Interest in the Electric Vehicle industry in India re-emerged after introduction of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) policy in 2015. Ever since, the buzz around the sector has been growing with every passing year. The recent geopolitical tensions with China have only helped in highlighting this potential, given China is at the forefront of electrification in the automotive sector.
Nitin Gadkari, the Minister for Road Transport & Highways during a webinar titled ‘India’s Electric Vehicle Roadmap Post COVID-19’ in June 2020 said, “I am confident that in five years India will become the number one hub for manufacturing electric buses, cars and two-wheelers. There is also a blessing in disguise that a majority of countries are not interested in dealing with China anymore. So, now there is a huge potential for India”.
In order to identify this potential, we have looked at the 4 broad verticals and their sub-categories in the EV ecosystem. We analysed the potential from an investment perspective for each of these sub-categories in the medium term and compared it with the current traction in the Indian market. This analysis allowed us to find categories that provide opportunities and the above image highlights some of these areas.
We now dive deeper into all the individual components of the EV ecosystem one by one to get a better sense of the current state of affairs.
Let us start by looking at the EV component ecosystem. Batteries are the single most important component in an Electric Vehicle and make up around 40% of the total cost of an automobile. There are broadly three factors that will determine India’s role in the battery Industry: access to key raw materials like cobalt, lithium & nickel, cell chemistry technology and demand for batteries. As we fall short on all 3 factors, India is totally import dependent for cells at the moment and will continue to be so for at least the medium term.
However, the Indian battery industry has a significant role to play in the assembly of battery packs and we already have many companies operating in the space like Exicom, Bosch, Okaya, etc. In the long term, as EV penetration increases and demand for batteries crosses certain thresholds, cell manufacturing should get localised, as the large global players would be incentivised to set up plants in India either on their own or via partnerships/JVs with Indian entities.
Recently, there have been reports with regards to players like Tata Chemicals, Amara Raja and Exide Batteries looking at plans to set up lithium ion cell manufacturing plants in India. But even an entity like TDS Lithium-Ion Battery Gujarat Pvt Ltd (TDSG), a JV between Suzuki, Denso and Toshiba is first looking to start with pack assembly, before turning to lithium ion cell manufacturing.
A key point to highlight here is that reuse and recycling will be critical in India’s case to reduce import dependence in the long term, as we have no access to the key raw materials and this is a space we are very keen on.
Other critical drivetrain components like motors and controllers are also currently imported in India and will not be easy to localise, but over the medium term this is possible and likely, unlike battery cells. India is one of the largest 2W and 3W markets in the world and these vehicles need simpler technologies for the drivetrain. Additionally, the Government is also supporting the local industry via the Phased Manufacturing Programme (PMP), where there is introduction/increase in custom duty, as well as mandatory local component sourcing to allow OEMs to be eligible for demand side subsidies under FAME II. We also feel this localisation will be critical to bring down costs and as a fund, we are already seeing exciting opportunities in this space.
Other components are either already manufactured in India or should be relatively easy to manufacture given the $50bn large, robust and developed auto component industry in India.
The electric 2W space in India is abuzz with activity from both legacy OEMs and new entrants. As India is currently, predominantly a low speed (under 25 kmph) and medium speed (under 60 kmph) vehicle market, maximum activity is taking place in this segment. The reason for this is that these low/medium speed electric 2W make economic sense relative to ICE 2W, even at relatively low utilisation levels and many commercial use cases of these vehicles benefit from very high utilisation (100 kms+). Fleet operators are also able to better manage the EV ecosystem and solve their fleet charging requirements in a more efficient manner without having to rely on a robust public charging network.
E-rickshaws is the largest segment and accounted for 80% of the EV volumes in FY20, but the segment is highly unorganised and fragmented.
Most E-rickshaws operate on lead acid batteries, but we have started witnessing a shift to Li-ion batteries and can possibly see 40-50% penetration within 5 years. The pandemic is expected to accelerate this transition and we are very excited about opportunities within this segment.
The other 3W sub-category, E-autos have however been lagging on the electrification front till date and two of the main OEMs, Bajaj and TVS are yet to launch electric versions of their vehicles.
The electric 4W segments has had very limited action and with very few models available in the market. Both Tata (Tigor EV) and Mahindra (eVerito) have fleet targeted variants and 2019 saw the launch of a few premium models by Hyundai (Kona), MG (ZS EV) and TATA (Nexon EV). FY20 actually witnessed a de-growth in this market, but positive offtake from the few premium models launched in 2019 and many new models expected to be launched in the next 24 months should see growth emerging again in the segment.
Economics are not favourable for Electric Buses, but the category is seeing penetration due to Government push and they have already sanctioned over 5000 buses in 64 cities.
Charging infrastructure consists of charger manufacturers, charger operators and battery swapping providers. On the manufacturing side, there are many large multinationals and domestic players operating including the likes of ABB, Siemens, Delta, Exicom, etc.
India has only 2,200 charging stations in the entire country, which is one of the worst in terms of number of EVs per station Globally. By comparison China has over 500,000 public chargers with over 200,000 fast chargers. In India, installed public chargers are utilised at 15-20% of required daily utilisation levels for them to make economic sense. Hence, without an installed base of vehicles, the installation of chargers in India will remain slow, as the business use case for setting up a charging station outside of captive use will be limited. Further, as India will not see large scale penetration of electric 4Ws anytime soon, this chicken and egg problem will remain for a while.
Another major challenge in India is the fact that we, as a country, still do not have a formal charging standard. Hence, every manufacturer can decide on their own which specification to use.
There are discussions happening in the industry around the adoption of the Japanese CHAdeMO, European Combined Charging System (CCS) and the Indian Bharat Standard. But the lack of standardisation around charging has emerged as a major infrastructural challenge, as it increases the cost of setting up charging infrastructure in the country.
Under FAME II, there is a focus on setting up charging infrastructure and the Government wants to set up 1 station every 3 kms in select cities and has announced a target of 2,700 additional stations by FY22.
In order to tackle some of the challenges around infrastructure, interesting business models are also emerging such as battery swapping. We feel this is a massive potential in India specially for E-rickshaws, as it converts capex to opex model, allows higher operating time and larger take home salary for the driver. Infact, the government clarification that OEMs could sell electric vehicles without the batteries, will give all such models a leg up.
The opportunity within the EV market in India is tremendous and we feel the sector will see multiple unicorns emerge within the next 10 years!