The global automotive landscape is undergoing a profound transformation, with the Electric Vehicles (EV) industry at the forefront of this paradigm shift. India, being the fastest-growing economy and bustling with rapid industrialisation, has been actively pushing for sustainable practices, particularly in the electric vehicles sector. Forecasts suggest that the Indian electric vehicle (EV) sector, with a valuation of US$2 billion in 2023, may experience a substantial increase, reaching US$7.09 billion by 2025. Additionally, industry predictions anticipate the local EV market to attain an annual sales figure of 10 million by the year 2030. As the global climate crisis intensifies, investors are increasingly eyeing companies that prioritise environmental consciousness and sustainability. For investors seeking opportunities in sustainable and future-oriented sectors, the electric vehicle market stands out as a marker of innovation and potential returns.
Industry Overview
The Electric Vehicles industry has witnessed an unprecedented surge in interest and investment over the past decade. Key factors driving this surge include the increasing awareness of environmental issues, government initiatives promoting clean energy, and breakthroughs in battery technology. Electric vehicles, once considered niche, have now gained mainstream acceptance. Major automotive players are aggressively pivoting towards electric mobility.
According to a report by Bain & Co., it is anticipated that by 2030, electric two-wheelers could constitute approximately 40% to 45% of all electric vehicles (EVs) sold in India, while electric passenger vehicles may account for about 15% to 20%. In contrast, a Niti Aayog report suggests that the Indian government aims for a different adoption target, with 40% for buses, 30% for private cars, 70% for commercial vehicles, and 80% for two-wheelers by the same timeline.
Concurrently, the Economic Survey of India 2023 projects a robust compound annual growth rate (CAGR) of 49% in the domestic electric vehicle market from 2022 to 2030, with an estimated 10 million annual sales by 2030. The projections also indicate that the EV industry is poised to create around 50 million direct and indirect employment opportunities in the next seven years.
This surge is expected to continue, fuelled by a growing infrastructure for charging stations, incentives for EV purchases, and advancements in battery technology that promise longer ranges and faster charging times. Traditional automakers, recognising the trend, are allocating significant resources to develop electric models, thereby diversifying their portfolios to meet the rising demand.
One of the key drivers of the industry's growth is the decreasing cost of batteries. As technology advances and economies of scale come into play, the price of batteries continues to decline, making electric vehicles more accessible to a broader consumer base. Schemes like FAME to promote electric vehicles, or the Panchamrit promises in the COP 27 meeting of UNFCCC are helping in the proliferation of a green economy. Production Linked Incentive Scheme (PLI) for automobile components is another push factor for the industry.
This cost reduction not only benefits consumers but also enhances profit margins for manufacturers, providing a win-win scenario for investors.
Challenges
Despite the promising trajectory, the Electric Vehicles industry is not without its challenges. Range anxiety, or the fear of running out of battery power before reaching a charging station, remains a concern for many potential EV buyers.
Another hurdle for the industry is the reliance on rare earth materials for battery production. The mining and processing of these materials can have environmental and geopolitical implications. India being deficient in rare earth metals, has to import from countries like Australia or China, with whom it shares geopolitical tensions, thus driving up costs. However, the recent find of Lithium deposits in the Jammu Kashmir region sparks some optimism about indigenous lithium supply in India.
As demand for electric vehicles rises, ensuring a sustainable and ethical supply chain for these crucial components becomes imperative. Moreover, the transition to electric vehicles poses a threat to traditional automotive manufacturers that are slow to adapt. Companies that fail to embrace this shift risk losing market share to more agile competitors. Thus, it is crucial to assess how well-established automakers are positioning themselves in this changing landscape and whether they are adapting their strategies to stay competitive.
