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Published: Dec 29, 2021
Updated: Dec 29, 2021

Electric Vehicle Economy: Exciting Times Are Aheads

Well aware of the ‘doomsday’ effect of skyrocketing crude, petrol and diesel prices and the alarming pollution levels from current automobile technology, India is slowly but surely going the whole hog in prodding the automobile industry and vehicle users towards electric mobility.

In 2019, the Centre allocated over a billion dollars for upfront incentives on the purchase of electric vehicles and development of charging infrastructure. Furthermore, in June this year, the subsidy for Indian-made e-bikes was hiked to Rs 15,000 per kWh from the earlier Rs 10,000 per kWh. Besides, e-bike makers can now give discounts of up to 40 per cent to consumers. Other e-sops include waiving the licence requirement for charging stations and commercial permit requirement for EVs.

Not surprisingly, the surge in private investment continues in the EV sector and has reached to the tune of Rs 25,000 crore in just seven months this year.

Indian automobile industry, which had accelerated to the seventh position in its segment globally in 2017, and further to fifth place in 2021, and is most likely to claim the third spot by 2030, is on the verge of a silent (almost literally!) revolution – graduating to electric vehicle (EV) mobility. If the continuing stress and the slow but steady policy decisions being taken by the government to promote the EV segment are any indication, this ‘green’ segment is set for a boom time in the not too distant future.

The steadily rising burden of crude oil imports, the skyrocketing prices of fuels like petrol and diesel and the alarming rates of polluting automobile emissions, in tandem with international commitments to combat global climate change, are certain to speed up the Indian government’s drive for a transition to e-mobility. Even from a pragmatic perspective, governments the world over, including in India, are well aware that stocks of fossil fuels like crude oil and coal are limited and a day will come when they are depleted, causing innumerable problems for all countries if alternative sources of energy are not developed well in time. This then is the background for India, in common with the developed countries, choosing to shift to electric mobility. Way back in 2013, the Department of Heavy Industry had launched the National Electric Mobility Mission Plan 2020 as a road map for the manufacture and adoption of electric vehicles in the country. In April 2015, a scheme styled Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India (FAME India) was notified to promote the manufacture of electric and hybrid vehicles. Phase I of FAME focused on four aspects – (a) demand creation, (b) technology platform, (c) pilot projects and (d) charging.

FUNDING INCENTIVES

In 2019, FAME Phase II was launched for a period of three years with an outlay of $ 1.36 billion, to be used for upfront incentives on the purchase of electric vehicles as well as to support the development of charging infrastructure. Realising the importance of the scheme to promote electric mobility in the country, apex industry organization FICCI (Federation of Chambers of Commerce and Industry) urged the government to continue FAME Phase II till 2025, along with short-term booster incentives to enhance demand. As the government was itself very serious about promoting electric mobility in the country, the Ministry of Heavy Industry on June 11 this year announced a further amendment to FAME Phase II to give a boost to EV demand among consumers. Under the revised policy, the subsidy per electric two-wheeler (Indian-made) which is linked to the battery size, has been increased to Rs 15,000 per kWh from Rs 10,000 per kWh. Further, electric two-wheeler manufacturers can give discounts of up to 40 per cent to consumers, which is a significant increase from the previous cap of 20 per cent. Realising the vital importance of charging infrastructure for the spread of EV culture, the Ministry of Power clarified that charging EVs is considered a service, which means that operating EV charging stations will not require a licence. It has also issued a policy on charging infrastructure to enable faster adoption of EVs. At the same time, the Ministry of Road Transport and Highways announced that both commercial as well as private battery- operated vehicles will be issued green li cence plates. It has also been notified that all battery-operated/ ethanol-powered/methanol-powered transport vehicles will be exempted from the commercial permit requirement.

KARNATAKA, TN LEAD

For its part, Niti Aayog has initiated the National Mission on Transformative Mobility and Battery Storage. This will be managed by an inter-ministerial steering committee which is to be chaired by the CEO of Niti Aayog. The mission aims to create a phased manufacturing programme (PMP) till 2024 to support setting up of large-scale exportcompetitive integrated battery and cell manufacturing giga plants in India as well as localising production across the entire electric vehicle value chain. What is more, by now, as many as 27 states and UTs have already formulated strategies for transformation mobility to provide their citizens with safe, inclusive, economical and clean transport options. While some states like Karnataka and Tamil Nadu have had a head start due to pre-planned public policies, targeted investor incentives as well as support infrastructure, other states too have drafted policies to stimulate market demand and create infrastructure.

