Icra said policy support and lower costs could lift adoption of electric buses to 30 per cent by FY30 as fresh tenders under the PM E-Drive scheme accelerate. The agency said achieving the target implies a sharp rise in adoption from the current financial year and that tendering and execution should improve as more states adopt the Payment Security Mechanism (PSM). It said PSM has encouraged greater participation from manufacturers and operators.

Despite higher upfront prices, Icra estimated lifecycle economics remain favourable. It said a 12-metre air-conditioned electric bus priced at around Rs ten million (mn) has a total cost of ownership of about Rs 39 per kilometre, compared with Rs 51 per kilometre for a diesel bus and Rs 48 per kilometre for a compressed natural gas bus after subsidies. The agency said the segment offers a large market opportunity for original equipment manufacturers and operators.

The report highlighted the gross cost contract model under which operators own and maintain buses while public transport authorities pay a fixed per kilometre fee. Icra said rated projects have generally performed well, with daily operations exceeding contracted kilometre commitments and project cost overruns remaining below 10 per cent. It warned that execution delays and payment risks persist, with several projects facing commercialisation delays of six months to one year due to slow depot handovers.

Icra noted that operators remain exposed to battery replacement costs and supply-chain disruptions because of dependence on imported battery cells and components, even as localisation improves for pack assembly and many other parts. The agency said the Payment Security Mechanism, implemented through Convergence Energy Services Limited (CESL) and backed by a direct debit mandate linked to state government accounts and the Reserve Bank of India (RBI), could improve credit profiles by ensuring timely payments. It added that private adoption will remain gradual given charging infrastructure concerns, higher upfront costs and uncertain passenger demand, while the entry of large strategic and financial investors and falling battery prices strengthens long-term growth prospects.