Policy support, lower costs to lift e-bus penetration to 30% by FY30: Icra

Electric buses offer lower ownership costs than diesel and CNG models, while government schemes and payment-security reforms are expected to accelerate adoption

India’s electric bus (e-bus) penetration in the medium and heavy commercial vehicle segment is expected to rise to around 30 per cent by the financial year 2029-30 from the current 7 per cent, driven by strong government policy support, favourable operating economics and reforms aimed at reducing payment risks for operators, according to a report by rating agency Icra.

 

The agency estimates that if the entire fleet of around 150,000 buses operated by public transport authorities (PTAs) is electrified over the next decade, it would require a capital investment of nearly ₹1.5 trillion.

 

Sales of electric buses have grown sharply over the past eight years, increasing from just 37 units in FY18 to 5,412 units in FY26. More than 2,000 e-buses have already been sold during the first four months of FY27. Despite this growth, e-buses account for only around 7 per cent of the medium and heavy bus market.

 

According to  Icra, the growth has been supported by successive government schemes, including FAME-I, FAME-II, the National Electric Bus Programme, PM eBus Sewa and PM E-Drive, which together target the deployment of over 80,000 electric buses with budgetary support of around ₹1 trillion through FY28.

 

The agency said adoption has so far been concentrated in five states — Delhi, Maharashtra, Karnataka, Gujarat and Telangana — which account for nearly 75 per cent of the e-buses deployed in the country.

 

Icra expects adoption to accelerate over the next few years as fresh tenders under the PM E-Drive scheme gather pace. While it has not provided year-wise penetration estimates, the rating agency said the 30 per cent penetration target by FY30 implies a sharp increase in adoption from the current financial year onwards. It also expects tendering and execution to improve as more states adopt the Payment Security Mechanism (PSM), which has encouraged greater participation from bus manufacturers and operators.

 

Despite the higher upfront cost, electric buses continue to offer compelling economics.  Icra estimates that a 12-metre air-conditioned e-bus, priced at around ₹1 crore, has a total cost of ownership of about ₹39 per kilometre, compared with ₹51 per kilometre for a diesel bus and ₹48 per kilometre for a compressed natural gas (CNG) bus after accounting for subsidies.

 

“The e-bus segment presents a large market opportunity for original equipment manufacturers (OEMs), operators and investors, anchored on strong policy support and favourable cost economics,” said Jitin Makkar, senior vice-president and group head, corporate ratings, at Icra.

 

The report also highlighted the importance of the gross cost contract (GCC) model, under which operators own and maintain the buses while PTAs pay them a fixed per-kilometre fee. According to ICRA, rated projects have generally performed well, with daily operations exceeding contracted kilometre commitments and project cost overruns remaining below 10 per cent.

 

However, execution delays and payment risks continue to weigh on the sector. Several projects have faced commercialisation delays of six months to one year due to the slow handover of depots by transport authorities. The delayed release of central subsidies has also affected project cash flows.

 

The agency added that operators remain exposed to battery replacement costs, technology changes and supply-chain disruptions because of dependence on imported battery cells and components.

 

At the same time, Icra noted that localisation is improving. While battery cells continue to be imported due to limited domestic manufacturing capacity, leading legacy and new-age OEMs have increasingly localised battery pack assembly and most other components. However, dependence on imported cells is expected to continue over the medium term until Indian cell manufacturing scales up.

 

Icra believes the recently introduced Payment Security Mechanism (PSM), implemented through Convergence Energy Services Limited (CESL) and backed by a direct debit mandate linked to state government accounts, could significantly improve the sector’s credit profile by ensuring timely payments to operators.

 

While the PSM has yet to be tested because most projects are still under deployment, the agency said its presence has already boosted confidence among operators and financiers by providing assurance that payment delays by state transport undertakings can be addressed through a dedicated fund backed by CESL and the Reserve Bank of India (RBI).

 

Icra also expects private-sector adoption of electric buses to remain gradual. While inter-city deployments are likely to increase over time, operators continue to face concerns around charging infrastructure, higher upfront costs and uncertain passenger demand. Unlike GCC projects, private operators do not have assured revenue visibility, making adoption slower despite favourable lifecycle economics.

 

The report said the entry of large strategic and financial investors, including Tata Motors, Ashok Leyland, JSW, KKR, IFC and NIIF-backed platforms, along with falling battery prices, is strengthening the sector’s long-term growth prospects.