“In-Vehicle Finance, Understanding The Details Of The Vehicle And Battery’s Condition And Usage Is Key To Ac­curately Assessing Risk”

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Not driving a petrol or diesel-powered vehicle for a few weeks will not harm the engine. However, electric vehicles left idle for the same period without periodic charging can become inoperative. Dev Arora, Co-founder and CEO of ALT Mobility, highlights this as a primary challenge in financing commercial electric vehicles.


Q. How is ALT Mobility contributing to EV adoption in India?

A. ALT has been a catalyst in accelerating EV fleet adoption in India by enabling access to integrated leasing solutions that provide the lowest total cost of ownership and highest uptime and reliability for the logistics sector.

Q. Can you explain the difference between leasing and EV finance in the commercial sector?

A. Traditional vehicle financing involves a large down payment and hypothecation to the lender, with the buyer becoming the vehicle’s owner. With leasing, there are no upfront capital costs; the user pays a small security deposit and operates the EV for a fixed tenure of three to five years, after which the user has the option to own the vehicle, upgrade to a new vehicle, or return the vehicle. The key advantage of leasing is removing the upfront capital cost and lower monthly cash outflows and overall lower total cost of ownership. This is crucial for electric vehicles due to the recurring capex cost associated with battery pack replacement, which occurs every few years. Monthly lease payments cover vehicle costs, insurance, taxes, servicing, maintenance, roadside assistance, and battery replacement costs.

Q. What measures are in place if a driver leasing vehicles is unable to continue payments, and how does this impact the asset’s value?

A. We start with rigorous credit due diligence on the vehicle. The larger credit risk we are taking is on the asset. We work with selective OEM partners that have reliable battery technology that will last for the tenure of the lease and beyond. We have developed systems to continuously monitor fleet health and risks, including regular vehicle servicing and usage patterns. In the event of default, ALT repossesses the vehicle and refurbishes it through our service network and redeploys it with a new driver. A challenge with EV batteries is the potential deep discharge of the battery if the vehicle remains idle for an extended period, leading to significant degradation or making it unusable. Asset management is critical as the battery pack can represent half of the vehicle’s cost.

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To mitigate this, we take a hands-on approach with our assets. Our system includes alerts and trigger systems to proactively address potential issues, ensuring the vehicle’s optimal condition. This includes routine maintenance and immediate response to any problems, which not only maintains the asset’s health but also ensures higher uptime and efficiency for the driver. In case of repossession, our proactive maintenance approach means the vehicle can be quickly redeployed, preserving its value and minimising financial loss.

Q. So, how does EV finance differ from traditional ICE (internal combustion engine) vehicle finance?

A. The shift to EVs necessitates an evolution in how banks and financial institutions approach vehicle financing. In traditional ICE finance, the focus is primarily on loan repayment, with less concern about the vehicle’s condition during the loan period. However, with EVs, the situation is different. The high cost of the battery, often 40-50% of the vehicle’s value, and the lack of a developed secondary market for EVs pose unique challenges. This uncertainty has made many conventional financiers hesitant. In case of defaults with EVs, the vehicle can quickly become obsolete if not properly maintained, leading to a total write-off. This risk highlights the need for a more data-driven approach in EV finance.

Q. Does that mean that data generated by an EV is a primary requirement?

A. The data we focus on at ALT Mobility is primarily related to the vehicle’s battery pack. Each vehicle is equipped with an IoT device, integrated by the OEM, that’s connected to the battery management system. This device transmits critical data such as location, speed, and various battery parameters like current, voltage, and temperature. This kind of detailed data is not available from traditional engines, but it’s crucial for understanding the health of an EV’s battery pack. This not only improves asset uptime for fleet operators but also reduces financing risks.

Q. How does the EV fleet model fit into the traditional logistics industry as the same has not moved towards EVs?

A. This sector is diverse, ranging from small fleet operators to long-established logistic companies. The main challenge for these traditional logistics players in adopting EVs is the need for vehicles that reliably match the payload capacity and range requirements at the right price. The market needs larger electric vehicles, particularly four-wheelers, capable of handling significant payloads and distances, even for intra-city operations. Today, an electric three-wheeler can do the job of an ICE cargo LCV with the same payload and range at a lower capex and operating cost. The logistics industry is realising this and is on its way to switch to electric.

Q. Are electric three-wheelers also getting adopted?

A. In the three-wheeler segment, adoption is quicker due to a lower capex and operating costs. However, for larger four-wheelers, the cost is higher due to the need for bigger battery packs to move heavier vehicles. We are seeing more products in this segment and are actively promoting leasing for these vehicles as well.

Q. Talking about costs, is financing a major challenge for EV startups, especially when competing against established companies like Mahindra, Bajaj, or Piaggio?

A. The real challenge lies in the cost of capital. The financing rates for EVs are significantly higher, starting at 18% and going up to 25-30% for smaller fleets and drivers, compared to 16-18% for conventional ICE vehicles. This high cost is due to the inability of financial institutions to accurately underwrite the asset risk of EVs, given the unclear residual value, absence of a secondary market, and vague warranties from OEMs. However, there has been progress in reducing this cost of capital. For example, ALT Mobility started leasing at a 24% capital cost, which has since decreased to nearly single digits through our deployment of about 7500 vehicles, and we are actively supporting startups as well as established fleet operators and drivers in promoting the EV transition.

Q. What is the ‘one thing’ that has made ALT Mobility a success?

A. Our holistic approach is crucial to our financing model’s success. In vehicle finance, understanding the details of the vehicle and battery’s condition and usage is key to accurately assessing risk. Our data collection extends beyond battery pack information. We gather detailed data on every spare part change, tire replacements, frequency of roadside assistance calls, and insurance claims for each vehicle. This allows us to gain valuable insights and make informed decisions. This hands-on approach in acquiring and interpreting data significantly reduces risk. In our leasing model, we anticipate customer changes but maintain control over the vehicle’s operation and management. This control over the underlying asset instils confidence in lenders.

Q. Considering the rapid evolution in the EV sector and the challenges faced by startups in financing, do you recommend the lease model over traditional financing?

A. Absolutely. The EV sector’s evolution presents unique challenges and opportunities for startups, especially in financing. We are in talks with several OEMs to develop innovative products that address these challenges. One example is the upcoming AMC product, designed to cover consumables, spares, and labour costs, making vehicle maintenance more predictable and cost-effective for drivers. In addition, a lease-to-own model can be particularly beneficial. It not only provides drivers with a path to ownership but also incentivises them to maintain the vehicle better. We’re also exploring ways to help individual drivers become fleet operators by adding more vehicles based on their operational history and reliability.

Q. Are underwriting skills of critical value?

A. We believe that expertise in underwriting and a deeper understanding of EVs are integral to leasing or financing this asset class. In the future, those with better underwriting skills should be able to offer more competitive rates than those who do not understand the underlying product. This approach to managing risk premiums is integral to our strategy to keep our financial books healthy and to contribute to the broader growth and acceptance of EVs in the market.


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