Govt Halts FAME-II subsidy for Okinawa and Hero Electric - The Timeline and in-depth analysis.

According to the Ministry of Heavy Industry

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Several people in the know said that during the past few months, representatives from the Automotive Research Association of India (ARAI), an organization that accredits autos in India, have visited the manufacturing facilities of several EV manufacturers to audit their component sourcing. ARAI's findings significantly influenced the decision to remove Hero Electric and Okinawa's subsidies.

To be re-eligible for the incentives offered under the FAME-II program, also known as the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME-II) scheme, the ministry is requesting them to present documentation to support their claims. The government has suspended the incentives for the two EV manufacturers. The subsidy will be reinstated if the two businesses present the required documentation as evidence of satisfying the regional value-addition requirements.

Regardless of how big the player is, the minister stated that if they are discovered to be in breach of the guidelines, "all necessary steps" will be taken against them. The minister chose not to mention the names of the two automakers.

So, What is FAME?

A program called Fame India has been introduced to promote the purchase of Electric Vehicles. The government will offer incentives through this program to encourage the purchase of new electric vehicles, which will advance electric mobility in India. This plan will also set up the essential infrastructure for electric vehicle charging. The Fame India program was established to address the problems of environmental pollution and fuel scarcity. The government has upped the subsidy incentives under this program from Rs. 10,000 per kWh to Rs. 15,000 per kWh. The main emphasis of the scheme is to promote the "Make in India" idea. The companies that benefit from this scheme are directed to use local products while manufacturing the vehicles. A total of Rs 10000 crores has been relocated to support EV growth in India under this scheme. Until now, 78045 electric vehicles in full, including 59984 electric two-wheelers, 16499 electric three-wheelers, and 1562 electric four-wheelers, have been sold through the Fame India program as of June 26.

What Led to This?

There have been several cases of EVs catching fire during the previous several months. News of EV battery fires has become a weekly occurrence, starting with a Tata Nexon Electric SUV that caught fire last week and continuing with Okinawa and Ola electric scooters. Why have even the dealerships for electric vehicles caught fire? The worried Indian government launched an investigation to get to the root cause of this incident. This investigation was given to the reputable government-run Defence Research Department of India (DRDO). The investigation panel's conclusions are public and quite harsh. Through alluring incentives aimed at both manufacturers and consumers over the past couple of years, the Indian government has significantly pushed for a speedier adoption of electric vehicles in the nation. Along with growing fuel prices, these incentives have inspired a plethora of new electric vehicle manufacturers, some of which have little to no background in creating any form of transportation system. But after the uncertain incidents throughout the country, the government has come under pressure and started to review the incidents to halt certain regulatory practices causing such issues.

A few hundred degrees Celsius are needed for an Electric Vehicle (EV) with lithium-ion (Li-ion) cells to experience a "thermal runaway episode," which results in EV fires. Extreme heat can not cause fires, but improper thermal management of the battery can have a detrimental effect on performance and shorten life. These fires are a national concern, possibly due to something overlooked during the design phase. The pack assembly procedure may not be the most reliable, weather patterns for various target geographies may not have been taken into account, or limited testing may not have shown weaknesses in the defenses. One thing we have observed in the past year is the explosive demand for EVs, particularly 2-wheelers, and the ensuing sales of these vehicles. The recent year's rapid scale-up of battery and electric vehicle assembly. It isn't a procedure that can be accelerated, especially not at the rate it has in the past 12 months. Production magnitude can be disruptive and cause QC nightmares if not done properly. Variations in quality may occur due to the hasty expansion of cell manufacturing sites and component manufacturing/vendor development. The recent Covid-19 lockdown has also incited production to slow down and pile up over time. All these reasons can be an influential factor in such major QC concerns.

Also, the rise in demand at a national scale is responsible for such issues. Many recent manufacturers are switching over to global products during the manufacturing process. Such practices are in direct violation of the FAME scheme. Moreover, the growth of Electric Vehicle manufacturers across India is also a result of the simple accessibility of Chinese electric vehicle kits. These kits can be held liable for inciting fires in the vehicles as they are cheap and can be adopted quickly, making production faster. 

Conclusion

Until the subsidy resumes, it will be essential to assess whether businesses like Hero Electric and Okinawa can modify their supply networks with a focus on making them indigenous. If not, players like TVS, Ola, Ather, and the forthcoming Hero MotoCorp may benefit from a rise in these vehicles' prices in the interim. The increase in the prices because of the cut of such subsidies can also directly affect the market. A loss to the rising EV industry is undeniable, as per the current situation. 

Here is how the updated price will look post-subsidy removal. Per our discussion with several Okinawa & hero dealers, it is highly unlikely that both giants will pass on the price burden to the end consumer. In hindsight, both companies have increased the price of their product in the range of 10 to 20% in the past six months. However, one more price 10 to 20% increment is expected in ex-showroom price posts in fresh inventory, which will be passed on to the dealers. 

Additionally, to avoid further incidents causing such chaotic outcomes, The government is implementing a new digital process that requires OEMs to calculate and store domestic value addition data in their ERP (enterprise resource planning) systems. It will be necessary to upload this data to the FAME-II portal.

As Hero MotoCorp prepares to introduce its line of electric vehicles following its success with petrol two-wheelers, the EV market in India is heating up. Ola Electric recaptured the lead position in September with 9,616 units, according to the most recent two-wheeler EV registration statistics. There was a 2.3% increase in two-wheeler EV registrations overall in the month.