for the capacity and capability of vendors to match the exponential growth of electric two-wheelers
• Instead of a time frame for subsidies under FAME III, the government can also think of linking subsidies to the volumes of electric two-wheelers
• It can be done simultaneously with the launch of FAME III 
• Hero Electric and Okinawa have been asked not to upload their vehicle sale data for eligibility under the subsidy scheme
• The problem has arisen as there was not enough data on the cost of production of electric two-wheelers