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While India’s journey towards an electric future is marked by an ambitious goal of achieving a 30% electric vehicle (EV) market share by 2030, a key factor that continues to catalyse the shift happens to be EV financing.

Unlike traditional ICE vehicles, EVs have a higher upfront cost, deterring many potential buyers.

This is where innovative investment solutions from private and public entities can play a crucial role in bridging the gap and accelerating EV adoption in the country.

Limited financing options

A report by NITI Aayog and Rocky Mountain Institute estimates the annual EV finance market in India to reach a staggering Rs 3.7 lakh crore by 2030. However, current financing options pose challenges.

Traditional auto loan structures weren’t designed for EVs, leading to higher interest rates compared to ICE vehicles. Additionally, the nascent EV market creates uncertainty around resale values, making lenders hesitant to offer loans with favourable terms. 

From an EV buyer’s perspective, financing options are limited with reduced access to funding. Fewer banks and NBFCs allow favourable lending terms for EVs compared to ICE.

Even for the limited available options, loan terms are starkly unfavourable, typically having a higher initial down payment. Additionally, the EMI burden is higher due to 1-9% higher interest rates and a 6-18 months shorter tenor offered to EVs versus ICE.

On the other hand, financiers are unable to offer competitive products due to real and perceived risks, given the nascency of the technology and the market. 

While there has been significant adoption of electric mobility in the two and three-wheeler sectors, interestingly, four-wheelers in India have the lowest penetration in the EV segment while having the biggest market share in financing.

This is an unmissable opportunity, and the time is ripe for innovative financing methodologies to emerge to decarbonise mobility at scale through EV adoption. 

Public sector intervention

Government intervention is crucial to address these challenges. Initiatives like FAME II have offered subsidies and tax breaks on EV purchases, directly reducing the upfront cost for consumers.

Additionally, government collaboration with banks and financial institutions can incentivise them to offer lower interest rates and longer loan terms for EVs. It not only makes EVs more affordable but also sends a positive signal to the market, increasing investor confidence. 

Green bonds have emerged as an innovative financial instrument in the last decade to mobilise a significant amount of institutional capital, help distribute risk over a larger base through asset-backed securities, and bring down the overall cost of capital.

However, additional government and regulatory support is required for the proliferation of green bonds as a financing instrument in India.

To boost investor confidence, coherent and comprehensive taxonomy and establishing consistent standards will be essential to increase participation in such instruments. 

Outlining support in the form of tax incentives for retail investors, inclusion of green mobility funds for CSR investments, and/or coverage of additional issuance costs (green certification) for issuers are also key considerations for policymakers. 

Collaboration

Access to data is crucial for financing solutions to be truly effective. Collaboration between OEMs, FIs, and government bodies can create a centralised data repository on EV ownership costs, battery performance, and resale trends.

This data can be used by FIs to develop risk assessment models specific to EVs, leading to more competitive loan terms for consumers.

As India moves towards a more sustainable future, EV financing becomes increasingly central, offering unique opportunities for investors, manufacturers, and consumers. 

Creating platforms to enable collaboration between multiple stakeholders’ key involvement and channelling capital for EV financing becomes crucial. Multiple startups are providing affordable solutions for EVs, but their reach may be limited, and they require access to capital to further scale up their solutions.

On the other hand, financiers still consider the EV sector risky due to the knowledge gap and limited understanding of technology, which needs to be fulfilled. It is essential to bridge this information asymmetry through collaboration between OEMs, industry bodies, and other players in the EV ecosystem.

Innovative diversification of private financing 

Private entities also have a significant role to play. Auto manufacturers and OEMs can offer attractive financing packages in collaboration with banks and NBFCs. It could include bundled loan options with lower down payments and extended warranties, mitigating concerns about battery degradation, and resale value.

Additionally, innovative financing models like battery-as-a-service (BaaS) are gaining traction. Here, consumers pay a monthly subscription fee for the battery, reducing the upfront cost significantly. It addresses range anxiety and future-proofs the purchase against battery technology advancements. 

Provision of support in the private sector is imperative for those business models that scale through fleet ownership. Enabling shared mobility players and co-creating financing avenues with them will go a long way in accelerating the adoption of clean mobility.

Financing, through innovative solutions, is the engine that can propel India’s EV revolution forward. We can unlock the immense potential of this sector by addressing the upfront cost barrier. Collaborative efforts to create a robust EV financing ecosystem will not only benefit consumers and manufacturers but also contribute significantly to India’s clean energy transition goals.

Anmol Singh Jaggi is the Co-founder of BluSmart.