Accelerating Electric Mobility: Unveiling SIDBI’s Financial Roadmap for a Sustainable Future – Ramann S, Chairman & Managing Director, Small Industries Development Bank of India (SIDBI)

Highlights:

1. SIDBI pioneers tailored financial solutions to bolster electric mobility, addressing critical gaps in affordability and accessibility for ecosystem players.
2. Innovative risk management strategies mitigate uncertainties associated with evolving EV technology, ensuring investor confidence and project viability.
3. Strategic initiatives, such as the 50KEV4ECO scheme and collaborations with global institutions, propel electric mobility forward, driving inclusive growth and environmental sustainability.

1. How does SIDBI perceive the role of finance in accelerating the adoption of electric mobility in India?

The path to electric vehicle adoption from 2015 to now has been encouraging, especially in the last two years. More than 1 million EVs were sold in the last one year. However, if we are to reach the government’s target of 30% of EVs by 2030,  targeted intervention will be required.

For instance, among commercial vehicles, the adoption of electric vehicles for last mile deliveries and connectivity is happening through many new age companies. For these new companies to scale up, we have to ensure they have affordable financing. 

It is crucial to support entities working on the downstream side of electric vehicle adoption, be it fleet operators, leasing companies, charging stations, battery swapping and leasing. So, financiers will play a significant role in the adoption. 

SIDBI has held consultations across India and understood the dynamics of EV financing. Various EV initiatives are being developed in collaboration with national stakeholders, MDBs and think tanks. I believe this is the right time to ramp up the financing for the electric vehicle ecosystem.

Having said that, there are a few key areas where the finance industry can play a key role: 

1. Timely and solid support to MSMEs and start-ups that are or will soon be playing a vital role in the electrical mobility value chain. The most critical of these would be those developing charging infrastructure, which is the key driver of adoption.
    
2. Innovative risk management techniques to help electrical vehicle pioneers mitigate risks typically associated with new technologies and evolving markets. (SIDBI has developed some new-age risk sharing models and financial products to address this very issue) 
3. Financial incentives to encourage adoption, which can include de-risking measures (DRMs) or lower interest rates to encourage adoption among consumers.

2. What are the key challenges SIDBI foresees in financing electric mobility projects, and how does it plan to address them?

The challenges in financing electric mobility projects are similar to those in any sunrise industry with nascent technology and a developing market.   

1. The first and the most critical challenge is the availability of finance. Currently around 80% of the EV market financing is through dedicated NBFCs. While these lenders have a comprehensive knowledge of the sector, they are not among the top-rated NBFCs. This means their own cost of funds is high, which gets passed on to the industry. 

We at SIDBI lend to these unrated NBFCs and help them improve their credibility and availability of funds at reasonable costs. We also lend directly to ecosystem players such as fleet operators, charging companies aggregators etc through our various schemes.

2. Technology Risk- The EV segment has seen rapid technological growth, that pose risks and uncertainties for investors and financiers. To mitigate the product risk, we are empanelling OEMs and the certifications of products they offer are examined by our experts.
3. Lack of data- Commercial banks hesitate to lend to EV projects because there is little data on vehicle performance or a secondary market. To mitigate this, we are developing an IT platform to collect vehicle performance data, EV portfolio performance data etc. which will strengthen the under-writing skills of the financers. The proposed  IT-platform will digitize end-to-end operations, create a platform to bring EV stakeholders, data repositories on EVs and its loans, and a mechanism to realise the carbon credits from the usage of EVs.

4. Environmental risk- Environmental concerns are another challenge and at SIDBI we have developed ESMS for EV based on Environmental and Social Impact Assessment performed. These measures are imbibed in our financing process.
5. High perceived risk and bankability- Beneficiaries are unable to access finance due to high perceived risks associated with EVs. To encourage financing by other lending institutions, reduce their perceived risks, we have launched the EV-Risk Sharing facility in collaboration with Shell Foundation. The facility will make project loans more bankable and safeguard the portfolio of lending institutions in the EV ecosystem.

