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Ready for electric vehicles?

Parvatha Vardhini C | Updated on April 28, 2019 Published on April 28, 2019

Auto-makers are leaving no stone unturned to jump on to the electric vehicle bandwagon

 

The auto sector has been in the thick of action in recent times, with worries over pollution and the need to switch over to electric vehicles (EVs) over the next decade, occupying the centre-stage. With the country taking steps towards establishing the eco system for EVs, it has become imperative for vehicle manufacturers to come up with their plans and for auto component makers to redraw theirs, to suit the new order. How are auto-makers placed to usher in this revolution? And, if you have listed auto and auto component stocks, are your holdings EV-proof?

Gathering pace

Moves such as the ban on diesel/petrol vehicles over 10/15 years old from entering NCR, the Supreme Court’s decision to not extend the time line for adoption of BS IV standard fuel across the country and the government’s decision to jump directly to BS VI emission norms by 2020, show that India is getting more and more serious about curbing vehicle pollution.

The most ambitious of all the measures is the plan to switch over to electric vehicles by 2030. A paper titled “India Leaps Ahead: Transformative Mobility Solutions for all” put out by the Niti Aayog (the nodal agency for the EV move) in May 2017 lays out a roadmap to 2030. It bats for 100 per cent electrification of three-wheelers, four-wheeler (commercial) and public transport vehicles, while aiming for 40 per cent electrification in two-wheelers and four-wheelers used for personal transport.

According to the report, if the above mix is achieved, India’s emissions are expected to decline by 37 per cent by 2030. Similarly, energy requirement for transport will come down 64 per cent from what will be required if the current scenario continues until 2030.

 

 

The government has taken this vision forward in Phase II of the Faster Adoption and Manufacturing of (Hybrid&) Electric Vehicles (FAME) scheme which provides demand incentives for EV purchases from April 1, 2019.

Since the costs of EVs tend to be high, demand incentives ranging from ₹20,000 per vehicle for buyers of e-two wheelers to ₹50 lakh per vehicle for e-bus buyers over a period of three fiscal years (initially) is being provided to bring down the end price to customers.

FAME II is in sync with the government’s goal of 100 per cent electrification of public transport by 2030, as it predominantly encourages only electric technology and in that, only lithium ion battery or other newer technology battery-based vehicles; besides, e-buses and e-three-wheelers hog more than half the allocations under FAME, batting for environment-friendly mass transport system. FAME apart, concessional GST rates of 12 per cent is already being provided for EVs to bring down the cost for customers. Conventional fuel vehicles now attract GST rates of 28-50 per cent. Tariffs on imported parts of EVs have also been reduced.

To enable manufacturers lower the production cost, state governments are coming out with various incentives for locating manufacturing units in their States — Karnataka Maharashtra and Uttarakhand are examples. State government policies also provide support for setting up charging infrastructure as well as concessions through various means for customers.

 

 

 

Considering that a wide network of public-charging infrastructure is the very backbone of any mass shift to EVs, the Ministry of Power has been taking various measures to set up charging infrastructure through public sector undertakings such as NTPC. Guidelines and standards for setting up such infrastructure were put out by the Ministry in December 2018. A charging station at every 25 km on both sides of roads/highways is mandated. A phased roll out over the next five years is envisaged.

Besides, to popularise EVs, the Centre has started procuring electric cars for government use through Energy Efficiency Services Limited (EESL), while various state governments have put out their own electrification/procurement targets over the next few years under their respective EV policies.

Thus, the ecosystem is slowly, but surely, growing roots. Seen in the light of lowering lithium-ion battery costs over the last few years and the fact that ISRO has indigenously developed lithium-ion battery technology, these moves indicate that mass production and mass adoption of EVs could indeed be a reality by 2030. Given this scenario, auto makers are leaving no stone unturned to jump on to the EV bandwagon.

First-mover advantage

Among listed auto players, Mahindra & Mahindra (M&M) is in a comfortable position, being one of the earliest entrants into the EV space through the acquisition of Reva Electric in 2010. Today, the company has come a long way, offering a range of EVs across cars (E2O Plus, eVerito ), three-wheelers (e-ALFA, Treo) and small goods vehicles ( eSupro).

 

 

 

Besides, it will also unveil the electric version of its popular compact SUV KUV 100 in mid-2019. M&M is among the companies supplying EVs for government use through EESL, with an initial order for about 4,800 eVeritos (costing ₹10-15 lakh)

FAME II’s preference for cars used in fleet operations will further benefit the company as M&M has already been partnering with Ola, Zoomcar and Meru for fleet operations. Having entered the fray quite early, the company is now on its second leg of expansion in the EV space. Towards this, it has invested an initial ₹500 crore at its Chakan plant under the new EV policy of the Maharashtra Government. In the second phase of expansion, the company will further ramp up manufacturing and charging infrastructure, develop new, high-end electric powertrains as well as battery technology. Electric mobility is also an area where Mahindra is working in partnership with Ford Motors to develop new products, platforms and other solutions.

Tata Motors is not far behind, having launched its electric bus and electric version of the Tigor passenger car. The buses are currently being sold to government transport undertakings in West Bengal, Jammu, Jaipur, Lucknow, Indore and Guwahati. Though private sale of the e-Tigor has not yet commenced, like M&M, the company is supplying 5050 e-Tigors to EESL (costing ₹10-15 lakh) for government use. Electric versions of small trucks/commercial passenger vehicles such as the Super Ace, Magic Iris and Magic have also been showcased. Thanks to the EV wave across the globe, Tata Motors also has Jaguar Land Rover to lean on for technology support. The all electric Jaguar I-PACE has gone on sale recently. JLR has also announced that all its launches from 2020 will be electrified.

