Electric vehicle financing in India to touch USD 50 billion by 2030

India’s clean mobility transition will require a cumulative capital investment of INR 19.7 trillion (USD 266 billion) in electric vehicles (EVs), charging infrastructure and batteries over the next decade, a new report has estimated.

The report — Mobilising Electric Vehicle Financing in India — says that the domestic market for financing EVs will be INR 3.7 trillion (USD 50 billion) by 2030, which is about 80% of the current size of India’s retail vehicle finance industry that is worth INR 4.5 trillion today.

India’s EV ecosystem has so far focused on overcoming adoption hurdles associated with technology cost, infrastructure availability and consumer behaviour, said the report by the government think tank Niti Aayog and US-based Rocky Mountain Institute (RMI).

Financing is the next critical barrier that needs to be addressed to accelerate India’s electric mobility transition, the report said.

“The need of the hour is to mobilise capital and finance towards EV assets and infrastructure,” said Amitabh Kant, CEO, NITI Aayog. “As we work towards accelerating the domestic adoption of EVs and push for globally competitive manufacturing of EVs and components like advance cell chemistry batteries, we need banks and other financiers to lower the cost and increase the flow of capital for electric vehicles.”

The EV ecosystem must design solutions to address barriers across policy, technology, economics and behaviour to support the adoption of EVs in India, the report said. Simultaneously, reengineering vehicle finance and mobilising public and private capital will be critical.

India consumers currently face several challenges, such as high interest rates, high insurance rates and low loan-to-value ratios. To address these challenges, the report has identified a toolkit of 10 solutions that financial institutions such as banks and non-banking financial companies (NBFCs), as well as the industry and government can adopt in catalysing the required capital.

“Re-engineering vehicle finance and mobilising public and private capital will be critical to accelerating the deployment of the 50 million EVs that could be plying on India’s roads by 2030,” said Clay Stranger, senior principal at RMI. “These solutions represent high-leverage areas for interventions in finance, and we believe that many are relevant beyond India.”

Recommended toolkit

The suggested solutions include financial instruments such as priority-sector lending and interest-rate subvention. Others are related to creating better partnerships between equipment makers and financial institutions by providing product guarantees and warranties.

A developed and formal secondary market can improve the resale value of EVs and improve their bankability, the report said.

“The identified barriers within EV finance need to be tackled in structured manner with innovative financing models,” said Randheer Singh, senior specialist at NITI Aayog.

The report said investment in India’s transition to electric mobility has the potential to create significant economic, social, and environmental benefits for the country. As the economics of EVs continue to improve, new business models and financing instruments gain acceptance, and government programmes drive early adoption and promote domestic manufacturing, India’s EV market is poised for growth in the coming decade.

In the runup to the 26th UN Climate Change Conference of the Parties (COP26), India has been participating in the COP26 Zero Emission Vehicle Transition Council. The world’s largest and most progressive automotive markets are working together to accelerate the global transition to zero emission vehicles, in line with the goals of the 2015 Paris Agreement.

The future size of India’s vehicle market is large and its plans for manufacturing and adoption of EVs and EV components are ambitious. It remains to be seen if the South Asian nation is able to meet its targets.