Bike Bazaar, a pre-owned two-wheeler financer is swiftly moving towards EV financing as the market transitions to zero emission vehicles. The company wants to offer a bouquet of solutions, right from vehicle financing to leasing and subscription for new and used electric 2Ws.
Srinivas Kantheti, co-founder and MD of Bike Bazaar, spoke to Autocar Professional on how the electric vehicles are on a cusp of takeoff and how financing can play a critical role in accelerating this shift. Srinivas - who understands the two-wheeler financing better than most - thanks to his experience of working in the two-wheeler market for several decades, shares his insight on the prospects and challenges faced by the industry and how his firm aims to capitalise on this market transformation.
Your thoughts on transition to EVs
The direction is clear, the shift towards EVs in two wheelers and three wheelers is going to be significant. This year the penetration is at 4 percent but, it is growing fast, and the estimates are getting revised upwards. As against the penetration of 30 percent by the end of decade the same is likely to happen by FY-26 and may touch 65 percent by end of this decade.
What are the challenges and how can they be overcome?
Financing remains the biggest challenge, other than the fact that battery and battery technologies are still evolving. Two-wheelers financing is not only dependent on the customer but also on the product.
The product profile has changed a lot. With resale values and battery life remaining uncertain, traditional financers find it risky to finance these products. In case of ICE, if the customer is not able to repay, a financer can re-possess the product and recover part of the dues in the secondhand market, which is challenging for EVs at present.
Secondly, unlike an ICE buyer who largely is an individual, EVs are being aggregated by logistic company and last mile mobility providers, thereby needing different underwriting norms. Delivery executives are hesitant to buy an electric vehicle, due to high upfront cost, uncertain resale value, lack of confidence in the battery and lack of charging infrastructure.
Hence, they prefer aggregators to supply vehicles thereby transiting from Ownership to Ridership. Vanilla financing will hence have to evolveinto different solutions like financial lease, operating lease, renting solution among others. The financier will have to start wearing hats, which he is not familiar with hence, I feel that people who have specialised in two wheelers, three, wheelers, have a better chance to lead EV financing as compared to all-purpose financiers. The real test for EV adoption will come in the next two years, once the early adopters are satiated, it will be interesting to see what considerations will emerge to drive growth ahead. Frankly, on commercial basis alone, an EV does not make sense if you don’t ride 75 kilometres a day. But I think the green element is also very critical in purchase consideration.
How big is the financing opportunity?
Barring a few major banks, two-wheeler financing is largely a Non Banking Financial Company play. About 55 percent of the overall two-wheeler sales are financed this way amounting to a disbursement of over Rs 50,000 crore per annum for ICE vehicles. The EV finance penetration is low at about 25 percent. The first target for the industry and for even the government, will be to transition the entire delivery ecosystem to electric in the next fewyears. It is a very big industry – at present it is 1.5 million, which is likely to double to 3 million in a few years. The government’s project“Shunya” aims at Zero emission last mile delivery. It makes perfect commercial sense besides being emission free.
A saving of Rs 2,500- 3,500 per month is possible for a 75 kilometres daily ride. Last mile business is the biggest opportunity and our company is completely geared up to cater to it. Today, less than three percent of our asset under management is EV. Next year for EV it will be 28 percent and a year after 40 percent. By FY26, it will be 50 percent of a total Asset under Management worth Rs 4,500 crore.
As a company we are focused to impact, on the low- and middle-income group customers, on women customers and on sustainability. Our investors are completely aligned toward this impact.
How tough is it for a financer to raise money for EV to fund its expansion?
A financing company must raise both equity and debt. We have been able to raise a healthy Rs 480 odd crore of equity in the last 5 years, from marque investors, Elevar Equity, Faering Capital, Women’s World Bank and DEG, all of whom have a strong environmental, social, and governance (ESG) mandate.
Debt has been expensive, and we feel that in the next few quarters environment specific debt will start flowing at cheaper rates. For example, the World Bank and SIDBI have partnered to provide cheaper Debt as well as partial credit guarantee forElectric two and three wheelers. Other DSIs are also showing keen interest in ESG specific debt.
What are the risks?
The biggest risk is product risk. The product lifecycle of an EV is still a question mark, an ICE vehicle lasts over 15 years with multiple owners across its lifetime. When we finance an EV or lease it, we look at it only for a three or four year window. Whether this will remain the same or evolve with time is the uncertainty.
The second risk is that the nature of borrower has changed, 99 percent of the financing for ICE is to an individual owner, but that profile has changed for EVs to new age logistic companies, thereby making the risk chunkier. Further operating lease come with its own issues of product occupancy and depreciation cost.
How do you mitigate the risks?
Firstly, we evaluate a manufacturer thoroughly before signing them on. Unlike ICE vehicles, the quality varies significantly. We are also trying to encourage more retail sales – even as we cater to institutional sales. That is how we have started a B and C lease product through our subsidiary.
How critical are subsidies?
Subsidies are important to kick start the demand and at this stage are very important. There's a lot of money which is being put on EVs. It is a right thing to do at initial stage, to give it a jump start. However, no business can be built on permanent subsides. I think the only alternative in the long term is that India will have to start manufacturing its own cells and batteries, a lot of investment must come in and hence we have the schemes like PLI.
The industry will evolve, there will be innovations in product,hence government interventions will also evolve in different phases. We will also need green electricity as the numbers increase.
You are a pre-owned ICE two-wheeler financer; do you see an opportunity for used EVs as well?
EVs have an inherent advantage of easier repossession due to geo-tagging, geo-fencing etc. This will help in creating a robust secondhand market. For the market to take off, the prices of EV batteries must come down. If the vehicle is very old and if you must replace the battery, then the entire economics goes out of the window. While subsidies are meant to take care of high price of batteries or EVs, the same subsidy is not available for replacement, which makes preowned EV two-wheeler unviable, hopefully it is a transitionary phase and eventually support may come. We're already seeing the second-hand market slowly building up. The vehicles which we are repossessing, we can sell in the secondhand market, but it is still very small.
Any fundraise plans?
We have just concluded series D fund raise, which was about Rs 250 crore. In addition to existing investors Elevar Equity and Faering Capital we have two new investors Women's World Bank of New York and DEG which is part of the KFW Group, a big impact investor from Germany. While there is a lot of investor interest, we are well capitalised for future growth. Of course, we are always looking for debt especially for our EV business.
This interview was first published in Autocar Professional's February 15, 2023 issue.
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