India’s electric bus market, a key piece in its plans for cutting emissions, is sputtering. A major hurdle? The lack of a clear operating model. To counter this, Ashok Leyland’s electric arm, Switch Mobility, is proposing a solution inspired by London’s bus system. The plan? Break down the electric bus ecosystem into distinct parts, based on the role played by each.
Different players will handle operations, financing, asset ownership, and technology. This, argues Switch Mobility’s CEO Mahesh Babu, allows each entity to focus on its core strengths, accelerating the electric bus rollout. Under this model, bus makers such as Switch Mobility are responsible only for supplying the vehicle, and not the operations.
That is handled by operators such as London’s Stagecoach or Abellio, who will run and maintain the buses, earning a per-kilometre fee. And the 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 tab for depots and maintenance. However, London’s model isn’t without flaws. Skeptics point to patchy coverage, particularly in low-density routes. Lower densities discourage 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 bid range will be clearly 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, should the London model be emulated in India as it is? Mahesh Babu remains pragmatic. He points out that in a developing country like India, most of the states may not be able to fund the vehicle purchases. “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,” he said, referring to the gross cost contract model, under which ticketing is done by the government authority. He added that the government seemed to be open to all models.
As per a research report by Axis Securities, Ashok Leyland, which has infused around Rs 1,500 crore in its subsidiaries, Switch Mobility and OHM Global Mobility, has orders to supply 950 and 350 e-buses to Delhi and Bengaluru transport authorities 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, it has found an ally in competitor Tata Motors. Tata Motors’ Group CFO, PB Balaji, also believes manufacturers (OEMs) should focus on building efficient e-buses, not holding onto them.
One of the key considerations is this. Supposing each e-bus costs around Rs 1 crore, supplying 50,000 buses would require a 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. Such a financial burden would hurt the companies’ overall health. “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, meanwhile, is excited about the growth of electric buses in India. Recent estimates from rating agency CRISIL suggest the share of e-buses is set to jump from 4% to 8% in just one year. 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) 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. Even their upfront 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 e-buses have already been delivered and another 10,000 will be deployed by FY25. Favourable contracting terms under the GCC model, such as assured rentals, fee revision linked to inflation, and the absence of traffic risk have aided the e-bus adoption thus far.
“Growth in e-buses is also supported by favourable ownership economics,” points out Sushant Sarode, Director, CRISIL Ratings. “TCO for an e-bus is estimated to be 15-20% lower than that for ICE and CNG buses over an estimated lifespan of 15 years, with breakeven in six to seven years. Though the initial acquisition cost of an e-bus is twice that of an ICE or CNG bus, it is expected to go down due to improving operational efficiency of original equipment manufacturers (OEMs) with increasing volumes and localisation, and falling battery costs.”
The agency also points out that the recently announced PM-eBus Sewa Scheme should help in addressing issues related to payment security mechanism (PSM), including the 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. Iteration is key
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 to achieve their goals, with the government tweaking the rules for bidding to make them financially more sustainable.
Ashok Leyland, which is a major bus manufacturer in the segment, remains cautiously optimistic and doesn’t just want to jump in aggressively, even with these changes. According to the company executive, payment security is just one concern. Another worry is the challenge of running electric bus operations across multiple cities. For example, an upcoming tender requires deploying e-buses in cities like Nashik, Aurangabad, and others.
This would be a complex operation with both advantages and disadvantages. The company believes a better solution would be to approach dedicated electric bus operators, as it would be difficult for an OEM to get into that kind of operational scale in such diverse geographies. The government seems receptive to this idea. Mahesh Babu points out that this is a learning curve, and not an instant fix.
He compares the situation to the early days in the solar sector. The bids for these electric vehicle tenders would be very aggressive at first, given there’s always a scramble to get in on something new. But just like with solar, he points out, reality sets in. Ultimately, he says, the price per kilometre for electric vehicles is likely to settle down lower than even diesel.
This feature was first published in Autocar Professional’s July 15, 2024 issue.
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