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Apr 28, 2023

EVs to lead the growth of two

In a recent report released by CareEdge, the outlook for the two-wheeler market

In a recent report released by CareEdge, the outlook for the two-wheeler market in fiscal year 2024 reveals a positive growth trajectory, with electric two-wheelers expected to lead the charge. However, concerns arise as the Ministry of Heavy Industries announces a substantial reduction in the FAME II subsidy, which may impede the growth of the electric vehicle (EV) sector.

According to the "Two Wheeler FY24 Outlook" report by CareEdge, volume sales of two-wheelers are projected to grow by 6-8% in the upcoming fiscal year compared to the previous year. Notably, this growth will be primarily driven by the increasing demand for electric two-wheelers. The report highlights that in FY23, EV two-wheeler volume sales saw remarkable growth, reaching approximately 0.73 million units—a staggering 215% increase compared to the previous year. It is anticipated that this upward trend will continue, surpassing 1.5 million units in FY24.

The surge in demand for electric two-wheelers can be attributed to shifting consumer preferences. Individuals are now inclined towards options that offer lower fuel costs, reduced maintenance, and fewer servicing requirements compared to internal combustion engine (ICE) models. Furthermore, the subsidization of prices through the FAME II program has significantly lowered the ownership cost of EVs, further driving their adoption.

However, the impending reduction in the FAME II subsidy from 40% to 15% starting from June 1, 2023, poses a potential hurdle for the electric two-wheeler market. This reduction translates to a 25% increase in the cost of EV variants, subsequently impacting the affordability and demand for these vehicles. The two-wheeler market is known for its price sensitivity, making it crucial to strike a balance between costs and incentives to sustain the momentum of EV adoption.

The FAME II scheme, launched on April 1, 2019, with an outlay of Rs 10,000 crore, has allocated Rs 2,000 crore specifically for two-wheelers. The scheme is set to continue until March 31, 2024. Under the previous subsidy rate of 40%, the demand for electric two-wheelers was robust within the price range of Rs 1.3 to 1.5 lakh. However, with the reduction in subsidy, the cost of electric two-wheelers is now expected to exceed Rs 1.5 lakh. This narrowing price difference between EVs and ICE vehicles may lead to a shift in demand towards conventional models, potentially dampening the growth prospects of electric two-wheelers.

To ensure the continued momentum of EV adoption and maintain a healthy demand for electric two-wheelers, it is imperative that EV prices be adjusted or subsidies be extended. This adjustment could bridge the affordability gap and provide consumers with a viable alternative to conventional two-wheelers.

CareEdge Ratings believes that a timely resolution of FAME II policies with extended subsidies while maintaining an attractive price range, is crucial to support the adoption of electric vehicles, which is still in its early stages. In addition, improvements in the EV ecosystem, including the availability of charging stations and advancements in battery capacity, will further facilitate the transition to electric two-wheelers. CareEdge expects electric two-wheeler volumes to surpass 1.5 million units in FY24 with the necessary support and advancements.

Also Read: Hero MotoCorp raises price of Vida V1 Pro electric scooter following FAME II subsidy reduction.