What’s the matter? Almost all electric two-wheeler makers — from old-timers like Hero Electric and Okinawa to upstarts such as Ather Energy and Ola Electric — have come under scrutiny for claiming government subsidy by allegedly flouting the conditions set under the Rs 10,000 crore scheme. The problems have been two-fold: the use of locally sourced components and the pricing of products.
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.
Also read | No end to electric two-wheeler companies’ FAME 2 subsidy woes
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.
ETtech Exclusives
ED to approach lenders, banks for details on Byju’s | The Directorate of Enforcement (ED) is likely to write to lenders and banks as part of its investigation into Byju’s, seeking details of various transactions and loans. Chief executive Byju Raveendran, however, wrote to the company’s employees saying all of its cross-border transactions have been duly vetted by professional advisors and counsels.
Amazon, Samara may shed up to 20% stake in retail chain More: More Retail, which is owned by Amazon and private equity firm Samara Capital, is looking to divest about a fifth of its equity to external investors at a valuation of around $2 billion.
Government may adopt FEMA-like valuation norms for angel tax: India may accept the valuation criterion followed under the foreign exchange management law for the so-called angel tax on investments by overseas investors in startups, to provide clarity and end tax disputes.
ETtech Interview
India to be one of our biggest growth markets this decade: Airbnb CEO | Read more here
Deferring Pine Labs IPO, says CEO Amrish Rau | We are in no hurry right now to go for an IPO,” Rau told us.
Cognizant will rationalise costs and reinvest: CEO Ravi Kumar S told us. Read the full interview here
Industry has divergent views on space spectrum auction: IN-SPACe chairman | Pawan Goenka, chairman of India’s space industry regulator, has agreed with the concerns of the satcoms industry.
Tech Policy Updates
Tweet of the day
Earnings Updates
ET Ecommerce Index
We’ve launched three indices – ET Ecommerce, ET Ecommerce Profitable, and ET Ecommerce Non-Profitable – to track the performance of recently listed tech firms. Here’s how they’ve fared so far.
Other Top Stories This Week
