Good evening everyone and welcome to yet another virtual FOF. So today we have a very special topic by our analyst Rohil Gandhi and he will be covering something that I find extremely exciting at least when I see a green number plate car on the street I get very excited because I think it’s the future of automotive industry and today’s session will be again, the standard FOF format where Rohil will walk us through the presentation and we will have ample time in the end for a Q&A. So in that time you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can just keep your messages and questions in the chat so we can compile the questions later or directly in the Q&A you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can unmute yourself and ask your questions. Rohil over to you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles and you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can start. Thanks Raunak. I think even my favourite part of seeing the EVs on the road is the green number plate only. Just makes it easier to distinguish. Okay, so let’s start. So today we’ll go through the entire EV ecosystem not just the OEMs. And I’m starting off with this slide because this is one slide that I have seen across all presentations or any talks that have always been there on electric vehicles and it’s this slide is basically depicting disruption and the speed of disruption. So in the year 1900 where there was just one motor vehicle, as compared to innumerable number of horse carts and just 13 years later, we had just the one horse cart and many more motor vehicles. So something similar is poised to happen in the Electric vehicle or the Automotive spase rather and we’ll see how challenging and what the path will be for this destruction to continue. So currently, this the EV space is completely narrative driven so we can see a couple of examples. I won’t be taking the names and these are not investment recommendations. But just, you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles know, some of these stocks the kind of returns that they’ve given despite not having the numbers yet. So just to show how narrative driven and investors are looking for the next disruption. So company A has returned almost 15x returns in just about two years, and this is like the poster child of EVs listed in the US, and this company just recently turned profitable last year.
If we see company B, so this is a Indian listed company and earlier the core business was setting up power generation units in India. However in April 2021 which is just about four-five months ago, they bought a 43% stake in one of India’s first electric motorcycle company. This stake was bought and just about 150 crores valuing the company at about 350 crores. So the EV company in which they bought the stake had sold about 2000 units in calendar year 2020 and after this acquisition. so since that acquisition, Company B has returned 4.5 times, roughly to the shareholders, and this is after a 40-45% drop from the peak. So we can see the kind of handsome returns that this company has already generated despite not having the numbers or the volumes yet. And the last company, Company C, it’s somewhat a controversial company. So this company had advertised a prototype electric commercial vehicle in the U. S and the share price had risen by five times between March to June 2020. However, after some news flow that the vehicle that they had advertised was actually pushed down, and it was not a functional prototype mainly. The share price has really dropped by 85% till date. So you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles will see all kinds of companies and startups coming in the space but investors are looking to this is a space that they see to get some good returns over the next decade or two. So I’ll be talking about the entire electric vehicle ecosystem. So within this ecosystem you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have your raw materials suppliers which will be your steel, aluminum and so on. So those would be your commodity companies. The auto component manufacturers have separated battery manufacturers considering how large a component it would be within the EV ecosystem. The automotive OEMs, charging infrastructure, as well as battery recycling. Battery recycling is something that is still in its nascent stages as yet, especially because it will follow the growth of the electric vehicles and still the volume of electric vehicles globally as well as in India is still very small.
So as this industry grows, it’s likely to give rise to the battery recycling space as well. So majority of my talk will be focused on battery manufacturers, automotive OEMs and charging infrastructure. And post that I’ll run through some of the listed entities in India through which an investor can participate in the electric vehicle growth narrative. So let’s have a look at the electric vehicle OEMs first. So just a brief history. This technology is not something that was very recently discovered. Rather, electric vehicles were first discovered in the 1830s. There is some, so the credit is actually shared by a few people. So one is Robert Anderson, who’s a Scottish person and an American by the name of Thomas Davenport So they are the two main people who are credited with the discovery of electric vehicles. Electric vehicles first came into commercial use as e-taxies in New York City in 1897. So almost 60 years after this technology was discovered in 1895 just to give a context, Carl Benz had actually, he had discovered the technology for internal combustion engine vehicles, which are the vehicles that we use today. However, that got commercialised after Henry Ford found a way to mass produce them in 19O8. So actually the first picture that we saw. It’s only after 1908 to 1913 within a period of just 5 to 7 years is when the the mass adoption really began. So the reason in the first place that EVs did not work despite being there in our history for such a long time is basically the cost of running a internal combustion engine vehicle was far lower at that point. And now, since the battery costs have declined, there have been a lot of of upgrades in the technology and new findings. This has actually led to a new focus on EVs. And these are some of the reasons why the EV adoption is actually rising.
