Ryan is a principal with RMI’s India program, where he supports India’s transition to clean mobility. He leads research, project, and convening work on electric vehicles and urban mobility. His research focuses on addressing barriers to electric vehicle adoption and advising government agencies on incorporating international best practices into national and state policy and incentive programs.
Please give our readers a brief idea about the present EV finance scenario in India.
India’s vehicle finance industry is a large market. Upwards of 50 percent of two-wheelers, 80 percent of private four-wheelers, and 95 percent of freight vehicles sold in the country are financed through loans. Current retail lending for vehicles from scheduled banks and non banking financial companies (NBFCs) is about INR 4.5 lakh crore (USD 60 billion). However, electric vehicle (EV) finance makes up a very small share of that market—less than 1 per cent according to our estimates—due to the low sales penetration of EVs today. That said, we expect EV sales to pick up due to rapidly falling battery cost, proven viability of new business models, and social demand to reduce harmful air pollution. The EV finance market will grow in lockstep with sales.
Are there any specific untapped opportunities in the EV sector which if focussed upon can lead to significant improvements?
The need of the hour for EVs is to figure out how to mobilise low-cost capital at scale. To do that, the ecosystem must address the main concern of financial institutions: risk. Asset risk and business model risk are the root causes of the higher interest rates, larger down payments, and longer loan tenures being incurred by EV buyers today. In RMI’s recent report, Mobilising Finance for EVs in India, co-authored with NITI Aayog, we propose a toolkit of financial instruments for leaders in government, industry, and product finance to help reduce risk and lower cost of capital. We see opportunities for industry to take the lead on EV finance, from sharing data on EV performance, to providing better guarantees and warranties, to supporting secondary market creation through buyback programmes.
Besides the measures being taken by the Indian Government for encouraging and promoting electric vehicles, what more do you think the government should do in this regard?
Central departments and ministries, including the Department of Heavy Industry and Ministry of Road Transport and Highways, are supporting vehicle electrification with fiscal and non fiscal incentives. NITI Aayog, Ministry of Power, Ministry of Housing and Urban Affairs, the Goods and Services Tax Council, and other bodies have also introduced policy measures and programmes to promote EV adoption. A set of financial instruments can complement those efforts. The central government can include EVs in the Reserve Bank of India’s priority sector lending (PSL) guidelines to incentivise banks to increase lending towards the sector. State governments can introduce interest rate subventions to lower interest rates on loans for vehicle segments with larger cost parity gaps.
According to you, how is India currently positioned to receive investment for EVs? What more can be done to scale it up?
India’s transition from internal combustion engines to electric drivetrains will create jobs and present investment opportunities for domestic and foreign investors. Over the next decade, a cumulative capital investment of INR 19.7 lakh crore (USD 266 billion) will be required for EVs, charging infrastructure, and batteries. One example of a promising investment area is advanced chemistry cell (ACC) batteries. This past week, the Cabinet approved the production-linked incentive (PLI) scheme for ACC batteries with a budget outlay of INR 18,100 crore (USD 2.4 billion). That programme aims to incentivise the development of 50 GWh of domestic battery manufacturing capacity, which will require billions of dollars of investment and create thousands of jobs.
What is your outlook on the EV finance industry for the next 5 years?
By 2025, we expect the EV finance market to grow to about INR 0.4 lakh crore (USD 5 billion). And by 2030, it has the potential to reach about INR 3.7 lakh crore (USD 50 billion) according to our analysis. Loan-to-value ratios and financing penetration levels for EVs will increase steadily over this timeframe to be on par with those of internal combustion engine vehicles. With this growth on the horizon, it is important for financial institutions to start engaging with the auto industry and policymakers today to chart a path to bankability for more EV assets, infrastructure, and businesses.