Barriers to scaling up finance for electric vehicles

In our recent article, we have discussed the ‘Mobilising Electric Vehicle Financing in India’ a report which was released by the National Institution for Transforming India, NITI Aayog and an independent non-profit Rocky Mountain Institute (RMI) India in January 2021. We have seen what are the solutions to lower cost and increase finance for electric vehicles. With the continuation of the same topic today in this article we will discuss the barriers to scaling up finance for electric vehicles.

Innovations are changing the amount and scale of financing needed, reducing costs and risks connected with EVs. However, the following examples illustrate that regardless of the business model and stakeholders involved, finance holds-ups.

Electric two-wheelers for final mile delivery

Fleet operators face challenges to become a successful business model. Many find it difficult to access equity or debt to purchase vehicles that they lease to drivers for deliveries. There is a need for robust charging networks to electrify the vehicles widely.

Electric three-wheelers for intermediate public transportation

As electric vehicles are costlier than the ICE vehicles which results in drivers needs to purchase e-rickshaws or e-autos on finance. However, they lack a credit history to prove their loan repayment ability. Unable to pay back a loan further limits its financing options.

Electric buses for city services Via GCC

Debt finance requirements and fees make it difficult for operators to purchase e-bus fleets. The operators are required to finance about 25 percent of the total capital cost as equity, representing a significant down payment for a fleet of e-buses.

Key challenges

High-interest rates

Interest rates for EV loans tend to be higher than the ICE vehicles.
For example, for a diesel car in Delhi’s bank the interest rate charges are 12 percent whereas for an electric car the charges are up to 14 to 15 percent. In the case of electric two-wheelers, the interest rates as high as 20 percent or more. This increases the equated monthly instalment (EMI) paid by vehicle owners, adding to ownership costs.

Low loan to value to ratios

Banks offer loans for EVs with only partial financing and a low LTV ratio to mitigate risk. The low LTV ratio will ensure the financier can recover substantial costs in case of borrower default despite a potentially low resale value. The small operators or drivers may not possess the equity to accommodate the low LTV ratio. They will be forced to get unsecured high-interest supplementary loans from the unorganised sector.

Limited financing options

In India, FIs don’t provide many specialised products for electric vehicles, except for the SBI Green Car Loan scheme. But other countries such as Norway, China, the UK, Australia, etc provide great offers that contribute to high EV adoption rates. But in India, it comes with high-interest rates, low LTV ratios, and shorter repayment periods.

Higher insurance costs

EV owners also pay higher insurance than conventional vehicles.
The vehicle’s insurance cost is dependant on its CAPEX, the higher the upfront cost, the higher the insurance premiums. For example, insurance for a privately-owned, commercially registered, self-driven car in Delhi is INR0.29/km. Whereas diesel vehicle costs INR0.18/km.

If these barriers will be addressed, then India can also become like other countries. India will also offer specialised products for electric vehicles that will definitely help with high EV adoption rates. 

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