The electric vehicle (EV) leasing market in India is currently valued at approximately USD 170 million but is expected to grow rapidly, reaching USD 4-5 billion by FY30 with a compound annual growth rate (CAGR) of about 73%. This growth will be primarily driven by commercial vehicles (CVs), which will contribute the most to the overall leasing opportunity.
Several stakeholders are involved in the EV leasing model. EV manufacturers, or OEMs, play a crucial role by selling or leasing EVs to fleet owners or leasing companies, ensuring a smooth transition to electric mobility. Fleet owners or leasing companies act as intermediaries, acquiring EVs from OEMs and leasing them to EV fleet operators. The fleet operators, who are the end users, lease EVs for services like logistics, ride-hailing, or corporate commuting. In addition, businesses in the logistics sector, including e-commerce and fast-moving consumer goods (FMCG), as well as corporate entities and individual customers, benefit from leased EVs for transportation needs.
Despite the potential, the EV leasing market faces significant challenges. High leasing rates are a major hurdle, driven by the substantial initial cost of EVs, making it difficult for leasing companies to offer competitive rates. There is also uncertainty about the resale value of EVs due to limited historical data, rapid technological advancements, and market shifts, creating ambiguity for lessees regarding the long-term value of their leased vehicles.
However, the sector is gaining traction as leasing companies are finding ways to reduce upfront costs. By signing exclusive EV procurement agreements with OEMs and taking advantage of government incentives like tax breaks, they can offer more competitive leasing rates. Additionally, leasing companies providing charging, service, and maintenance in one place can lower operational costs for both drivers and the company. The growing emphasis on sustainability and the increasing demand for corporate fleet offerings present valuable opportunities for EV leasing companies, as businesses seek to reduce their carbon emissions.
In terms of financing, the total disbursed loan value for EVs was USD 2 billion in FY24, and this is expected to rise to USD 31 billion by FY30 as EV adoption increases. Financing penetration for electric two-wheelers (E2Ws) was around 40% with a loan-to-value (LTV) ratio of 70% in FY24, and both are expected to reach 55% and 80% respectively by FY30. For electric four-wheelers (E4Ws), finance penetration is projected to increase to 80% by FY30, up from 70% in FY24. For the electric CV segment, finance penetration is expected to reach 95% by FY30.
Financing parameters, including interest rates and loan tenures, vary significantly between EVs and internal combustion engine (ICE) vehicles. For example, banks charge about 0.5% lower interest rates for high-speed E2Ws compared to ICE counterparts, while commercial EVs may face interest rates that are 1-7% higher than those for ICE vehicles. Other challenges for EV customers include shorter loan durations, higher interest rates, lower Loan-to-values (LTVs), and recurring costs related to battery replacement.
Financiers also face challenges reported in Praxis Global EV Report, such as an unestablished resale market and uncertainty regarding battery value and degradation. To mitigate these risks, they employ strategies like low LTVs, high interest rates, and shorter loan tenures. As EV adoption grows and financiers gather more data on EV behavior, they are likely to relax these measures and offer loans on terms similar to those for ICE vehicles. Financiers may also use data from vehicle usage, battery health, and rider behavior to better assess risks and make more informed lending decisions.
