A report by NITI Aayog and Rocky Mountain Institute (RMI) offers 10 solutions to scale up finance and address market barriers
India has made strong commitments towards an electric mobility future. As per aspirations defined by the NITI Aayog, by 2030, India hopes to achieve electrification of 70% of all commercial cars, 30% of private cars, 40% buses and 80% two and three wheelers. The country is making steady progress towards creating demand for EVs among end-users, encouraging states to define EV policies, and incentivizing domestic manufacturing of EVs, batteries and charging infrastructure. A recent survey, conducted by auto-tech firm CarDekho and Omnicom Media Group (OMG), revealed that 66% of Indian customers are now willing to shift to electric vehicles.
While India’s EV market has seen growth in recent years, many barriers to widescale adoption still remain. These include high up-front technology cost, implementation of policies, manufacturing and supply, charging infrastructure and consumer demand. In addition, one of the biggest barriers is access to low-cost finance.
The report “Mobilizing finance for EVs in India” by NITI Aayog and Rocky Mountain Institute (RMI) analyses the quantum of investment required to transform India’s automotive sector and offers 10 solutions to scale up finance for EVs. The report reveals that India’s weighted-average EV sales penetration has the potential to be about 70% by 2030. To achieve this, over the next decade, India would need a cumulative capital cost of INR 19.7 lakh crore (USD 266 bllion) across vehicles, supply equipment and batteries. The estimated size of the annual EV finance market will be INR 3.7 lakh crore (USD50 billion) in 2030.
In the short term, EV sales are expected to slow due to the economic impact of covid 19 and the recent investment flow by OEMs towards BSVI standards. Therefore, improving access to attractive financing products will be key to converting India’s EV potential into reality.
This report has identified 6 targeted instruments and 4 ecosystem enablers that Financial Institutions (FIs), the EV sector and the government can adopt to mobilize capital for India’s EV transition. They aim to improve the confidence of FIs in financing EVs for end-users and mitigate risks associated with technology, policy, manufacturers, resale, utilization, maintenance, and customers.
Further, the report also highlights that key stakeholders such as the central and state governments, OEMs, NFBCs, private banks, fleet operators, and start-ups and fintechs can play a significant role in unlocking capital for EVs. India’s transition to electric mobility has the potential to create significant economic, social, and environmental benefits for the country. It can also position India as a world leader in accelerating the global transition to zero emission vehicles, in line with the goals of the Paris Agreement. Other nations can benefit from India’s experience of designing and implementing EV policies and programmes, including current work on EV finance.
THE 10 SOLUTIONS
Priority sector lending (PSL): The Reserve Bank of India (RBI) requires 40 percent of net bank credit to be deployed towards priority sectors. Inclusion of EVs in PSL guidelines would incentivize banks to increase lending towards the sector.
Interest rate subvention: Subventions act as a subsidy on commercially offered interest rates, with the government bearing the balance through associated banks. Such schemes would substantially improve the affordability of loans. They have already been enacted in other sectors and at a state level for EVs in Delhi.
Product guarantees and warranties: Reducing the uncertainty associated with EV models will improve their bankability. Original equipment manufacturers (OEMs) can provide assurances in the form of guarantees (to FIs) and warranties (to buyers) on the performance of their products.
Risk-sharing mechanism (government and multilateral-led): Mechanisms and facilities that partly or entirely cover possible losses associated with financing EVs (due to their unclear resale value) can be capitalized at the national or multilateral level. These would distribute risk and provide FIs with an opportunity to build their trust in the sector.
Risk-sharing mechanism (fleet operator-led): Fleet operators and final-mile delivery companies can leverage their existing FI relationships to provide partial credit guarantees and utilization guarantees to driver-partners. They could share the risk between stakeholders in case of default and enhance loan availability for delivery drivers.
Secondary market development: Industry-led buyback programmes and battery-repurposing schemes will help OEMs and the central government catalyze a secondary market for EVs. This would improve the residual value of EVs, providing FIs with an avenue for resale in case of borrower default.
Digital lending: Digital sourcing, underwriting, and sanctioning can streamline EV loans by helping overcome the operational and logistical challenges of vehicle financing.
Business model innovation: Piloting and commercializing new business models, combined with the flow of patient capital, can demonstrate the potential of the sector. Additionally, they would help build trust in EVs and normalize them in the market.
Fleet and aggregator electrification targets: The electrification of final-mile delivery, ride hailing, and corporate transport fleets can act as a strong market signal for stakeholders across the ecosystem, especially OEMs and FIs.
Open data repository for EVs: FIs need access to data on EV specifications, real-world drive cycles, actual charging costs, and operating expenditures. This will help such institutions accurately assess risk, determine appropriate interest rates, and design effective leasing programmes.