Loss-making STUs turn into a goldmine for Indian bus makers

India is seeing a green recovery of its beleaguered State Transport Undertakings (STUs) and bus makers are looking to make the most of the opportunity that is being led by the government’s latest electric mobility push. The cumulative order of 3600 electric buses bagged by Tata Motors in the last 30 days and Switch Mobility’s order book of 600 e-buses and other deals over the last few months, is an indication. 

Sample this: Losses at STUs tripled from 13,956.77 crores in 2016-17 to Rs 42,143 crores in 2021. Each STU is losing Rs 56.15 per km and earning just Rs 37.60 per km. The pandemic only deepened the crisis. The financial losses at the STUs due to COVID-19 mounted to Rs1.5 lakh crore, as per the World Bank estimates.

All of that is changing at a rapid pace with the asset-light GCC (gross cost contract) model being adopted by the STUs and private bus operators. GCC is a public-private partnership (PPP) model under which the operator contracts with the transport corporation and is paid on a fixed cost per kilometer basis. The supplier is responsible for the procurement of e-buses and operational and maintenance infrastructure.

A policy push by the government and lucrative incentives is set to fuel the growth in a segment that has traditionally been characterized by rickety, smoke-guzzling buses.

Rohit Srivastava, vice president for the buses product line at Tata Motors, says the Indian market is following a global trend. “Globally, electric buses constitute the leading segment within the commercial applications, with almost 20 per cent penetration.”

The government is focusing on electrification of public transport, in which e-buses have a significant role to play, he said. Tata Motors has supplied more than 715 electric buses to various STUs already.

The FAME II subsidy support ranging from Rs 32 lakhs to Rs66 lakhs for a 9-meter to 12-meter bus respectively has tilted the economics for bus makers prompting them to pitch for these orders, says Mahesh Babu CEO of UK-based Switch Mobility.

“The on-road cost for a 12-meter electric bus is around 1.3 crore. As part of FAME II incentives, we are getting a subsidy of close to 66 lakh per electric bus which means 50 per cent of the bus cost we can recover at the start of the contract,” explained Babu. The rest is on a per km model that will take 5-6 years and as contracts range from 8 to 12 years, the profitability will come during the final years of operation, he added.

To be sure, for the transport undertakings, the GCC that is based on the pay-per-use model is a huge relief. From the prohibitive Rs 96.75 cost per kilometer, they have to fork out owing to rising fuel and administration input costs, with the lowest price, discovered for a 12-meter e-bus at Rs 43.49/km, 9-meter-metre e-bus of Rs 39.21/km, is a big reprieve.

The USD 10 billion bus orders by government-sponsored Convergence Energy Services Limited (CESL) National Electric Bus Program (NEBP),’ Grand Challenge 2’ has invited Indian STUs to participate in one of the world’s largest bus orders to the tune of 50,000 electric buses as the ‘FAME II’ scheme implemented by the Department of Heavy Industries (DHI) planned outlay of Rs35 billion towards supporting e-bus adoption.   

More than 4,000 of the targeted 5,585 electric bus contracts already awarded as part of CESL Grand Challenge1 have proved a shot in the arm for these beleaguered STU as the GCC has created economic viability for the transport undertakings.

Over their lifetime, these buses will run nearly 3 billion kilometers (km) without tailpipe emissions, produce oil import savings of 55 lakh barrels equivalent to Rs3,600 crore (about $500 million), and avoid Rs12 lakh (1.2 million) tons of carbon dioxide (CO2) emissions.

It’s therefore, not difficult to understand why bus makers are queuing up to ride the gravy train. Be it a global player like – Olectra, Foton PMI Electro Mobility, or homegrown manufacturers like Tata Motors, Ashok Leyland, and VE Commercial Vehicles. Bus manufacturers have got into a slugfest of competing with each other to bag contracts at the lowest cost per km.

PMI Electro Mobility also announced it emerged as the lowest bidder among three competitors to win the tender for the delivery of 144 e-buses to Nagpur Municipal Corporation.

While existing bus makers are utilizing their existing capacities to make up for the decline in ICE bus orders new OEMs entering the fray are making fresh investments to speed up their get-to-market plans.

