Why the Budding Indian EV Industry Needs Financing Support

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The global automobile industry is currently undergoing a gradual but massive paradigm shift. It is slowly switching to alternative and energy-efficient options, to counteract the negative impacts of traditional fuel-driven vehicles. India is making similar efforts to conduct the mobility shift to electric vehicles.

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This move has been made necessary due to increasing concerns about oil imports, pollution levels, global climate change impacts, and so on. The Indian electric vehicle (EV) industry is growing in presence and power through Foreign Direct Investment (FDI), leading to the advent of new manufacturing bases and charging infrastructure.

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Factors driving the growth of the Indian EV industry include federal subsidiaries, localised ACC battery production and storage, discount policies for Indian-made electric two-wheelers, and incentive schemes. In September 2021, the Cabinet approved a production-linked incentive scheme for the manufacturing of electric and hydrogen fuel cell vehicles.

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These steps are ensuring that the electric vehicle industry flourishes in India, with proper backing of the finance sector. Here, it will help to know more about the market size, growth, and trajectory of EV in India.

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EV Industry Trends and Trajectory

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The automotive industry in India comes fifth globally, in terms of market size. It is expected to become the third largest by the year 2030. Due to its huge domestic market, federal policies are leaning towards a mobility option that is “shared, connected, and electric.” The target is to achieve 100% electrification of vehicles by 2030.

According to a study by CEEW Centre for Energy Finance (CEEW-CEF), the Indian EV market will become a US$206 billion opportunity by 2030, if the steady growth is continued. To achieve this, a cumulative investment of over US$180 billion is required in vehicular production and charging infrastructure across the country.

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Similarly, a report by Indian Energy Storage Alliance (IESA) states that the EV market in India will grow at a CAGR of 36% until 2026, along with a CAGR of 30% growth in the EV battery market. These ambitious figures point towards the massive demand for electric vehicle financing India needs right now.

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Electric Vehicle Segments in India

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Essentially, the electric vehicle market in India is segmented by vehicle type and power source type. If you look at the variations in vehicle type, the following categories will arise.

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• Passenger cars
• Commercial vehicles
• Two-wheelers
• Three-wheelers

On the other hand, the segments created through power source type are:

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• Battery electric vehicles: These are fully electric vehicles with an electric motor in place of an internal combustion engine. They use battery packs to store electrical energy and power the motor with it.
• Hybrid electric vehicles: These vehicles combine an electric propulsion system with a conventional internal combustion engine. It uses electric power to achieve better fuel economy by using battery-stored energy along with fuel.
• Plug-in electric vehicles: These can be recharged from an external electric source like wall sockets, rechargeable battery packs, and drives.

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By shifting the Indian automotive market slowly towards these vehicle segments, we stand to benefit immensely, both economically and environmentally.

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Electric Vehicle Financing in India

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The electric vehicle market in India is still at a nascent stage and was badly impacted by the COVID-19 pandemic. Still, it is expanding rapidly with financing help. Along with federal policies, private eCommerce companies like Amazon are also focusing efforts on EV financing. Amazon had pledged to use e-vehicles for last-mile deliveries. The government also launched electric inter-city buses in some areas.

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State Governments are also bringing in policies to attract more financing for this market. Kerala government aims to bring one million EVs on road by 2022 and 6,000 e-buses by 2025. Telangana has plans to elevate EV sales targets for 2025 to 80% two- and three-wheelers, like scooters, auto-rickshaws, and motorcycles. Additionally, the aim is to get 70% commercial cars, 40% buses, 30% private cars, and 15% of all vehicles moved to electrification by 2025.

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The collective investment done by component makers, delivery companies, and commercial vehicle owners for e2W and e4W vehicles was INR 25,045.31 crores during January-July 2021. Since this sector allows 100% FDI, this figure is expected to grow exponentially.

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EV Industry Growth

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The growth of the EV industry is dependent on financers and stakeholders.

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How Financing Helps in EV Industry Growth

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It is undeniable that the capital required to explore India’s untapped EV sector is massive. The big players here are Mahindra Electric, Tata Motors, Olectra, Ashok Leyland, MG Motors, etc.

Due to the absence of big investors and significant demand, other major companies are unable to move ahead with their EV plans. Financing will help solve these problems by funding manufacturers, setting up charging stations, and developing adequate infrastructure for EV across the country.

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How Stakeholders Helps in EV Industry Growth

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Estimates place the cumulative capital cost of EV transition by 2030 to INR 19.7 trillion, which would require an annual electric vehicle loan amount of INR 3.7 trillion. Needless to say, it needs financing support to become more mainstream and accessible.

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As mentioned earlier, several government policies and subsidiaries are pushing towards EV growth and attracting the interest of lending institutions. With government push, investors are also becoming interested and driving up the investment capital gradually.

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Challenges to EV Financing in India

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Electric vehicle financing has been facing a few specific challenges in the Indian market. It all comes down to mainstream adoption of EV and how that can be done in lieu of the following challenges.

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• Financing challenges include high interest, steep insurance rates, limited specialised financing options, and low loan-to-value ratios.
• Regulatory challenges include introducing dedicated EV loans, setting up charging infrastructure, and adopting transparent policies.
• High risk is a major deterrent to investor contribution, as EV is considered riskier than traditional vehicle financing.
• Lenders’ apprehension is caused by a lack of stability and nascent stage of the sector.

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Facilitating Financial Inclusion for EV Customers

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Financial inclusion for customers can only be guaranteed if EV becomes more commercialised and gains access to the daily living of families and businesses. For that, we need long-term strategies for financing electric vehicles, both for the financier and the customer.

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We must note that the growth of the EV sector can be a function of technology adoption, which means the more we open up to adopting the technology, the bigger the market will become, which in turn will open up more financing avenues. With government support and private contribution, the EV industry of India will become one of the biggest and highest churning markets globally.