Finance is going to be the biggest enabler of EV adoption in India. However, the retail consumer segment is consistently grappling with financing challenges, resulting in a sluggish pace of EV adoption. Arun Vinayak evaluates the overarching impact
Financing plays a pivotal, horizontal role in supporting new startups in the EV industry. This shift from traditional petrol and diesel vehicles to EVs mirrors the transition from regular phones to smartphones. It’s not just about altering the powertrain; it involves a fundamental shift in the ecosystem, akin to how smartphones introduced an app ecosystem and transformed device manufacturing.
In India, for instance, commercial vehicles, constituting only 10% of the vehicular population, consume 70% of on-road energy. This concentration is both unique and substantial. Unlike private vehicles, these vehicles are in constant use and usually follow a fixed route between home and office.
In the combustion engine era, OEMs primarily focused on procurement, assembly, distribution, and financing—a significant part of their operations. However, new entrants in the EV space, armed with advanced technology, might not prioritise financing in the same way. This is partly because financing in the EV sector is becoming more data-driven compared to the brand-reliance seen in the past.
The value proposition of vehicles is also changing. With EVs, the battery isn’t merely a component; it holds its own residual value, introducing a new dimension to how these vehicles are valued and financed. We’re witnessing an emergence of energy players and horizontal financing companies stepping in to address the need for financing solutions tailored to the unique aspects of EVs, thereby facilitating retail ownership of vehicles from these new-age OEMs. This trend signals a dynamic shift in the industry, highlighting the evolving role of financing in the burgeoning EV market.
Separate financing for EVs, EV batteries
While currently, due to subsidies like FAME, it’s more straightforward to sell electric vehicles and batteries together, the evolving ecosystem may alter this. In future iterations, such as FAME four, we might not have upfront subsidies but could instead see financing or charging incentives. This shift towards sustainable financing and charging practices is likely to drive innovation in energy services.
Consider the analogy of purchasing a laptop, where you can choose specific hardware like AMD or Intel processors or software configurations for a personalised experience. Similarly, in the electric vehicle sector, customers might soon select from various options like a Mobility SW solution, Exponent’s rapid charging solution, or even a slower charging option if they have home parking facilities.
The cost structures will likely vary, offering choices in energy partners and financing models customisable to the end customer’s needs. This could include options to purchase the battery separately or different service packages, allowing for a more tailored experience.
India’s robust demand for credit, particularly in sectors ranging from education to electric vehicles, indicates that enhanced financing can significantly boost business. This is especially true for electric vehicles in the commercial sector, where high costs often pose a barrier for potential buyers with limited funds. Recognising this, the availability of financing becomes a critical factor for the industry’s growth.
Retail customer grappling with finance challenges
Notably, while large B2B fleets have transitioned to electric vehicles, the retail customer segment is still grappling with financing challenges. This represents a substantial opportunity. Unlocking this potential lies in the collaboration among OEMs, energy companies, and financiers. OEMs must ensure reliable service and maintain confidence in the residual value of their vehicles. Energy companies, like ours, must engage actively, and financiers need to step up their involvement.
Our data clearly shows that financing obstacles lead to significant customer drop-offs. Prospective buyers express interest but often back out due to a lack of financing options. With better financing solutions, we anticipate a considerable increase in demand. This collaboration among various industry players is not just desirable but essential for fostering broader adoption of electric vehicles, ultimately benefiting the industry and contributing to sustainable progress.
In financing, capital is the foundational raw material, giving large, established companies a distinct advantage due to their greater access to this resource. However, there’s an emerging aspect to consider: the ability to understand and interpret data and improve the overall financing experience, including the speed of disbursement.
Observing current trends, particularly in neo-banking and various banking solutions, it’s evident that there’s a growing inclination towards collaborative models. These models often feature fintech companies at the forefront, handling the customer-facing aspects, while traditional banks provide the core financial solutions in the background. This synergy creates a mutually beneficial situation where companies and customers gain significant advantages.
Such collaborative approaches are likely to become more prevalent, combining the strengths of different entities to enhance the financing process. This evolution in the finance sector mirrors what we’re witnessing at Exponent Energy, where our focus remains primarily on the electric three-wheeler space, leveraging these emerging trends to facilitate growth and innovation in this sector.
This Article is based upon MOVES Ecosystem Dialogues interaction with Arun Vinayak, CEO, Exponent Energy
