Trucks are the backbone of India's logistics industry and supply chain. Although trucks make up less than 3% of the total car population, they account for about 45% of road transport emissions, greatly affecting the country's carbon footprint.[1] Decarbonized road freight is crucial to India’s climate goals, and zero-emission trucks (ZETs) can play a key role in reducing carbon emissions. However, widespread adoption of ZET faces significant obstacles, including high upfront costs, limited fee infrastructure and limited access to financing. As the trucking industry stands at the forefront of transformation, evaluating existing and emerging business models is critical for stakeholders to make an effective and sustainable freight transition.
Existing models and their challenges
The truck sector in India relies on fleet operators who transport cargo, small fleet operators (SFOs) own 1-5 trucks, accounting for more than 75% of the market, while large fleet operators (LFOS) own more than 20 trucks, holding about 10%.[2] Fleet operators mainly purchase diesel trucks through direct purchases from OEMs, which ensures greater control over asset utilization and resale, making it a financially preferred strategy. At the same time, vehicle rental is also a viable alternative to SFO due to lower payments and affordable EMI. Some rental models also allow the selection of vehicle ownership at the end of the lease period. However, since LFOs’ lease payments, while deductible, do not offer long-term financial advantages with full purchases, that’s why they are less popular.
Truck financing is mainly accomplished through asset-backed financing or leasing, where 80-90% of the debt costs and operators lose 10-20% of payments. For example, to buy a truck that costs between INR 300-4 billion (US$36,000 and US$48,000), fleet operators typically pay an upfront fee of INR 1 million (US$12,000) and repay the loan within five years. They then sold the vehicle for INR 2 million (US$24,000) with the resale proceeds as a down payment for the new acquisition. By selling older vehicles at the end of life, operators can minimize maintenance costs while retaining cash reserves for future fleet upgrades. This has led to a secondary market where trucks flourish.[3]
However, the high cost of EFV, coupled with the expense of charged infrastructure, puts a financial burden on fleet operators, especially the access to SFOs with limited capital utilization. SFOs also lack strong credit profiles, which increase lenders’ risk and limit their access to low-cost financing. The secondary market and uncertain resale value further hinder adoption due to surplus value risks. Furthermore, the deployment of paid infrastructure remains a significant obstacle as it belongs to the core business operations of fleet owners. On the other hand, although the leasing model reduces the initial capital requirements, it cannot solve the established resale market of EFV. Therefore, scaling ZET procurement remains a challenge for fleet operators without structural changes in business models and policy interventions to stabilize resale value.
Emerging business model to support ZET adoption
ZET adoption requires innovative business models to address huge upfront costs, infrastructure challenges and risk allocation among stakeholders. Traditional procurement methods are insufficient for the capital-intensive nature of electric trucks and their associated charging infrastructure. Emerging business models that can be successfully implemented in the electric two-wheeler and tricycle sectors, such as battery leasing and battery swap, can be adapted to the road freight sector to reduce upfront costs and use ZETS for downtime operations.
Battery Service (BAAS) models allow fleet operators to purchase vehicles without batteries and subscribe to provide access, maintenance and replacement of batteries. This approach shifts costs from capital expenditure (CAPEX) to operating expenses (OPEX), making it more financially feasible to fleet operators. OEM/battery manufacturers provide batteries on a subscription basis, reducing upfront costs for the vehicle. In this case, the fleet operator must pay only the vehicle and order the monthly fee.
Another variant of the BAA model is Battery swap, The downtime of the EFV is compensated by allowing the owner to swap out exhausted batteries with fully charged ones. Third-party providers retain ownership of the battery to provide it with a subscription or paid per use, reducing the initial purchase cost of ZET, simplifying maintenance and improving overall operational efficiency.[4] Unlike the battery subscription model, this model involves swappable batteries, reducing vehicle operators’ reliance on charging infrastructure.
Finally, the new era Truck Transport Services (TAAS) model accesses ZET by bundling basic services including maintenance, insurance and charging infrastructure. TAAS providers are a coordinated point, working with OEMs to use vehicle sales, maintenance and insurance service providers as well as companies charging for infrastructure. This not only reduces financial barriers, but also simplifies operators’ ZET procurement and management, thereby encouraging them to enter ZET operations.
These emerging business models can transform the ZET landscape by addressing key barriers to absorption. Adoption of these models can pave the way for a scalable ZET ecosystem by reducing entry barriers to adopting ZET adoption and creating operational efficiency for value chain actors.
in conclusion
Over the years, traditional business models have matured to suit the needs of the existing fossil fuel transportation ecosystem. As the industry transitions to electric mobility, it is necessary to move to a new era of business model. Emerging models such as BAA and TAA can reduce the burden on OPEX and promote scalable adoption of ZET. However, to ensure long-term viability, these models must be complemented with a reliable financial framework that addresses risks, optimizes cash flows and supports infrastructure investments.
Our next blog in this series will explore the necessary financing frameworks that support the transition to ZET, covering key aspects of innovative financing models, risk mitigation strategies, policy support, and the investment structure required to accelerate scale adoption.
[1] https://www.theclimategroup.org/our-work/publications/early-market-outlook-report-eport-electrification-medium-and-heavy-duty-trucks
[2] https://www.niti.gov.in/sites/default/files/2021-06/freightreightreportnationallevel.pdf
[3] https://www.moneycontrol.com/news/technology/auto/daimler-india-enters-used-rucd-truck-vehicle-exchange-segment-5659761.html
[4] https://www.hh.se/download/18.38f604db17cdbca68f68f648bc3/16358465077778/sweden-china%20bridge,%20Bridge,%20Newsletter%203,0003,%203,%202021-2021-09-109-109-10%5.5b15.5.pddf
