FAME III: Could it charge up the EV industry again?

The FAME India scheme aims to incentivise electric vehicle OEMs and associated industries to increase domestic manufacturing of Electric Vehicles and to achieve 30% conversion of total transport into Electric Vehicles by 2030. The scheme is divided into 2 phases: Phase I and Phase II.

During Phase I, INR 359 crores were provided to support 2.8 Lakh electric vehicles.

The ongoing phase is FAME II with an allocated a budget of INR 10,000 crores with main focus on electrification of public and shared transport. The deadline of FAME II scheme is March 31,2024.  A revamped subsidy scheme of faster adoption and manufacturing of electric vehicles or FAME III maybe in works and could include the funding for technologies and categories which were not a part of earlier phases.

Fig 1: FAME II Target vs Numbers Achieved

Source: Ministry of Heavy Industries (MHI)

The shortfall shown in the above graph indicates the percentage yet to be achieved under FAME II against the targets under different vehicle segments.

The Phase-II of the FAME Scheme had set the target to support 15,62,090 vehicles within the timeline of 5 years. Until 2nd August 2023, only 55.88% (8,72,920 vehicles) of the target could be achieved. Since the outlay set for E2Ws under FAME II is already exhausted, an additional budget of around 3500cr was added in the beginning of FY24.

The target set for E3Ws is 5 lakh units. However, as of August 2, 2023 only 18% of the target could be achieved. Budgetary allocation for E3W under FAME II scheme is being used to support adoption of Electric Buses and E2W. Low E3Ws number shows that the buyers are still hesitant to buy electric three-wheelers due to the initial cost difference vis a vis ICE (internal combustion engine).

The government has successfully achieved E-bus target under FAME II by deploying overall 7210 E-buses across the country. 

Fig 2: Budget allocated vs Budget used in different vehicle segments

*Note- INR 1181 crore has been paid and INR 3151 crore is committed under FAME II for E-buses (as on July 2023)

Source: Ministry of Heavy Industries (MHI)

Based on a close review of FAME India scheme, following loopholes can be thought upon and be included in the upcoming FAME III scheme:

  1. 50% Localisation Requirement: According to FAME II policy, For E2Ws, E3Ws and four wheelers, at least 50% of vehicle value is to be added within India which means the companies who produce 50% localised vehicles can only avail the incentives.  As a result, very few manufacturers can take advantage of the scheme because Indian component suppliers are not yet prepared to manufacture components for the current low volume of EVs. FAME III makers should review the localisation percentage linked with incentives.
  2. Specifications: FAME 2 scheme identifies range, speed, and price specifications for electric vehicles to avail benefits.
    • To qualify for the FAME 2 scheme, an E2W model must have a minimum range of 80 km on a single charge and a top speed of at least 40 kmph. The set minimum range will force OEMs to add more batteries to avail incentives under FAME II scheme.
    • The FAME 2 incentive is available for electric/hybrid cars only if they are less than INR 15 lakh in price and used for commercial purpose. The specifications not only give a price cap of INR 15 lakh but also a battery power restriction (15-kilowatt hour/100 km), a range cut-off (140 km) and a top speed limit of 70km/hour. This effectively keeps out not only mass-market electric cars but even luxury/ premium vehicles being planned for the Indian market. FAME II doesn’t offer any demand incentive for EVs in the personal mobility space or the luxury segment in specific. For the optimal push for EV penetration in the personal mobility area, demand incentives should be provided regardless of vehicle price or size, as this will drive demand from private automobile owners and encourage faster adoption of EVs in this market.
  3. Battery size: FAME II policy links incentives with battery size. In FAME I, the incentive for Li-ion battery-powered two-wheelers was INR 17,000 or INR 22,000 regardless of battery capacity. But in FAME II, the government linked incentive to battery capacity and started offering an incentive of Rs 10,000 per kWh of battery size. The average lithium-ion battery size in electric scooters sold during FAME-I was about 1.5kWh with an average subsidy of roughly Rs 15,000 per vehicle. Thus, average subsidy per vehicle availed under FAME II decreased by a range of INR 2,000 to INR 7,000. Also, linking incentives with the battery size excludes small electric vehicles from incentive benefits. FAME III makers can possibly review the linking parameter between battery size and incentive offered to the OEMs.
  4. Exclusion of commercial vehicle: FAME II policy did not include light and heavy commercial vehicles. FAME III makers can think of inclusion of light commercial vehicles (LCV) and medium and heavy commercial vehicles (M&HCV) on a pilot as India must prepare for the transition to e-mobility in trucks and heavy commercial vehicles in the upcoming years.
  5. Battery Recycling: While the country is making significant progress in EV penetration, there is a need to address the safe disposal and/or reuse the batteries used in the vehicles. FAME III policy can include incentives linked with battery recycling. Further, OEMs can be given special incentives for creating and setting up battery recycling ecosystem in the new phase of the policy.
  6. Scrapping Incentive: FAME III can include purchase subsidies and cash-incentive schemes for scrapping/ exchanging petrol and diesel vehicles for EVs.
  7. Charging Ecosystem: The Ministry of Heavy Industries had sanctioned about 520 Charging Stations/ Infrastructure for about INR 43 Crore under Phase-I of FAME India Scheme. Further, a budget provision of INR. 1000 Crore was earmarked for a period of 5 years [2019-20 to 2023-24] for establishment of charging infrastructure. A major portion of the funds allocated under FAME-II Scheme for the FY2024 are assigned to E-Buses and Charging Infrastructure at 3000cr and 180cr respectively. By March 2023, India had established 6,586 public charging stations to cater to a total of 23.37 lakh EVs. This equates to an average provision of one public charging station for every 354 electric vehicles present in the nation. Investing in robust charging infrastructure in FAME III can be more effective at encouraging EV purchases. FAME III needs to include a benefits for setting up EV charging ecosystem and its maintenance.
  8. Alternative fuels: FAME II does not mention anything about the new technologies which can be used for Research and Development in the EV segment. Fuel Cell Electric Vehicle (FCEV), powered by Hydrogen could be another zero-emission solution. It is completely environment friendly with no tailpipe emissions other than water. Green Hydrogen can be generated from renewable energy and abundantly available biomass. Vehicles powered by alternative fuels, such as hydrogen, which did not find support in the previous FAME programmes, can be included in the next one.
  9. Electric Vehicle Retro Fitment: Electric Vehicle Retro-fitment means to convert existing old ICE vehicles into electric vehicle. Government can promote retro fitment by providing suitable incentives to the players entering the segment. E.g., the CNG fleet of auto-rickshaws in Delhi can be transformed into an all-electric or hybrid fleet at a relatively small cost to owners. However, policy makers may think of some innovative finance options for retro fitment in FAME III policy.
  10. Interoperability: Interoperability can be defined as the compatibility of fixed or swappable EV batteries with different EV models. Implementation of interoperability is an issue since the industry is still at a nascent stage. Interoperability did not find its place in the earlier FAME schemes. The government can think of specifying the guiding principles or a broad outline and not specifics related to form or battery shape in FAME III. But the standards or the guidelines stated should be industry led and they should not hamper industry’s freedom to experiment, evolve and innovate, which is critical at this stage. Interoperability will help to promote battery swapping and developing better charging ecosystem.

FAME policies had been instrumental in making EVs more affordable to the Indian market and in encouraging the ecosystem to localise the manufacturing of different parts. Acknowledging that government subsidies cannot be perpetual, there is a necessity to explore alternative ways to reduce the price difference. Right government support and an improved charging infrastructure will help India increase its total EV penetration.