The supply of electric buses (e-buses) in India is expected to see a significant increase of 75-80% year-on-year, reaching 6,000-6,500 units this fiscal year as per Crisil Ratings. This surge is driven by the growing deployment of e-buses through tenders awarded under various government schemes, aimed at procurement by state transport undertakings (STUs) via the Gross Cost Contract (GCC) model.
Key schemes contributing to this increase include the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) Phases 1 and 2, the National Electric Bus Programme (NEBP) under Convergence Energy Service Ltd (CESL) Phases 1 and 2, and the PM-eBus Sewa Scheme. These initiatives have propelled e-bus orders to 24,000 at the beginning of this fiscal year.
Central government efforts to reduce carbon emissions in public transport are a major driver of e-bus adoption. The GCC model, which has become the preferred route for e-bus procurement by STUs, offers favorable contracting terms that support deployment. Under this model, e-buses are financed by bus operators, removing the upfront acquisition cost for STUs and ensuring a steady income stream for operators through assured rentals per kilometer, with tariff revisions linked to inflation.
Gautam Shahi, Director at CRISIL Ratings, commented, “E-bus adoption is truly in a sweet spot because the interests of STUs and bus operators are being taken care of under the GCC model, with optimal distribution of risk among stakeholders. For example, GCC is an asset-light model for STUs with no upfront cost of acquisition as e-buses are financed by bus operators. Bus operators, in turn, don’t carry any passenger traffic risk and get a steady income stream because of assured rentals per km with tariff revisions linked to inflation. Consequently, they generate a healthy internal rate of return of 10-11% over the tenure of the concession.”
However, counterparty risk remains a concern for operators, as STUs with weak credit profiles have led to stretched debtor cycles in the past. To address this, the government announced a payment security mechanism (PSM) under the PM-eBus Sewa Scheme in August 2023. The PSM aims to secure the receivables of bus operators in case of delayed or failed payments by STUs. Additionally, recent tenders under the PM-eBus Sewa Scheme allow bidders to execute concession agreements only after the PSM has been notified.
As e-bus orders continue to grow, economies of scale in production and declining battery costs are expected to reduce the purchase price of e-buses. These cost savings may be passed on to STUs by bus operators, further promoting e-bus adoption.
Pallavi Singh, Associate Director at CRISIL Ratings, added, “Existing strong e-bus orderbook, along with the remaining orders of 7,800 buses to be awarded under the PM-eBus Sewa Scheme will give a fillip to the sector. Moreover, the government is expected to further augment this scheme, which will continue to support the growth of e-bus sales over this and the next fiscal.”
Looking ahead, policy changes, battery cost evolution, smooth implementation of the PSM, and the ramp-up in e-bus supplies by bus operators will be crucial for the continued growth of the e-bus sector in India.
