XC Portfolio: EV-olving Mobility
According to a Swizz Organization IQAir assessment¹, 22 of the world’s 30 most polluted cities are in India. Even during the Covid crisis, when the country was under lockdown, 36 of the 50 cities with hazardous air quality levels were in India. The pollution created by internal combustion engine (ICE) cars was a major contributor to the poor air quality. Furthermore, pollutants from ICE (Diesel) automobiles are responsible for roughly two-thirds of all deaths in India.
To address the above mentioned issues the Government Of India (GOI) intends to have EV sales penetration of 30 % for private cars, 70 % for commercial vehicles, close to 100 % of buses and 80 % for two wheelers and three wheelers by 2030².
According to the CEEW Centre For Energy Finance (CEEW — CEF), the EV industry in India would be worth around $206 billion by 2030³. Despite accounting for less than 1% of total automotive sales, overall electric vehicle sales are increasing, with over 50,000 new registrations each month. This presents a unique investment opportunity for investors because the change to EV is at an inflection point, and the global electric vehicle sector has witnessed significant development in the preceding two years, with stocks such as Tesla Inc. increasing by multiples.
When we talk about EV investment potential, we’re not just talking about original equipment manufacturers like Hero MotoCorp or Tata Motors, but also about mining firms, battery makers, auto ancillaries, and software companies.
According to CEEW-CEF, OEMs in vehicle manufacturing represent a $177 billion potential⁴, which can be divided into numerous groups, with electric two-wheelers and electric three-wheelers now having a combined market share of more than 90 percent as a proportion of the entire EV market⁵. According to Vahan Website and Telangana regional transport statistics portal, electric four wheelers now have a minuscule market share of 4% in the EV arena. Going forward, it appears that the trend will continue, as the transition away from internal combustion engines indicates that by 2030, 80% of two- and three-wheelers will be electric. Taking advantage of government programmes such as FAME II, listed firms such as Tata Motors and Mahindra have started to shift towards EV by launching vehicles like Tata Nexon EV as well as electric buses.
Along with this, there is a huge investment potential in the EV battery area because batteries are the most costly component of an EV, accounting for around 40% of the entire EV cost⁶. The Indian EV battery industry would be worth roughly $12.3 billion by 2030, according to CEEW-CEF⁷. Prior to the emergence of EVs, with the desire for improved battery technology continually on the rise, lead-acid batteries reigned. However, lithium-ion batteries have finally challenged lead-acid batteries. There are various advantages to utilizing lithium-ion batteries over lead-acid batteries, like lead-acid batteries require around 10 hours to charge, but lithium-ion batteries may be fully charged in as little as 3 hours. The majority of lithium-ion battery packs used in EVs are now manufactured in China and Japan and then imported to India but companies like Amara Raja Batteries and Exide Industries Ltd. which have a combined market share of more than 70% in Indian battery segment are taking significant steps towards building their capacity for manufacturing lithium-ion batteries with Amara Raja Batteries eyeing an investment of up to $1 billion dollars over the next 5 to 7 years⁸.
Typical life of an EV battery is estimated to be around 10 to 20 years and during this time the battery will need to be charged numerous times. Here comes the EV charging infrastructure. Currently India has around 1640 operational public EV chargers which are very low considering that around 54,000 electric vehicles were sold in Feb. 2022 alone⁹. Although electric vehicle charging stations have expanded by two-and-a-half times across major cities around India in the last four months according to the power ministry, they are not enough considering the number of new EVs being registered every month. This translates to a $2.9 billion investment opportunity by 2030 according to CEEW-CEW¹⁰. The major players that are working towards building EV charging stations are Tata Power with a market share of almost 48% followed by companies like IOC and BPCL.
Copper, nickel, and lithium are some of the key metals required for EV battery production. For instance, EV’s use almost 3 times more copper than ICE vehicles¹¹. Additionally, batteries and chargers require a lot of copper. Along with this aluminium plays a significant role in making electric vehicles light weight. Considering this, stocks such as National Aluminium Company, Hindalco who are involved in metal mining can significantly benefit from the push towards EV. Additionally Hindalco has around 50% and 40% market share in Aluminium and Copper segment respectively.
Finally there are the companies that are involved in providing software solutions to EV companies. These solutions range from on-board navigation, to anti theft features to anti theft features. L&T Technology Services (LTTS) is one of the major players that are providing these solutions to EV manufacturers recently bagging a deal worth $45 million from a US based EV manufacturer.
The Electric Vehicle revolution is here to stay and there are a variety of investment opportunities in different segments in which one can make money by becoming a part of this revolution. To reap the benefits of this theme, one can invest in XC: EV-olving Mobility, a portfolio which consists of stocks making the electric vehicle revolution in India possible.
Written by Shantnu Sood (shantnu.sood@xumitcapital.com)
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⁴ https://cef.ceew.in/solutions-factory/publications/financing-india-transition-to-electric-vehicles
⁵ https://cef.ceew.in/solutions-factory/publications/financing-india-transition-to-electric-vehicles
⁶ https://www.thequint.com/tech-and-auto/change-what-you-can/the-cost-of-electric-vehicle-batteries
⁷ https://cef.ceew.in/solutions-factory/publications/financing-india-transition-to-electric-vehicles
¹⁰ https://cef.ceew.in/solutions-factory/publications/financing-india-transition-to-electric-vehicles
¹¹ https://think.ing.com/articles/electric-vehicles-to-drive-metals-demand-higher/
References:
https://www.iea.org/reports/global-ev-outlook-2021
