The biggest roadblock impeding the adoption of EVs, particularly in the commercial sector, lies in the availability of finance. But why is this proving to be a challenge, and why are reputable NBFCs steering clear? Pankaj Gupta, CEO of Mufin Green Finance, answers!
Q. Can you share your experience and key challenges in EV financing over the past three years at Mufin?
A. In my two years as CEO of Mufin Green Finance, I have witnessed remarkable growth in the EV financing space. Our portfolio expanded over tenfold, from ₹400 million to over 5 billion. We don’t just finance EV assets we support the entire ecosystem, including chargers, across various vehicle types catering to both B2C and B2B use cases in 14 states. With a well-funded capital base, accolades for our impact in the e-rickshaw space and a target portfolio of 8 billion by year-end, our focus is now on achieving 100x growth in the next 36 months. We are also directing attention to electric autos (L5 category) for both passenger and loader segments.
The key challenge in EV financing is product quality, especially in the two- and three-wheeler segments. Inconsistent quality and service capabilities pose significant risks. Our focus is on financing high-quality assets that ensure customer satisfaction and loan repayment. Our extensive B2C e-rickshaw portfolio across 14 states attests to our commitment to quality and growth in the EV sector.
Q. Mahindra, Bajaj and Piaggio are significant in the L5 category for B2C. Are you collaborating with other OEMs for B2B?
A. Yes, in the B2B sector, we are collaborating with AltiGreen, Omega, and Euler. They have excellent products and use cases for B2B customers. The demand is more for AltiGreen in logistics, followed by Euler, based on customer feedback. These three players are receiving positive responses in the B2B space.
Q. Why not expand these partnerships to the B2C sector?
A. Our focus with these partners is primarily on logistics. The B2C market, especially for three-wheelers, requires different product offerings. Currently, Bajaj and Piaggio dominate our passenger vehicle portfolio. However, we are exploring a new partnership with Porter, which is venturing into retail. This collaboration aims to meet customer demands and manage EMI patterns more effectively.
Q. Startups believe they need more financing options to compete against Mahindra, Bajaj, or Piaggio. Is financing the biggest challenge for these startups?
A. Yes, financing is crucial, and it’s a balance between finance and distribution. We are willing to fund businesses with robust distribution networks and dealer experience. Established players like Mahindra and Bajaj enjoy an advantage with their well-established networks. For startups, building such a network takes time, posing challenges in expanding their market presence. For example, Bajaj’s long-standing dealership network, like Bright Auto in Lucknow, facilitates their sales due to their widespread reach.
For startups like AltiGreen, gaining access to such networks and convincing long-term dealers to switch to their brands is difficult. Hence, a robust distribution system and a strong financing partner are essential for startups. We are open to partnering with startups ready to share product or default risks, even without a large distribution system, to support their growth in the ecosystem.
Q. Could you provide more details about product risk and default risk in this context?
A. There are two primary risks. The first is warranty risk, where the product, such as the battery or other components, may fail technically. The second is related to dealerships. If a dealership funds 100 vehicles and then shuts down, it creates a service gap for customers, posing a challenge for us.
Additionally, the absence of a secondary market for these vehicles is a concern. In the business of financing, we need reassurances for redeploying assets that become non-performing. We don’t necessarily require buyback support, but assurances are crucial for us to succeed in this market. We have already started a retail portfolio with AltiGreen in Lucknow as a trial. We remain open to funding different products, but we expect necessary support due to the lack of secondary sales or value for these vehicles in the ecosystem.
Q. Does the current situation create a conducive environment for new players to enter the used CEV space in India?
A. The market today is distinctly different and more mature, especially in the realm of L3 vs. L5 products, with L5 being significantly more advanced. The three startups currently in the field have robust products. However, each region has its unique challenges.
For instance, in Lucknow, even without support from AltiGreen, we have plans to service vehicles independently. But in smaller cities like Chakya, there are more obstacles, including vehicular restrictions and mandatory permits from transport authorities. Our work in Agra, particularly with a Piaggio dealer, exemplifies our success. Despite having multiple financiers, this dealer allocates 85% of his business to us.
Q. By delving deeper into the localisation aspect, like you just mentioned Agra, do you find more specific partners or players who assist in identifying markets?
