The electric two-wheeler segment has hit a speed bump, as the government has stopped disbursing subsidies to several manufacturers that are under investigation for alleged violation of local-sourcing rules.

Industry insiders say sales may fall short of the 1-million-unit target this fiscal year, though the number may still be a new record at around three times last fiscal year’s volume.

According to industry estimates, subsidy payments of Rs 1,100 crore under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme have been held back by the government. Industry executives say the manufacturers are facing an extreme shortage of working capital as they had already passed on the subsidy benefit to customers and were waiting for reimbursement from the government.

“As a category, e-2W sales will struggle to reach 7,20,000-7,50,000 units this fiscal, a 25% blip of the annual projection of 1 million units done by the Niti Aayog and the SMEV,” said Sohinder Gill, direction-general of the Society of Manufacturers of Electric Vehicles (SMEV).

Gill is also the chief executive of Hero Electric, one of the companies being investigated by the government.

The SMEV had denied flouting of the rules. Meanwhile, the government is also looking into allegations of another set of four companies artificially keeping two-wheelers prices lower to qualify for the FAME subsidy.

According to the government’s Vahan portal, registration of electric two-wheelers totalled 6,00,000 units this fiscal year till January and Gill said it may at best go up by another 1,50,000 units by the end of the fiscal year through March. In the last fiscal year, sales were around 2,31,000 units.The FAME scheme has been a key reason for the fast growth in electric vehicle sales. For two-wheelers, the government provides an incentive of Rs 15,000 per kWh, capped at 40% of the total vehicle cost.

Gill said unless the issue over subsidy is resolved quickly, India may have to postpone its vision on cleaner environment and lower dependency on fossil fuels by a few years.

While companies such as TVS Motor, Ather and Ola Electric are seeing better retail sales, those like Hero Electric, Okinawa and Ampere — these are among companies facing investigation over local sourcing — are seeing lower offtake, according to Vahan data. TVS Motor, Ather and Ola, as well as Vida, are under the scanner for alleged mispricing of products.

Meanwhile, there is still huge demand and an order backlog for electric two-wheelers which needs to be fulfilled.

Some of the companies have managed to increase production to build up inventory, said Sameer Aggarwal, founder of Rev Fin Services, a digital lending platform.

Also, With the new battery standards, there could be a price increase coming up this April. But that may not become a hindrance to growth as the gap between demand and supply is huge, according to manufacturers and industry experts.

“The e two-wheeler segment is still at an infancy stage, and there is a huge room for opportunity,” said Gagan Siddhu, director of the Centre for Energy Finance at not-for-profit research institute Council on Energy, Environment and Water (CEEW).

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