Imagine a scenario, where even at a standstill traffic, you no longer feel the air hazed in smokes and fumes. Imagine driving a car, which costs you a fraction of the expenses spent on petrol and diesel cars over the entire lifespan of the vehicle. And lastly, imagine a vehicle which boasts of more efficiency due to lesser moving parts.
Yes, enter the era of the new-age ‘cleaner’ vehicles.
India has envisioned a laudable mission to phase out all Internal Combustion Engines by 2030. Since the announcement, the government is taking innumerable initiatives to walk the talk. It introduced FAME – Faster Adoption and Manufacturing of (hybrid &) Electric vehicles in the year 2015 and has earmarked the corpus of INR 14k crore reserved under National Electric Mobility Mission Plan (NEMMP) for the 2020 roadmap (Source: Department of Heavy Industry).
Government-owned Energy Efficiency Services Limited (EESL) has already awarded the coveted tender to Tata Motors Ltd and Mahindra and Mahindra Ltd for the procurement of first 10,000 electric cars which will replace the ICE vehicles owned by the government. To encourage the faster adoption of new-age vehicles, EVs are being taxed at 12% against 28% for petrol and diesel vehicles, as per the current regime of GST.
How India can benefit from going ‘Go Clean’?
New Delhi and other cities are reeling under intensified smoke and as per the Lancet report, India witnessed close to 2.5 million deaths annually in 2015 due to air pollution. Amidst the accelerating concerns of pollution in India, the government’s recent announcement of plying all-electric vehicles by 2030, is touted to be one of the momentous ambition towards ‘Go Clean’ in the recent history. This will not only be a panacea to reduce the CO2 emissions in the country caused by transportation, but also reduce the dependency on fossil fuels and spending on oil imports.
– Source: Report released by FICCI and Rocky Mountain Institute.
Why Indian Government is bullish on going all electric by 2030?
The automotive industry contributes around 7.1 percent to the GDP and the sales of passenger vehicles soared by 5.22 per cent on a Y-o-Y basis, in December 2017 (Source: ibef report). Currently, India falls under the list of countries with lowest per-capita vehicles with only 18 out of 1000 owning a motor vehicle in 2014 (Source: nationmaster). As per the estimates, India’s urban population will reach approx. 600 million by 2030. And this can serve as an immense opportunity for a nation aspiring to be one of the largest growing economies in the world.
Even though only a minuscule number of 450 EVs were sold last year as compared to 336,000 electric vehicles in China (Source: International Energy Agency), the government is quite committed to deploying six million EVs on roads by 2020. The CEO of strategy think-tank Niti Aayog expects this number to reach up to 30.81mn by 2040.
Is India ready for the big disruption?
As per the forecasts by UBS, penetration of Battery Electric Vehicle is expected to be around 9%, while ICE stands at 80% and Plug-in Hybrid EV is expected to be at 11% by 2025 (Source: Mahindra CIE presentation – Jan 2018). Even though India wishes to pave way for electric future by 2030, the journey meddles with many stumbling blocks along with the sweet spot it enjoys. As per the report released by FICCI and Rocky Mountain Institute, India needs to address the key issues adhering to price, manufacturing, selection, range, charging and consumer adoption, if it wants to actualize its mission.
Infrastructure development: With only 350 charging points today (Source: Bloomberg New Energy Finance Report), Indian buyers may be reluctant to shift to EVs unless the rudimentary problem of charging requirements is addressed.
Solving the bottlenecks in power supply: The government also needs to make a roadmap of generating uninterrupted electricity, developing a robust infrastructure for charging and provision for battery – manufacturing to attain all-electric by 2030.
With the advent of advanced technologies, sufficient coal availability and renewable energies, process and business model innovation, increased connectivity across the globe, India has the potential to bring the much-needed transformation.
Which companies can benefit from the transition to all-electric?*
This transition to environmentally friendly alternatives is expected to create a humongous disruption in the automobile industry, which in turn will open the doors of new opportunities and challenges for Automobile OEMs, Automobile component makers, power producers and infrastructure developers. Here, we list of few of them:
- Tata Motors: It is looking to revamp its ambitious project Nano, as Nano EV. It is currently conducting trials of its electric car and has even found its place as part of Ola fleet of taxis. With the company all set to enter the league, valuation concerns over the profitability and revenue collections on account of strong emphasis towards Jaguar and Land Rover cannot be discounted while investing.
- Mahindra and Mahindra: In November, it unveiled its plan of launching three high performance EV’s by 2019. Its electric mobility arm, Mahindra Electric is planning to invest INR 300-400 crore in the project.
- Maruti Suzuki: It has invested INR 12 billion to set up a new plant for manufacturing lithiumion batteries, which is a key component in the electric vehicle. Also, its parent company Suzuki signed a MoU with Toyota to launch its first electric vehicle on the Indian roads by 2020.
- Force Motors: Its first Electric Vehicle is under trial run. Management highlighted during AGM FY2017 that it plans to spend 7 – 8% of capex on R&D, a large part of which will be directed towards the development of EVs.
- MOIL Limited: It is the state-owned manganese-ore mining company. Manganese is used to produce aluminium, steel and also will be a key ingredient in EV batteries.
- HBL Power Systems: It will make batteries for the defence and industrial sectors. With its presence across the globe, it is capable of adapting to technological changes and manufacture high-quality lithium-ion batteries.
- Ashok Leyland: It will make electric buses and batteries in partnership with SUN Mobility.
- Other battery makers like Eveready, Amara Raja, Panasonic, Exide Industries Ltd and Microtek International Inc. are looking to increase the supply of high-quality batteries.
How the disruption in the automobile industry can impact the investment methodology for the year 2018?
2018 will be a curtain-raiser in terms of how Indian government braces up to launch more energy efficient vehicles on the road.
At this juncture, it is difficult to quantify the impact of the developments in the EV space on the financials of the above-mentioned companies. Hence, we recommend investors to follow a systematic investment methodology and invest in businesses that are backed by agile management, robust business model and strong balance sheet. With many players venturing in to the space, it is more crucial than before to hire a qualified financial advisor to identify the best growth opportunities.