Context: NITI Aayog and Rocky Mountain Institute (RMI) India released a new report ‘Mobilising Electric Vehicle Financing in India’, which highlights the role of finance in the India’s transition to electric vehicles (EVs).
Background

• India has signalled that the future of mobility is electric. The economics of vehicle electrification are improving, with battery pack prices decreasing from about INR75,000/kWh in 2010 to INR13,000/kWh in 2019. 
• Despite a dip in EV sales in 2020, due to the economic effects of COVID-19, confidence in India’s EV future will continue to grow as technology costs decline further, operators gain experience with EVs, and new business models prove their viability. 
• India’s EV ecosystem has thus far focused on overcoming adoption hurdles associated with technology cost, infrastructure availability, and consumer behaviour. Financing is the next critical barrier that needs to be addressed to accelerate India’s electric mobility transition.

Key highlights of the Report

• The report also identifies a market size of USD 50 billion (Rs 3.7 lakh crore) for the financing of EVs in 2030—about 80% of the current size of India’s retail vehicle finance industry, worth USD 60 billion (Rs 4.5 lakh crore) today.
• End-users currently face several challenges, such as high interest rates, high insurance rates, and low loan-to-value ratios.
• To address these challenges, NITI Aayog and RMI have 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.
• The 10 solutions recommended in the report include financial instruments such as priority-sector lending and interest-rate subvention.
• Others are related to creating better partnerships between OEMs and financial institutions by providing product guarantees and warranties. Furthermore, a developed and formal secondary market can improve the resale value of EVs and improve their bankability.
• The report further determines that 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.

TOOLKIT OF SOLUTIONS TO MOBILISE FINANCE

BARRIERS TO EV ADOPTION
Despite improving economics and growth across the ecosystem, many well-documented barriers to EV adoption in India remain, including:

• 1. Technology cost: In a few segments, the high upfront cost of EVs is slowing adoption despite the potential for lower TCO. There is an ongoing need to further reduce the upfront cost and TCO in many use cases through various instruments.
• 2. Policy implementation: National-level policy can be complemented with added fiscal incentives at the state level. Non-fiscal incentives will also be important in developing a favourable operating environment and customer confidence for EVs.
• 3. Manufacturing and supply: Despite growing product diversity, there is still a need for greater customized product and model availability, and more fit-for-purpose models. Further, more domestic manufacturing of advanced batteries and cells, battery management systems, electric motors, motor controllers, and other components is needed. OEM capital has recently focused on the migration of ICEVs to Bharat Stage VI (BSVI) standards, while the industry is experiencing lower sales due to COVID-19. This is hampering supply-side investment in EVs.
• 4. Infrastructure buildout: The introduction of advanced batteries and longer-range vehicle modes can address customer concerns about range. Alongside these developments, electricity distribution companies (discoms), charging service providers, and other actors can focus on building robust charging infrastructure networks. Using smart technology that communicates with the electric grid will unlock additional value from demand-side management.
• 5. Consumer behaviour: Demand for more affordable EV products is expected, as consumers reduce spending in the short term due to COVID-19. This potential shift in consumer preferences may affect manufacturers’ investment and production decisions. 

Road Ahead

• “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.
• In the runup to the 26th UN Climate Change Conference of the Parties (COP26), the Government of India has been participating in the COP26 Zero Emission Vehicle Transition Council. 
• Alongside the world’s largest and most progress automotive markets, they discuss working together to accelerate the global transition to zero emission vehicles, in line with the goals of the Paris Agreement.
• The future size of India’s vehicle market is large and its plans for manufacturing and adoption of EV and EV components are ambitious. Other nations can benefit from India’s experience designing and implementing EV policies and programmes, including current work on EV finance.