How Ola, Hero, Ather’s Rendezvous With FAME-II Sops Got Caught In The Wrong Lane

After months of investigation into the allegations of misappropriation of subsidies by electric two-wheeler original equipment manufacturers (OEMs) under the Centre’s FAME-II scheme, the government has reportedly issued notices to at least six escooter manufacturers to pay penalties totalling over INR 500 Cr.

At least 18 electric two-wheeler OEMs, including Ola Electric, Ather Energy, Hero Electric, and Okinawa Autotech, were under the government’s scanner for alleged violations of localisation norms and manipulation of prices to avail subsidies under the FAME-II scheme.

It must also be noted that the problems around the FAME-II scheme and the subsequent suspension of subsidies by the government for some of these players have already hit the nascent electric vehicle (EV) industry in India, slowing down the growth of two-wheeler EV sales just when the adoption had started picking up pace. 

As such, it is important to understand the issue and its impact on the EV industry. Here’s everything you need to know about the issues around the FAME-II scheme, allegations against the OEMs, and the latest updates. 

What Is The Issue?

The problems around FAME-II started in August last year after the Ministry of Heavy Industries (MHI) started putting more emphasis on domestic value addition (DVA) for vehicle manufacturers in the country.

The matter escalated soon after and vehicle manufacturers were asked to digitally record DVA to avail government subsidies for electric and hybrid vehicles. 

By then, the government had already received several complaints alleging that EV OEMs were importing most of the components and still availing the benefits of the FAME-II subsidy, in violation of the norms of the scheme.

Later, there were also allegations of some OEMs keeping the prices of their vehicles artificially lower to avail the subsidies. Let’s take a look at both issues.

Flouting Localisation Norms

Electric two-wheeler OEMs like Hero Electric and Okinawa Autotech were the first to come under the government’s scanner.

The government issued notices to these escooter players to furnish documents supporting their claims of using at least 50% of domestically manufactured components in their vehicles. Prima facie, they were found to be violating the norms and the Automotive Research Association of India (ARAI) started investigating the violations.

For the uninitiated, the government’s FAME-II scheme for promoting EVs, which has an outlay of INR 10,000 Cr, provides electric two-wheelers with a maximum subsidy of 40% on the total cost of the vehicles given the maximum ex-factory prices for the vehicles is INR 1.5 Lakh per unit and 50% of their components are manufactured domestically.

As the investigation proceeded, the Centre barred Hero Electric and Okinawa from availing subsidies. Gradually, at least 12 other manufacturers came under the scanner, including Okaya EV, Jitendra EV, Greaves Electric Mobility, and Revolt.

As per the latest development, Hero Electric and Okinawa have been reportedly slapped with a total fine of INR 249 Cr. While Hero Electric would pay INR 133 Cr, Okinawa has been asked to cough up INR 116 Cr. 

However, Okinawa has denied receiving any such notice from the government.

“The company hasn’t received any notice from the government to refund subsidies from 2019-20 and [is] surprised by the media questions,” it said. “Okinawa Autotech has always adhered to government policies. In fact, Okinawa was the first company in the industry to receive a FAME II certification in 2019.”

Okinawa also noted that the government recently reopened audits for 2020 and 2021 and all companies were found to be importing certain vehicle components instead of manufacturing them in India. 

“So, the issue is industrywide, and the ministry has all the relevant proofs of all OEMs. We believe the government will be fair in its assessments and its ruling will be consistent across all the industry players and not just Okinawa Autotech. In the meantime, we expect the government to also resolve the issue of pending subsidies which have been on hold for the last 12 months,” the escooter company said.

Meanwhile, an email to Hero Electric did not elicit a response till the time of publishing this story. 

Vehicle Price Manipulation

While the government was investigating the aforementioned violations, it received complaints against four electric two-wheeler OEMs – Ola Electric, Ather Energy, TVS Motors, and Hero MotoCorp – for availing FAME-II subsidies by artificially keeping their vehicle prices lower.

To keep the price of their vehicles under the INR 1.5 Lakh cap of the scheme, these manufacturers were alleged to be billing the integral parts of their escooters – charger and proprietary software – separately as accessories.

As per a Mint report, the four OEMs have now agreed to refund an aggregate amount of about INR 288 Cr to customers who were billed separately for EV chargers.

Ola Electric will reportedly refund INR 130 Cr to 1 Lakh Ola S1 Pro customers who purchased the model till March 30, 2023.

In a statement on Thursday (May 4), the Bhavish Aggarwal-led EV major announced its decision to refund the amount but did not disclose the exact amount.

“As a leader of the industry, we remain committed to putting our customers first. Therefore, setting aside the technicalities and as an example for others to follow, we have decided to reimburse the charger monies to all eligible customers. This move will not only demonstrate our commitment to the EV revolution but also serves to strengthen trust and add more value for our customers,” the startup said.

Meanwhile, Ather will reportedly have to refund INR 140 Cr to 95,000 Ather 450X consumers who bought the model till April 12. Further, the MHI is set to recover INR 25 Cr from the startup for giving the customers, who didn’t buy its upgraded software, batteries with lower capacities.

As per the report, TVS Motors is set to reimburse INR 15.61 Cr to 87,000 TVS iQube S customers, while Hero MotoCorp will refund INR 2.23 Cr to 1,100 VIDA V1 Plus and VIDA V1 Pro consumers. 

Why Is The EV Industry Concerned? 

The issues surrounding the FAME-II scheme and Centre’s decision to suspend subsidies to some OEMs have slowed down the growth momentum of EV players. Experts have warned that this can derail India’s target of EVs contributing 80% of two-wheeler and three-wheeler sales in the country by 2030.

Besides, industry players have also alleged that the government has just spent 50% of the total amount allocated under the FAME-II scheme so far.

In a recent letter to the parliamentary standing committee on industry, energy and estimates, industry body Society of Manufacturers of Electric Vehicles (SMEV) claimed that the MHI is also accounting for sales of two-wheeler EVs for which subsidies have not been released in its FAME-II data. It said the OEMs have not received subsidies for 4.5 Lakh vehicles till date.

“…the OEMs have become financiers for the government’s prized FAME-II subsidy scheme,” it said.

Speaking on the issue, Vinkesh Gulati, chairman, research & academy, Federation of Automobile Dealers Associations (FADA), recently told Inc42 that the government should amend some of its policies to help the EV ecosystem. 

Given India is still largely dependent on imports of batteries and cells due to lack of resources, raw materials, and infrastructure, it is challenging for most OEMs to adhere to localisation norms, he said.

Meanwhile, the ongoing supply chain issues, the recent changes in battery safety norms, and the new AIS standards that came into effect from April 1 have further exacerbated the situation for OEMs.

As a result, all major OEMs, except Ola Electric and Bajaj Auto, experienced a significant slump in their electric two-wheeler registration numbers in April 2023. 

As per the data available on Vahan portal on May 1, Ather Energy saw over 36% month-on-month (MoM) decline in registrations in April. The startup attributed the slump to FAME-II issues. While Okinawa’s registrations fell 29% MoM, Hero Electric’s volume plunged 50%. TVS Motors also saw a 48% decline in registrations, while Ola Electric witnessed a marginal 2% MoM increase.

As per Kotak Institutional Equities, TVS Motors’ EV volume decline was mainly due to production constraints on account of the AIS 156 changeover and supply challenges.