SynopsisElectric mobility is said to be the future of a sustainable world. But not everyone is keen to finance that future.
One of India’s major efforts to curb air pollution in the country has been its dedicated focus on adopting electric mobility. In the last 10 years, the Indian automobile industry has seen a high penetration of electric mobility, especially in the private vehicle sector, including electric cars and scooters. This has been a result of combined efforts of the government and private sector, including startups and existing vehicle manufacturers.
On the other hand, adoption of electric vehicles in the public transport sector has been tepid. While the government has announced a slew of measures through its FAME II scheme offering subsidies for electrifying public transport, the implementation has been slow. Further, the cost to acquire these public transport vehicles such as electric rickshaws, which comparatively have lower total ownership cost and low upfront costs, are still prohibitive as many depend on financing to make a purchase.
According to Abhay Srivastava, Business Development Advisor, Shell Foundation, despite dissemination of enough information around charging infrastructure, concerns around battery, different types of batteries, among other things, lack of awareness exists around the potential income generation from electric rickshaws among low-end consumers. The second barrier to adoption of EV vehicles is availability of consumer finance to the low-income borrowers.
To address this issue, Shell Foundation has been working with an early stage enterprise based in Varanasi, which provides market linkage to low-income population and is working towards asset ownership of electric rickshaws. They came up with interventions such as providing First Loss Digital Guarantee (FDLG) through some NBFCs. While initially they tasted success in some markets, but as they scaled, they realised they needed more partners as they could only provide FLDGs to an extent. They wanted to change the general narrative in which these low-income consumers are usually considered less creditworthy by NBFCs.
Speaking on similar lines, Sameer Aggarwal, co-founder and CEO, Revfin, added that the electric three-wheeler market has the potential to scale to $5 billion annual sales, however credit supply remains very poor as mainstream lenders lack confidence in the segment.
Key issues leading to low credit supply include credit unworthy customers with low education with no banking or no credit history, several geographies being unserviceable by lenders, non-existent second-hand sales and lack of product standards.
“To improve EV financing, there is a need to improve the product itself first. For example, our electric cars come with ABS, Anti-lock Braking System. They are there to pass different tests. So we need to create certain minimum standards for these vehicles, which are not only about the production quality but also the warranty that the OEM gives. Electric rickshaw batteries often come with a six month or 12 month warranty, why not a 36 month warranty? This means that the parts being put into these vehicles are also substandard and that reduces the life of the vehicle. If I’m financing a vehicle for two years and if it doesn’t last for two years, then there is no point in financing,” he said.
A lack of confidence is playing a spoilsport for the electric three-wheeler segment in India.Changing dynamics
As with every sector and business in the economy, COVID-19 has upended the EV segment. According to Srivastava, demand for electric rickshaws had crashed after Covid. “For example, if you were to buy an electric vehicle you would approach your family and friends and inquire about the income level you can generate out of the electric vehicle. Now this income level has reduced to one-third or one-fourth due to COVID, resulting in the dip in interest of buying an electric rickshaw,” he said, speaking at Sankalp Global Summit 2020.
Here, what is necessary is to give an assurance of income to these potential consumers, which in turn will give confidence to the NBFCs and they can resume financing electric vehicles. In order to do that, Srivastava suggested introducing a technology player in this segment which can improve the performance of electric rickshaws by giving them access to the right areas of commute and access to the goods transport segment.
Aggarwal adds that electric rickshaws had most of their business running around bus stations, metro stations, railway stations, schools and colleges, all of which were shut down during the lockdown. However, there has been considerable interest in EVs from another segment.
“We have seen a huge interest in electric rickshaws and electric scooters for deliveries. A lot of passenger carrying autos are also actually now carrying goods. There are a lot of goods that people were transferring using other forms of vehicles are now doing through e-rickshaws and e-scooters. Suddenly, the divers have realized they can actually carry goods because there’s ample space for it. Flipkart has also announced they are going to move to 100% electric. This is likely to be followed by other big retail chains and e-commerce companies,” he said.
Even Amazon India has a commitment to add 10,000 electric vehicles in its delivery fleet by 2025. It is said to be in talks with a bunch of domestic EV manufacturers and startups including Kinetic Green, SmartE, Mahindra Electric and Altigreen.
Aggarwal says that we expect a lot of this to occur in smaller towns over the metropolitan areas, giving a boost to the last mile consumers.
The adoption of electric buses at a faster pace can prove to be a boon for the economy and the environment.A fruitful market
Besides electric rickshaws, electric mobility in public transport such as electric buses also offer many value propositions to Indian cities as they are more efficient, more quite, cleaner and are known to be increasingly cost effective. The government think tank Niti Aayog had proposed that India aims to electrify 30% of its vehicle fleets by 2030. Buses, which are over 1.5 million in India, are considered one of the leading segments to drive the electrification change.
According to a report by the Department of Heavy Industry (DHI) under the Ministry of Heavy Industries and Public Enterprises and Rocky Mountain Institute India, if four out of 10 buses sold in India are electric by 2030, India could become the second largest e-bus market in the world after China.
According to Srinivas Potukuchi, Co-Founder & COO, Mozev, it is a hugely fragmented market with only 10-12% buses run by state transport undertaking and the rest by private operators.
“Here, the economics are extremely competitive. Mozev focuses specifically on intercity travel or the tourist segment. This again is dominated by private operators. Why this segment becomes very attractive from an electrification perspective is because the buses can do about 400-600 kilometres a day, and if you are spreading the asset at that level, it makes for very favorable cost economics,” he said.
Adding to his thought of why the economics around the electric bus market is compelling, Srinivas explained that 85% of the market is where one-way routes are less than 400-500 km and there are existing technologies which can perfectly serve this segment. He added that a private bus operator who runs on a cash-to-cash basis has 2x times the surplus left when working with electric buses over diesel ones.
“With this pandemic, I think it proves one thing- the complete lack of linkage between crude oil price and the retail price of fuel in India, mainly because fuel taxes are important for government revenues. That linkage doesn’t exist in India, unlike many other countries in the world. So, diesel prices have only gone up, which has made the economics even more compelling for the electric bus segment,” he said.
He added that for private operators, running electric buses is about 30% cheaper than running a diesel bus. Operators can recover their marginal cost of running these buses at a much lower occupancy, which is what the pandemic is also forcing on them. There, we have a scenario where the economics are convincing and also at the changes being brought about by the pandemic currently are also favorable.
Coming to the barriers to adoption, Potukuchi pointed out two factors causing hindrance to financing- ticket size of EV bus segment and limited financing models.
“The ticket size in the bus segment is very large, however, the electric bus segment is an emerging one. Even if you look at the FLDGs, or the interest in the automotive leasing programmes, for commercial vehicles and buses, I think the ticket size for what is an emerging segment becomes a huge issue for financiers. So, from the private operator perspective, even though the economics are interesting, there is a lack of a certain confidence to pay for the upfront cost,” he said.
He added that from the perspective of financiers, the market is very young. Therefore, the financial models that are used to assess the residual value of batteries, the residual values of the buses, or even in terms of the view that financiers take on technology, all of this are at a very initial stage right now.