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The announcement of the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme marks a significant milestone in India’s journey towards sustainable transportation. This scheme is the first to allocate funds specifically for e-trucks or zero-emission trucks (ZETs). With Rs 500 crore set aside to incentivize ZETs, the government has taken a significant step toward reducing the environmental impact of the logistics sector, improving air quality, and charting a path towards greater energy independence for India. <br /><br />Diesel trucks, though only 3% of the total vehicle fleet, contribute 53% of particulate matter (PM) emissions, making them a major source of air pollution. Electrifying road freight, specifically the light, medium, and heavy-duty segments, could cut CO2 emissions by over 8 gigatonnes, as it represents a significant share of road transport emissions. Additionally, road freight consumes over 25% of annual oil imports, and ZET adoption could reduce diesel consumption by 838 billion liters by 2050, saving up to Rs 116 lakh crore ($1.5 trillion) in oil costs.<br /><br />Yet, as we welcome the subsidy announcement, it is important to note that while subsidies will be important for catalyzing initial ZET uptake, they alone will not be sufficient to scale and drive mass adoption. While substantial, the Rs 500 crore allocation for trucks can only support the purchase of about 600 trucks over the next two years. This is assuming 17,500 Rs/kWh is allocated for trucks to fully bridge the total cost of ownership gap between ZETs and diesel trucks, given it’s the only incentive in place to date. The PM E-Drive scheme alone will not provide the financial momentum needed to scale ZET adoption at the pace required to meet energy and climate goals. Achieving mass electrification will require broader financial strategies to drive market growth. <br /><br />Research from our organisation, RMI (Rocky Mountain Institute), estimates that a cumulative investment of Rs 12,000 crore will be needed to deploy the first 10,000 ZETs, along with the necessary charging and grid infrastructure. This investment is crucial for initial market development and achieving economies of scale in production. To then solidify market growth and reach a point where ZETs represent over 50% of the truck stock, a cumulative investment of Rs 257 lakh crore ($3 trillion) will be required through 2050. <br /><br />A comprehensive approach to financing is hence essential, with subsidies serving as one tool among many. Investment is needed to support ZET manufacturing, purchases, charging infrastructure, and grid upgrades to foster a holistic and sustainable transition to ZETs. The development of ZET-specific financial tools such as concessional debt, equity, risk-sharing facilities, and viability gap financing can kickstart the nascent market until revenue from owning and operating ZETs and charging infrastructure can fully cover costs. <br /><br /><h2>Innovative ZET Financing Tools and Blended Finance<br /></h2>Facilitating the transition to ZETs will require implementing financing tools to mobilise private capital. In today’s market conditions, the total cost of ownership (TCO), the cost to own and operate a vehicle over an operating cycle, of ZETs can be 20–30% higher than that of diesel trucks. A blended financing approach combining public and private sector funds can attract investment into the ZET ecosystem. By leveraging financing tools such as concessional debt, equity, risk-sharing facilities, and viability gap funding, this approach helps bridge the TCO gap between ZETs and diesel trucks. <br /><br />As a result, ZETs can become up to 3% more affordable than diesel vehicles over their lifetime. Concessional or below-market-rate debt and equity can enable fleets, manufacturers, and charging providers to access patient capital at more affordable lending rates, fostering market development and attracting additional private investment. Risk-sharing facilities essentially provide financial coverage to a lender in case of loss, and they can complement such measures, reducing investment risk. Viability gap financing in the form of government budgetary allocations can then be deployed to close the revenue gap from charging infrastructure operations and fund requisite grid upgrades to create a robust and reliable charging ecosystem. <br /><br /><h2>De-risking Measures: Ecosystem Enablers to Strengthen the ZET Market</h2>Industry actors can form partnerships, pool resources, and address information asymmetry to build market confidence. These efforts can accelerate ZET adoption and boost market confidence when deployed with financial tools. Key de-risking measures include consolidating purchasing power across buyers through demand aggregation to lower costs and increase market confidence. ZET corridors support long-haul operations by providing essential charging or refuelling infrastructure along key highway segments. Telematics data offers real-time insights into truck performance, increasing transparency and optimizing operations. Finally, strong aftermarket support ensures access to maintenance, repairs, and spare parts, helping fleet operators reduce risks and extend vehicle lifespans.