3. How does SIDBI assess the investment potential of electric mobility startups and businesses, and what criteria does it consider?

SIDBI has a dedicated vertical on Greening the enterprise eco system. We have experts dedicated to each vertical. Some of the key pointers while assessing EV projects are as follows:

1. Sustainability of business models and potential for long-term success. For example, borrower entities should have medium / long term business assurance contracts with a reputed agency or should have one year of dealing with reputed agency for the EV segment.
2. Ability to capture market share: Examine tie-ups and partnerships with existing players of EV Ecosystem
3. Technical expertise: Our experts evaluate the uniqueness of the start-up’s offerings, such as advanced battery technology, software solutions etc
4. Most importantly we check for the firms’ regulatory compliance as per different standards in EV industry.

4. In your opinion, what are the most promising areas within the electric mobility sector that merit increased investment attention?

In our opinion, the following areas under the electric mobility sector appear to be most promising for investment –

1. Last mile connectivity focused: This is definitely one of the promising sectors and has seen traction lately. The last mile deliveries and connectivity options for passengers have huge potential. The policy push mandating the transition as in the Delhi aggregator policy, will definitely increase the adoption in a time bound manner. 
2. Battery Technology and Energy Storage: Lots of start-ups are working on innovative solutions to develop the alternate battery chemistry, improve the efficiency of the battery components (cathode/ anode), and battery recycling. Additionally, new business models are merging for used vehicles and charging space to accelerate the adoption.
3. Electric Commercial Vehicles including buses and trucks: This sector is yet to take off as only government buses are eligible for the FAME II subsidy. At least 90% of the commercial vehicles are yet to move towards electric mobility.
4. Rural e-connectivity: Rural transport infrastructure and services play a pivotal role in enabling economic development, improving social well-being, and reducing inequalities. Rural India holds immense potential as more than 50% of two-wheeler sales are attributed to rural regions. Considering this, SIDBI supported a developmental pilot program by supporting women entrepreneurs in their electric mobility journey by providing subsidy equivalent to cost differential between ICE and Electric two-wheeler.

5. Can you share insights into SIDBI’s approach to MSMEs involved in EV manufacturing and related technologies?

Being a MSME focused Development Financial Institution, we always  strive to promote and support MSMEs involved not only in EV manufacturing but also in the value chain of the entire EV ecosystem. Few insights into our approach are

• We offer customized financial products to MSMEs and at better than market rates
• We support collaboration and partnerships within the MSME ecosystem involved in EV manufacturing through our stakeholder consultations. 
• We are supporting capacity building and skill development programs for MSMEs to enhance their capabilities through BO level interactions.

6. Looking ahead, what are SIDBI’s strategic priorities and initiatives in terms of financing electric mobility projects and businesses in the coming years?

We are glad to share that EV mission which SIDBI has adopted under the guidance of NITI Aayog is creating a visible impact. We are pleased to share few key initiatives taken for EV adoption: 

1. Launch of 50KEV4ECO scheme and supported to several Fleet operators, charging companies, swapping companies & NBFCs under the scheme. Till date supported assistance to 18000 electric vehicles.
2. Launch of pilot Electric Vehicle- Risk Sharing facility (EV-RSF) of USD 6 million with the support of Shell Foundation for e-2w and e-3w.
3. E-auto in Ayodhya under EV scheme.
4. Release of e-book on Unlocking e-Mobility* [https://www.sidbi.in/green-pathways-e-series.php]
5. Pilot for ‘Greening Rural Mobility’ through women entrepreneurs in association with SEWA and NRDC.

Further, we are working with multilateral development banks like World Bank, Asian Development Bank to enable the adoption by improving the access to financing as well as move the market towards sustainable financing options. and also with other philanthropic organisations. We are also working to enable the financing for transitioning of heavy-duty vehicles, including buses to electric mobility. To get ahead of the curve in terms of adoption happening in the leading countries, we have to tailor-made the financing products as per requirement.ICE is melting slowly (in mobility space) for good and is ready to Freeze on The E mobility solution.