Why do electric rickshaws outsell L-category electric three-wheelers in rural and semi-rural areas? Is there potential for change? Brajendra Singh Tomar, CEO and Founder of Finayo, discusses with EFY’s Mukul Yudhveer Singh!
Q. Please tell us about Finayo.
A. We founded Finayo with a focus on rural and semi-rural areas where access to credit is a significant challenge. We chose to specialise in electric vehicles (EVs) because of the unique challenges and opportunities in these regions. In rural areas, misconceptions about EVs, such as the cost of battery replacement and ownership costs compared to internal combustion engine vehicles, often deter adoption. Despite these challenges, our experience shows that understanding the long-term financial benefits of EVs can lead to wider acceptance and adoption.
Q. Can you share your current non-performing asset (NPA) rate?
A. Our current NPA rate is approximately 1% or less, which is quite low. We manage over a thousand active vehicles, and although we have had some increase in EMI defaults, we have also settled several NPAs. Our success in maintaining a low NPA rate is largely due to our focus on two key factors: the intention and capacity of payment. We have developed proprietary algorithms that help us analyse these aspects effectively.
Our approach is highly individualised. We recognise that even if two people earn the same amount, their spending and financial behaviour can vary significantly. This understanding drives us to avoid one-size-fits-all solutions and instead tailor our financial products to each customer’s unique situation. For high-risk customers, for instance, our algorithms can adjust interest rates dynamically based on their payment history, effectively offering them a subsidy for consistent on-time payments. This flexibility and attention to individual circumstances are what allow us to keep our NPA rate exceptionally low.
Q. Why is there significant adoption of electric rickshaws over larger autos like the L5 in these areas?
A. L3 buyers, typically with budgets around ₹50,000, can afford loans of ₹20,000 to ₹40,000. L5 vehicles, on the other hand, are suited for longer routes from villages to districts, ranging from 20 to 40 km, which is a significant increase in potential travel distance.
The primary challenge for L5 adoption in rural areas is ‘kilometre anxiety’ due to the limited driving range of 70 to 90 km, similar to the less expensive E-rickshaws, and the absence of adequate charging infrastructure. The higher cost of L5 vehicles, around ₹400,000, also complicates financing because expected earnings from these longer routes do not sufficiently cover the high EMIs, which could be ₹12,000 to ₹15,000 monthly, impacting the buyer’s ability to manage household expenses.
There is a new model emerging in tier 3 and tier 4 cities, as well as in rural areas of India, where the vehicle and battery are financed separately. Do you think this approach could shift the market from L3 to L5 segments?
Absolutely. By breaking down the asset and financing the vehicle body and battery separately, with the latter on a lease or subscription model, we create a win-win situation. This lowers the total cost of ownership and makes electric vehicles more accessible. If we implement a swappable battery system, it could address the primary concern of customers, which is to ensure the vehicle can cover long distances, like 150 kilometres, regardless of the method.
Q. So, instead of only vehicles, the brands should focus on the ecosystem approach?
A. The nature of the EV industry is deeply rooted in ecosystem collaboration. Adoption requires a multifaceted approach: someone must handle credit facilitation, product availability, setting up new charging infrastructures, and separate financing for batteries and assets.
Q. Could battery as a service be effectively implemented without linking it to battery swapping?
A. Implementing battery as a service (BaaS) independently from battery swapping poses challenges but is feasible. The main concern involves financing. Typically, financiers prefer funding the vehicle chassis rather than the battery, because, in case of non-payment, the battery can be repossessed and resold, whereas the chassis alone might not hold as much value. However, if leasing companies and financiers collaborate, it is possible to offer BaaS effectively. This joint effort could facilitate the resale of vehicles, ensuring financial viability and addressing the apprehensions of vehicle owners about swapping batteries.
Q. Given your extensive work with dealers following OEMs, can you highlight the specific challenges that retailers face in selling rickshaws and other vehicles?
A. The primary issue for them is disbursement, which significantly impacts their working capital. Over the past two to three years, we have realised that even though there is considerable technological involvement up to the point of loan approval, post-approval processes remain largely manual. This lack of continued tech integration poses a substantial challenge.
Trust is another significant factor, especially in the EV market, where the retail sector and financial institutions are somewhat hesitant to provide funding. The documentation process is also complex due to the involvement of multiple parties, like guarantors, which becomes even more cumbersome in rural and semi-rural areas. For instance, Aadhar linking processes and closed bank accounts are common issues that hinder digital processes.
Q. Over the past six months, have you seen more adoption of lead acid or lithium ion batteries among your customers?
A. In the last six months, the adoption has predominantly been lead acid batteries, accounting for about 90% in rural and semi-rural areas. Lithium ion usage has been much lower. We educate our customers about the benefits of switching to lithium ion batteries. Although post-repayment interaction is generally low, for those who remain engaged and apply for a battery replacement loan, we encourage an upgrade. We often suggest a higher loan amount—switching from a typical 30,000 to 60,000—to facilitate the transition from lead acid to lithium ion batteries. So far, we have successfully converted between 80 to 100 vehicles from lead to lithium through these pilot initiatives.
Q. With the complexities of financing EVs and their batteries separately, do you see this approach being feasible in the two-wheeler segment as well?
A. Implementing separate financing for EVs and batteries in the two-wheeler segment holds promise but comes with its challenges. From a consumer perspective, it is a compelling option because it allows for flexibility and potentially lower initial costs. However, the market realities can differ significantly from theoretical performance claims. For instance, a vehicle claimed to run 100 km might realistically achieves only 70-80 km. This becomes particularly relevant for two-wheelers that are expected to cover distances of 120-130 km per day. Here, battery swapping models become critical.
However, the viability of selling a vehicle without its battery is problematic unless there is a robust supporting infrastructure, such as that provided by a leasing company. When both components—the chassis and the battery—are integrated effectively, it creates a comprehensive solution for the consumer. If leasing companies can manage the operational challenges associated with battery provision and maintenance, then financing the chassis separately could indeed be a successful model, particularly in commercial applications in urban settings. This collaborative approach between financiers and leasing firms could drive greater adoption and customer satisfaction in the two-wheeler EV market.