<br /><br />For example, aggregating demand for ZETs through developing ZET-specific corridors is a powerful strategy to accelerate ZET adoption while minimizing associated risks. Businesses can significantly reduce the uncertainties linked to ZET operation by concentrating demand along specific corridors. More predictable demand patterns can enable charging operators to plan and optimize their services more effectively, increasing revenue from charging services and improving cost recovery.<br /><h2><br />ZET-Specific Business Practices: Transferring Risk and Building Market Confidence</h2>Tailored business models are equally critical for ensuring the economic viability of ZETs. Operators and drivers must be confident they can generate enough revenue from ZET operations to cover loan repayments and operational costs. Developing business models that maximize revenue and minimize downtime is essential for this.<br /><br />Leasing is a simple yet effective tool for accelerating ZET adoption in India. Since fleet operators may be reluctant to take on vehicle ownership, leasing allows them to operate ZETs without upfront capital investments. Adjustable truck lease contracts present a significant opportunity, enabling operators to use vehicles for a specified period while transferring residual value risk to lessors, thus minimizing the burden of hefty down payments. However, this requires financiers and lessors to shoulder substantial risk. Therefore, these actors must build strong partnerships with manufacturers to be confident to take on such risks. Incorporating performance guarantees and comprehensive maintenance contracts into leasing agreements can also further alleviate concerns about the long-term operational viability of ZETs. <br /><br />Lastly, innovative models like Mobility-as-a-Service (MaaS) can simplify the ZET transition by bundling ZET operational services such as charging, maintenance, and insurance into a comprehensive lease package. MaaS lowers operational complexity for fleet owners while transferring a share of asset and business model risk to entities with the expertise and economies of scale to manage them. These models can serve as crucial stepping stones in the ZET ecosystem, reducing both financial and operational barriers for early adopters.<br /><br /><h2>The Road Ahead</h2>The success of India’s ZET transition will depend on collaboration among various stakeholders, including government agencies, financial institutions, original equipment manufacturers, and fleet operators. The government will have to play a vital role by offering financial incentives and viability gap funding for public infrastructure development, such as charging hubs, and by supporting grid upgrades for increased charging loads. Multilateral Development Banks and Development Finance Institutions can partner with the government to offer concessional financing platforms and reduce private sector investment risks through loan guarantees. Commercial investors can also contribute by developing specialized lending products to better understand and underwrite the ZET market, bridging the gap between perceived and actual risks.<br /><br />The PM E-DRIVE Scheme demonstrates the Indian government’s intent to support the ZET transition and serves as a commendable starting point. However, to truly transform India’s trucking sector, we need a multi-faceted approach that addresses financing for ZET procurement and infrastructure deployment alongside risk mitigation. Transitioning to ZETs requires a strategic blend of financial tools, de-risking measures, and tailored business models. Identifying the right combination of financing options can spur ZET market development and unlock additional commercial and private investment. Implementing de-risking measures will help reduce market risks and lower expected losses, and developing ZET-specific business models is essential for effectively managing and distributing these risks.<br /><br />Ultimately, collaboration between governments, financiers, and ZET market actors is crucial for fostering a resilient ZET market, ensuring sustainable funding, and accelerating growth.<br /><br />Akshima Ghate is Managing Director, RMI India, and Marie McNamara is Manager, India Program, RMI.<br /><strong><em><br />Disclaimer: The opinions expressed by the author/interviewee do not necessarily reflect the views of Business Insider India. The article has been partly edited for length and clarity.</em></strong>

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