Finances Critical To EV Deployment In India: Vaibhav Singh (CSI)

India’s Path To Net Zero: Challenges And Opportunities In The Auto Sector

CSI recently launched its India operations. What are the key areas of focus for CSI in India?

We majorly focus on transport, power, and industries—particularly those that are hard to abate. As a research organization, CSI focuses on solution reports, such as financial models that could be adopted by entities like the World Bank. We also design transition pathways, which include assessing necessary technologies and capacities to achieve net zero. This involves understanding business cases, financing needs, and bridging the gap between available and required funding.

CSI released a new report on Mapping the Course of India’s Auto Industry to Net Zero by 2070. What are the key findings of the report?

The report focuses on how India’s auto sector can achieve net zero emissions. The transport sector contributes about 13 per cent of the country’s greenhouse gas emissions, with road transport being a significant part of that. The report discusses the necessary capacities across various vehicle categories—two-wheelers, three-wheelers, cars, and buses—and the investments needed to transition to cleaner technologies. We estimate that achieving this transition could create a market worth $19.7 trillion over the next 45-50 years, with around $9 trillion required to finance the electric vehicles alone.

What are the major challenges you see in India’s (auto sector) pathway to net zero by 2070?

One of the biggest challenges is the cost of electric vehicles (EVs). Despite subsidies, EVs are still expensive upfront compared to internal combustion engine (ICE) vehicles. This is even after considering the lower GST on EVs (5% compared to 28% on ICE vehicles). The problem is that while EVs are operationally cheaper, the financial products available for purchasing them, like loans, have shorter tenors and higher interest rates, making them less attractive to consumers. Banks are hesitant because they don’t fully understand the technology, particularly regarding battery life and replacement costs. To overcome this, we need short-term guarantees and better financial solutions.

Is that why EVs, especially bikes, are not picking up as expected in the commercial sector?

Yes, that’s one reason. Commercial usage typically involves high mileage, where EVs can offer savings. However, for personal use, other factors like range anxiety and the need for a versatile vehicle come into play. People may prefer an ICE vehicle for its reliability over long distances or for varied uses. Additionally, the financial challenges, like the need for long-term refinancing and sector-specific credit lines, are significant barriers.

Do you see the EV financing happening in the near future?

It’s challenging, especially in the short term. The banking sector’s exposure to the auto loan market needs to increase substantially to meet the financing needs for EVs. The difficulty lies in reallocating resources from other sectors and convincing banks of the viability of EV investments. There are some positive steps, like certain non-banking financial companies (NBFCs) tapping into this market, but broader support is still needed.

Our report aims to attract both investors and policymakers by highlighting the potential of India’s auto sector in the transition to net zero. It’s crucial to create incentives and policies that can support this transition and ensure sustained investment in the sector.