Cholamandalam Investment & Finance Company Ltd, a leading player in vehicle finance, says currently, it has taken a conservative approach in lending to electric vehicles (EVs) due to a lack of information on the resale value of EVs and other associated challenges.

While Cholamandalam forayed into financing EVs in 2021, it is unlikely to go on an aggressive mode in this business over the near term amid the growing EV adoption in two- and three-wheeler segments.

“Currently we are cautious about lending to EVs because there are no adequate data on the resale value of these products, we need to work on some notional value based on assumptions. So, at this stage, we are not adopting an aggressive approach in lending to EVs as we need to acquire more experience in this space,” D Arulselvan, President & CFO, Cholamandalam Investments & Finance Company told businessline.

Risk profile

While financing is seen as an important factor in accelerating EV adoption in the country, banks and NBFCs have taken a cautious approach to financing EVs. The uncertainty of resale value, risk of technological obsolescence, and lack of historical data make it difficult for financing institutions to assess the risk profile for EV lending.

Rohan Kumar Gupta, Vice President & Sector Head-Corporate Ratings, Icra Ltd said, “While the financial institutions are looking at increasing their exposure to the EV segment, a cautionary stance prevails currently given the inherent risks like the limited track record of product performance, recall management of OEMs, lack of an established second-hand market, etc. Estimating the resale value of EVs remains a challenge as this is subject to battery performance.”

The Murugappa Group NBFC Cholamandalam is now lending to a few brands, including Mahindra & Mahindra and Piaggio, in electric three-wheeler space. It is now providing financing support to commercial electric three-wheelers .In the electric two-wheeler space, it has tied up two brands which include Hero Electric.

“On average, we are currently doing average disbursements of about ₹10 crore a month in the EV space,” said Arulselvan.

Loan disbursements

In its ESG information, the company has said that it will increase EV loan disbursements by 5 per cent year-on-year between 2023 and 2025. Its EV loan disbursements were at ₹11.97 crore in FY22 and in FY23 (during April-December), it stood at about ₹52 crore.

In the vehicle loan segment, Cholamandalam has a well-diversified portfolio spread across more than 1,130 branches across India. In FY23, the vehicle segment’s disbursements stood at ₹39,699 crore, which was about 60 per cent of the total disbursements.

Innovation in financing structures with better use of technology, creation of more climate funds, priority sector lending, co-lending between traditional and new-age financiers, etc are some of the expectations of the key stakeholders in the EV industry.

“We expect that the lending environment to gradually improve with a better EV penetration and track record of incumbents,” said Gupta.

Tube Investments’ EV dive

Meanwhile, its group company Tube Investments will shortly be introducing its Montra electric autorickshaw, starting in southern States. Cholamandalam may provide lending support for its buyers.