Home » Weekly Wrap Up » Uncertainty lurking ahead for EV dealers as govt like to discontinue FAME-2 subsidy

Uncertainty lurking ahead for EV dealers as govt like to discontinue FAME-2 subsidy

by Tavaga Invest

Markets this week 📊

Fed continues to play the role of a party pooper just when our investors had started recovering from the Adani damage. Steep rate hikes may be back as hinted by Powell to tackle the stubbornly high inflation. Nevertheless, hope your holi celebrations were far more colourful than your portfolios currently. 

As much as we try moving away from Musk and give new and fresh insights every week, he just simply keeps crawling back in our wrap. Try and remember the worst boss you’ve had and multiply that times infinity. That’s Elon for you. He indulged in an ugly back-and-forth with a now-former employee who hadn’t even been informed that he was laid off. It’s hard to find anyone remotely close to this inhumane “genius. 

Hope your equation with your boss is doing good, its appraisal time after all. In case you are looking for ways to put those fat bonus cheques to use, do give our latest blog a read

Now, let’s grab some cool shake and dig into some of the important news that made headlines this week

Bye Bye EVs? 💸 

Pulling the plug: GoI may discontinue its ₹10,000-crore Faster Adoption and Manufacturing of Electric Vehicles or FAME-II scheme beyond FY24. It is also holding back subsidies worth ₹1,100 cr while it investigates alleged misappropriation of funds by TVS Motors, Ather Energy, Ola Electric, and many others. It may move the unspent FAME-II funds to electric buses during this investigation. As per FY24 budget, subsidy under the FAME scheme is projected at ₹5,172 cr, compared with ₹2,897 cr in FY23. 

Scheme scam: EV makers have been relying on FAME to make electric scooters cheaper than the regular conventional ones. Under the scheme, companies could offer a discount of up to 40% on the cost of locally manufactured vehicles and claim it as a subsidy from the government. But, several EV players were indulging in foul play by providing misleading information and declaring imported components as locally sourced so that they could qualify for subsidies. A whistleblower popped up and suggested that the industry claimed subsidies worth at least ₹300 crores with 0 value added in India. 

What next? FAME subsidies had anyway fallen short of target. Fyi, FAME-I had barely doled out one-third of the planned budget, and looks like FAME-II could see a similar fate. Government wants to instead focus on Production linked PLI schemes. While FAME scheme is disbursed at the point of sale, PLI benefits are directly given to manufacturers and much harder to dupe. 

Our Take

While the decision is still hanging in air, this could spell serious trouble for not just EV stakeholders but also India’s green mission. This negative publicity at such early stages could put brakes on the transition. EVs currently have a minuscule share – (5% in 2W and 1% in PVs). They need support to bring down costs and boost acceptability. Government could have tried plugging loopholes rather than pulling the plugs off completely, we feel.

Meanwhile EVs be like

Bloodbath on the farms 🧅

Peeling the layers: Farmers across the country have been setting fire to their crops as they are being offered extremely low prices for their produce. Onions, potatoes, and other crops are being burned instead of being sold at a mere ₹1/kg as the farmers cannot cover their costs. Wholesale prices of produce slumped across the country with Maharashtra’s onion farmers making headlines as the govt fails to manage their excess produce.

Trial by fire? Farmers are forced to sell at less than ₹200 per 100 kg, compared to an average cost of ₹700 per 100kg. Farmers in a major soup. They are either faced with bad or good harvests and are plagued by low returns in either case, with no attention paid to their issues.

Why the excess? Despite bumper harvest and robust local demand, 30-40% output is wasted due to poor storage infrastructure. India usually exports its produce to countries like Saudi Arabia, Bangladesh, and Sri Lanka but high import duties of ₹3/kg has made these unviable this time. Transportation issues have closed lucrative import options to Belarus and Kazakh.

