The announcement by the government in July to provide additional income tax deduction of Rs 1.5 lakh on interest paid on loans taken to buy electric vehicles (EVs) has not translated into higher EV sales till now.

In fact, due to a host of reasons, the sale of electric two-wheelers and four-wheelers has plummeted during April to September 2019, compared to the corresponding period in 2018, according to data shared by Society of Manufacturers of Electric Vehicles (SMEV), the registered association representing EV makers.

State Bank of India, the only bank in the country to have launched a loan scheme exclusively for EVs — ‘Green Car Loan’ (Electric Vehicle) — has seen only nine loans being sanctioned under this scheme since its launch in June, according to a source. This scheme offers loans at 20 basis points lesser than the interest rate on existing car loan schemes, among other benefits.

According to credit rating agency CRISIL’s analysis of this measure, the cumulative benefit to a buyer on purchasing an electric scooter would be between Rs 2,500 and Rs 6,000 (3-4 per cent of the vehicle’s cost) over a two-three-year loan. For a passenger car, this would rise to 5-6 per cent of the vehicle cost over a loan tenure of five to six years, it said.

This measure has had a negligible impact on the sales of EVs, said Sohinder Gill, Director General, SMEV. For it to have an impact, the government has to identify where the sales are actually happening, he added. Between April 1 and September 30, 2019, 46,000 units of electric two-wheelers priced below Rs 70,000 were sold, compared to 6,000 units of electric two-wheelers priced above Rs 70,000, he said.

This measure will benefit buyers of high-end electric cars and two-wheelers as they come under the ambit of income tax payment, he said. But, these remain negligible segments even after the income tax benefit came into being, data show.

Buyers of two-wheelers priced below Rs 70,000 mostly do not even pay income tax, he said, apart from the fact that the benefit that one can accrue out of this is also low. As for electric cars, only around 1,500 electric cars were sold for personal use in the last eight months, said Gill.

There are also hardly any loans available for customers to purchase electric two-wheelers, said Gill. Less than 5 per cent of electric two-wheelers are financed currently, Gill pointed out, whilst more than 60 per cent of petrol two-wheelers are financed, to drive home the point that banks are reluctant to give loans for EVs. This is because it remains a small volume segment, where there is no clarity on its resale value as well as battery replacement cost, among other factors, he said.

EV players like Mahindra Electric, Ather Energy, Okinawa Autotech, Ampere Vehicles and Evolet said that this is a step in the right direction as it encourages the adoption of EVs by customers as well as manufacturers, and will propel sales, going forward. But they did not share data on whether sales have gone up or whether loans for EVs have gone up post-implementation of the government’s move.

Ravneet Pholeka, Chief Business Officer, Ather Energy, said, “While it is difficult to isolate the impact of one initiative, overall these have increased the conversations around EV and purchase preference among scooter buyers. We see high demand from both our markets (Bangalore and Chennai) and are booked out till the first half of next year. The consumer sentiment around EVs is positive due to these initiatives and we should see higher volume of high-performance EVs next year.”

But measures like Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles-II (FAME-II) incentives, as well as the income tax deduction announced by the government, do not help in affecting the upfront cost of the EV for the buyer, said Suraj Ghosh, Principal Analyst, Powertrain & Compliance Forecasts, IHS Markit, referring largely to four-wheelers. “So, in its current form and quantum, this measure may not be adequate to alter the car buyers’ choices of vehicle ownership,” he said. Its impact on sales is yet to be realised, especially for the four-wheeler segment, he added.

Although the tax deduction, along with the GST reduction on EVs from 12 percent to 5 percent, has improved sentiments, this has not translated into higher EV sales, affirmed Hetal Gandhi – Director, CRISIL Research.

Lowering private consumption due to a moderation in economic growth and high discounts on traditional internal combustion engine (ICE) vehicles with the ongoing inventory liquidation has hampered EV sales, said Gandhi.

The following shows the fall in sales in electric two-wheelers and cars during April-September 2019, compared to the corresponding period in 2018,  as shared by SMEV:


One of the main reasons for this drop in sales is the change in the eligibility norm for availing subsidy under the second phase of the FAME scheme rolled out by the government this year, said Gill. FAME-II has tighter rules pertaining to the minimum range and minimum speed, which have made electric two-wheelers costlier, he said.

Under FAME-I, which was applicable till March 2019, the norms were simpler and the majority of electric two-wheelers sold were affordable, city-speed scooters, he pointed out.

The sales being higher this year for two-wheelers without the FAME subsidy reflects customers’ acceptance of affordable, low-cost scooters, said Gill. “By increasing the speed and range limit under FAME-II, customers are facing difficulty in availing the benefits for the vehicle of their choice. It is important to note that the FAME-II scheme was launched with a vision to spur sales and create an effective ecosystem for EVs. However, due to some anomalies in the new scheme, it seems difficult to fulfil the desired results,” he said.

As for electric cars, Gill said that the market is still evolving since most of the cars are currently being sold through tender to organisations like ESSL and state governments, which place orders based on their requirements. FAME benefits are not applicable to personal cars.

Gill said that in order to propel sales, the government should mandate public sector banks to give priority sector lending to electric vehicles. There is also an immediate need to revise the current FAME-II demand incentive for electric two-wheelers to ensure that the good work done under FAME-I should not go waste, he said.

FAME-I offered a subsidy of Rs 22,000, which has been reduced by Rs 12,000 – Rs 18,000 for 90 per cent of the affordable segment under FAME-II, said Gill. “It is imperative to bring back the “customer needs” in focus, i.e. efficiency and affordable e-mobility. Hence, revise the current demand incentive of Rs 10,000 per kilowatt-hour of battery capacity and offer an upfront subsidy of Rs 20,000 per kilowatt-hour, similar to the incentive offered to buses,” he said.

The government can also look at offering non-fiscal incentives such as a reduction in SGST, road tax and permit to make vehicles more affordable, said Gill. A clean air awareness campaign, possibly integrated with Swachh Bharat, which talks about the advantages of EV for the environment, the health of citizens and economic savings can also help, he added.

Bullish industry

EV players are hopeful that various schemes will start showing results in the future. A number of new players have entered the field to capitalise on the opportunity ahead.

According to Mahesh Babu, CEO, Mahindra Electric, given that electric vehicles are in the process of becoming mainstream in India, measures like GST reduction, benefits on income tax, and a strong FAME II policy will encourage more automakers to make EVs in India.

Such measures have increased the conversations around EVs and purchase preference among scooter buyers, affirmed Pholeka. “On the loan specifically, there is an increase, but it’s too early to determine a trend. The consumer awareness around the scheme will increase going ahead, which will boost sales even further,” he added.

Prerana Chaturvedi, Executive Director & CEO, Evolet, said that institutional sales inquiries have gone up, which can be linked to the steps taken by the government.

This push by the government will bring in a considerable difference for the key auto manufacturers, said P Sanjeev, COO, Ampere Vehicles Pvt Ltd.

“The step certainly has motivated some consumers towards buying EVs over vehicles run on conventional fuel. This benefit has only added to the (conversation on) how EVs are economically more viable. However, overall there is still low awareness among buyers in terms of availing this benefit. We understand that this can only be addressed gradually, once the ITRs are filed and the deduction is provided,” said Jeetender Sharma, Founder & Managing Director, Okinawa Autotech Pvt Ltd.

News Source: The Hindu Business Line