As India drives its electric vehicle policy through a subsidy programme that encourages local production, its hasty implementation, frequent changes, and unavailability of finance for the vehicles have been weighing on the country’s EV industry.
In March, the government announced an outlay of Rs 10,000 crore towards subsidies to incentivise primarily electric two-wheelers and three-wheelers over the next three years, under its FAME – II (Faster Adoption and Manufacturing of Electric Vehicles in India) scheme. But to avail of the subsidies – manufacturers had to have about half of the components that went into the vehicles sourced from local suppliers. The result? Few manufacturers were able to avail of the scheme’s benefits, and many had to halt production and scramble to get their products recertified on a tight deadline.
In the tight frame of time in which they were forced to become compliant with the new subsidy norms, the EV industry suffered a massive set-back in sales. “It was a shocking first quarter for us between Fame – I and Fame – II. Suddenly, with thirteen days’ notice, the government changed the goalposts. They wanted all the products to be certified again, and there was a long queue with certification agencies. It took us four months to certify all our products again, so for four months, virtually there were no sales,” Sohinder Gill, CEO – Global Business at Hero Electric and also the Director General of the Society of Manufacturers of Electric Vehicles (SMEV) told CNBC-TV18 on the sidelines of the launch of their new Dash electric scooter.
“Although we have started working (with local suppliers), we are nowhere near the strict targets that the government has set. Localisation of automotives is not an easy cup of tea, as these cycles have to lead to a very reliable product. If the government expects us to do it in three months, it is a shoddy job and we are not going to do that,” Gill added.
Gill and the SMEV are also working with the government for some deviations on the localisation requirements in the FAME-II scheme, Gill told CNBC-TV18. “They’re agreeing as well, but we are also accelerating localisation,” he added.
Hero Electric will be able to achieve 90 percent localisation of all its products by Feb-March next year, according to Gill.
The biggest roadblock in achieving high localisation levels, he told CNBC-TV18, were volumes. “It is a vicious circle. Unless volumes come, localisation will not be economical to do and if it isn’t economical, people won’t be interested.”
To achieve this scale, Gill suggested that it is important to reach a critical mass of 2-3 million EVs on the roads, and that can be encouraged through heavy front-end subsidies.
“For customers, the buying will be out of sweeteners like subsidies that the government gives. One way is to give out subsidies over 6-8 years in small doses and waste that money, and the other is to double the subsidy, reach the critical mass and then withdraw it after 3-4 years.” Gill said.
Banks reluctant to finance EVs
Low EV volumes in the market are also making banks reluctant to finance electric vehicles. “We’ve seen a huge apprehension towards financing EVs from banks. Banks are so vary of end of life, resale values when companies are ready to pitch in and share in the losses and so-called delinquencies etc. There is a general resistance of low volumes here, I believe, not so much resale volumes.” Gill told CNBC-TV18.
Low availability of finance is also turning away customers, especially in the affordable segment from purchasing electric vehicles – a further hindrance towards mass adoption of these vehicles.“Especially in the affordable segment where we operate, lack of financing is a huge pain point. When one is cutting corners and trying to reach the magic figure of Rs 65,000- Rs70,000, that’s where it makes a lot of sense. That’s why walk-ins of customers is less than walk-outs today. That’s when they say if I had 60 percent financing for this like a petrol vehicle, I would have bought this bike.”