A. Yes, utilising tools like VAHAAN data is crucial for understanding market dynamics, such as sales locations and consistent numbers, which are pivotal for making informed business decisions. Currently, we’re experiencing substantial volume in town B, and we are equipped to expand into town C.
Our focus is not solely on lending money; it is about ensuring effective collection. This involves assessing customer repayment capacity, tied to the performance of the product in the commercial sector, be it two-wheelers, three-wheelers, or four-wheelers. The product’s durability and its ability to generate income for the customer to pay EMIs are critical. We also consider a risk margin of 10-20% for unforeseen emergencies or health issues. With these factors and calculations in mind, if there’s a viable opportunity to fund, considering all these parameters, we proceed with the investment.
Q. Are we shifting towards a more localised approach for financing?
A. Yes, we are increasingly adopting a localised approach. This shift is due to the distinct quality of customer profiles found in the light commercial vehicle (LCV) segment, which is different across various regions. In metropolitan areas, for example, individuals who can afford to buy a house likely don’t need a loan, contrasting with the situation in towns classified as B and C.
Our strategy as a non-banking financial company (NBFC) is to focus on these B and C towns. For instance, our dealings with a dealer in Aligarh have resulted in a substantial portfolio, exceeding 350. We recognise a greater opportunity in these smaller towns compared to metros, indicating a noticeable market difference.
Q. Are there new trends in EMI patterns for individual customers in the electric vehicle industry, specifically in the L5 and L3 categories, like preferences for daily or weekly payments?
A. In the commercial sector, daily EMI collection is technically feasible, especially in models like battery swapping stations used by e-rikshaw drivers. However, the digital penetration in this segment is lower. Innovations like QR codes or wallet systems on vehicles could facilitate this.
Customer preferences vary; some might appreciate daily payments, reducing the burden of a larger monthly EMI, while others might prefer paying in one go. It’s a mix of different behaviours and mindsets, so we can’t generalise that the industry will shift towards a new standard of EMI collection. There is also the issue of customers who delay EMIs and struggle with lump sum payments, particularly in the three-wheeler segment.
Q. Why are established NBFCs, even those linked to larger financial institutions, hesitant to finance electric vehicles, and what’s the current competitive landscape in this sector?
A. Many NBFCs have previously attempted financing e-rickshaws and faced setbacks due to immature products at the time and a lack of understanding of these products. This has created gaps in the ecosystem, making these institutions cautious about financing in this sector. Additionally, high NPA rates in government-backed schemes like the Mudra Yojana, which funds e-rickshaws, have deterred large NBFCs.
However, our firm has navigated this journey for seven years, gaining insights into customer needs, product issues, and effective financing strategies for different territories and use cases. This holistic approach sets us apart in the market. Regarding competition, it’s already present, with several players making significant progress. This competition is healthy and will benefit the overall market.
Q. Regarding the CEV industry, interest rates have traditionally been high. What’s your perspective on this?
A. The higher interest rates in the CEV industry are justified due to specific challenges associated with commercial vehicles. A significant factor is the necessity of timely collection and managing the higher delinquency ratios common in this sector. Over the past six to seven years, we have developed strategies to effectively manage and redeploy non-performing assets. These approaches have enabled us to maintain our non-performing asset (NPA) ratios at levels significantly lower than the industry average, which is a key reason for the higher interest rates.
Consequently, while banks might lend at around 10-11%, we as an NBFC lend at slightly higher rates, like 13-14%, to account for the increased risk exposure. This higher risk also results in a need for more robust collection mechanisms, which NBFCs are better equipped to handle. The increased cost of collections is an inherent part of our business model, balancing the higher risk with the potential for higher rewards.
Q. Is there a stalemate in logistics for electric three-wheelers, especially L5s, in smaller cities?
A. We are actively funding in this sector. In cities like Jaipur, we support businesses not only within the city but also in surrounding areas in Rajasthan, particularly in the B2B logistics segment. However, in situations where the customer owns the vehicle directly and lacks a steady income source or demand, like in Kanpur, we might consider a retail portfolio. In cities like Gorakhpur, the feasibility depends on industrial demand. With companies like Porter providing demand, funding becomes more viable. We plan to aggressively fund B2C logistics in smaller towns (towns B, C, D) and are seeking revenue assurances from partners.
