India’s automotive market is undergoing a technology-led transformation, unlocking the next wave of growth in this sector! There’s no denying that the future in India belongs to electric vehicles (EVs). From 1.02 million in 2022 to 1.53 million in 2023, EV sales surged by 50% in just one year. Coupled with India’s ambitious climate goals, envisioning a future where a fleet of EVs floods Indian roads is not far-fetched.
In this article, let’s delve into the factors propelling the demand for EVs, explore the impact on related stocks, and grasp the challenges and opportunities this sector presents for investors!
What’s Happening?
A staggering 26 million vehicles were manufactured in India in 2023 (excluding electric rickshaws), according to data released by the Society of Indian Automobile Manufacturers (SIAM). The sector holds immense importance in India’s manufacturing landscape, contributing 5-6% to the country’s GDP in FY23.
The sector is also benefiting from macroeconomic tailwinds, with innovation in-cell technology, the rise of EVs, increased adoption of software and electronics in vehicles, and the government’s support for manufacturing technologically advanced vehicles domestically. These advancements are poised to have a global impact, given that India accounts for 15-20% of global production for two-wheelers and is the world’s 3rd largest 4-wheeler passenger vehicle market!
What’s Driving the Demand for EVs?
Numerous factors contribute to the rising demand for EVs in India. Firstly, advancements in cell technology make EVs superior to their Internal Combustion Engine (ICE) peers in terms of speed, range, and energy efficiency. Secondly, EVs boast a lower Total Cost of Ownership (TCO) compared to ICE vehicles, with a 45% lower TCO. Thirdly, energy prices in India are more stable than petrol and diesel prices, which are more import-dependent. Lastly, the stronger software enablement in EVs paves the way for next-generation features, transitioning from ‘commute-only vehicles’ to ‘computers on wheels’.
On the manufacturing front, EVs are gaining momentum due to various government policies, such as the PLI schemes and FAME (Faster Adoption & Manufacturing of EVs in India) subsidies.
The graphic illustrates the percentage of Electric Vehicles (EVs) in relation to the total automobile sales in India.
What’s in it for Investors?
The entire EV ecosystem in India presents a multi-decadal opportunity for investors. From companies developing charging infrastructure and EV vehicles to those manufacturing EV batteries and ancillary parts, the opportunities are vast!
Original Equipment Manufacturers (OEMs) like Tata Motors, Mahindra & Mahindra, Maruti Suzuki, Ola Electric, and Olectra Greentech have substantial CAPEX plans to increase EVs’ percentage of their total sales. Battery manufacturers such as Amara Raja Batteries, Exide Industries, and HBL Power Systems are already producing EV batteries for OEMs. Auto-ancillary companies like KPIT Technologies, Tata Elxsi, and Sansera Engineering are focusing on increasing their share of content per vehicle in EVs.
While established companies ride the sector’s transformation, investors should also keep an eye out for lesser-known hidden gems with the potential for multi-bagger returns.
What are the Challenges this Sector Faces?
Despite the sector’s spotlight and vast opportunities, it grapples with a handful of challenges.
Firstly, the adoption of EVs is gaining momentum, but the transition cycle has a long way to go due to a lack of charging infrastructure nationwide. Enabling infrastructure developers are proceeding cautiously as adoption is yet to gain full momentum.
Secondly, there are safety concerns, particularly with electric two-wheelers, as instances of vehicles catching fire under the scorching sun have been reported.
Thirdly, EV batteries, composed of lead-io cells, magnesium, nickel, and cobalt, pose challenges as countries lacking these minerals must import them. In FY20, India imported 450 million units of lithium-ion batteries at a cost of approximately USD 865 million.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*The companies mentioned in the article are for information purposes only. This is not an investment advice.
*Disclaimer: Teji Mandi Disclaimer
