Switch Mobility CEO Mahesh Babu advocates for a collaborative approach that defines distinct roles within the electric bus ecosystem.
06 Jul 2024 | 3843 Views | By Shahkar Abidi and Ketan Thakkar
India's electric bus market, a key target for cutting emissions, is sputtering. A major hurdle? The lack of a clear payment system. To counter this, Ashok Leyland's electric arm, Switch Mobility, is proposing a solution inspired by London's model.
Their plan? Break down the electric bus ecosystem into ...
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India's electric bus market, a key target for cutting emissions, is sputtering. A major hurdle? The lack of a clear payment system. To counter this, Ashok Leyland's electric arm, Switch Mobility, is proposing a solution inspired by London's model.
Their plan? Break down the electric bus ecosystem into distinct roles. Separate players will handle operations, financing, asset ownership, and technology. This, argues Switch Mobility CEO Mahesh Babu, allows each entity to focus on its core strengths, accelerating the electric bus rollout.
Under this model, bus makers like Switch Mobility simply sell the vehicles, staying out of the operational nitty-gritty. Operators such as London's Stagecoach or Abellio take the wheel, responsible for running and maintaining the buses, earning a per-kilometre fee.
Funding? A combination of government grants and private investment. In London, for instance, the Zero Emission Bus Regional Areas (ZEBRA) scheme has pumped in £320 million until last year, to support 4,000 zero-emission buses by 2025. This covers up to 75% of the additional cost of electric buses and infrastructure, with local authorities and operators picking up the rest for depots and maintenance.
However, London's model isn't without flaws. Skeptics point to patchy coverage, particularly in low-density routes. This discourages operators from bidding, leaving local authorities hesitant to commit funds.
Citing an example of the tendering process in London, Mahesh Babu notes that for a given tender on a particular route, the first price cap range will be well defined. As the money is largely given by the government, the capex remains covered. "There is only the operational risk," he remarked, emphasising that the money can then be collected on a monthly basis from the operators.
So, can the business model, as that in London, be emulated in India? Mahesh Babu, remains pragmatic, considering the realities on ground that, in a developing country like India, most of the states remain financially on a weaker position to fund the vehicles, as other social priorities often becomes the priority.
We have to come to a scalable model. I am not saying everything will go this way (London model) or everything will go into the GCC. The government is open to considering all the possible models," he continued.
As per a research report by Axis Securities, Ashok Leyland, which has infused around Rs 1500 crore in its subsidiaries Switch Mobility and OHM Global Mobility, has a strong order books of 950/350 e-buses to Delhi/Bangalore respectively. Furthermore, Switch India has turned EDITDA positive.
As Ashok Leyland fights for a better payment system for selling electric buses (e-buses) to government agencies, they find support from Tata Motors. Tata's CFO, PB Balaji, also believes manufacturers (OEMs) should focus on building efficient e-buses, not holding onto them.
The cost is a major concern. Supposing, each e-bus costs around Rs 1 crore supplying 50,000 buses would require a massive Rs 50,000 crore investment. "We simply can't afford that," Balaji said, pointing out that no manufacturer has the financial resources for such a huge undertaking. He explained during a press conference that this financial burden would hurt the companies' overall health and potentially cause stock prices to fall. "The entire return metric goes out of the window and that would see pressure on the stock prices. So we have to be careful about that," he remarked.
A burgeoning market
Mahesh Babu is chiming in on the exciting growth of electric buses in India. Recent estimates suggest its share is set to jump from 4% to 8% in just one year, as per rating agency CRISIL, highlighting a significant shift towards e-buses. This surge is being fuelled by two main forces: government efforts and improving economics.
On the government side, initiatives like the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme and the National Electric Bus Programme (NEBP) that are making it easier for cities to acquire e-buses. These programmes are part of a larger push to clean up public transportation and reduce air pollution.
But it's not just about saving the environment. E-buses are also becoming increasingly attractive financially. Compared to traditional diesel and CNG buses, e-buses boast lower operating costs and even their initial purchase price is coming down. This is making them a more compelling option for state transport undertakings (STUs), which are responsible for procuring new buses.
As per a CRISIL report from December, as many as 5,760 of these e-buses were delivered and 10,000 will be deployed by FY25. Favourable contracting terms under the GCC model, such as assured rentals, fee revision linked to inflation, and absence of traffic risk have aided the e-bus adoption thus far.
Sushant Sarode, Director, CRISIL Ratings, "Growth in e-buses is also supported by favourable ownership economics. TCO for e-bus is estimated to be 15-20% lower than ICE and CNG bus, over an estimated life span of 15 years, with breakeven in 6-7 years. Though the initial acquisition cost of an e-bus is twice that of an ICE or CNG bus, it is expected to reduce on account of improving the operational efficiency of original equipment manufacturers (OEMs) with increasing scale and localisation and decreasing battery costs."
Pallavi Singh, Team Leader, CRISIL Ratings, "The recently announced PM-eBus5 Sewa Scheme rightly aims to address issues related to payment security mechanism6 (PSM), including setting up of a payment security fund that will facilitate timely payments to the operators in case of delays by STUs and creating battery charging infrastructure, and should give a fillip to e-bus adoption."
As per the proposed scheme, the government is working on the modalities of setting up a PSM to facilitate receivables’ security to OEMs in case an STU delays or fails to make timely payments. The adoption of this scheme by state counterparties will be critical to increasing e-bus penetration.
Iteration is key; Still a long way to go
Overall, while the new tender conditions are an improvement, it's a learning process for both the government and the bus manufacturers. As per industry insiders, the two are working together over time to achieve their goals. The government is changing the rules for bidding on electric buses to make them more financially sustainable.