Having determined to go e-mobile, the governments at the Centre as well as the states have extended liberal incentives, support and subsidies. The Centre has a two-pronged strategy aimed at both buyers and manufacturers in which it offers $ 1.4 billion in subsidies to buyers while imposing a hike on import tariffs to encourage manufacture of these vehicles by domestic companies. Having devised a policy to promote e-vehicles in the country, the government in its Union budget for 2021-22 introduced the voluntary vehicle scrappage policy which is likely to boost demand for new vehicles with the removal of ‘unfit’ vehicles currently plying on Indian roads. The Union government has an outlay of Rs 57,402 crore for the automobiles and auto components sector by way of the production linked incentive (PLI) scheme. Under the Department of Heavy Industries’ NATRIP, the government is planning to set up R&D centres at a cost of $ 388.5 million to enable the industry to be on par with global standards.

PUBLIC TRANSPORT EVs

The Union Ministry for Heavy Industries has shortlisted 11 cities in the country for introduction of EVs in their public transport systems under the FAME and Electric Vehicles scheme. The government will also set up an incubation centre for start-ups working in the EV space. The outcome of all these steps has been quite encouraging. In 2019, automobile manufacturers invested $ 501 million in new technology.

· Under NATRIP, several testing and research centres have been established, including one each in Manesar, Silchar, Indore and Pune. The Centre has an ambitious target of achieving 100 per cent electrification by 2030.

· Different states have come out with imaginative incentives, attractive fiscal sops, better logistics, investor-friendly policies and business facilitation through easier access to authorities, supply chain connectivity and the availability of suitable land.

· The government has approved a Rs. 18,100-crore production-linked incentive (PLP) for the local manufacturing and storage of electric vehicle batteries. This, if properly implemented, could well change the face of EV adoption in India.

Electric 4-wheeler investment has a 28 per cent share, where M&M has invested Rs 3,000 crore. By now, it has already invested Rs 1700 crore by now and planning to invest another Rs 500 crore for a new R&D centre. Hyundai of South Korea invested Rs 3,200 crore in February this year and further invested Rs 734.31 crore in July 2021. The company's upcoming EV is likely to be a mini-SUV. Among other investors are Triton (Rs 2,100 crore), TVS Motors (Rs 1,000 crore), Hero Electric (Rs 700 crore), Lohem, Ruchira Green Earth and Simple Energy.

As investments in this segment start pouring, the EV sector is all set for take-off. No doubt, EV sales have started on an encouraging note. EV sales, excluding E-rickshaws, have witnessed growth of 20 per cent and reached 1.56 lakh units in the country during fiscal 2020, driven mainly by two-wheelers. According to Niti Aayog and Rocky Mountain Institute (RMI), India's EV finance industry is likely to reach Rs 3.7 lakh crore ($ 50 billion) in 2030, when the Indian government wants the total transformation of the automobile sector into EVs. A report by India Energy Storage Alliance estimates that the EV market in India is likely to increase at a CAGR of 36 per cent until 2026. In addition, the EV battery market is forecast to expand at a CAGR of 30 per cent during the same period.

Premium motorbike sales in the country recorded a sevenfold jump in domestic sales, reaching around 14,000 units in the first half of fiscal 2020. The luxury car market is expected to register sales of 28,000-33,000 units in 2021, up from 20,000-21,000 units sold in 2020. The entry of new manufacturers and new launches is likely to propel the EV market in the next 2 to 3 years.

GREEN SPIN-OFFS

The government is highly optimistic about the outcome of the silent revolution taking place in the Indian automobile industry. Maintains an ebullient Nitin Gadkari, Union Minister for Road Transport and Highways, "India will be a manufacturing hub for electric vehicles within the next five years. Several countries do not want to deal with China after the Covid19 crisis, which can be an opportunity for India. I am confident that in five years, India will become the number one hub for manufacturing electric buses, cars and two-wheelers." No doubt, there is tremendous growth potential for the EV industry in India but it also faces certain challenges.

• An efficient charging infrastructure is a must for the growth of the CV industry. Till over a year ago, there were only 650 charging stations in India as against over 3 lakh in China. As per a MarketWatch report, India would need around 4 lakh charging stations to accommodate the demand for 20 lakh EVs on the road by 2026. Currently, the country is reported to have 1,900 charging stations. An independent study by CEEW (Centre for Energy Finance) indicates that it would need around 29 lakh public charging stations by 2030 to support EV adoption under the base case target of NITI Aayog. Of these, about 21 lakh (71 per cent of chargers) would be low-capacity chargers used for supporting twowheelers and threewheelers.

