Financing the Future of Transport: Unlocking Capital for India’s EV Transition

India’s shift towards electric mobility is accelerating, driven by the urgency to decarbonise transport, reduce oil dependency, and improve urban air quality. The country has set ambitious EV targets—aiming for 35-40% penetration of two-wheelers, 11-25% for four-wheelers, and 16-20% for buses by 2030. However, achieving these targets requires massive investments, estimated at ₹4.80 lakh crore ($60 billion) by 2030.

While the EV market is growing, financing remains a major roadblock. High upfront costs, lack of financing options, and risk aversion among lenders have slowed adoption, particularly for low-income buyers, fleet operators, and electric bus providers. The report “Financing Dialogue for Decarbonizing Transport”, under the NDC Transport Initiative for Asia (NDC-TIA), provides a comprehensive roadmap for overcoming these barriers. It highlights the current financing landscape, identifies key challenges, and proposes solutions to unlock capital for EV expansion in India.

Key Challenges in EV Financing

Despite growing policy support and subsidies, financing challenges remain a critical barrier to large-scale EV adoption. These challenges vary across different EV segments:

• Two- and Three-Wheelers: EV buyers face higher interest rates (15–25%), shorter loan tenures (2-3 years), and lower loan-to-value (LTV) ratios compared to ICE vehicles, making financing expensive and unattractive.
• Four-Wheelers (E4W) & Fleet Operators: Lenders are hesitant due to battery performance uncertainties, resale risk, and creditworthiness concerns.
• Electric Buses: Operators struggle with high capital costs, delayed payments from State Transport Undertakings (STUs), and lack of secondary markets for used e-buses.
• Charging Infrastructure: Investors see low utilisation rates, unclear revenue models, and high upfront costs as major risks.

Barriers Limiting EV Financing

1. High Perceived Risk for Lenders – Uncertainty around battery life, resale value, and long-term demand makes financiers reluctant to fund EV purchases.
2. Limited EV-Specific Loan Products – Most financial institutions treat EVs like ICE vehicles, leading to higher interest rates and lower LTVs.
3. Lack of Payment Security for Electric Buses – Many operators face payment delays from STUs, making them high-risk borrowers.
4. Infrastructure Investment Challenges – Charging infrastructure projects require large capital outlays, but uncertain returns discourage private investment.
5. Absence of a Secondary Market – The lack of a formal resale market for used EVs and batteries reduces asset valuation confidence.

Bridging the EV Financing Gap: Key Solutions

To unlock financing for electric mobility, the report recommends innovative financial models and policy interventions that reduce lender risk and improve affordability:

1. Battery Leasing and Battery-as-a-Service (BaaS)

• Decoupling battery and vehicle financing lowers upfront costs, making loans more attractive for buyers and lenders.
• Encouraging BaaS models can help reduce resale risk, as batteries are the most expensive EV component.

2. Risk-Sharing Facilities (RSF) for EV Loans

• A government-backed credit guarantee fund can reduce default risks for banks and NBFCs, enabling them to offer lower interest rates.
• International models, such as credit guarantee schemes for small businesses, can be adapted for India’s EV sector.

3. Payment Security Mechanisms (PSM) for Electric Buses

• A centralized fund to ensure timely payments to e-bus operators can improve the bankability of e-bus contracts, attracting more private investment.

4. Green Bonds & Climate Finance

• Issuing green bonds to finance EV fleets and charging infrastructure can attract institutional investors and global climate funds.
• Multilateral development banks (MDBs) can provide low-interest loans and extend longer tenures for fleet operators.

5. Priority Sector Lending (PSL) for EVs

• Including EVs under the RBI’s Priority Sector Lending (PSL) would mandate banks to allocate a portion of credit to EV buyers and infrastructure developers.
• Offering subsidised interest rates (4-6%) and flexible loan terms would enhance financing accessibility.

6. Developing a Secondary Market for Used EVs and Batteries

• OEM buyback programs and resale guarantees can increase lender confidence in EV financing.
• Strengthening battery recycling policies will create a circular economy, ensuring sustainable growth.

A Roadmap for Scalable EV Financing

Unlocking EV financing is critical for India’s transport decarbonisation goals. Addressing the financing gap will:

• Make EVs more affordable for individuals, businesses, and fleet operators.
• Reduce risk for lenders, ensuring more accessible and competitive financing options.
• Encourage private investment in charging infrastructure, accelerating deployment.
• Align India with global best practices, attracting international climate finance.

The “Financing Dialogue for Decarbonizing Transport” report offers data-driven insights and targeted recommendations to help stakeholders develop financial solutions for India’s EV ecosystem. By implementing targeted financial solutions, risk-sharing mechanisms, and regulatory support, India can create a self-sustaining EV ecosystem that accelerates transport decarbonisation while ensuring long-term economic viability.

NDC Transport Initiative for Asia (NDC-TIA) is part of the International Climate Initiative (IKI). The German Federal Ministry for Economic Affairs and Climate Action (BMWK) supports this initiative on the basis of a decision adopted by the German Bundestag. It supports China, India, and Viet Nam as well as regional and global decarbonisation strategies to increase the ambition around low-carbon transport.