EV Subsidies Are Going: What This Means For Your Next Electric Car/Scooter Purchase!

The electric vehicle (EV) revolution has been on a steady rise in India. The rapid adoption was largely driven by government policies, subsidies and other incentives. These, in a way, packed more value into these and persuaded people to buy. Initially, heavy benefits and cuts were offered on EVs, which as time passed by, tapered down. In more recent times, we have been seeing signs of EV subsidies being phased out gradually. This brings us to the question: What would this mean to EV buyers? Let’s delve into what this means for you and the EV market as a whole…

FAME Schemes: What Were They?

The government of India introduced the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme to accelerate EV adoption and boost the sales of hybrid vehicles. It was rolled out in two phases- FAME-I and FAME-II. The FAME I began in 2015 and continued till 2019.

The second phase- FAME-II started in 2019 and ran until 2024. This was a three-year subsidy program that supported the electrification of public and shared transportation. The Department of Heavy Industries (DHI) under the Ministry of Heavy Industries and Public Enterprises drafted both the FAME schemes.

The financial outlays differed between the first and second phases and so did the size of EVs supported. FAME 1 had an outlay of Rs 895 crore while the second phase had an outlay of Rs 10,000 crore initially which was later topped up with an additional 1500 crores. Electric two-wheelers benefitted the most from FAME 2. Following its discontinuation, a temporary EMPS 2024 was introduced with an outlay of Rs 500 crore.

Unlike the FAME 2 which was generous with incentives, the EMPS limited them to electric two and three-wheelers alone, at a much lower rate. Four-wheelers were exempted from benefits. This gave the first hint of EV subsidies and incentives going away.

PM E-Drive: What Was In It?

The Government of India announced the PM E-DRIVE (Electric Drive Revolution in Innovative Vehicle Enhancement) on October 1, 2024. The program has a financial outlay of Rs. 10,900 crore and will continue till March 31, 2026. The program aims to accelerate EV adoption, improve air quality, enhance the EV sector, create more jobs and promote public transportation. Like the EMPS, its scope was limited to two and three-wheelers alone. It seemed to regard four-wheelers as a luxury and subsidies applied to the common man’s vehicles alone.

Zoom To The Present: More Hints From The Government!

In recent times, many government officials and a couple of Union Ministers have hinted at EV incentives making a leave soon. Commerce minister Piyush Goyal in a statement, said “Today we had an engagement with auto companies, including some startups in the space. Electric mobility is ready and set to fly, they do not need newer incentives or subsidies. The existing subsidies will be there for some more time and will give the appropriate kick start to the EV ecosystem,”

“Everyone was unanimous in the room that once the existing subsidy regime comes to an end, none of them require subsidies to grow any further,” he said. “Today with battery costs and with the advantages on cost of ownership and savings in operations and availability of plug-in hybrids and swapping systems. Everybody was unanimous about this.”

The ‘room’ here, had representatives of heavy industries, power ministry, government think-tank NITI Aayog and the Bureau of Indian Standards (BIS).

Speaking previously at the Green Bharat Summit, Union Minister of Road Transport and Highways, Nitin Gadkari said “My personal belief is now we don’t need too much subsidies. The GST (goods and services tax) on petrol and diesel vehicles is 48 per cent. The GST on an electric vehicle is only 5 per cent. Still, after getting 5 per cent GST, if someone is expecting a subsidy from the government, my honest opinion is now we don’t need subsidies.”

It is thus evident that electric vehicle subsidies aren’t here to stay. There will, however, be exceptions- places like Telangana and Delhi will continue to offer incentives. More states could join the league and announce cuts and benefits. In the larger picture, EVs will run out of subsidies and will have to compete on their own sooner or later.

India’s Relaxed Tax Structure For EV Imports

India announced a revised EV policy that brought about concessions to companies that commit to investments of at least $500 million in India, set up manufacturing units here, and manufacture with at least 25% localisation. Such companies will be able to import 8,000 EVs a year at a lower duty of 15 per cent ( on cars costing up to $35,000 and above). In other cases, the import tax slab is 70-100%, depending on the vehicle value.

Many see the new policy as a mode of facilitation for Tesla’s India entry. Elon Musk’s EV company had previously sought tax relaxations from the government.

EV Subsidies Going Away: How Will It Affect The Buyers?

Circling back to EV subsidies, the phased discontinuation would have an impact on the common buyers. Taking the incentives off might not lead to an immediate drop in sales. EV prices have been falling recently. With more companies venturing into the EV ecosystem, and into sectors like battery manufacturing, and with the landscape evolving favourably, battery prices have had huge drops.

The battery is one of the most expensive parts of any EV. The falling battery prices thus translate into corresponding drops in EV prices as well. Many manufacturers like Tata Motors have already announced downward revisions in EV prices. These, would help in compensating for the void left by the EV subsidies when they are finally phased out.

We are in fact, moving towards a price parity between EV and ICE vehicles. In a time not so far away, prices could level to an extent that a Tiago.EV and Tiago petrol could cost roughly the same. These converted ICE models are thus here to stay.

New ways of EV ownership like the Battery As A Service (BAAS) are also available now, which have packed more value into electric vehicles and people seem to love these. The MG Windsor, for example, is a great product priced competitively. It can be owned by paying the full price and through the BAAS route.

This gives the customer more flexibility and expands the target base of the product. It fills in the gap between the ZS EV and the Comet. More manufacturers could soon devise this tactic and fill price gaps with such value-packed offerings. These would benefit both the end customers and the brand. MG would soon launch a 50 kWh Long Range version of the Windsor.

More Exciting Products Coming!

The EV landscape is rapidly evolving. The technology and capabilities of electric vehicles are making rapid progress. The likes of BYD Seal and Mahindra’s Electric Origin SUVs (BE 6 and XEV 9e) are already creating much buzz in the market. These are all good enough to find takers without any subsidies.

Subsidies Could Go Away For Two Wheelers Too

Sooner or later, subsidies could be withdrawn on electric two-wheelers as well. Major undertakings are being done to increase localisation. Ola Electric, for example, is building a battery cell factory. The completion of these would bring about similar price levelling and subsidy stoppage.

EVs Causing Global Crisis?

Well, for ICE vehicles yes! The EV transition has been faster than expected, globally. In mainland China, for example, it was expected that EV sales would cross ICE numbers by 2035. However, in reality, this has already happened- faster by more than a decade!

The increased affinity for EVs in huge markets like China has forced many conventional ICE manufacturers to accelerate their EV development. Many conventional manufacturers have been riding rough waves and some even closed down their China manufacturing facilities. Hyundai sold its Chongqing plant in December 2023, encountering a significant loss in the deal.

Death knell for Hybrids?

One possible impact of the falling EV prices could be a rough ride for hybrids. Many saw hybrid cars as the perfect alternative for ICE vehicles. However, if the EV prices fall to extremely competitive levels, packing value into hybrids can be difficult.