Several EV makers may be forced to file for bankruptcy post the imposition of FAME II penalties. The Ministry of Heavy Industries has found over seven enterprises guilty of failing to comply with manufacturing norms. As the deadline for penalties looms, three out of the seven OEMs – Hero Electric, Benling Motors and Amo Mobility – have requested the Prime Minister's Office to press the Ministry of Heavy Industries to resolve the issue.
The Rs 500 crore penalty has been imposed for violating the Phased Manufacturing Programme (PMP) norms that require 50 percent of manufacturing to be done with locally sourced components, and the deadline for paying the penalty is this week.
The note further said, "It is in the interest of the component makers, investors, and other ecosystem providers who have made substantial investments of over Rs 3,000 crore, that the government develop a settlement mechanism to pay the Rs 1,500 crore that the government owes to the industry players and Rs 500 crore that the industry must pay for policy violations.”
According to the letter, MHI's refusal to reinstate their accreditation to the National Automotive Board (NAB) website, which has been blocked, has hampered the OEM's ability to apply for the FAME-II subsidy.
OEMS fear they will go belly up
Should the dialogue fail to happen in the next few days, the impacted OEMs told Autocar Professional that "they will be forced to go belly-up in the aftermath of the crisis.” According to Kaul, if there is misconduct by any of the OEMs and their actions are shown to be incoherent with the policies, they should be penalised.
“It is not in the spirit of fair governance if the government refuses to consider the Rs 1,500 crore in pending dues, owed to manufacturers and wants to penalise the OEMs thrice for one mistake,” he says. Regarding the fines imposed, the OEMs informed MHI and ARAI through several letters that in early 2020, the EV component ecosystem had not been developed and COVID had limited their ability to manufacture at scale, Kaul adds.
The MHI investigation discovered that these OEMs kept their vehicle prices low in order to claim subsidies and that they wrongly priced their scooters by billing integral parts separately.
While Union Minister of Heavy Industries Mahendra Nath Pandey stated that the FAME scheme has benefited the auto industry as a result of the government's pro-industry policies, SMEV has questioned why the government has not blocked Ola's, Ather's and TVS's NAB access, despite finding these companies guilty of falsely claiming subsidies.
"Is overcharging a customer a lesser crime than passing on a subsidy to the customer?" an SMEV spokesperson inquires. "The government cleared the legacy manufacturers and even though the incumbents established that the OEMs did not receive the subsidies, they will continue to prohibit the ones who have passed, and continue to pass on subsidies, which is unfair."
What does the MHI have to say?
Over seven enterprises were found guilty of not following the Phased Manufacturing Programme (PMP), based on an inquiry conducted by the Automotive Research Association of India on behalf of the MHI. As per government sources, these firms have violated the FAME-II subsidy norms by failing to comply with norms, which prescribe that at least 50 percent of the components in their vehicles are manufactured and sourced in India.
"They have been found guilty. So there is no witch-hunting going on here. Pay first, and then we will consider re-establishing NAB certification," MHI sources added.
The government has issued notices worth Rs 500 crore to Hero Electric, Okinawa Autotech, Greaves Electric Mobility, Benling India Energy, Revolt Intellicorp, and AMO Mobility. The individual amounts of Rs 249 crore from Okinawa Autotech (Rs 116 crore) and Hero Electric (Rs 133 crore), Revolt (Rs 44 crore), and Amo Mobility (Rs 80 lakh), have been demanded by the government.
FAME II has impacted investor and startup sentiment
Mumbai-based Odysse Electric, which had plans of raising money to set up multiple factories, has decided to slow down its plans amid uncertainties over subsidies for EVs. Nemin Vora, CEO and founder of Odysse Electric, said that potential investors have deferred their plans to invest as they awaiting clarity from the government on future policies.
“There is a talk of FAME-III, no one knows how and when it is going to make its debut,” he said. “The government should make up its mind once and for all what they want to do with the policy making, and once they have made up their mind, there should be consistency, basis which OEMs can also plan their future."
An industry spokesperson said that the original goal of FAME was to convert the great number of (polluting) scooter users to electric vehicles, at the mid or entry-level customer buyers, by offering them subsidies and making it affordable, bringing it close to the prices of fuel-powered scooters.
The industry spokesperson rued, however, that the government under the influence of some other large manufacturers upped the subsidies to also include premium electric scooters with battery packs up to 4kWh, by which the subsidies jumped to Rs 60,000 for batteries up to 4kWh and ended up emptying the FAME subsidy coffers. The government then was forced to cut the outlay to Rs 10,000 per kWh and from 40 percent to 15 percent, effective from July 1, 2023.
Besides Odysse, electric bikemaker Matter Energy, which has invested more than USD 30 million in its EV plant in Ahmedabad, is worried by a series of changes that have increased the pricing of its Aera e-bike by more than Rs 50,000, putting its products out of reach for customers. Arun Pratap Singh, Matter’s CEO, stated recently that the frequent changes in government policy have put OEMs that are eager to introduce new products in a bind because their calculations have gone awry.
"As start-ups accelerate technological development for EV transition, government subsidies will be a key enabler for widespread adoption," he added.