Much Like Ashok Leyland and Olectra Greentech who have floated dedicated EV subsidiaries to get external investors and stay asset-light, Volvo Eicher Commercial Vehicles recently floated its electric arm, VE Electro Mobility.

Causis-E-Mobility, a UK-based electric vehicle startup signed a memorandum of understanding (MoU) with the Government of Maharashtra, to invest up to Rs2800 Cr for setting up its flagship electric bus manufacturing plant which is expected to be operational within 15 months.

PMI Electro Mobility recently set up Rajkot’s first electric bus depot and has confirmed plans to invest Rs 300 crore to operationalize an electric commercial vehicle manufacturing facility in Pune, Mansi Jain, Director of PMI ElectroMobiity told Autocar Professional

“We are building the second unit over 33 acres in Pune, which will be more than double the size of our existing facility at Dharuhera, in Haryana,” Jain said.

Vinod Aggarwal M.D & CEO of VECV is of the view that the bus market which plummeted to around 18,000 units in 2021-22 is likely to grow to pre-Covid Levels of 60,000 units as life comes back to normal and the opening of schools has contributed to the growth of demand. 

While VECV has an order book of 210 buses including supplies to Chandigarh & Surat, Switch Mobility, the EV arm of commercial vehicle major Ashok Leyland has already sold 115 electric buses to various STUs with an ongoing order book of 600 buses

VECV which took over Ashok Leyland’s contract in Chandigarh plans to add 40 new buses to the Chandigarh Union Territory Administration’s existing fleet of 40 electric buses at a GCC (Gross Contract Model) price of 44.95 km as against Rs 60 quoted by Ashok Leyland mobility arm Switch Mobility. VECV has also won a contract to supply 150 buses to Surat.

PMI’s Jain further added that E-buses offer many value propositions to Indian cities: they are more efficient, cleaner, quieter, and increasingly cost-competitive. By 2030, if four out of 10 buses sold in India are electric, the country could emerge as the second largest e-bus market in the world after China, she stated.

A similar thought process is echoed by Ashish Kundra, Delhi’s Transport principal secretary: “The idea is that if we can provide two-wheelers and personal vehicle users some kind of premium service, in which they book like an Uber, which picks them up from where they are and drop at their workplace, people are willing to pay a premium for fixed, comfortable seats rather than trying to drive in the traffic,” says Kundra.

To boost intercity electrification of buses, The Atal Harit Vidyut Rashtriya Mahamarg (AHVRM), National Highway for Electric Vehicles, has targetted nearly 500 kilometers of unhindered run and pip Berlin’s range of 109 km as the world’s largest green highway.

The 278 km Delhi-Jaipur highway stretch will be converted into an E-highway by early 2023 and will have the capacity to run 100 electric cars and 25 electric buses on both highways and a capacity of charging 1000 vehicles with 100+ chargers in 24 hours.

“There will be 12 charging points, two of which will be entirely solar-powered. Any electric vehicle will be monitored round the clock on the E-way and in case of any breakdown, assistance will be provided within 45 minutes without making any distress call, informed Abhijit Sinha, Senior Project Manager (AHVRM).

The overall growth is also being fuelled by multiple STUs looking at replacing their aging fleet with state-of-the-art e-buses as they seek to align themselves with the recent Ministry of Road Transport & Highways (MoRTH) order.  Over 25 STUs that own 32,062 buses that are over 12-14 years old are making them turn to government-sponsored e- bus orders to make good for the deficit in light of MoRTH latest decision not to renew the 15-year scrapping deadline for BS-II or BS-III diesel buses that are highly polluting and uneconomical to maintain.

Chandigarh Union territory administration has taken a big decision to replace the entire fleet of 358 diesel buses running on local or suburban routes, with electric ones by 2027-28.

Here are a few more examples. Delhi Government has given an order for 1500 electric buses, and 250 electric buses have been ordered by Kerala State Road Transport Corporation. West Bengal Transport Corporation has awarded a work order to Tata Motors Ltd.

Telangana State Road Transport Corporation (TSRTC) has awarded a supply of 300 electric buses worth Rs 500 cr to Olectra Greentech Limited.

