India unlikely to extend FAME subsidy scheme beyond March 2024
According to IIFL, the EV bubble in India may burst in the next 12 months. While the last six months have seen a sharp rise in volumes of TVS Motor's EVs, the sales of Hero Electric and Okinawa have fallen.
The Union government's decision not to extend the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (FAME) subsidy scheme beyond March 2024 has raised concerns among the country's electric vehicle (EV) players. According to sources, the government is not keen on continuing the scheme, and a final decision will be made later this year.
The ongoing probe into the eligibility criteria has resulted in the subsidies of 13 EV players, including Hero Electric and Okinawa, being put on hold since May last year.
According to IIFL, the EV bubble in India may burst over the next 12 months. While last six months have seen a sharp rise in volumes of TVS Motor's EVs, the sales of Hero Electric and Okinawa have fallen. If the government withdraws the FAME scheme, it could result in a 35-40 percent increase in price of two-wheeler EVs, which could significantly impact sales of these companies.
The withdrawal of the FAME scheme could also impact the valuations of TVS Motor. The two-wheeler maker is currently the most expensive auto OEM in India, trading at 30x FY24 PE. The company's EV vertical, TVS Electric, is valued at $3-3.5 billion, and GS and Carlyle are investing $300 million in this vertical. The de-rating of valuations of TVS Electric is another concern that could arise if the FAME scheme is withdrawn.
The big question that arises from this situation is whether subsidies are needed at all to grow a sector. While subsidies can help boost sales and encourage companies to invest in the EV sector, they are not sustainable in the long run.
The government needs to come up with a long-term plan to support the growth of the EV industry in India, which includes measures such as investing in charging infrastructure and providing tax incentives to EV buyers.
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