SPACE CONSTRAINTS

• Besides setting up more charging stations, the lack of space is also a hurdle since people need a place to charge their EVs. "With a view to making India a 100 per cent electric vehicle nation by 2030, the government is taking several measures to overcome the challenges. But whether these measures are adequate to achieve the goal in the stipulated time frame is yet to be known. A balanced ratio between the number of EVs on the road and the charging stations is required to motivate early adopters to choose EVs and alleviate range anxiety," comments an expert. Lack of sufficient charging infrastructure is one of the primary reasons why customers often refrain from purchasing EVs.
• Another major concern among customers is the current high prices of EVs. This is largely due to the higher cost of technology used in EVs, which constitutes a substantial portion of the cost. Realising this, the government has started offering subsidies in the two-wheeler segment, which has significantly pushed up sales of two-wheelers in the EV segment. The industry and consumers expect a similar push towards purchase of other EVs like cars and buses very soon.
• Limited options: Since it is still a budding industry in India, customers have a very limited range of products to choose from. Increased investment in the sector will make it more competitive in due time and this will help create further demand.

VARIOUS CHALLNEGES

• Lower mileage: Since the industry is young, there is immense scope for R&D. As of today, EVs in India are not cost- competitive to an average customer as internal combustion engine (ICE) vehicles prove to be more cost-effective.
• Higher dependency on imports: Reliance on imports of battery as well as other components is also one of the factors adding to the cost of EVs in India.
• Grid challenges: Another concern is regarding the price of charging EVs at private charging stations once EVs become mainstream. According to Brookings India, projections for 2030 show that even with a fair penetration of EVs, the increase in demand for electricity is likely to be about 100 TWh (tera watt-hours) or about four per cent of the total power generation capacity. So, increasing methods of power generation are necessary to meet that growth in demand.

Viewed in the context of exciting times ahead for the EV industry, the prospects for companies engaged in the manufacture of these vehicles, their components and those engaged in servicing them like charging infrastructure companies are highly promising. As the future belongs to the EV industry, fundamentally strong and better performing companies in this segment will become highly attractive investment avenues.

We have selected 10 promising stocks from the EV and related segments:

Tata Motors
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One of the top beneficiaries of the EV revolution will be Tata Motors, a leading company in the illustrious Tata group. The company is engaged in the manufacture of a comprehensive range of automobiles, sports utility vehicles, trucks, buses and defence vehicles. Group chairman N Chandrasekaran has devised an imaginative and highly effective scheme involving four group companies to make the EV segment a grand success. According to the scheme, Tata Chemicals will manufacture auto batteries for EV vehicles, Tata Elxsi will prepare the design, and provides software parts. Tata Power will develop charging infrastructure, and Tata Motors will manufacture EVs.

The scheme will ensure easier and regular availability of batteries, software and charging facilities and that too at highly competitive prices, enabling Tata Motors to remain competitively ahead in the EV segment. The company has started doing well. During Q1 FY2021 it sold 300 EV cars, in Q2 FY2021 500 cars, in Q3 FY2021 800 cars and in Q4 1,200 cars. The company has launched the Nixon EV which is priced around Rs 15-17 lakh. At present, this is the most affordable and popular EV car in the market.

Mahindra & Mahindra
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M&M, which is engaged in the manufacture of passenger cars, commercial vehicles and tractors, is one of the pioneers in the electric vehicle segment. Way back in 2001, when people did not know about EVs, the company had launched its first EV styled Mahindra Reva. For developing more electric vehicles, the company has set up a modern and wellequipped R&D centre in Bengaluru. By now it has five electric cars in production and the popular one is Verito for cab service use. Last year, it sold 14,500 EVs across three-wheelers and cars. Over a year ago (in September 2020, to be exact), the company signed an MoU with Israel-based Ree Automotive to collaborate on development of commercial electric vehicles.

Maruti Suzuki India
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Maruti Suzuki India is one of the country's oldest and today the largest car manufacturing company. The company is doing extremely well and its share with a face value of Rs 5 is quoted around Rs 6873 in the market today, with a huge market capitalization running over Rs 2 lakh crore. Though the company has not started the manufacture of EV as yet, it is getting ready to enter the new segment with a bang. With its deep expertise in the automobile industry and the popularity of its cars particularly, in the starting and mid-price range, the company will soon pick up in the EV segment. Its first EV will be Maruti Suzuki Wagon R.

Hero MotoCorp
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Talking about two-wheelers, Hero MotoCorp is the largest two-wheeler manufacturer in the world. The company manufactures motorized two-wheelers upto 350 cc in engine capacity. The company has a 34 per cent stake in Bengaluru-based Ather Energy, which has set up a EV sector plant at Hosur in Tamil Nadu at an investment of Rs. 630 crore. It has already gone into production and its electric vehicles have been welcomed by customers. Among all EVs, two-wheelers will be sold in a big way as the rural sector is also opening up for these products.

