Future Of Sustainable Mobility? EV Financing And Leasing

EV sales soared in 2023, hitting 1.62 million units, a 50 per cent jump from 2022, highlighting a strong shift toward electric mobility. EVs now account for 6.38 per cent of India's automotive market, up from just 1.75 per cent in 2021.

However, the adoption of EVs in India faces significant hurdles, including high upfront cost of EVs, limited infrastructure and the need for accessible financing and leasing options. An Economic Times Online survey reported that 11 per cent of respondents feel the need for incentivising auto-makers.

So, innovative financing and leasing models are essential to accelerate the transition to electric mobility. The Secretariat explores India's various financing and leasing options, compares them with global practices and suggests key learnings for further growth.

Financing Models In India: A Critical Enabler

The Climate and Sustainability Initiative (CSI) urges India to earmark 18 per cent of all vehicle financing for EVs by 2070. Key CSI findings reveal that OEMs (original equipment manufacturers) must invest around US$ 323 billion to produce EVs alongside traditional vehicles — a move expected to generate US$ 14.1 trillion in revenue by 2070.

Despite the expanding market, the high price remains a significant barrier for most potential EV buyers. Financing models, like loan financing and government incentives, will have to play a critical role here.

Traditional loan financing offered by banks and Non-Banking Financial Companies (NBFCs) have to provide solutions. Loans typically have competitive interest rates, longer tenures and lower down payments compared to traditional vehicle loans.

The FAME II scheme offers subsidies on EVs and charging infrastructure, significantly reducing the effective cost. Recent cuts in subsidies are gradually changing this landscape, but also sparking new opportunities for innovation in the industry. As of now, of the Rs 11,500 crore earmarked for FAME II, Rs 7,940 crore (69 per cent) has been utilised.

While FAME II focuses on two- and three- wheelers, FAME III can expand adoption by targeting passenger cars, buses and trucks. Subsidies under FAME II were cut in June 2023, with the Rs 500 crore Electric Mobility Promotion Scheme (EMPS) bridging the gap until FAME III comes into effect.

Despite government support, EV financing remains limited due to concerns over risk, resale value and battery life. For the sector to grow, as subsidies decrease, India needs policy innovation with lower interest rates, credit guarantees and better financing options for public transport. Prioritising inter-city bus electrification can be another way.

Rise Of Leasing Models: Flexibility and Accessibility

Leasing is an increasingly popular alternative to ownership in India’s EV market, especially for businesses and consumers seeking flexibility and lower initial capital costs.

Full-service leasing lets consumers and businesses pay a fixed monthly fee covering maintenance, insurance and other costs, with the option to return or upgrade the vehicle at the end of the term.

Companies like Ola Electric and Mahindra Electric are driving this trend. Mahindra Reva’s 2014 subscription model, which cut EV prices and offered energy fees starting at Rs 2,599/month, laid the foundation. With growing government support, leasing and Battery-as-a-Service (BaaS) are lowering upfront costs and boosting EV adoption.

Retrofitting programmes convert ICE (internal combustion engine) vehicles to electric at a lower cost than buying new EVs. Delhi’s 2020 EV policy incentivised retrofitting with subsidies, tax rebates and scrappage incentives. Despite a high share of personal vehicles, EV adoption in Delhi remains low at 6 per cent.

Under EV policy 2.0, Delhi aims to retrofit 3 per cent of older vehicles by 2025-2026, accelerating the shift to cleaner electric mobility. 

Battery leasing is also gaining traction in India, allowing customers to lease the battery separately from the EV. The battery remains with the manufacturer, and users pay a monthly rental fee, addressing concerns about battery degradation.

JSW MG Motor India has reintroduced BaaS for four-wheelers, cutting initial costs. While successful in two-wheelers, its impact on four-wheelers is still unfolding. India’s EV battery market is expected to grow from US$ 16.77 billion in 2023 to US$ 27.7 billion by 2028.

Challenges To EV Financing

EVs remain 25-30 per cent more expensive than ICE vehicles. To bring down costs, manufacturers must scale up production, innovate in battery tech and localise manufacturing.

Banks remain cautious due to concerns over resale value and battery life, leading to higher interest rates (1-4 per cent more than ICE vehicles) and lower loan-to-value (LTV) ratios. The lack of a secondary EV market further complicates financing. 

Financing for charging stations and the expansion of infrastructure are other areas of concern. With a shortage of charging stations in many parts, consumers hesitate to make the switch to EVs. Public-private partnerships and investment in charging networks are crucial for creating an ecosystem supporting EV adoption. 

The plan under the revised guidelines for EV charging stations includes setting up 22,100 fast chargers for e-4Ws, 1,800 for e-buses, and 48,400 charging stations for e-2Ws/3Ws, with a total outlay of Rs 2,000 crore for EV public charging stations (PCS).

To boost EV charging during solar hours (9 AM to 4 PM), electricity costs at PCS will be capped at the 'average cost of supply' until March 2028.

As of September 2023, India's EV-to-charger ratio was 1:188, well below the global average of 6-20 EVs per charger. 

Insights From Leading EV Markets

India can draw inspiration from global leaders in EV financing and leasing models. With tax exemptions, free parking, low-interest loans and leasing options, Norway’s government policies have raised EV adoption.

China’s focus on battery leasing and shared mobility models, along with accessible EV loans and carbon credit incentives, has made EVs more affordable.The US offers zero-interest loans, rebates for low-income buyers and flexible car-sharing programmes, making EV ownership more accessible and encouraging trial before commitment.

Global EV sales in 2023 surged by 35 per cent, reaching 3.5 million more vehicles than in 2022 — more than six times higher than that in 2018. EVs now account for 18 per cent of global sales, up from 2 per cent in 2018. However, China, Europe and the US together account for nearly 95 per cent of global EV sales. '

India has to adopt from global best practices of EV transition. First, it should build a vast and accessible charging infrastructure, focusing on renewable energy and long-distance travel, as seen in China and the U.S.

Second, India should invest in advanced battery technologies, such as solid-state batteries, to enhance efficiency and range, following Japan's Toyota and Germany's Volkswagen.

Third, India has to adopt strong government incentives, like tax exemptions and reduced road tolls, as implemented in Norway, where over 80 per cent of new car sales are electric.

Additionally, India can draw from South Korea's advancements in battery technology to boost performance and lower costs.

Lastly, fostering market competition and innovation, similar to Europe, can diversify the EV market. For example, in 2023, BYD sold 16,000 EVs in Europe, and Volkswagen plans to invest US$ 193 billion in electric mobility by 2027.

Key Policies For Way Forward

India has made substantial progress in EV adoption, but there is still significant room for growth. 

Expanding government incentives like the FAME II, and offering targeted financial support for EV buyers, particularly for lower-income groups, are effective first policy steps.

Battery leasing, particularly in densely populated cities, can reduce the high initial cost of EVs. Subscription models for EVs, allowing customers to pay for only the period they use the vehicle, offer a flexible alternative to ownership.

More investment in charging infrastructure can reassure consumers. Governments and private enterprises must collaborate to create a robust and accessible charging network.

Extensive awareness campaigns are necessary to educate consumers about the available financing and leasing options, government schemes and long-term savings of EV adoption.

By learning from global practices and addressing the challenges unique to India, the country can pave the way for a cleaner, greener and more sustainable future.

(The writer is a public policy and urban transportation enthusiast and specialist. Views are personal)