Impact of FAME 2 Scheme Expiration on TATA Motors Share

Introduction

The expiration of the FAME 2 scheme is expected to have a significant impact on Tata Motors. As shareholders, it is important to understand the extent of this impact and whether it will be short-term or long-term. In this blog, we will delve into the details to gain a comprehensive understanding of the situation.

The FAME 2 Scheme

FAME 2, which stands for Faster Adoption and Manufacturing of Electric Vehicles, was initiated by the government in 2015 with the aim of promoting the adoption of electric vehicles (EVs). The first phase of the scheme lasted from 2015 to 2019, with a total capital expenditure of 895 crores. During this period, the government focused on four key areas: demand creation, technology platform development, pilot projects, and charging infrastructure. This initial phase laid the foundation for the subsequent evolution of the scheme. In 2019, the government introduced FAME 2, which witnessed a significant increase in capital expenditure. The allocation was raised to a staggering 10,000 crores, more than 11 times the previous amount. The primary objective of this phase was to boost sales and increase the adoption of EVs. The government aimed to support the sale of 10 lakh two-wheelers, 5 lakh three-wheelers, 55,000 four-wheelers, and 7,000 buses. Notably, the focus for three-wheelers and four-wheelers was solely on commercial vehicles.

Tata Motors' Benefit from the FAME 2 Scheme

Tata Motors, with a market share of 71% in the EV segment, was one of the major beneficiaries of the FAME 2 scheme. In the first half of 2023, out of the total electric vehicles sold, 34,000 were from Tata Motors, out of a total of 48,000 vehicles. To gain a better understanding of the financial impact, let's take a look at the financial statements of both Tata Motors and TPE ML, Tata's electric vehicle unit, from the previous year. In Tata Motors' revenue circle, it is evident that government incentives contributed to a significant portion of their revenue, amounting to 1576 crores. Similarly, in the financial statements of their EV unit, other income accounted for 234 crores. This data clearly demonstrates the positive impact of the FAME 2 scheme on Tata Motors' financial statements. The scheme played a crucial role in driving their revenue and profitability.

The Loss Due to Scheme Expiration

With the expiration of the FAME 2 scheme, Tata Motors is expected to face a potential loss. It is important to note that 18.8% of Tata's revenue from commercial vehicles is derived from the EV segment. Breaking down the commercial vehicles further, we find that only 10% of revenue comes from EVs and CNG vehicles. This data underscores the significance of the commercial vehicle segment and its impact on Tata Motors' overall revenue. Therefore, the closure of the FAME 2 scheme is likely to have a substantial effect on the company's financial performance.

The Future of Ta Motors

In response to the changing dynamics, Tata Motors has announced plans to separate its EV business through demerger. Shareholders of Tata Motors will receive equal shares in the new EV business. However, the timeline for this separation is yet to be determined. It is crucial to consider the possibility of the government introducing a new scheme to replace FAME 2. If such a scheme is implemented, it could once again benefit Tata Motors. However, in the absence of a new scheme, the performance of the EV business in the coming quarters will be a key factor to monitor. While uncertainties exist, it is important to approach the situation with a calm and prepared mindset. Panic and hasty decisions can have adverse effects on investments. Instead, investors should keep a close eye on the developments and evaluate the performance of Tata Motors and its EV business over time.

Conclusion

The expiration of the FAME 2 scheme is expected to have a significant impact on Tata Motors. The company has been a major player in the EV segment, benefiting greatly from the scheme. However, with the closure of the scheme, Tata Motors is likely to experience a substantial loss. The decision to separate the EV business through demerger adds another layer of complexity to the situation. Investors should stay informed and monitor the performance of Tata Motors and its EV business in the coming quarters. By understanding the implications of the scheme and its expiration, shareholders can make informed decisions and navigate the changing landscape of the EV market.