Policy Push to Propel 80% Growth in E-Bus Sales This Fiscal: CRISIL
India’s electric bus (e-bus) market is set to witness a significant 75-80% growth in supply this fiscal year, reaching between 6,000 to 6,500 units. This surge, though from a relatively small base, is primarily driven by tenders awarded under multiple government schemes aimed at procuring e-buses for State Transport Undertakings (STUs). These programs include the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) phases 1 and 2, the National Electric Bus Programme (NEBP) under Convergence Energy Services Ltd (CESL), and the PM-eBus Sewa Scheme.
At the beginning of this fiscal year, these initiatives had already fueled e-bus orders to an impressive 24,000 units. This expansion highlights the central government’s commitment to reducing carbon emissions in public transportation and the growing popularity of the Gross Cost Contract (GCC) model for procuring e-buses by STUs.
The GCC Model: A Win-Win for STUs and Operators
The GCC model has emerged as the preferred approach for e-bus procurement due to its ability to balance the interests of both STUs and bus operators. According to Gautam Shahi, Director at CRISIL Ratings, “E-bus adoption is in a prime position, thanks to the GCC model, which optimally distributes risks across stakeholders.”
Under this asset-light model, STUs bear no upfront costs as bus operators finance the e-buses. In return, operators are guaranteed a steady income stream through rental payments based on kilometers traveled, with tariff adjustments linked to inflation. This arrangement ensures a healthy internal rate of return (IRR) of 10-11% over the duration of the concession, providing an attractive business proposition for operators.
Addressing Counterparty Risks with Payment Security
However, a significant challenge for e-bus operators remains counterparty risk. Historically, STUs with weaker financial profiles have led to delayed payments, resulting in elongated debtor cycles for bus operators. To mitigate this risk, the government introduced a Payment Security Mechanism (PSM) under the PM-eBus Sewa Scheme in August 2023.
The PSM will include a Payment Security Fund (PSF), which ensures bus operators receive their payments on time. Should STUs fail to make payments within the stipulated period, the PSF will release funds directly to the operator’s escrow account. The STU then has 90 days to replenish the PSF. In cases of non-compliance, the Reserve Bank of India (RBI) is authorized to debit the state government’s account and transfer the funds to the PSF. This mechanism ensures that bus operators are protected from undue financial stress due to payment delays.
Declining Battery Costs to Spur Further Adoption
As the e-bus market matures, economies of scale in production are expected to reduce manufacturing costs. This, coupled with a decline in battery prices, will lower the overall purchase cost of e-buses. These savings are likely to be passed on to STUs in the form of reduced per-kilometer rental rates, further incentivizing e-bus adoption.
Pallavi Singh, Associate Director at CRISIL Ratings, added, “With a strong existing order book and additional tenders for 7,800 buses to be awarded under the PM-eBus Sewa Scheme, the e-bus sector is poised for accelerated growth this fiscal year. Government support, through programs like this, will continue to drive momentum in the coming years.”
Leading Players Driving the E-Bus Market
India’s e-bus market is currently dominated by seven key Original Equipment Manufacturers (OEMs) – PMI Electro Mobility Solutions, Olectra Greentech, JBM Auto, Tata Motors, Switch Mobility, VE Commercial Vehicles, and EKA Mobility. As of March 2024, these OEMs had secured an aggregate order book of 24,000 e-buses, up from 17,370 buses a year earlier.
India’s e-bus market is poised for rapid growth, thanks to government initiatives aimed at fostering sustainable public transportation. With strong policy support, innovative financing models like the GCC, and the introduction of the PSM, the e-bus segment is expected to expand significantly in the coming years, paving the way for greener, more efficient urban transport systems across the country.