The enhanced demand incentives for electric two-wheelers under the FAME-II scheme by the government will significantly reduce the upfront price gap with the internal combustion engine (ICE)-based counterparts and thus drive up demand, according to ratings agency ICRA.
In the latest modifications to the Faster Adoption and Manufacturing of Electric Vehicles in India scheme (FAME II), the government has increased demand incentive for electric two-wheelers (e2W) by 50 per cent to Rs 15,000 per kwh, from 10,000 per kwh earlier.
The maximum cap on incentive for e2Ws was also increased to 40 per cent of vehicle cost from 20 per cent earlier, as per the modifications.
"A 50 per cent increase in demand incentive (in the form of higher subsidy) will significantly reduce the upfront price gap between an e2W and internal combustion engine (ICE)-based 2Ws and thereby increase the demand for e2Ws," ICRA said in a statement.
ICRA Vice-President and Group Head Shamsher Dewan said, "As per ICRA's estimates, the initial cost of ownership for high-speed e2Ws will incrementally reduce by a minimum 10-12 per cent, (when comparing currently available popular models) and result in a lower payback period."
Prior to this, he said, "The payback period was estimated to be four years (in terms of total cost of ownership), which now stands reduced to three years."
ICRA, which recently estimated that e2Ws are likely to achieve 8-10 per cent penetration in terms of new vehicle registrations by 2024-25, further said, "The recent changes will help in achieving those targets."
However, introduction of new models to provide more options to customers, investment in technology, and improving acceptance from financiers also remain the key for achieving faster penetration.