While we have heard about the electric vehicle (EV) revolution in India, as it continues to evolve, so does its overall scope in the country. EVs are no longer confined to metropolises and have duly expanded to Tier-2 and Tier-3 cities. Along with that comes a new set of customer habits and direct implications that are critical for the foundation of green mobility. However, there are still challenges to be met in order to expand the overall market reach and make it mainstream.
In India itself, nearly 2 million EVs were sold across all categories in 2024, out of which 1.14 million two-wheelers were sold, accounting for 59% of the total market share. However, adoption in Tier 2 and Tier 3 cities, as of May 2025, is still at 10.67%, which means it has quite a way to go. While there is awareness and interest, adoption rates in smaller cities still face significant bottlenecks.
And speaking of those, the single biggest one it faces is: Accessible financing models.
What’s the Real Challenge Facing EV Adoption in Smaller Cities?
In the bustling lanes of Tier 2 cities mobility is powered primarily by two-wheeler and three-wheeler automobiles which fulfill critical functions like transportation and logistics. Instead of being luxury options, these are pretty much necessities. They are economic lifelines for gig workers, delivery partners, traders, and small business owners. For many in these regions, making the shift to electric remains a stretch.
Why is that? For starters, the cost of an electric two-wheeler is often 20% to 40% higher than its petrol counterpart. This makes it pretty much a non-starter for first-time buyers or those with incremental incomes. Not to mention, traditional lending institutions regarding EV adoption still rely heavily on formal credit history and income verification. These are two things that can still be somewhat of a roadblock for the majority of India’s working class.
This is precisely where fintech innovation must lead from the front.
Has Indian Fintech Risen to the Occasion to Fill in the Gap?
India’s fintech ecosystem has matured dramatically in the last five years and the positive impact it has had extends to the EV industry.
Unlike traditional banks or NBFCs that depend on bureau scores and salaried profiles, fintech lenders are leveraging alternate credit scoring mechanisms. Platforms are now using a combination of UPI transaction history, mobile recharge patterns, utility bill payments, and even smartphone usage behavior to assess creditworthiness. This is revolutionizing credit access for underbanked users.
Green financing NBFCs offer innovative financial flexibility when it comes to leasing, loans, and subscriptions; this makes them readily available and accessible. Some underwrite EV loans in Tier 2 cities using psychometric tests and alternative behavioral models. This makes vehicle financing possible for those who do not have access to traditional documentation. They have made a noticeable impact in a short time, and that is due to grow.
What is ‘Embedded Finance’? How is it Reshaping the Buying Journey?
Equally transformative is the emergence of embedded finance – a model where credit, subsidies, insurance, and after-sales support are built directly into the EV purchase process. It has been identified as being critically linked with EV adoption for the long term and a major innovation in Fintech. However, the first order is to understand: What is embedded finance?
With Aadhaar-based eKYC, paperless onboarding, and instant digital disbursal, embedded finance allows borrowers to walk into a dealership – or log onto a mobile app – and get instant approval for financing in under 30 minutes. Daily EMIs, battery leasing, and pay-per-kilometer ownership are also gaining popularity, more so, in the commercial segment.
How Innovative Green Financing Will Unlock the Potential of EVs in Small Cities?
Innovative financing models are predicted to make a big difference for millions in Tier-2 and Tier-3 cities, where the dream of switching to an electric vehicle often collides with the harsh reality of upfront cost.
In fact, flexible ownership options like Battery-as-a-Service (BaaS) are already making things easier by significantly reducing initial costs and eliminating concerns about long-term battery degradation. This is a godsend to many delivery workers, small traders, and gig professionals, who get instant access to EVs without the excess stress of high EMIs or the large commitment of full ownership.
People in smaller towns are already familiar with renting and pay-per-use models – whether it’s mobile recharges, LPG cylinders, or second-hand appliances. So these flexible green financing schemes feel inclusive and not disruptive. More importantly, these models are often aligned with how much money flows in semi-urban India and are fairly flexible about it. So yes, customers can apply for EV loans, subscriptions, and explore various innovative leasing options. These can also be embraced by businesses, SMEs, and corporations to expand and manage their fleet operations and eventually scale faster.
It’s more than just about affordability; it’s about trust, control, and unlocking the local potential of green mobility. This can often be the catalyst for mass EV adoption throughout the country. The good news is that the government is fully aware of it, and through subsidies, is fully supportive as well.
How Support from the Government Remains Essential?
Why is government support essential? Let’s take stock of some key facts.
Globally, the electric two-wheeler market was valued at USD 44.5 billion in 2024 and is projected to grow to USD 114 billion by 2033. India is on track to contribute significantly to this growth, with over 1.3 million units expected in FY25 alone. But to truly unlock this opportunity, we need to go beyond vehicles to build trust, convenience, and literacy into the buying journey.
The PM E-Drive scheme has already supported the sale of an estimated 10.27 lakh EVs, leading to the reduction of 2.3 lakh tonnes of CO2 emissions. However, subsidy disbursal still requires manual intervention on the backend. The future lies in integrating these subsidies directly into financing platforms for real-time benefit delivery – something fintechs are uniquely equipped to do. When empowered through government subsidies and ease of manufacturing, what once seemed like a distant dream begins to take steps towards becoming reality.
A Fintech-Driven Future for Bharat’s EV Ecosystem
Tier 2 cities represent the next frontier for India’s clean mobility vision. But the battle for adoption will be won in apps, wallets, vernacular explainers, and trust-building chatbots. Fintech has the power to make the shift to EV equitable and we must deploy it with speed and intent. The sooner we embrace this, the faster we move towards the ideal sustainable future of our dreams.
