Electric buses to account for 13% of new bus sales by FY25, says ICRA

Electric buses (e-buses) are expected to represent up to 13 per cent of new bus sales by FY2025, rating agency ICRA said on Monday.

“ICRA foresees electric buses to be at the forefront of India’s electrification drive, with the segment expected to witness healthy traction going forward. ICRA estimates e-buses to account for 11-13 per cent of new bus sales by FY2025,” ICRA said in a statement.

The report anticipates that government subsidies and advancing technologies will contribute to further decreasing the capital costs associated with e-buses. Additionally, the operational savings of electric vehicles compared to diesel ones will also contribute to increasing demand.

E-bus penetration has reached 7 per cent in FY2023, it noted.

This momentum is expected to receive a further boost as state governments unveil their Electric Vehicle (EV) policies, setting specific targets and timelines for e-bus adoption. This initiative strengthens the roadmap for electrification in the country.

The rating agency emphasised the significance of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme in propelling this growth. It anticipates that this consistent progress is expected to accelerate in the upcoming months, continuing until the scheme expires in March 2024.

Kinjal Shah, Vice President & Co-Group Head – Corporate Ratings, ICRA Limited said, “Bus cost is the single largest cost element in the e-bus project, accounting for 75-80 per cent of the project cost. The capital subsidy of Rs. 35-55 lakh per bus under the FAME II scheme can fund a large part of the project costs, up to as much as 40 per cent, which augurs well for the viability of these projects. Additionally, coupled with the significant savings on fuel costs (3-5x cheaper vis-à-vis conventional buses), these subsidies help lower the total cost of ownership of e-buses by 10-25 per cent compared to conventional CNG or diesel buses.”

ICRA observed that the government aimed to stimulate e-bus adoption by utilising bid aggregation in tenders conducted by Convergence Energy Services Limited (CESL).

CESL has invited bids to select operators for the procurement, supply, operation, and maintenance of 3,600 electric buses (e-bus) and development of allied electric and civil infrastructure on gross cost contracting under Pradhan Mantri (PM)-eBus Sewa initiative.

Under the Rs 57,613 crore scheme to augment city bus services, 10,000 electric buses will be deployed in 169 cities, prioritising those lacking organised bus services.

This, according to ICRA, will spur e-bus adoption. CESL has already floated two tenders for over 10,000 e-buses.

With the enhanced volumes under these tenders due to demand aggregation, there was healthy interest and participation by the Original Equipment Manufacturers (OEMs) in the first two tenders, even without subsidies on offer in the second tender, it stated.

"However, CESL's third tender saw limited OEM participation due to a lack of a payment security mechanism and a dry lease model of operation proposed for it, and had to be subsequently scrapped. Addressing these concerns of the OEMs would be critical to ensuring the increased pace of e-bus adoption in the country," ICRA added.