Stimulus and Support
The biggest stimulus to electric vehicles comes from the FAME scheme launched by the Ministry of Heavy Industries to promote Electric Vehicles. Under this scheme, demand incentives will be availed by buyers (end users/consumers) upfront at the point of purchase and the same shall be reimbursed by the manufacturers from the Department of Heavy Industries, on a monthly basis. The demand incentive benefit will be passed on to the consumer upfront at the time of purchase of the xEV itself by way of paying a reduced price. Initially, the scheme was launched in 2012 and was valid until 2020, but later it was extended to be valid until 2024. The FAME scheme is also applicable to bulk buyers who would like to buy electric vehicles for a fleet of commercial activities, thus passing on the benefits to larger buyers.
The support towards Vahan data indicates that on a year-on-year basis, EV sales grew by 82% in March 2023 with 1,39,789 units sold in comparison to 77,128 EVs sold in March 2022. Overall sales grew by a whopping 157%, from 4,58,746 in FY2022 to 11,80,597 in FY2023. This was further encouraged with an increase in the number of models being offered in the electric two-wheeler and 4-wheeler brands ranging between the affordable and luxury segments. With the bulk of the EV sector being driven by sales of electric two-wheelers, India saw over 1 lakh EVs being sold every month in H2 FY 2023, MoRTH data shows.
For your cursory analysis, here are some of the major players involved in the EV space.
Name of the Company | Market Cap | P/E Ratio | Last Trading Price |
CONCORD CONTROL | ₹ 377 Cr. | 40.6 | ₹ 660 |
UNIPARTS INDIA | ₹ 2,465 Cr. | 14.4 | ₹ 546 |
TATA MOTORS | ₹ 2,47,209 Cr. | 15.4 | ₹ 674 |
BHARAT ELECTRONICS LTD. | ₹ 1,05,224 Cr. | 31.7 | ₹ 144 |
RAMKRISHNA FORGINGS LTD. | ₹ 11,606 Cr. | 40.0 | ₹ 724 |
HERO MOTOCORP LTD. | ₹ 63,325 Cr. | 18.9 | ₹ 3,168 |
TATA POWER COMPANY LTD. | ₹ 82,807 Cr. | 24.2 | ₹ 259 |
JBM AUTO LTD. | ₹ 14,308 Cr. | 105 | ₹ 1,210 |
EXIDE INDUSTRIES LTD. | ₹ 23,184 Cr. | 26.6 | ₹ 273 |
AMARA RAJA ENERGY AND MOBILITY LTD. | ₹ 11,040 Cr. | 13.8 | ₹ 646 |
BOSCH LTD. | ₹ 58,180 Cr. | 38.0 | ₹ 19,726 |
LUMAX INDUSTRIES LTD | ₹ 2,251 Cr. | 21.9 | ₹ 2,408 |
Prospects
The prospects for the Electric Vehicles industry are undeniably bright. Governments worldwide and in India are increasingly committed to reducing carbon emissions, with many pledging to ban the sale of internal combustion engine vehicles in the coming decades. This regulatory push creates a conducive environment for electric vehicles to thrive. Investors should closely monitor evolving regulations and policies, as they can significantly impact the industry's growth trajectory.
The electric vehicle market's potential extends beyond passenger cars, with electric trucks, buses, and two-wheelers gaining traction. This diversification presents additional investment opportunities across various segments of the industry. As technology continues to advance, the integration of artificial intelligence and autonomous driving features in electric vehicles opens up new avenues for innovation and revenue streams.
Furthermore, the aftermarket for electric vehicles, including charging infrastructure, software solutions, and battery recycling, is poised for substantial growth. Investing in companies at the forefront of these ancillary services can provide a diversified approach to capitalising on the electric vehicle revolution.
The Gist
In conclusion, the Electric Vehicles industry is at the frontline of innovation and transformative change within the automotive sector. With a strong foundation built on environmental consciousness, technological advancements, and government support, the industry is poised for sustained growth. However, investors should remain vigilant to the challenges, such as range anxiety and supply chain sustainability, that could impact the sector. As the government continues to champion clean energy initiatives, the electric vehicle market's prospects are promising, offering investors a unique opportunity to participate in a sustainable and high-growth industry.
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