Lohia Auto cuts costs, focuses on localisation amid FAME 2 challenge

Dealerships concerned about demand

Electric two and three-wheeler maker Lohia Auto is now focussing on cutting costs, and sourcing components locally after the Centre decided to slash the FAME 2 subsidies. From a current 60 per cent the company aims to increase localisation to 70-75 per cent in the next two years. 

Ayush Lohia, the CEO of Lohia Auto Industries said that one of the primary measures to remain competitive after the subsidy benefit is gone is to streamline product costs. 

Lohia Auto intends to optimise internal processes, enhance operational efficiencies, and identify areas where cost savings can be achieved. By effectively managing costs associated with manufacturing and production, the company aims to maintain competitive pricing without compromising on quality, Lohia said.

In addition, it plans to localise key components. “We are shifting focus towards sourcing components locally, thereby reducing reliance on imports,” Lohia told Business Standard. By embracing domestic suppliers, the company aims to decrease costs, improve supply chain resilience, and contribute to the growth of the local economy. Currently, Lohia Auto localisation rate stands at 60 per cent, aiming to increase it by 70-75 per cent in the next two years.

Collaboration with suppliers is another integral part of Lohia Auto's cost-cutting strategy. The company intends to work closely with its suppliers to find mutually beneficial solutions that help reduce costs.

The government has decided to slash subsidies under the FAME 2 (Faster Adoption and Manufacturing of Electric Vehicles) scheme. While the subsidy has not been completely halted, the reduction has created a challenging environment for companies to cope with. Amid the reduction in subsidies, electric scooters are expected to become less competitive compared to their internal combustion engine (ICE) counterparts. The prices of electric two-wheelers are anticipated to increase, potentially impacting sales.

“We don't want to face challenges right now in terms of what we are facing: the delay in subsidy, change in verification process, homologation process and the very short time which was given to migrate from a battery standard. The reduced subsidy will have a significant impact on the industry, with a drop in demand estimated between 30 per cent and 50 per cent” Lohia added 

Dealerships across the country have reported their concerns about the current market situation. Lohia said that they have had meetings with the government, and there have been discussions around the importance of long-term perspectives, transparent framework on subsidy policies, standards, incentives etc.

“By having a well-defined plan, companies can better align their business strategies, avoid abrupt changes, and ensure sustainable growth,” he added.

As for the pending subsidies, the impact on companies varies depending on their current product offerings. For companies primarily involved in low-speed two-wheelers and three-wheelers, the financial impact is not significant. However, as they plan to expand their offerings to include high-speed two-wheelers, the subsidy reduction becomes a crucial factor in determining working capital limits and overall financial stability. Companies are working diligently to find solutions that allow them to navigate this challenging situation effectively.

Lohia explained that the company remains confident that the momentum in the migration from gasoline to electric vehicles will continue.