Investing in electric vehicle stocks can be an effective way to support the zero-emissions vehicle transition while potentially earning a good return
Climate change has always occurred on Earth, but what is concerning this time is that it is being caused by humans at an unprecedented rate across millennia.
Governments and companies across the world are taking action to tackle climate change. There is some action at the individual level too. Many people are shifting to, or at least warming up to, electric vehicles because not only is it a great way to save money on fuel, but it is also better for the environment. From an investment standpoint, even electric vehicle (EV) stocks have seen a huge jump in their stock prices globally.
Investing in EV stocks can be a great way to help boost the zero-emissions vehicle transition and potentially generate good returns.
Global electric vehicle sales crossed the 10 million mark for the first time in 2022, and sales were up 60%. According to a recent report by the International Energy Agency (IEA), one in every seven passenger cars bought globally in 2022 was an EV, with China, Europe, and the US being the biggest markets for EVs.
India’s progress in EV adoption is modest by global comparisons, as the country is currently in its early stages and most EV growth in the country is coming from two- and three-wheelers. Although there is significant potential for growth. The current Indian government has set a target of achieving 30% electric vehicle penetration by 2030, which would require a significant increase in the adoption of EVs.
In India, the government has provided incentives for zero-emission vehicles and related infrastructure. The Central Government provides tax benefits, waiver of road tax, and registration fees for electric vehicle buyers. The government has announced plans to provide an additional income tax deduction of ₹1.5 Lakh on the interest paid on loans taken to purchase electric vehicles. In addition to these benefits, state governments including Maharashtra, Delhi, Gujarat, Meghalaya, Tamil Nadu, and, Kerala offer subsidies on the purchase of electric 2W, cars, and SUVs.
For manufacturers, the government also introduced Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) – II Scheme and Production Linked Incentive Scheme (PLI) that provide financial assistance to manufacturers to set up facilities through various subsidies and tax incentives.
Various state governments have also set their own targets for EV adoption. For example, the governments of Uttar Pradesh and West Bengal have set a target of achieving 100% EV adoption for all public transport vehicles by 2030.
Automobile companies in India, and globally, are committing huge capital expenditures for their EV lines. They are on a quest to develop cleaner, safer, smarter, and more energy-efficient vehicles. Several Indian automakers and startups have been investing in the development of EVs, which is expected to drive innovation and accelerate the adoption of EVs in the country.
In India, the share of EVs in the overall 4-wheeler private car category is negligible. Fewer models and expensive pricing are the key reasons. However, multiple new EV makes and models are expected to hit the market, lowering the average cost and increasing access. Ultimately, this means buyers are more likely to trade in their petrol/diesel-powered model for the EV version.
Soaring prices of petrol and diesel is causing a resurgence in consumer demand for electric vehicles. The shift towards EVs is evident in the 2W and 3W segments in India.
More choices, better pricing, and smarter EVs will mean a faster shift from internal combustion engine (ICE) vehicles to EVs. Rising eco-consciousness among consumers will also be another driver of EV growth in India.
For EV adoption to accelerate in India, consumer awareness and acceptance rates, overall EV cost competitiveness, improved battery economics, increased model availability, and improved EV technology for reliability and convenience will be needed.
As this still-nascent industry grows, there are some challenges that need to be addressed to achieve the government's EV adoption targets.
India does not have enough charging infrastructure to cater to the demand from rising EV sales. Public charging stations in India are few and far between. According to the data revealed in the Lok Sabha by Minister RK Singh and the Vahan dashboard, India had 5,254 public electric vehicle (EV) charging stations to cater to a total of 2.06 million EVs as of 23rd January 2023. This means there is only one public charging station for every 393 electric vehicles in the country, compared to one public charging station for every 6 cars in China, the Netherlands and 19 in the US. This issue might constrain the adoption of EVs and impact their production, and adoption.
In addition, increased EV use would place greater strain on the electrical grid and could require utilities to invest heavily in transmission and distribution. Another challenge is that the supply of electricity isn’t consistent in most parts of India. Don’t forget the long distances and rising traffic in the country.
