New incentives on e2Ws to reduce price gap with conventional vehicles, says ICRA

The government of India has decided to offer increased demand incentives for electric two-wheelers under the FAME-II scheme. The demand incentives have been increased by 50% to ₹15,000 per kWh from previous ₹10,000 per kWh. This move would reduce the wide gap between the electric two-wheelers and conventional fuel powered two-wheelers, says research and ratings agency ICRA.

Currently, the electric two-wheelers come much expensive compared to their internal combustion engine powered counterparts. This results in many interested customers ultimately shying away from buying EVs. The price parity between the conventional fuel and electric powered vehicles has been a long discussed issue.

Under the revised rule for availing incentives for electric two-wheelers come with a maximum cap of 40% of the vehicle cost. This is higher than the previous 20% capping of the vehicle cost.

As ICRA said in a statement, a 50% increase in demand incentive in form of higher subsidy will significantly reduce the upfront price gap between an electric two-wheler and an internal combustion engine (ICE)-powered model. This is expected to increase the demand for electric two-wheelers.

Shamsher Dewan, ICRA Vice-President and Group Head, said that estimates suggests the initial cost of ownership for high-speed electric two-wheelers will incrementally reduce by a minimum 10-12% and result in a lower payback period. "The payback period was estimated to be four years (in terms of the total cost of ownership), which now stands reduced to three years," he also added.

ICRA recently estimated that electric two-wheelers are likely to achieve 8-10% penetration in new vehicle registrations by 2024-25. However, the increased demand incentives could drive the penetration level higher.