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Unpaid subsidies to the tune of Rs 1,200 crore are leading to a “serious liquidity crisis” in the electric vehicle industry and is slowing down in adoption, The Society of Manufacturers of Electric Vehicles (SMEV) said in a note on Tuesday.

Though original equipment manufacturers (OEMs) passed on subsidies to customers purchasing EVs all through FY2023, there has been a major delay in settlements on the government’s end, the industry body claims.

This has led to a major squeeze in working capital for OEMs, which has, in turn, led to a substantial drop in the industry volumes.

Addressing allegations of misappropriation of subsidies by OEMs, which led to the delay in rebates, SMEV said the accusations were unfounded and misplaced.

The Indian government last year cracked down on EV OEMs after it received emails from whistleblowers alleging some companies were claiming subsidies for local manufacturing wrongly since they were using foreign-made parts.

Specifically, two two-wheeler companies—Hero Electric and Okinawawere named. The government suspended subsidies for the two EV makers, and launched an investigation to weed out others indulging in similar practices.

The SMEV—of which Hero Electric is a part of the management committee—stated in its December 2022 circular that a group of individuals with vested interests were responsible for sending emails aimed at defaming certain EV manufacturers.

“Most of the debate on localisation—the prime misdemeanors held against OEMs so far—is a matter of degrees and a subject of minor negotiations,” the SMEV said in its latest note.

“Most OEMs have struggled over the last three years to secure local parts that adhere to quality standards but have achieved localisation to greater or smaller degree providing for availability,” it added, concluding the “department” is effectively in debt of OEMs.

The industry body also highlighted that it had to grapple with supply chains during COVID-19—a problem for which several industries were granted a reprieve. But startups got nothing.

“Now that the country is almost ready with the entire supply chain, the only thing holding up the sector is the Rs 1,200 crore worth of subsidies that have been withheld leading to a serious liquidity crisis in the industry,” the SMEV said.

It implored the government and the industry to collaborate and ameliorate existing issues so the country could progress in realising its e-mobility objectives.