Financing India’s Electric Two- and Three-Wheeler Fleets

IncollaborationwithNITIAayog FinancingIndia’sElectricTwo-andThree-WheelerFleets EXECUTIVEBRIEF NOVEMBER2022 Cover:deepblue4you,GettyImages–Inside:GettyImages Disclaimer ThisdocumentispublishedbytheWorldEconomicForumasacontributiontoaproject,insightareaorinteraction.Thefindings,interpretationsandconclusionsexpressedhereinarearesultofacollaborativeprocessfacilitatedandendorsedbytheWorldEconomicForumbutwhoseresultsdonotnecessarilyrepresenttheviewsoftheWorldEconomicForum,northeentiretyofitsMembers,Partnersorotherstakeholders. ©2022WorldEconomicForum.Allrightsreserved.Nopartofthispublicationmaybereproducedortransmittedinanyformorbyanymeans,includingphotocopyingandrecording,orbyanyinformationstorageandretrievalsystem. FinancingIndia’sElectricTwo-andThree-wheelerFleets2 Indiahastheworld’slargestfleetoftwo-andthree-wheelers–itstransitiontoelectricrequiresfinancingof $285 billion Electrictwo-andthree-wheelerfleetsprovidelow-costandzero-emissionmobilitytopeopleandgoodsinourcities.TheGovernmentofIndiaisfocusingoninnovativepolicymeasuresandnationalflagshipschemestoscaleupelectricmobilityinthecountry. SudhenduJ.Sinha,Adviser,NITIAayog,GovernmentofIndia FinancingIndia’sElectricTwo-andThree-wheelerFleets3 Two-wheelersandthree-wheelersaccountforover80%ofvehiclesalesinIndia.SupportedbygovernmentpoliciessuchasFasterAdoptionand ManufacturingofElectricVehicles(FAME),adoptionofelectricvariantsoftwo-andthree-wheelershasbeensteadilyrisinginthepastfewyears.There areabout45certifiedvehiclemanufacturersofelectrictwo-andthree-wheelersinIndiainanotherwiseconsolidatedautomarket.Cumulativesalesofthesevehicleshavereachedanimpressive1millionunits.However,thisisstilljust1millionoutofIndia’stotaltwo-andthree-wheelerfleetstockof250million–leavingimmenseroomforsustainedgrowth.Achieving100%electrificationofIndia’stwo-andthree-wheelerstockrequiresacapitalallocationofapproximately$285billion.1 Althoughelectricvehicles(EVs)arecostliertopurchase,theirrunningcostismuchlower.So,themoreanEVisused,thecheaperitgets.Whengaugedbytotalcostofownership(TCO),theyarealreadyidealforride-hailingandlast-miledeliveryfleets,whichhavehighdailyutilization.Thesesegmentsareleadingtheadoptionofelectrictwo-andthree-wheelersinIndiaandarelikelytobeamongthefirstsegmentstotransitioncompletelytoelectric.Forarapidtransitionoffleets,capitalflowtotheecosystemneedstogrowmulti-fold. Openinglargecapitalpoolswillrequirede-riskingofthemarketthroughdeepercollaborationbetweenstakeholdersandbusinessmodelinnovation. ThisdataisforfleetsinDelhi.ICEtwo-wheelersrunprimarilyonpetrol.TCOforelectrictwo-wheelershasbeencalculatedafteraccountingforFAMEincentives. 2/km(¢2.4) 0.52/km(¢0.6) EV- ₹* ICE- ₹* TCOfortwo-wheelerdelivery TCOforthree-wheelerdelivery ICE- ₹*2.25/km(¢2.7) EV- ₹*1.94/km(¢2.3) ThisdataisforfleetsinDelhi.ICEthree-wheelersrunprimarilyoncompressednaturalgas.TCOforelectricthree-wheelershasbeencalculatedafteraccountingforFAMEincentives. Source:RoadmapforDeliveryElectrification,DialogueandDevelopmentCommissionofDelhi,RMIIndia *₹isthesymbolforINR Source:RoadmapforDeliveryElectrification,DialogueandDevelopmentCommissionofDelhi,RMIIndia FinancingIndia’sElectricTwo-andThree-wheelerFleets4 TABLE1 CapitalpoolsandtheirstatuswithregardstolendingtotheEVecosysteminIndia StatusCapitalpoolDescription Unlocked Privateequity Privateequityhasbeenthefirstpoolofcapitalthathasbeenunlocked.Accordingtoestimates,in2021,thesectorreceived$1.8billionininvestmentsfrom31deals.Severaloriginalequipmentmanufacturers(OEMs),fleetowners,fleetoperatorsandinfrastructureprovidershavebeenabletoraiseequityathealthyvaluations. Partiallyunlocked Venturecapital(earlystage) Venturecapitalintheformofearly-stageequityinvestmentshasbeenunlockedwithinvestmentsflowingintoseveralvehiclemanufacturingandfleetbuildoutandoperations.Whileequitydealshaveplayedacrucialrolethusfarinsupportingentrepreneurialopportunities,theroleofventuredebthasbeenlimited,ifany. Dedicatedclimatefunds TheGreenClimateFund(GCF)hasapprovedafundof$1.5billionforIndia’sEVecosystem.Similarly,theGlobalEnvironmentFacility(GEF)TrustFundhasapprovedgrantandco-financingfacilityof~$172million.Suchfundsarebeingchannelledthroughmultilateralbanksandotherimplementationpartners,mostlyprivateequity;however,asthesearenew,theefficacyoftheirgrounddeploymentisyettobedetermined. Non-bankingfinancialcompanies(NBCFs) NBFCsarecurrentlythemainsourceofdebtfinancingtothissegment.NBFCsbackedbyOEMsandthosespecializinginvehiclefinancingareexpectedtoplayagreaterroleinfinancingEVfleets.SeveralReserveBankofIndia-approvedNBFCshavespottedthisopportunityandcreatedacoalitioncalledElectricMobilityFinanciersAssociationtopresentaunitedfrontandfurthertheirambitions. Multilateralbanks TheSmallIndustriesDevelopmentBankofIndia(SIDBI),withthesupportfromtheWorldBank,isplanningtolaunchanElectricVehicles–RiskSharingProgram(EV-RSP)–a$250millionfacilityincludingapartialcreditguaranteeanddiscountedlineoffinanceembeddingseveralfundamentalde-riskingmeasurestoenhancecommercialloanavailability.Thelendin