So far, India’s electric success has been limited to its two-wheeler market, and for a reason. Electric cars are too expensive, especially for what they offer, and the range of options is very limited for customers. For example, the entry-level EV in India costs at least Rs 9 lacs, compared with Rs 4-5 lacs for an entry-level conventional passenger car. Unless electric cars are economically more viable for the average Indian, EV adoption in the country will face an uphill battle.
The speed at which government incentives are being removed could slow down adoption rates. The government needs to strategically phase out the incentives for EVs to ensure adoption is not hampered, while at the same time, the electric vehicle market does not become overly reliant on government support and struggles to compete on its own.
The good thing is that the Indian government is proactively taking steps to address these challenges, such as offering subsidies and incentives for EV purchases, setting up charging infrastructure, and launching awareness campaigns.
The adoption of electric vehicles (EVs) in India has been led by the 2-wheeler (2W) and 3-wheeler (3W) segments, thanks to the introduction of multiple models, expansion of distribution networks, and support from startups. Recently, there have been several developments in the industry, including investment announcements from both established and new companies, expansion of production capacity, collaborations, and policy initiatives by the government.
The adoption of EVs has been led by the 3W segment due to the cost benefits of ownership, and the industry has already seen significant penetration of EVs, although most of them are lead-acid battery vehicles. Mahindra is the leader in the electric 3W space. The market leader, Bajaj Auto, has not yet entered the e3W segment, but it is expected that their entry into the market will further drive the adoption of EVs.
Electric two-wheelers account for 60 percent of EV sales in India. In March 2023, EVs made up 5.99% of the total 2Ws sold in the country, with Ola Electric and TVS Motors leading the pack.
Talking about the four-wheeler passenger vehicle segment in India, while EV penetration has increased over the years, in this category it remains low. Electric cars account for only 1.3% of total car sales in India. 8,591 units of electric cars were sold in India in March 2023, up 89% from last month. In the financial year 2023, the overall sales of electric cars stood at 47,029 units, compared to 18,567 units last financial year.
Tata Motors has been driving electric car sales in India thanks to its first mover’s advantage. The company has the widest range of EVs in the country, and, as of March 2023, it commands over 83% market share in the electric car segment. The Tata Nexon EV is the best-selling electric car in India. The carmaker also offers the Tiago and Tigor in electric versions.
Mahindra Electric Mobility, Mahindra’s EV venture, is also a prominent player in the EV market. Its portfolio consists of commercial, passenger and private vehicles, and it has around 6 EVs in its fleet. In fact, its eVerito model is also India’s first electric sedan.
Investing in the electric vehicle megatrend makes sense – it's the future and helps you invest in sustainable companies. Here are some themes you can look into to participate in the EV growth story.
As the adoption of EVs accelerates, companies manufacturing electric vehicles could be the most direct beneficiaries of increasing demand.
Notable auto companies include Tata Motors, Mahindra, Hero MotoCorp, Bajaj Auto, TVS Motor, and Greaves Cotton (owns Greaves Electric Mobility). There is also Ashok Leyland and Olectra Greentech, which are into electric commercial vehicles (like buses).
Look for investment opportunities earlier in the industry’s growth, as production and demand ramp up.
The exposure to the EV segment doesn’t end with EV vehicle makers. Suppliers like battery makers, including semiconductor equipment makers, chemical and material processors, metals and mining companies, and companies dealing in other EV-related products, will give you exposure to the EV sector while also diversifying your portfolio. As demand for EVs rises, these companies will see huge growth. In fact, in some cases, these suppliers may be a more attractive opportunity than EV manufacturers, because they often have a more diversified customer base and derive revenue from multiple industries.
Amara Raja Batteries and Exide Industries are some of the listed companies in the battery business. Tata Chemicals, Graphite India, Greaves Cotton
These include companies dealing in car charging stations, software producers, power companies, and tech firms targeting the auto industry to offer services. A good example is Tata Power - a listed company that plans to set up 25,000 charging stations for EVs in India.
And don’t ignore the traditional automakers that are planning to enter the EV space (like Maruti).
Overall, the future of EVs in India looks promising. With the right policies and investments and the availability of a wider product choice, India could become a major market for electric vehicles in the coming years.
(Note: The author does not recommend any stock mentioned in the article and does not take any liability for any profit/loss the reader may incur after buying/selling any stocks mentioned in this article.)