Our Take

Agri sector remains critical for growth and employment in the country. While private investment in the sector is still growing around 9%, its the public investments which are dwindling. High-time schemes like Agriculture Infrastructure fund and Pradhan Mantri Kisan Samman Nidhi are moved from mere announcements to actual actions. 


“Ye” Adidas ko le dooba 👟

In a soup: Adidas is facing serious trouble. The sneaker giant ended its collab with rapper Ye (formerly known as Kanye West) back in October last year after a series of antisemitic comments and controversial statements from him. This has left the company with a huge stock of unsellable but once highly popular Yeezy sneaker line worth $1 billion. On top of this, sales in China – Adidas’ one-time growth engine – dropped by half last quarter, hurt by local competition and lockdowns. 

Heap of deadstock: Kanye who was once considered a “creative pioneer” is now a “hateful and dangerous” celeb. Since 2021, Yeezy had become a major profit driver for Adidas. Yeezys make up less than 10% of its revenue but account for over 40% of its profit. This means that even if the company manages to repurpose and sell the remaining stock, it runs the risk of a serious impending financial crisis. 

Exits on the card: It was no surprise that the sportswear giant posted an operating loss last quarter. But it was shocking when the company blurted out the impact of Ye’s exit. Adidas is looking to post an annual loss in 2023, its first in last 31 years along with a 79% dividend cut! Investors are bound to fall out of love. What’s more, Ye had supposedly boosted the popularity of its other offerings too. 

Our Take

Adidas got a lesson albeit the harder way and will likely screen better role models before risking their brand. But this negative stunt has left Nike with a cracking smile. The arch-rival has benefitted immensely and already dominated Feb sneaker sales. 


Crypto: Prevention better than cure 📉

Another strike: Regulatory net continues to tighten around cryptos in India. This time the govt has brought the trading of cryptocurrencies and other digital assets under the prevention of money laundering act (PMLA). Last year, it introduced a 30% income tax on gains made from crypto trading. An additional tax deducted at source of 1% came into effect in July’22. Following this, crypto trading volumes collapsed by 60%-90% in Indian exchanges. This was followed by an investigation from the Enforcement Directorate across local crypto exchanges. Cryptos had a disastrous last year with major global cryptos losing at least two-thirds of their value while several went bust. 

What will PMLA mean? This would require all entities dealing with cryptos to implement mandatory KYC processes, reporting of suspicious activities, and will require financial entities/crypto firms to maintain client details for five years. These rules already apply to banks, financial institutions, and other intermediaries. All in all, crypto entities and trading will now come under increased scrutiny. 

Government’s stand: RBI has had a tough stance on private cryptos and firmly believes if private currencies are regulated and allowed to grow, the next financial crisis will come from them. Crypto regulation is one of the key agendas for G20 and as India is holding the G20 presidency, crypto regulations will naturally take the forefront in India. Mind ya, US, European Union already use anti-money laundering provisions to regulate crypto.

Our Take

As opposed to RBI’s tough stance, government seems to have taken a middle path. While they have not been very harsh and have avoided outright banning, they are strengthening rules around them. This move will likely put the onus on crypto exchanges while end investors will remain unaffected. 

What else made the news?

😷 Mask up? India has recorded several cases of the new H3N2 variant of influenza. It may be time to get vaxxed and mask up again.

🧐 Endorsement scan: Government released endorsement guidelines for celebrities and influencers which require them to use the product or service before endorsing it.

🛬 Mending time: Mr. Adani is looking to sell 4-5% stake in Ambuja Cement to international lenders as part of its debt reduction plan to restore investor confidence, as per reports. 

🔬 Under watch: RBI is keeping a tab on country’s top 20 business conglomerates for any signs of financial stress amidst the Adani row. 

✂️ Tax slashed: Maharashtra slashes jet fuel tax to 18% from 25% to help promote the variation industry. 

🍻 Money Brew: India’s fav beer giant Bira 91 raised $10 mn from Japan’s MUFG bank in its series D funding round. 

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Ruchi Mehta



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