EV pricing rule to avail FAME II subsidy modified. Why they could cost more

Prices of electric cars from Tata Motors, Mahindra and Mahindra and other manufacturers could soon increase after the Centre modified the guidelines for EV pricing structure to be able to avail FAME II subsidy. The Ministry of Heavy Industries has issued a notification today clarifying that subsidy will be offered to EVs based on its ex-factory prices, and not ex-showroom prices. The Centre issued the notification while announcing that FAME II subsidies will be available on electric vehicles till the end of March, or till funds allotted in the scheme lasts.

According to notification issued by the Centre, the ministry has amended the FAME II guidelines which was put into effect in 2019 when the scheme started. The notification says, “In case of e-3W and e-4W, the cost of vehicle, referred to in clause 26 of the notification dated 8th March, 2019 shall mean ‘ex-factory price’ of vehicle i.e. ‘price of vehicle at factory gate before applicable taxes’." Ex-factory price of a vehicle is lesser than the ex-showroom price which includes components like GST, VAT and other taxes besides the profit margin of the dealer.

Currently, EV subsidies are offered based on the exx-showroom price of an electric vehicle. This helps the EV buyers to get more benefit under the scheme. The FAME II scheme, floated by the Centre to promote adoption of electric vehicles in India, is set to expire in April. Despite demands from EV makers and dealer bodies, the Centre has so far refused to extend the deadline. Several manufacturers are of the opinion that FAME II subsidies are necessary for the EV industry to grow with electric vehicle penetration still at a nominal five per cent.

The Centre, while announcing that the FAME II subsidy will be available till March-end or till funds last, it also said that the outlay of the scheme has been enhanced from ₹10,000 crore to ₹11,500 crore. "It is hereby informed that the scheme is fund and term limited scheme i.e. the subsidies for demand incentive will be eligible for e-2w, e-3w and e-4w sold till March 31, 2024 or till the time funds are available, whichever is earlier," it said.

According to the new outlay, EVs will be eligible to get subsidies of ₹7,048 crore. ₹4,048 crore has been kept aside to create capital assets and another ₹400 crore fund has been allocated for 'others' category.