Whistle-blower allegations: Around late 2021, when the EV industry looked very different with fewer players, a whistleblower alleged that the top two electric two-wheeler makers were not adhering to the localisation rule — a key requirement to claim subsidy under the FAME.
What were the complaints? These companies were accused of importing Chinese electric scooters or components and passing them off as Indian-made. Basically, the Indian taxpayer’s money was allegedly being used to subsidise Chinese manufacturing. Following a government investigation, notices were sent and subsidies were suspended for Hero Electric, Okinawa and others. That also led to the market changing rapidly.What changed? The likes of Ola Electric, TVS Motors and Ather Energy started dominating the sales charts since December last year. Then there were fresh allegations, this time against the new market leaders. Ather Energy, Ola Electric, TVS Motor and also a relatively new entrant in the electric two-wheeler space, Hero MotoCorp, were now being accused of artificially keeping prices of their scooters below the threshold to qualify for the FAME subsidy. They were accused of billing vehicle chargers and software separately so that the price of the EV remains below Rs 1.5 lakh — beyond which price they are not eligible for the incentive.
How it unfolded: The government was forced to act quicker this time, as the previous accusation had substance. Companies were called up, multiple conversations took place between the Ministry of Heavy Industries, which manages the FAME scheme, and company executives. But the damage was done and the developments this week are hinting that the FAME-II saga may be nearing its end.
Sales hit: In April, electric two-wheeler sales dropped 23% compared to March. According to industry experts, the fall in sales was partly due to the delay in the disbursal of the FAME subsidy, as multiple companies have been under investigation for either mispricing or wrongly claiming subsidies.
A delay in getting their vehicles certified for new safety rules also affected production at some manufacturers, and therefore their sales. But, the good news is that the government investigations are likely to close. Six companies have so far been given a clean chit and the government is expected to soon start disbursing the FAME subsidies to them. ET reported on April 29 that the government was likely to issue recovery notices to Hero Electric and Okinawa after its probe against them concluded that they had violated the provisions of the FAME scheme.
Hurting overall business: As far as Ola, Ather, TVS and Hero MotoCorp are concerned, they have decided to refund the charger cost to the customers. Ola and Ather will be hit the most, as they have sold the highest number of electric two-wheelers to date. ET reported on May 2 that Ola Electric would have to refund about Rs 130 crore to about 100,000 customers.
According to industry sources, changes post the mispricing issue are likely to eat into the already thin margins. Companies may see their path to profitability getting extended as a result. They are forced to sell their vehicles below Rs 1.5 lakh, which can be less than the cost of making the vehicle, as they do not want to give up on the subsidy.
What’s next? Following the mispricing allegations and successive meetings with the government, all companies are back to the drawing board to figure out a new pricing strategy.
Recently, Ather reduced the base price of its 450X scooter to under Rs 1 lakh, but without many of the features like hill hold, reverse mode and warp mode. If customers want a charger and the rest of the features, largely controlled by software, they have to pay Rs 20,000 for each, taking the total amount close to Rs 1,50,000. More such changes can be expected in the near future.
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