The Leasing Solution: Battery leasing could solve problem of increased EV costs after subsidy withdrawal

Makers of electric scooters are now coming up with newer ways of helping customers finance their vehicles. Some OEMs are now selling electric scooters to buyers with the batteries leased separately.

As per this system, individuals have the option to pay the upfront cost of the vehicle, while the battery cost can be distributed and paid on a monthly lease basis. The transaction will treat the battery as an asset embedded within the vehicle.

OEMS eye leasing solutions

Electric scooter maker Kinetic Green has lowered its price to Rs 69,000 from Rs 94,990 for its Zulu electric scooter where its 2.27kWh Li-ion battery is available with a pay-as-you-use model.

“We have reduced the cost of ownership by 35 percent by bringing the cost of our electric two-wheeler at par with a 100 cc ICE vehicle,” said Kinetic Green Founder and CEO Sulajja Firodia Motwani. Kinetic Green users can pay a rental fee and gain access to the battery, thereby avoiding the immediate impact of a substantial upfront battery cost.

Nikhil Bhatia, Co-Founder and Chief Strategy Officer of Jaipur-based HOP Electric said, “I am certain that in 2024 India will see a dynamic landscape for battery leasing in India.”

Sun Mobility which currently derives more than 70 percent of its turnover from its mobility-as-a-service product where it gives the scooter and the battery on a fixed fee is already resetting the business towards battery leasing.

Leasing, which forms around 30 percent of the turnover, is likely to grow to 50 percent, said Anant Badjatya, CEO of Sun Mobility. He added that four or five start-up electric scooter makers have approached Sun Mobility to incorporate their battery as a solution with their electric scooters.

Samrath Kochar, CEO, of Delhi-based Trontek Electronics which specialises in making batteries for electric two-wheelers and e-rickshaws also told Autocar Professional that the trend of leasing will pick up in 2024.

Kochar said that recently one of their OEM customers has approached them to start selling their batteries to an OEM leasing company which will buy and provide battery-as-a-solution for its B2C electric two-wheeler customers. 

Swapping versus leasing

There are indications that battery swapping players are also moving towards leasing solutions for B2C applications. Battery swapping has seen sluggish growth in the country due to issues with standardisation and customers’ hesitation to rely on restricted swapping stations.

Industry expert and battery manufacturer, Log9 Materials' Co-Founder & Director Pankaj Sharma also said that battery leasing is categorised as Battery as a Service (BaaS) in the industry, presenting a superior alternative to battery swapping.

Sharma said battery swapping has its challenges for the customer as well as the swapping partner.

He said that the challenge with swapping is that there is a need for multiple batteries for a single vehicle undergoing the swapping process. 

“In a typical battery swapping scenario, one battery is actively in use within the vehicle, another is being charged at the swap centre, and a third is in standby within the ecosystem, this is known as the float battery.” Sharma said. “Given that the battery constitutes a significant portion of the electric vehicle cost, the preference is for a one-to-one ratio of batteries to vehicles”.

Another notable challenge in battery swapping is the restrictive relationship with the swap centre. The customer is constrained to swapping their batteries exclusively at the designated swap centre, limiting access to public charging infrastructure. “Regardless of one's location in the city or workplace, the low battery scenario mandates a pause in activities to seek out the specific swap centre associated with the purchased battery. This restriction significantly limits the flexibility and convenience of battery usage.” Sharma added.

Uday Narang, Chairman and Founder of electric three-wheeler Omega Seiki Mobility also agrees that BaaS has a lot of room to grow in the B2C space as it offers a fixed, prebuilt battery that can be designed for the scooter and not removed as it can also be charged at public charging places, allowing users to charge their vehicles at home or work.

From a technology perspective, fixed batteries are tailored to optimise performance, ensuring a seamless and efficient charging experience. “Overall, BaaS emerges as a technologically advanced and customer-friendly solution, offering a more streamlined and accessible approach to electric vehicle battery management”. Narang said.

He adds that while swapping ensures that the vehicle doesn’t remain idle in a beneficial application, for a consumer of an electric scooter a fixed battery can do multiple charging cycles. 

Why financers are happy with leasing

From the point of view of financers, leasing is an attractive option as their exposure to the cost of investing in batteries is reduced as the battery is purchased from a leased entity and doesn’t reflect in the OEMs’ books. This model also allows buyers to acquire electric vehicles at a more economical rate.

According to experts, battery leasing will extend the life of EVs because if the existing battery wears out or degrades, the lessor of the battery will be required to provide a better-quality working battery, extending the EV's life.

Sameer Aggarwal, the Founder and CEO of Revfin Services, which finances electric two- and three-wheelers and has a total assets under management (AUM) of over Rs 300 crore sees value in the concept. “Leasing increases battery life by allowing users to distribute the ownership cost over a longer period, aligning with the three-year or three-and-a-half-year loan tenures common in the industry,” he said. “As the industry moves towards better-quality and longer-lasting products, battery leasing will emerge as a viable and customer-friendly solution after the end of FAME II. Battery leasing addresses cost concerns, fosters innovation, and aligns with the industry's trajectory towards more sustainable and long-term solutions.”

Sumeru Shah, Business Head, EV-2w, Ecofy which has financed more than 8,000 vehicles through battery leasing products in three-wheelers is considering it effectively as a growth product.

“In leased battery products, even with three-wheelers, the consumer is paying for the chassis/body and other Ev components. If the battery cost is covered through per-km usage plans, it also helps us to finance a greater number of electric three-wheelers within the existing assets under management,” Shah said.

Financers have been typically charging higher interest costs for electric two and three-wheelers as the rapid degradation of batteries poses a challenge in understanding the depreciated asset value of the vehicle.

“With battery leasing, these financial challenges are mitigated, as the leasing model provides a structured and predictable payment plan. This makes it more feasible for financiers to assess and finance electric vehicles and reduce the cost of finance to the end customer,” Shah said.

Battery leasing is seeing M&A activity

Electric vehicle financing platform Mufin Green Finance which manages total assets of over Rs 350 crore has acquired a under USD 5 million stake of 20 percent in the BaaS firm Urjaa Mobility as part of its larger plan to focus on leased solutions.

Pankaj Gupta, CEO, Mufin Green Finance said, “moving forward, the sector is likely to see a sharp jump in investor activity as the action will shift toward leasing without the subsidy.”

Pankaj Chopra, Founder of Urjaa Mobility said that it is looking to immediately deploy 10,000 domestic batteries on a monthly lease for electric three-wheelers and electric rickshaws as well.

In the B2C two-wheeler space, Urjaa plans to offer to buy back used batteries from a scooter purchased four years ago and integrate a leased battery solution to ensure that used electric scooters get a second life.

Chopra adds that the same concept can be extended to passenger cars, especially in the electric car rental space, once the batteries reach end of life.

"We are planning for a period when commercial electric vehicles can rent the battery from us rather than having to spend four or five lakhs to buy a new battery,” Chopra said. “There are several opportunities in store to scale up the business further.”