Cholamandalam to tread cautiously in EV financing in the near term
Cholamandalam Investment & Finance Company Ltd, a leading auto finance company, says it has currently taken a conservative approach to lending electric vehicles (EVs) due to lack of information on the resale value of EVs and other associated challenges.
While Cholamandalam has delved into electric vehicle financing in 2021, it is unlikely to go in an aggressive position in this business in the near term amid growing adoption of electric vehicles in the two- and three-wheeler segments.
“Currently we are cautious about EV lending because there is not enough data on the resale value of these products, we need to work out some theoretical value based on assumptions. So, at this point, we are not taking a rigorous approach in EV lending because we need to acquire More experience in this field,” said D Arulselvan, President and Chief Financial Officer of Cholamandalam Investments & Finance Company. Business line.
risk file
While financing is seen as an important factor in accelerating the adoption of electric vehicles in the country, banks and non-bank financial companies have taken a cautious approach to financing electric vehicles. Uncertainty about resale value, risks of technological obsolescence, and lack of historical data make it difficult for financial institutions to assess the risk profile of electric vehicle lending.
Rohan Kumar Gupta, Vice President and Head of Corporate Ratings at Icra Ltd, said: “While financial institutions are looking to increase their exposure to the EV segment, a cautionary attitude currently prevails given the inherent risks such as limited product performance track record, OEM recall management and lack of market Well established for second-hand, etc. Estimating the resale value of EVs remains a challenge as this is subject to battery performance.”
Murugappa Group NBFC Cholamandalam is now lending to a few brands, including Mahindra & Mahindra and Piaggio, in the electric tricycle space. It is now offering financing support for commercial electric 3-wheelers. In the electric two-wheeler space, it has tied together two brands that include Hero Electric.
“On average, we are currently spending an average of around Rs 10 crore per month in the electric vehicle space,” said Arulselvan.
loan payments
In its ESG information, the company said that it will increase EV loan payments by 5 percent on an annual basis between 2023 and 2025. EV loan payments were Rs 11.97 crore in FY22 and in FY23 (during April-December) , amounted to around Rs. 52 crore.
In the auto loan segment, Cholamandalam has a well diversified portfolio spread across more than 1130 branches across India. In FY23, the auto segment payments amounted to Rs. 39,699 crore, accounting for about 60 per cent of the total payments.
Innovation in financing structures with better use of technology, creation of more climate funds, priority sector lending, syndicated lending between traditional and new age financiers, etc. are some of the expectations of major stakeholders in the electric vehicle industry.
“We expect the lending environment to gradually improve with better EV penetration and a proven track record of established companies,” said Gupta.
Dive into Tube Investments
Meanwhile, its subsidiary Tube Investments Group will soon offer the Montra electric motorized rickshaw, starting in the southern states. Cholamandalam may provide lending support to buyers.