Developing a new blended finance platform to unlock electric vehicle adoption in India

2024

Relevant Topic(s) Tags

Blended Finance

Summary

Transport is India’s third-highest greenhouse gas (GHG) emitting sector, accounting for 13% of the country’s CO2 footprint. Emissions are set to rise further with population growth, increasing industrialisation and urbanisation. There is a clear opportunity to decarbonise the sector through electrification. India’s EV industry has had limited investment and is presently underdeveloped. Consumers have been reticent to adopt new modes of transport due to factors such as the high upfront cost, uncertain technology and range anxiety. Low consumer uptake, a lack of capital inflows and investment in an emerging economy contributed to investors’ high risk-adjusted return expectations. Macquarie Asset Management (Macquarie) has developed a new blended finance platform (Vertelo) with the Green Climate Fund (GCF), which seeks to accelerate the adoption of electric vehicles (EVs) across India, with the aim of helping to reduce the country’s CO2 emissions and improve urban air quality. Officially launched in April 2024, Vertelo has been designed to speed up the adoption of electric vehicles in India, largely buses and commercial fleets, by introducing unique leasing and financing solutions to reduce the high upfront capital expenditure associated with EVs, tackle impediments around EV charging infrastructure and manage uncertainty around commercial EV performance and the associated residual value risks. The platform is a blended finance structure designed to crowd-in private sector capital, with a junior equity commitment from the GCF of up to US$200 million. The GCF’s first loss capital has proven to be highly catalytic in enabling Vertelo to rapidly surpass the typical early stages of venture capital fundraising, which are costly and protracted, to hire a leading CEO and management team, complete its first transactions and sign MoUs with local operators within 6 months of receipt of funds. Macquarie aims to raise a further US$205 million from institutional investors to capitalise the platform, and over time, the platform hopes to mobilise a total of ~US$1.5 billion of capital (including debt finance) to accelerate India’s EV transition. The platform is expected to deliver a potential lifetime reduction of ~9.5 MtCO2e of greenhouse gas emissions. Vertelo also aims to have a positive social impact for its local communities by seeking to improve the safety for women traveling on buses, as well as creating employment opportunities for women in the transportation sector. Working across the e-mobility ecosystem, the platform aims to contribute to an enabling environment for EV growth, new market participants, and domestic manufacturing, and to help bring the long-term cost of EV ownership to a level competitive with conventional vehicles.

Key Takeaways:

Systems approach: The blended finance platform combines multiple interventions, including an alternative financing structure with novel risk mitigation, development of charging infrastructure, support for the local manufacturing industry and collaboration between the public and private sector. This multi-pronged approach to address multiple barriers simultaneously is key to unlocking tipping points in the acceleration of e-mobility transport.

Role of catalytic capital: De-risking financial tools, like the GCF’s first loss equity, are critical to build market confidence and crowd in commercial investors. By providing a first disbursement GCF capital acted as seed investor, enabling the build-out of the management team and commercial establishment of the platform before more investors were brought in.