Auto OEMs in financial distress, face closure owing to FAME-II subsidy cut: SMEV tells NGT

Society of Manufacturers of Electric Vehicles (SMEVs) on Tuesday filed a petition in the National Green Tribunal (NGT) against the government’s decision of slashing the FAME-II (Faster Adoption of Manufacturing of Electric Vehicles in India) subsidies for electric two-wheelers by 75%, beginning June 1. The letter, which was reviewed by Fortune India, says that "several original equipment manufacturers (OEMs) are unable to cope with the financial distress because of the government’s decision to FAME-II subsidy cut, and might shutdown due to lack of working capital, loss of investor and bank support, delay in production timelines and a rapidly vanishing distribution network."

The EV industry body has also requested the NGT of levying a green tax on fuel-based two-wheelers. "This measure will not only incentivise the adoption of cleaner and greener EVs but also contribute to the national objective of environmental preservation and pollution reduction," SMEV says.

According to SMEV, the subsidy cut is likely to disrupt India’s growth in the EV (electric vehicle) sector and consequently have a detrimental impact on the environmental and health indices of the country.  

"Many Original Equipment Manufacturers (OEMs) are unable to cope with the financial stress caused by actions of the Ministry of Heavy Industries (MHI) - subsidies amounting to over ₹1,200 crore have been held up and further demands of retrospective payback of subsidies given in 2019 have been made. In fact, it is a matter of time until they shut shop due to lack of working capital, loss of investor and bank support, delay in production timelines and a rapidly vanishing distribution network," the letter says.

The government has reduced the incentives on electric two-wheelers from ₹15,000 kWh to ₹10,000 kWh. The cap on incentives of electric two-wheelers ex-factory prices has also been reduced from 40% to 155.

"The cumulative effect of this has been devastating on start-ups and first movers In the EV2W segment. To top it all, the MHI (Ministry of Heavy Industry) has decided to further reduce the subsidies starting June 2023. This might cause the EV sector to slip into a freefall as the rising cost of EVs will make the transition from traditional fuel-based vehicles to EVs extremely challenging," the letter says. Last week, SMEV in a letter to the finance ministry proposed the creation of a ₹3,000 crore rehabilitation fund to revive and sustain operations of OEMs affected by the FAME-II subsidy cut.

According to the EV industry body, the government’s decision contradicts the efforts to provide a fundamental right to breathe clean air and provide protection against health hazards caused by pollution.

"At a time when the world has barely recovered from the onslaught of the lung-affecting Covid-19 malaise, to allow such a policy U-turn is to play with the health of the country. Electric vehicles are subsidized across the world with the intent to induce a mass shift towards non-polluting energy systems. The ministry's decision is contrary to this consciousness and an anomaly that defies logic or law especially, as the EV manufacturers were emboldened to shift technologies, workforce, capital and enterprise towards this sector based on the support expressed by the government," says Ajay Sharma, Secretary General, SMEV.

The EV industry body continues to assert that measures such as subsidies are needed for consumers to prefer electric over traditional fuel-based polluting ICE vehicles.

SMEV has proposed the implementation of an additional tax on polluting fuel-based two-wheelers as a counterbalance to the disruption caused in order to ease out electric two-wheeler woes.

This comes at a time when the sales of electric two-wheelers crossed the 1 lakh mark for the first time. In May this year, as many as 1,36,045 units of electric two-wheelers were sold across the country, according to Vahaan Portal.