Maharashtra State Road Transport Corporation (MSRTC) which has around 16,000 buses in its fleet is also planning to phase out the old fleet and add 700 non-AC electric buses and 150 air-conditioned electric buses that will start arriving this September with the onboarding to get completed by December 2022. Out of 150 electric air-conditioned buses, 100 buses will be introduced on the Mumbai Pune route. Rest busses will be introduced on other inter-city routes of the states, a senior official of MSRTC confirmed this development.

“If India has to become the manufacturing hub of the world for electric vehicles and buses must be closely looked at as they can create disruption to move people from cars and two-wheelers to public transport,” says Niti Aayog Adviser (Infrastructure Connectivity & Electric Mobility) Sudhendu J. Sinha.

The road ministry is also doing its bit. At a recent event in Mumbai, Union Minister for Road Transport & Highways Nitin Gadkari said that India will be constructing 26 green expressways in the span of the next three years and this will help to reduce the time between various cities.

Once this expressway is ready to operate, people will be able to commute between the cities in just 2 hours which was earlier covered in about 5-6 hours via road, he claimed.

“In the next three years, we are building 26 green expressways and my dream is to connect Nariman Point in Mumbai to Delhi on Delhi Mumbai Expressway in an electric bus,” Gadkari said, adding that one can travel from Delhi to Dehradun, Haridwar or Jaipur in two hours thereafter.

Gadkari also said once these expressways are built, traveling will be reduced to 2.5 hours from Delhi-Chandigarh, Delhi-Katra in 6 hours, Delhi to Srinagar 8 hours, Delhi to Mumbai 12 hours, and Delhi to Amritsar in 4 hours.

The big opportunity lies in the intercity bus market where the penetration of electric buses is almost insignificant, points out PMI Electro’s Mansi. Bangalore to Mumbai’s driving range of 1000 km is much unattainable for an electric bus or even hybrid buses as there’s limited scope for regenerative braking, she said. Instead, the market is evolving in the 180-250 km inter and intra-city transport.

As part of the inter-city electrification drive, Green Cell Mobility has won the bid to run intercity e-buses for Maharashtra Regional State Transport (MSRTC) between various cities offering electric mobility as a service platform. These electric buses, dubbed ‘Shivai’ will be introduced across the state in stages.

The first bus on Pune- Ahmednagar has already been flagged off with Green Cell Mobility would be deploying 50 such electric buses for intercity travel across Maharashtra for MSRTC in the cities of Pune, Aurangabad, Kolhapur, Nasik, and Sholapur soon.

Ashok Agarwal, MD & CEO, Green Cell Mobility, further adds that the firm plans to create ‘green routes’ with 12-meter buses in the state with 10 buses will to ply between Pune and Aurangabad while 12 buses will run on the Pune – Kolhapur route; 18 buses will operate between Pune and Nasik, and 10 buses will operate between Pune- Sholapur.

“These buses will be able to run 250 km in a single charge and will be fitted with a Li-ion battery with fast charging capability of 90-120 minutes,” said Agarwal.

Credit rating agency ICRA estimates that e-buses will comprise 8 per cent-10 percent of new bus sales by FY25 as the central government’s Faster Adoption of Manufacturing of Hybrid and Electric Vehicles (FAME) initiative has already been lengthened until 2024.

Srikumar Krishnamurthy, Vice President of ICRA Ratings says that bus costs, accounts for 75-80 percent of project costs in electric bus project as a capital subsidy of Rs35-65 lakh per bus under the FAME II scheme, funds a large part of the project costs augurs well for the viability of these projects.

Switch Mobility’s Babu points out that there is a need for financial measures that could support the early electrification of city and intercity bus services in India.

He says low-interest loans from institutions and timely subsidies, viability gap funding, and regular payments can support everyone’s financial success.

For e-buses, depot and route selection are critical precursors to cost-effective and efficient operations.

“Proper depot selection has the potential to reduce upfront investment cost in electricity infrastructure and support higher utilization of charging infrastructure is the key,” said Babu.

One inherent advantage of e-buses is that there is a set route. States, therefore, only need to set up charging points at the start and end of journeys. This reduces the need for a large, widespread charging infrastructure that private vehicles would need, added Babu.

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