Decoding The Hidden Credit Risk In India’s EV Transition

India’s EV debate has focused on upfront prices, incentives and charging infrastructure. As the market matures, financiers face another question: what will an EV bought today be worth three or five years from now?

At first glance, this is a used-vehicle problem. It is also a credit-risk problem. When a commercial bank or NBFC finances a vehicle, it considers how much it could recover if the borrower defaults. While ICE vehicles have established depreciation patterns, EVs offer less certainty because battery condition, technological change and a young secondary market make recovery values harder to predict.

The Resale Risk

Research on electric 2W and 3W in India found EV loan terms to be 5-14% costlier than comparable ICE vehicles. Financiers have also identified weak secondary markets and uncertain residual values as important risks. If lenders cannot estimate collateral value, they can reduce loan-to-value ratios, demand larger down payments, shorten tenures or charge higher risk premiums.

Battery health is central to this uncertainty, while rapid improvements in range, charging speed and battery costs can make older EVs less attractive.

The E-rickshaw Conundrum

India’s earlier experience with e-rickshaw financing provides a useful warning. In 2021, NITI Aayog said banks had suffered losses when borrowers defaulted on earlier e-rickshaw loans because repossessed vehicles had low residual values. The weak resale market made it difficult to recover their exposure and contributed to higher financing costs for EVs.

The lesson remains relevant as financing moves towards higher-value commercial EVs. Estimates suggest that financing India’s first 10,000 zero-emission trucks could expose lenders to residual-value losses in the event of default, as recovery ultimately depends on the ability to repossess and resell the vehicles.

The Challenge with Fleets

Residual-value risk is more consequential in commercial fleets because the vehicle is both collateral and a revenue-generating asset. A leasing company buying an EV for Rs 20 lakh and expecting to sell it for Rs 10 lakh must recover that depreciation through the lease. If it fetches only Rs.7 lakh, some entity needs to absorb the additional Rs.3 lakh.

Fleets also face higher utilisation and potentially greater battery wear. Yet organised operators generate data on mileage, charging, maintenance and battery performance. If standardised, these data could make commercial EVs easier to value than privately owned vehicles.

International Markets Show the Cost

Hertz’s experience in the US shows how residual-value assumptions can become financial losses. In 2024, the company recorded $175 million in additional depreciation charges to write down EVs held for sale and another $48 million in losses on EVs sold, citing declining EV residual values among the reasons for reducing its fleet.

The IEA’s 2026 Global EV Outlook provides another warning. In China, three-year-old electric cars retained about 46% of their original value in 2024, versus roughly 55% for the broader used-car market. Across five major European markets, BEV retention fell from about 50% in 2022 to 35% in 2025. Rapid technological change, falling new-EV prices and battery-health concerns are contributing to weaker resale values.

From Battery Data to Credit Data

India has begun moving towards better battery traceability, but the bigger opportunity is to turn battery information into credit information. A lender needs to understand what battery health, age, utilisation and remaining warranty imply for probable resale value and not simply how many charging cycles a battery has completed.

The EU will require digital battery passports for relevant EV batteries from Feb 2027. India could build a similar architecture, with verified battery data feeding into credit underwriting, valuation and recovery models.

The Market Response

There are early Indian examples of risk-sharing around residual value. In 2024, battery-recycling company LOHUM partnered with EV asset-finance platform Stride Green to support financing for up to 5,000 EVs. LOHUM agreed to provide a put option on battery residual value, giving the financier greater certainty about end-of-life value.

The model shows that residual-value risk need not sit entirely with lenders or borrowers. OEMs can share it through buyback commitments and warranties; battery companies can underwrite end-of-life value; leasing companies can manage assets across their lifecycle.

Financing the Next Phase

India’s first phase of EV policy focused on reducing upfront costs and accelerating adoption. The next phase needs to address the financial risks that determine whether EVs can be financed affordably at scale.

A functioning used-EV market does more than improve today’s resale price. It tells tomorrow’s lender how much the asset may be worth, how much it can safely lend and what risk premium is justified.

India has made EVs easier to purchase. Making their future value easier to measure, price and allocate may be the next step towards making EV finance mainstream.