e-Bus sales to surge 80% this FY, says CRISIL

In a significant boost to India's electric vehicle sector, sales of electric buses (e-buses) are expected to grow by 75-80% in the current fiscal year, reaching 6,000-6,500 units, according to a recent report by CRISIL Ratings. This substantial increase, albeit from a small base, is primarily attributed to the deployment of e-buses through various government schemes and a favorable contracting model.

The growth is underpinned by tenders awarded under initiatives such as the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) schemes, the National Electric Bus Programme (NEBP) under Convergence Energy Service Ltd (CESL), and the PM-eBus Sewa Scheme. These programs have collectively resulted in orders for 24,000 e-buses at the beginning of the fiscal year.

Gautam Shahi, Director at CRISIL Ratings, notes that the adoption of e-buses is in a "sweet spot" due to the Gross Cost Contract (GCC) model, which has emerged as the preferred route for e-bus purchases by State Transport Undertakings (STUs). This model offers an asset-light approach for STUs, with no upfront acquisition costs, as e-buses are financed by bus operators. In turn, operators benefit from a steady income stream through assured per-kilometer rentals, without bearing passenger traffic risk.

The GCC model is expected to generate a healthy internal rate of return of 10-11% for bus operators over the concession period. However, counterparty risk remains a concern, particularly with STUs that have weak credit profiles.

To address this issue, the government announced a payment security mechanism (PSM) under the PM-eBus Sewa Scheme in August 2023. A dedicated payment security fund (PSF) is being established to secure the receivables of bus operators in case of delayed or failed payments by STUs.

The surge in e-bus orders is anticipated to create economies of scale in production, while declining battery costs are expected to lower e-bus purchase prices. These benefits may be passed on to STUs by operators in the form of reduced per-kilometer rentals, further promoting adoption.

Pallavi Singh, Associate Director at CRISIL Ratings, highlights that the existing strong e-bus order book, along with the remaining 7,800 buses to be awarded under the PM e-Bus Sewa Scheme, will provide a significant boost to the sector. The government is expected to further augment this scheme, supporting the growth of e-bus sales over the current and next fiscal years.

The e-bus sector in India has shown remarkable growth in recent years. From just 65 new e-buses added in fiscal year 2019, the number rose to 3,607 in fiscal year 2024. The projected 6,000-6,500 new e-buses for fiscal year 2025 represent a continuation of this upward trend.

Key factors that will influence the sector's future include policy changes, the evolution of battery costs, smooth implementation of the payment security mechanism, and the ability of bus operators to ramp up e-bus supplies.

This push towards e-buses aligns with the central government's efforts to reduce carbon emissions in public transport. As India continues to prioritize sustainable transportation solutions, the e-bus sector is poised for significant expansion, potentially reshaping the landscape of urban mobility in the country.