Why it’s time to mend India’s broken EV financing ecosystem

India’s electric vehicle (EV) revolution is undeniably underway. With the market projected to grow from $2.4 billion in 2025 to $19.9 billion by 2030, the momentum is strong. Yet, beneath this hope lies a broken financing ecosystem which is opaque and plagued by structural gaps threatening the growth of EVs in India.Most EV financing today is structured like personal loans — banks check the borrower’s CIBIL score but pay scant attention to the asset itself. This reduces the transaction to a credit risk exercise, entirely ignoring the vehicle’s make, quality, and performance history. Essentially, banks are treating EV loans as unsecured products disguised as auto loans.

This short-sightedness has already had consequences. Several banks and NBFCs that financed low-quality EVs purely relying on opaque warranties or partnered with unstable OEMs have seen these loans turn into NPAs, often with zero recoverability due to poor resale value. Importantly, not all NPAs stem from poor credit underwriting. When an EV asset underperforms or breaks down, it disrupts the borrower’s income — especially in the case of commercial two- and three-wheelers — triggering defaults even among previously reliable borrowers.

This makes it imperative to distinguish between NPAs that arise in the first 6 months (indicative of bad credit checks) and those that surface after 12–18 months (suggesting asset failure). The latter reveals a glaring absence of product underwriting — a fundamental process in which the vehicle, battery, and OEM track record are scrutinized alongside the borrower’s creditworthiness.

Key Conundrum

The main challenge in EV financing stems from the inability to evaluate the asset value particularly for batteries which represent half of an EV’s total cost. EVs do not follow linear depreciation patterns because usage combined with charging cycles and environmental exposure and battery degradation results in unpredictable residual values. The depreciation rates of two identical EVs differ substantially because of their owners’ driving habits and battery consumption patterns.

The use of outdated ICE-style templates by banks to determine depreciation remains widespread despite the fact that these methods fail to match EV depreciation patterns which reduces both confidence and precision in financing operations leading to wrong LTV determination and unability to match Principle Outstanding (POS) at any given point to true residual value of the EV. The problem becomes worse because financiers lack access to user-level IOT data which provides real-time information about asset health and usage. The reluctance of OEMs to share user-level IOT data because of privacy concerns and regulatory uncertainty makes it difficult for financiers to evaluate actual asset risks. The Indian data laws create confusion about data sharing permissions which results in additional delays for any progress.

Out of Sync Ecosystem

As a result of this risk blindness, we are seeing the emergence of predatory loan terms. In many cases, interest rates on EV loans are reaching 28–30% IRR, even from formal financial institutions. Loan-to-value (LTV) ratios are suppressed, and tenures are shortened, drastically increasing monthly EMIs. This drives away cost-conscious and credit-worthy EV buyers who might otherwise accelerate adoption at scale.

The financing sector still lacks standardized metrics for evaluating the battery health and remaining useful life (RUL) of a used EV — crucial parameters for resale, refinancing, and buyback. This has frozen the second-hand EV market, making it even harder for banks to recover their dues in case of a default.

Need for Unified Approach

Startups are attempting to bridge these gaps through data led approaches to help evaluate EV’s usage, battery condition, range consistency, and historical performance. These approaches allow for meaningful product underwriting and could become foundational to EV financing, especially for pre-owned vehicles.

To further unlock this opportunity, banks and NBFCs must invest in building EV-specific data capabilities. Collaborations with OEMs must move beyond sales partnerships to include shared IOT access, anonymized battery health metrics, and vehicle usage behavior. These integrations can help create a reliable “EV Risk Profile,” driving smarter financing decisions and more competitive ROI structures.

Simultaneously, OEMs must mandate the inclusion of IOT sensors in every EV sold. Just as CIBIL brought visibility to creditworthiness, India needs a sector-wide protocol for EV product evaluation in real-time to help with POS vs RUL assessment. If we continue financing blindly, without understanding the quality of the vehicle, the LTV will remain low, interest rates high, and consumer adoption limited.

This is not just a fintech or banking problem. The solution requires a coordinated effort from all stakeholders — OEMs, financiers, data aggregators, and regulators — to build a resilient EV ecosystem. Establishing a reliable used EV market is critical. Without it, residual value recovery will remain elusive, keeping risk premiums high and deterring financing for masses.

Policy interventions must nudge this alignment. Establishing residual value benchmarks, incentivizing IOT-based underwriting models, and clarifying data-sharing norms will go a long way in de-risking the EV asset class for financiers.

India’s EV transition hinges not just on vehicles or infrastructure but on smart, risk-adjusted financing as well. Treating EVs like ICE vehicles — or worse, like unsecured personal loans — is a fundamental flaw. Only when financiers understand both the borrower and the asset can they lend with confidence. Until then, EV financing in India will remain broken — and so will our dreams of a cleaner, electrified future.

The author is an EV expert and co-Founder of Mooving & Solar Cube