Auto components companies: The leading companies in the field of EV components are Motherson Sumi Systems Ltd and Minda Industries.

Motherson Sumi Systems
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A globally known automobile components manufacturing company, Motherson Sumi Systems is a system solutions provider to automotive and other industries offering services from design and prototyping to production and delivery of solutions across a range of products. It is doing very well and its market capitalization is around Rs 75,000 crore.

Minda Industries
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Minda Industries is a supplier of automotive solutions to original equipment manufacturers (OEMs). It offers a range of products across various vertical of auto components, such as switching systems, acoustic systems, and alloy wheels. For the technological edge, the Minda has a dedicated R&D facility and collaborations with the pioneer, and leaders of the automotive industry and has acquired businesses across the globe. This has provided the company with the cutting edge production design and technology to meet strict international quality standards. The company has recently raised Rs. 250 crore for an expan sion programme. The growth of the EV sector will brighten the outlook of the company.

Sona BLW Precision
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Sona BLW Precision Forgings is one of the leading automotive technology companies that derives 40 per cent of its revenues from battery electric vehicles and hybrid vehicles. It supplies EV deferential assemblies and gears, BSG Systems and EV traction motors to global customers. It is a leading supplies to the fast-growing global electrical vehicle market.

The company is doing very well. During the last five years, it sales turnover has expanded from Rs. 503 crore in the fiscal 2017 to Rs. 767 crore for March 2021 with the net profit shooting up from Rs. 45 crore to Rs. 188 crore during this period. Prospects ahead are all the more encouraging as the company has a robust order book totalling Rs. 14,000 crore. The company had come out with an IPO early this year at an issue price of Rs. 291 and now it is quoted at a premium of around 100 per cent interestingly, even this price is also considered attractive.

EV battery segment: The battery is one of the most important parts of an automobile product and also one of the costliest. There are three battery manufacturing companies which have a bright future ahead. They are Tata Chemicals, Exide Batteries and Amara Raja Batteries. We add one more company, Grindwell Norton, which manufactures silicon carbide which is used in the manufacture of an EV batteries.

Tata Chemicals
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Though it is primarily a chemicals company, Tata Chemicals will be manufacturing batteries for electric vehicles. Needless to say, Tata Motors will be a captive buyer of Tata Chem batteries. The company has started manufacturing lithium-ion batteries with the help of another Tata group company, Tata Power. Besides supplying its batteries to Tata Motors, the company may sell these batteries to other EV segment companies. Future prospects of the company with a market capitalization of around Rs 20,000 crore are highly promising.

Exide Industries
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Exide Industries, the largest lead-acid batteries manufacturer in the country, holds a 60 per cent marketshare in 4-wheeler OEM batteries, is the fourth largest in the world, and enjoys the lion's share of 86 per cent. The company has already stared manufacturing batteries for electric vehicles.

Amara Raja Batteries
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The second largest manufacturer of lead-acid batteries in the country, Amara Raj Batteries is setting up a modern state-of-the-art plant for the manufacture of lithium-based batteries for electric vehicles.

Going a step ahead to popularize electric vehicles in the country, the company has started collaborating with different state governments to promoting electric vehicles. In addition, the company has tied up with the Delhi government for charging stations. For vehicle charging and battery supplying, the company has promoted a plant at Tirupati in Andhra Pradesh. All these initiatives have improved the prospects of the company immensely. Investors love the company and its market cap is Rs 15,000-Rs 16,000 crore.

Grindwell Norton
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Grindwell Norton, which has pioneered the manufacture of grinding wheels in India, is a leading manufacturer of silicon carbide, which is a must for the manufacture of batteries for electric vehicles. As the EV segment is all set to take off, the company which now belongs to the Saint Gobain group will be able to push up its topline as well as bottomline going ahead.

Charging infrastructure: Tata Power is the leading player in this segment and its prospects will improve considerably with the growth of the EV sector in India.

Tata Power
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A leading power player in the country, Tata Power is an integrated power company engaged in the generation, transmission, distribution and trading of electricity. The company has initiated the process of developing electric vehicle charging station infrastructure. By now the company has set up over 225 charging stations in over 20 cities in various parts of the country, including Mumbai, Bangaluru, Hyderabad, Pune, Chennai, Kolkata, Visakhapatnam, Chandigarh, Ahmedabad and Lucknow. Tata Power shares are in demand and the company's market cap is around Rs 39,000 crore.