Why Buying An EV Remains A Challenge In India
The current state of EV financing in India suggests the industry has some way to go before achieving large-scale adoption.
Higher interest rates, shorter loan tenures, lower penetration and larger monthly instalments—the current state of electric vehicle financing in India suggests the industry has some way to go before achieving the goal of large-scale adoption.
“The unknown risks of technology, residual value and newer brands are the reason that electric vehicle financing comes with higher interest rates,” Sameer Aggarwal, founder and chief executive officer of EV financing platform RevFin, told BQ Prime.
The platform recently raised $10 million in Series A funding, and provides vehicle loans to low income individuals in tier-2 and tier-3 cities. It has already financed 10,000 electric three-wheelers—mostly e-rickshaws—in 14 states.
The three-wheeler segment has witnessed the highest penetration of EVs in the country, with more than 50% of new sales coming from the electric models, according to data from the Federation of Automobile Dealers Associations.
However, this electrification is largely driven by e-rickshaws, with sales penetration of higher-capacity cargo and passenger carrying electric three-wheelers or L5 category vehicles still in low single digits.
Financing of electric vehicles is far from an organised market with variation in interest rates, depending on whether the vehicle is bought from a platform or through a dealership, the model of the EV, and the company.
According to industry participants BQ Prime spoke with, the interest rates on loans to buy electric two-wheelers can be 2-4% higher compared with loans to buy conventional vehicles.
According to a Delhi-based dealer of Hero Electric, the interest rates on electric scooter loans are 4% higher than similar petrol-powered products. Earlier, the finance companies were wary of entering the space, but now they’re gradually finding it more acceptable and less risky, said the dealer quoted above, who spoke on condition of anonymity.
“The interest rates are almost 2-4% higher, maybe because the technology is new, and businesses are new,” said Akash Gupta, co-founder and chief executive officer of Zypp Electric, which provides electric scooters for deliveries to e-commerce companies.
The company has to bear the brunt of higher interest rates to expand its fleet while helping the industry reduce carbon emissions.
“If something can be worked upon in creating more financing pools for these vehicles, for fleet operators like us it would provide some cushion,” Gupta said.
As a financier in the electric vehicle space, the biggest challenge is to raise money from the market, said RevFin’s Aggarwal. “So, our interest rates are not high because we want it that way, but because my cost of borrowing is high.”
The financial institutions lending in the space either will not lend to you or give you small amounts of money for testing, he said. That money will come at a much higher interest rate with a premium over what is charged to other people.
The crucial factor in vehicle financing is the profile of the individual. In terms of EVs, it is even more so because of the risk associated with the vehicle and the question mark on its resale value.
Aggarwal said the buyers of electric vehicles who opt for financing are more in the lower-priced segment. These buyers have little to no credit history or bank transactions, which skews the data as the same people are unlikely to get lower interest rates even when financing vehicles powered by fossil fuels.
“Around 30-40% buyers of electric vehicles opt for financing, while the number is higher for conventional vehicles at around 55%,” said Sumit Chhazed, co-founder and chief executive officer of OTO Capital, a two-wheeler financing platform.
According to him, the loan tenure is also shorter at 12-18 months, which bumps up the monthly installments, while approved total loan amount compared with the product’s price also needs to improve.
The Way Ahead
As the industry matures and end-of-life vehicles find their market, greater clarity on resale value will make it easier to finance EVs and interest rates may reduce, the industry experts quoted above said.
“(At present) The banks have not seen the end-of-life vehicles, and the buyback and second-hand market is not ready,” Zypp Electric's Gupta said.
Improved quality of products will infuse more confidence in customers and banks alike on the reliability of these vehicles.
The government’s plans to establish a billion-dollar fund to offer default guarantees on electric vehicle purchases to reduce the risk for financiers may also prove to be a turning point.
Lower risk, greater supply of money and decline in interest rates will increase the scale of the industry more than anything else, which can be transformative, Aggarwal said.