NEW DELHI • India’s electric vehicles (EVs) push is lacking a key stimulant — easy and affordable finance — that has driven demand for most consumer products from homes to cars and appliances.

Lenders are reluctant to fund EVs due to the absence of a used market and fearing a fall in prices due to lower battery costs.

That’s suppressing consumer demand for such vehicles, according to Naveen Munjal, president of the Society of Manufacturers of EVs and MD at Hero Electric, which makes electric scooters.

Barely 3% of India’s electric two-wheelers are financed, while there’s financing for nearly 70% of the internal combustion engine vehicles, according to Munjal.

“It’s a chicken and egg situation,” Munjal said.

“How will the volumes grow if banks decide not to finance?”

Lack of financing adds to the frustration of carmakers who are being pushed to adopt EVs by a government keen to cut down air pollution and curb reliance on fossil fuels.

Despite the noise, the government is yet to come out with an EV policy and little has been done to put in crucial infrastructure for charging the vehicles. Such uncertainty doesn’t help the banks that are already battling a spike in bad loans.

Government Push

The government is stepping in now to do its bit.

India’s heavy industries ministry’s draft automobile policy released this month has sought changes in banking norms to facilitate easy loans for green vehicles.

Also, the South Asian nation wants EVs to dominate the automobile fleet by 2030.

To popularise usage and boost charging infrastructure, India last year conducted its first tender to buy 10,000 electric cars for government use that was won by Indian automakers Tata Motors Ltd and Mahindra and Mahindra Ltd.

But bankers don’t seem to convinced.

“If we lend to a fleet of EVs for a certain period and after a couple of years there’s a significant technological breakthrough resulting in lower battery prices, these loans will be under pressure,” said Pawan Kumar Agrawal, senior president at Yes Bank Ltd.

Lithium Urban Technologies, which operates a fleet of electric cars for corporate travel in Bengaluru, was stonewalled by financiers when it planned to launch its business nearly three years ago.

“There were high perceived risks about electric cars — what would be the life of the car, what happens if the battery fails,” CEO Sanjay Krishnan said in a phone interview.

“So, it took us some effort to educate the banks before convincing them to finance the project.”

Sighting Opportunity

Some financing companies are seeing an opportunity.

Mahindra Finance, part of the Mahindra and Mahindra Group which is one of the domestic players selling EVs, is beginning to hand out loans to this segment.

“We’re willing to experiment with this new emerging opportunity and set aside the capital,” said Ramesh Iyer, MD for Mahindra Finance.

“You need to set aside capital to experiment with new emerging opportunities and even if you fail in the beginning, it is fine. This business is going to be huge one day.”

Still, the terms of the loan could have been better if banks treated EV financing the same way as they do other vehicles, Krishnan said.

“The equipment makers need to play some ball too. They need to instill confidence in finance companies and clear their doubts,” Krishnan said.

“They also need to develop a size-able secondary market for EVs just as they have for IC (internal combustion) engine ones.” — Bloomberg