As India focuses on increasing adoption of electric vehicles and new business models emerge, leasing financing can serve as a growth accelerator for the electric vehicle B2B e-commerce model.
Electric vehicles are becoming synonymous with the mobility of the future. OEMs and established disruptors are investing heavily in research and development of innovative products. At the same time, new business models for electric vehicles and the charging infrastructure that goes with them are gaining traction.
This expansion is also fueling phenomenal growth in the leasing business. Compared to Western countries and even China, India offers one of the lowest rental rates in the world for all types of fixed assets. While loans have been the most common type of financing for asset acquisition in India, electric vehicles are not following suit for various reasons.
Lack of financing options
Even though well-known large OEMs have successfully introduced electric car products, start-ups are actually responsible for a significant amount of product innovation and business models. Indian companies operating in this sector are likely to cause such disruption.
Finally, electric vehicles are more economical to operate since electricity is significantly cheaper than oil or diesel, making them a smarter choice for the masses.
The solution: an asset leasing model for electric vehicles
Leasing has proven to be a great way to make up for the lack of institutional loans when it comes to financing.
The vehicle and the battery can be rented separately from the car by leasing companies or lessors. Battery swapping is necessary in many electric vehicle use cases, and leasing models are ideal in these situations because lessors want to get the most out of their assets. In the event of a failure, lessors can reuse a vehicle through an ecosystem rather than having to rely solely on a secondary market for sales.
Last but not least, there are no upfront costs for the tenant in a lease, which lowers the barrier to adoption. Only a monthly rental is requested from the renter, which is more economical than an ICE vehicle because it covers both capex and running costs.
How does an EV Asset-leader model work?
According to data from the Center for Energy Finance of the Council on Energy, Environment, and Water (CEEW), the number of electric vehicles sold in India increased by 10% in August 2022 to 429,342 units. It was the first time that more than 2% of all vehicles sold in India were electric vehicles.
Entrepreneurs and mobility solution providers use an automobile for personal use by paying a monthly fee, but do not own it. These rental options require little to no down payment and avoid the hassle of registration, insurance, road tax or maintenance. This model encourages more consumers to switch to electric vehicles.
Integration of vehicle leasing in India
The government has taken several thoughtful steps to make electric vehicle leasing even more financially viable. Electric vehicles have a low GST of 5% and a high depreciation rate of 40%, which makes leasing more lucrative. In addition, many low-speed electric vehicles do not need to be registered, which further decreases operating difficulties. It’s no surprise that the vast majority of electric vehicles on the road today, especially those used for business purposes such as commercial freight and ride-sharing, are leased.
With existing competitors and momentum, the market is expected to reach 200,000 active contracts by 2030, a conservative projection. In an ideal situation, this market should have more than 500,000 active leasing contracts by 2030. This will facilitate additional features such as economic expansion of company car offers, leasing product support policies and leasing OEM entry that can access the distribution network. in leasing.
The opinions expressed above are those of the author.
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