Beyond caveats

According to a CEEW-CEF (Council on Energy, Environment and Water — Centre for Energy Finance) study, the EV (Electric Vehicle) market in India will be a USD 206 billion opportunity by 2030, provided steady progress is maintained in India. It would require a cumulative investment of USD 180 billion in EV production and charging infrastructure. Hence, as investors, it becomes imperative to understand the avenues of profit pools within the EV space where large capital allocations will be made over the next decade. Any discussion on the automobile industry is incomplete without analysing the impact of electric vehicles (EVs) on this sector. Owing to cost effectiveness at high usage levels, low maintenance costs, and environmental and tax benefits, EVs are here to stay and poised for rapid growth. Notwithstanding a minor decline in 2020 due to the COVID-19 pandemic, the EV sales figures in India for 2021 and 2022 demonstrate that automakers and the public are focused on EVs. In the Indian context, the government has a strong incentive to promote EV adoption. Dependency on oil imports and growing pollution levels have been big issues for the administration for a long time. The advancement of EVs is believed to assist in resolving these issues in the long run.

The Union government maintained the concessional duty on lithium-ion battery components in Budget 2023 while lowering the customs duty on the same from 21 per cent to 13 per cent. The budget for the FAME (Faster Adoption and Manufacture of Hybrid and Electric Vehicles) scheme has also been doubled. Buyers of EVs are incentivised under this programme to decrease the purchase price of EVs. Other than that, the PLI (Production Linked Incentive) scheme for local EV manufacturers has been in force since 2021. The most interesting aspect as an investor about a gradual shift from ICE (Internal Combustion Engines) vehicles to EVs lies in the multiple opportunities it opens across sectors. Apart from the automobile sector, the adoption of EVs is bound to affect mobility, infrastructure, and the energy sector when EV franchising, battery infrastructure, solar vehicle charging, and battery swapping technology come to the fore. The lithium-ion battery accounts for around 40-50 per cent of the total cost of the EV. Manufacturing these batteries is a capital-intensive process, and a well-functioning supply chain of raw materials is highly critical for the smooth functioning of this manufacturing process.

Thus, battery manufacturing has been largely limited to countries such as China which have the key elements required for production in abundance or have strong importing capabilities from nearby countries. In the context of key metals used in EV battery production, China accounts for around 60 per cent of the world’s lithium supply, processes about 80 per cent of the world’s cobalt, and produces over 90 per cent of the world’s manganese products. However, with an Rs 18,000 crore PLI scheme announced for the Advanced Chemistry Cell, localisation of the supply chain by 2030 can be expected.

Advanced chemistry cells are the new generation technologies that can store electric energy either as electrochemical or as chemical energy, and convert it back to electric energy as and when required. Companies like Reliance New Energy, Ola Electric, and Rajesh Exports have signed agreements to build battery cells. The EV theme in the two-wheeler segment has shown exponential growth in the last two years by accounting for more than 60 per cent of total EVs sold in India in 2022. There are a lot of pure-play EV companies in this segment that are posing a challenge to legacy players such as Hero, Bajaj, and TVS. While the safety issues are currently being sorted out, the newer players such as Ampere, Ather, and Ola are making a strong case for future growth. It will be interesting to see whether the new-age OEMs manage to wrestle the first-mover advantage, or the legacy players leverage their robust distribution to gain market share once the dust settles over the safety issue.

As far as the challenges are concerned, apart from charging infrastructure issues, the high cost of the vehicle compared to the ICE alternative continues to be a concern. While battery costs have come down significantly over the last decade, the last 3-4 years have witnessed a flattening of the battery costs. The upfront cost of an EV continues to be high despite the subsidy benefit. The concern seems to grow over time, and the transition from ICE to EV may become more difficult once the subsidy is withdrawn. Many experts are banking on Vehicle telematics, which means the activity of vehicular data collection and its analysis. This includes everything from current battery levels and discharge rates to the routes that drivers take and how well they drive. Hence, it is ultimately not the car but the person who is driving that will matter most.

Views expressed are personal