Mahesh Babu, Managing Director, Olectra Greentech, mentioned in a recent interview with media sources that, the transition towards electric commercial mobility is entering a new phase, with India facing growing demand for the transportation of people and goods.

Adding further points, he said:

India is entering a new phase in the way it moves people and goods. The country transports approximately 4.6 billion tons of freight every year, with road transport accounting for around 70% of domestic freight demand, measured in ton-kilometres. This demand is expected to increase, with road freight activity potentially reaching approximately 9.6 trillion ton-kilometres by 2050.

Trucks and buses are extensively used on India's roads, transporting millions of people and tons of goods every day and together accounting for around 60% of India's diesel consumption. Their electrification forms part of India's transition towards cleaner mobility and can reduce dependence on imported fossil fuels, lower transport emissions, affect operating costs and contribute to energy security.

As demand develops, India's freight and public transport networks will require changes in vehicle technology, charging infrastructure and financing. Policy measures are also supporting this transition. Under PM E-DRIVE, Rs. 43.9 billion (US$ 456.7 million) has been allocated for 14,028 electric buses, Rs. 5 billion for 5,643 electric trucks and Rs. 20 billion for public charging infrastructure. The PM e-Bus Sewa Payment Security Mechanism has a further outlay of Rs. 34.35 billion and aims to support more than 38,000 electric buses.

Increasing EV adoption will therefore require technology, charging infrastructure and financing to develop alongside one another.

Three important pillars for EV adoption in India

The next phase of EV adoption will depend on three key areas: technology, charging infrastructure and financing.

Vehicle technology is advancing through improvements in battery performance, driving range, energy efficiency and connected-vehicle capabilities, increasing the range of potential EV applications. Charging infrastructure is also expanding, supported by public and private investment.

Financing is another factor affecting EV adoption. Financing models, lending products and access to credit influence the affordability and accessibility of electric passenger vehicles. As the technology and charging ecosystem develop, financing EVs on terms comparable with conventional vehicles will remain relevant to adoption.

An electric commercial vehicle is a productive asset that generates revenue over several years, and its financing structure can take into account its earning potential and productive life. This is particularly relevant because the acquisition cost of an electric truck or bus can currently be around 2.5 times that of a comparable fossil-fuel commercial vehicle. Financing can also carry an interest premium of 2% to 4%, together with shorter tenures.

When a higher asset cost is amortised over a conventional four- or five-year financing period, monthly repayments can become challenging, even when the vehicle offers favourable operating economics over its full operating life. A financing horizon of around six to seven years, depending on the application and asset, can align repayments more closely with the vehicle's productive life and the operator's cash flows.

Financial innovation alongside technology innovation

Financing can be structured around the earning life and productive value of the asset. Daily kilometres, assured utilisation, energy costs, uptime, maintenance requirements and operating revenue provide information on the economics of a commercial vehicle.

An electric bus operating under a long-term contract with assured kilometres provides visibility of utilisation and cash flows. Similarly, an electric truck operating on a defined logistics corridor can establish a predictable operating profile. Financing structures that take these cash flows into account can affect the accessibility of EVs.

This is particularly relevant in India, where around 70% of truck operators have fleets of five vehicles or fewer. Predictable monthly cash flow is an important consideration for these operators. The financing model therefore needs to take into account both the productive life of the vehicle and the economics of the operator.

Leasing as an access option

Long-term leasing can provide another financing option. Instead of carrying the entire acquisition cost upfront, operators can access vehicles through models that convert a larger part of the investment into predictable operating expenditure.

Vehicle leasing and Battery as a Service (BaaS) can distribute technology and residual-value risks among participants. Both are potential approaches to electric truck adoption, particularly among smaller operators. These arrangements can reduce the upfront acquisition cost of commercial EVs while allowing operators to focus on vehicle utilisation and revenue generation.

Connected vehicles and financing

Technology can provide information relevant to vehicle financing, including residual value. Electric commercial vehicles are increasingly connected assets, with Battery State of Health, charging cycles, kilometres travelled, energy efficiency, uptime and maintenance history capable of being continuously measured.

This data can create a digital record of the vehicle's condition and performance, giving lenders greater visibility into asset performance throughout its operating life. The same digital systems used to monitor vehicle performance can provide information for financing decisions.

A battery health and vehicle performance framework can support residual-value assessment, the secondary market and lender assessment of vehicle-related risks.

Financial innovation and EV adoption

India's commercial electric mobility market will be affected by developments in vehicle technology, charging infrastructure, policy support and financing.

Longer-tenure loans, long-term leasing, cash-flow-based financing, connected-vehicle data and residual-value frameworks can affect the financing of electric buses and trucks. When financing is aligned with the productive life and earning potential of the asset, commercial EV financing can take the vehicle's operating characteristics into account for both operators and financiers.

Technology will support the transition, infrastructure will provide the required charging network, and financing models will influence the pace of commercial EV adoption.