Financing Drives India’s EV Ecosystem Growth, Bridging Gaps for Manufacturers and Innovators

The electric vehicle (EV) ecosystem is at the heart of the global shift toward sustainable mobility, and India is no exception. With ambitious goals to achieve carbon neutrality and reduce dependency on fossil fuels, the country is witnessing rapid growth in EV adoption. However, this growth hinges on a crucial factor: financing. Banks, non-banking financial companies (NBFCs), and financial institutions play a pivotal role in providing the necessary financial backbone to propel the EV manufacturing industry forward.

Banks like SBI, HDFC, and ICICI have recognised the potential of the EV market and launched targeted initiatives such as "Green Car Loans." These products offer lower interest rates and longer repayment terms to encourage EV adoption among individual buyers.

However, the traditional banking sector's focus largely remains on end-consumers rather than small and medium enterprises (SMEs) or startups in the EV manufacturing domain. The reluctance stems from perceived risks associated with the evolving nature of EV technology and market dynamics. Bridging this gap between banks and emerging EV players remains a key challenge.

AMU founder and MD  Nehal Gupta said, “One of the key drivers of the EV ecosystem's rapid expansion in India is financing. From SMEs to major enterprises, financial institutions like banks and NBFCs are essential in meeting the needs of the industry. To get over obstacles to widespread adoption, advanced green technologies, battery manufacturing, and the construction of EV charging infrastructure will be required. The success of the switch to electric vehicles depends on a number of factors, including supply chains, financing charging infrastructure, and retrofitting solutions, in addition to helping manufacturers. In order to guarantee equal representation as the industry expands, the sector should also be encouraged to be inclusive, for example, by assisting women entrepreneurs.

Aligning financial solutions with India's carbon neutrality goals is crucial to make sure that the growth of the EV sector remains environmentally responsible. Financial institutions can play a pivotal role by offering customised financial risk management solutions, supporting skill development programs, and making sure that financed projects adhere to stringent sustainability standards. As India moves forward toward its net-zero emissions goals, financial innovation will be central to building a sustainable and scalable EV ecosystem, creating long-term value and resilience in the industry.

NBFCs: A Flexible Alternative

NBFCs have emerged as key enablers in the EV ecosystem by offering customised financial solutions tailored to the specific needs of SMEs and startups. Institutions like Mufin Green Finance and Caspian Debt provide financing options with flexible terms, catering to businesses that traditional banks might hesitate to support.

Innovative financing models such as revenue-based financing and supply chain-based funding, pioneered by firms like KredX and GateVantage, have also gained traction. These models offer manufacturers flexibility based on their cash flow, reducing the financial burden during the early stages of growth.

Urja Mobililty, Co-founder & CTO, Anagh Ojha, said, “Electric vehicle (EV) leasing is reshaping mobility by offering unprecedented customer flexibility compared to traditional financing. Unlike financing, which locks customers into ownership with steep EMIs and unpredictable depreciation, leasing provides a low-commitment, adaptable solution.”

Customers can switch to newer models, adjust their terms, or exit without being burdened by asset devaluation—a key advantage in a rapidly evolving EV market. For the commercial segment, leasing is a lifeline. Uptime support, the oxygen of fleet operations, is integral to leasing models. Companies ensure swift maintenance, battery replacements, and vehicle repairs to maximise uptime, keeping fleets operational and profitable. This contrasts with financed EVs, where the onus of maintenance and downtime costs often falls squarely on the customer.

However, critics argue that this flexibility comes at a price. Leasing often includes hidden fees and inflexible daily payments that can outpace the cost of ownership over time. In commercial operations, leasing companies control asset deployment, leaving businesses reliant on external players to maintain continuity.

Government and Institutional Support

The Indian government has implemented several initiatives to strengthen EV financing:

1. FAME India Scheme:Offers subsidies for manufacturers and buyers to reduce the cost burden.

2.NIDHI Programs:Provide financial assistance for startups, including grants, stipends, and low-interest loans for prototyping and market entry.

3. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):Enables MSMEs to access collateral-free loans with government guarantees.

Institutions like the Small Industries Development Bank of India (SIDBI) also play a significant role by providing growth-stage enterprises with low-interest loans and minimal collateral requirements.

Aranca, Senior Consultant and Growth Advisory, Akash Rajput, said, Significant contraction is occurring in the electric vehicle (EV) manufacturing space. In FY 2019–20, there were about 420 active E3W manufacturers in India, including CKD imports, according to E-Parivahan data. In 2023-24, there were just 160 active E3W producers left. The trend toward fewer, more reliable firms managing the sector's challenges is reflected in this consolidation.

Limited access to funding and a lack of clarity surrounding government policies—particularly the expansion of the FAME plan, which offers vital subsidies to EV manufacturers—are the main causes of this contraction. While banks like SBI, HDFC, and ICICI have introduced “Green Car Loan” schemes for EV buyers, these initiatives largely overlook the financing needs of small and medium enterprises (SMEs) and new-age startups in the EV manufacturing domain.

Many SMEs and startups depend on government programs to solve their financial difficulties. Financial assistance for early-stage development is provided by programs such as NIDHI-EIR and NIDHI-PRAYAS, which include lump-sum payments and monthly stipends. The NIDHI Seed Support Program (NIDHI-SSP) offers low-interest funding for prototyping, commercialisation, and market entry up to ₹1 crore. MSMEs are also assisted by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which provides government-guaranteed loans without collateral. Institutions such as the Small Industries Development Bank of India (SIDBI) offer loans with reduced interest rates and little collateral requirements as enterprises grow.

Despite these initiatives, traditional banks remain hesitant to support emerging EV manufacturers due to the industry’s evolving technology and market dynamics. This gap has opened opportunities for non-banking financial companies (NBFCs) and other Financial Institute such as Mufin Green Finance and Caspian Debt, which are providing tailored financing solutions. Novel models like supply chain-based funding and revenue-based financing, pioneered by firms like KredX and GateVantage, are also gaining popularity, offering flexibility to manufacturers.

While the EV sector faces financing challenges, government programs and innovative financing models are providing essential lifelines. To sustain growth and foster innovation, the industry requires collaborative efforts from policymakers, financial institutions, and alternative lenders. With consistent support, the EV manufacturing ecosystem can continue driving India’s transition to sustainable mobility.

Bridging the Financing Gap

Despite these initiatives, a financing gap persists, particularly for early-stage EV manufacturers. This gap creates opportunities for collaboration between policymakers, financial institutions, and alternative lenders. Innovative funding solutions that align with India's sustainability goals, such as sustainability-linked financing and green bonds, can bridge this divide while ensuring environmentally responsible growth.

Conclusion

Banks, NBFCs, and financial institutions are the backbone of India's EV ecosystem, driving innovation and sustainability in manufacturing. By offering targeted financing solutions and collaborating with government initiatives, these entities can help overcome financial barriers and propel the industry toward a greener future.

As India accelerates its transition to electric mobility, the collective efforts of traditional and alternative financial institutions will be critical in ensuring a robust, scalable, and sustainable EV ecosystem.