Ride on partnerships

Other listed players — Maruti Suzuki and Ashok Leyland — have taken the partnership route to developing EVs. Throwing its hat in the ring only after the announcement of the government’s 2030 deadline, Maruti Suzuki’s EVs will be co-developed by the global partnership between Toyota and parent company Suzuki, leveraging on the former’s strength in electrification technology and the latter’s strength in making compact vehicles. The company’s first EV is expected to be launched in 2020. Suzuki is also setting up a lithium ion battery plant at about ₹1,100 crore in Gujarat in a joint venture with Toshiba and Denso.

Ashok Leyland already has access to EV technology through its UK-based subsidiary Optare. Last September, the company set up an electric mobility centre in its Ennore plant with facilities for engineering, prototyping and testing for motors, battery modules and packs. This apart, the company has tied up with several organisations (predominantly start-ups) to further its EV inroads in areas such as battery, range extenders and power electronics. For instance, it has joined Sun Mobility, which specialises in smart batteries and quick recharge stations.

Ashok recently introduced the Circuit S e-bus, powered by battery technology from Sun. About 50 of these will be supplied to Ahmedabad Janmarg for intra-city transport. An electric version of its smaller commercial vehicles is also on the cards.

Eicher Motors too has launched its electric buses and is working with its partner Volvo, on a range of public transport options.

Upping the ante

Electric two-wheelers have been leading the EV market so far, accounting for over 90 per cent of the country’s EV sales. But the scene is currently dominated by unlisted players. Listed players such as Hero MotoCorp and Bajaj Auto have their tasks thus cut out for meeting the 2030 deadline.

To fast track its EV plunge, Hero MotoCorp has invested in Ather Energy — an IIT-Madras incubated start-up — and has also set up its R&D facility for electric mobility in Jaipur. Ather brought out two e-scooters — the 340 and 450 — in 2018 priced at over ₹1 lakh.

For TVS, the Creon e-scooter is on the cards. While it has also show-cased an electric three-wheeler concept, it is working with another start-up Ultraviolette Automotive for developing premium two-wheelers. Bajaj Auto’s e-scooter — Urbanite — will debut this year. It is also launching e-three-wheelers. Eventually, its Qute quadricycle may also offer an electric option.

Thus, all major listed players are doubling their efforts in a race to meet the government’s 2030 deadline. But despite the incentives, affordability will be an important factor for mass adoption of EVs — be it for personal or commercial use. Making frugal, but reliable, vehicles will be the challenge for the Indian market.

Maruti Suzuki, TVS Motors, Bajaj Auto and Hero Moto Corp — companies focusing on the price-sensitive segments such as commuter bikes and compact cars — will be more vulnerable here. Higher localisation and economies of scale, along with lower battery prices, are key to bringing down the costs. Stiff competition from the large number of unlisted auto makers in India such as Hyundai and Honda — which have a sizeable market share and are also developing EVs with equal enthusiasm — will be a threat to all listed players.

Overall, an interesting decade lies ahead for auto stocks. From being an old economy sector in the last decade or more, the space will be in the spotlight once again over the next ten years. Investors need to keep a close watch on company-specific developments in the EV front, as it may define the prospects for stocks from now on.

Auto parts suppliers switch gears

With EVs all set to revolutionise the auto industry, it becomes imperative for auto component makers to chalk out their strategies for supplying parts to EVs. The key difference in the EV regime will be the replacement of the internal combustion (IC) engine, transmission and drivetrain parts with batteries, motors and other electronic components. Hence, suppliers of parts such as cylinder blocks/heads, pistons, valves, shafts, fuel injection, clutches, axles, gears, radiators, coolants and lubricants will be impacted. Many companies have begun drawing up their EV strategies to counter this risk of obsolescence.

Chalking out strategies

Global auto component major Bosch, a supplier of fuel injection systems to IC engines worldwide, is gearing to meet this challenge both in India and abroad. The company has developed an integrated electrification system, including motor, control unit, battery and charger that can power two-, three- and four-wheelers.

Bharat Forge, which supplies powertrain parts, is also developing products for EVs. It has set up an EV R&D centre in the UK and has picked up stake in Tork Motorcycles, a drivetrain company focused on electric two-wheelers. It has also invested in Tevva Motors (Jersey), a company that provides electric powertrain solutions to commercial vehicles. Mahindra CIE, another powertrain supplier, is also working with global and Indian clients on their EV portfolio.

With the government focusing on electrifying buses, three-wheelers, two-wheelers and cars initially, companies which supply to trucks are shielded from the move to EVs. Clutch-maker Setco Automotive and steering gear supplier ZF Steering, for instance, supply predominantly to trucks, although they earn some portion of revenues from other vehicle segments. Suspension product-maker Jamna Auto Industries, lighting suppliers Lumax Industries and FIEM Industries, makers of shock absorbers such as Gabriel India and Munjal Showa, and tyre makers are other players that are not impacted negatively by EVs in a big way. Wiring harness-makers such as Motherson Sumi will be impacted positively, as EVs are expected to have higher wiring content per car.

In the line of fire

But listed lead-acid battery makers such as Exide and Amara Raja Batteries are in the direct line of fire. But they are taking steps to reinvent themselves to suit the lithium ion battery regime that EVs demand. Exide has tied-up with Lechlance SA based in Switzerland to build these batteries for Indian EVs and is setting up a plant in Gujarat.

Though Amara Raja Batteries had announced the setting up of an assembly plant for lithium ion batteries, the recent termination of its relationship with technology partner Johnson Controls is a worry. Plans of auto manufacturers to set up their own battery plants of EVs also heightens the competition for these two players.

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