So apart from the battery costs environmental norms are also becoming a lot more stringent and governments across the world are focusing on this, so that has also led to adoption of this technology. Government push through incentives across the world has again been very critical in trying to kickstart the use of electric vehicles. So is it just that it’s because of the fall in battery costs and incentives that are there today, that EVs are being preferred? It’s not just that, in my opinion it’s actually because the operating cost of a electric vehicle is is significantly lower than a ICE combustion Internal combustion vehicle. So it’s almost five times cheaper to to charge an EV as compared to an ICE vehicle. And it has, like a 100 times moving parts, which makes it a lot more easier to maintain, thereby reducing your maintenance costs as well. So the operating costs of an EV are significantly lower, and hence there is a use case for the EVs and this is also one of the major reasons why the adoption is now rising. So governments across the world have given their timelines as to when they would like to phase out the diesel and gasoline vehicles. So these are the hard deadlines so some of the countries have been mentioned here but largely if you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles see the years 2035 and 2040 are more or less recurring. So these are the kind of time frames that most of these companies have set themselves to be completely diesel and gasoline and engine free by that time and just focus on the electric vehicles. So before I dive a little deeper into the sector, there are some terminologies that I would like to clear. So ICE or your Internal Combustion Engine or the gasoline and diesel engine. So this is basically your ICE engine, which is what we use in the modern vehicles today. Then that’s something called mild hybrid, which is basically just supportive back up and has to increase your fuel efficiency for your gasoline and diesel cars, but it’s not typically your electric vehicle per se; it’s just something that is helping to improve the overall fuel efficiency of what is otherwise of gasoline car.
Plug in hybrids or PHEV. These are vehicles which can give you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles a running of your daily running of about say, 50 -60 kilometres can easily be done on the electric battery that is provided in that vehicle. But for longer distances you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles still have a use your carbon, your gasoline and diesel fuels. Then there’s your battery electric vehicles of BEVs ` that is your 100% running only on the electric batteries And then there’s something called fuel cell electric vehicles or Hydrogen vehicles. So these vehicles use hydrogen as a fuel source and are also considered to be a low emission vehicles. And so again, something that I have noticed or has been happening is that a lot of people consider hydrogen fuel-based vehicles as non-electric vehicles but in fact, they’re actually considered as electric vehicles only. So they do form part of the when we talk of EVs it’s not just your battery electric but also your fuel cell electric vehicles. So some of the reasons is we earlier saw for the adoption of EVs is mainly the environmental nodes and if we see so while this chart is a little busy, what we see is despite all the different types of fuels that are currently available be it gasoline, diesel, your CNG this is inclusive of a mix with the biofuels that’s your ethanol blend and so on, these are the level of greenhouse gas emissions that are expected via the study done by the ICCPV report. And we can clearly see that battery electric vehicles and fuel cell electric vehicles are some of the lowest polluting vehicles. So the optimal mix in the industry is likely to be decided based on the emission targets set by the government in the future. Incentives have been another major push in the EV space. So in India we have something called FAME incentives, which is Faster Adoption and Manufacturing of electric and hybrid vehicles. They’re in their second phase so their second cycle and these are the so some of the incentives that they have announced address follows.
So for two-wheelers they have allotted 2000 crores, where the maximum selling price at showroom not on road, at showroom, has to be not more than one lakh fifty thousand rupees for that vehicle. The incentive available for the two pillars is at ₹15,000 per KWh. That’s how your battery size is estimated. Just the way we have a 50 litre petrol tank, is the same thing for the batteries in that space. The maximum incentive per vehicle for a two-wheeler is at Rupees 60,000 per vehicle, and the maximum number vehicles that can be supported is about a million two-wheelers. Three-wheelers they have allotted about 2500 crores, Four-wheelers is just 530 crores and 560 if you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles include the four-wheeler hybrids and electric buses is about 355 crores. So you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can even see from the government incentives are a lot more focused is currently being placed on the two-wheelers and three-wheelers, which is clearly being seen as the best segments best place segments to adopt EVs in the near future. So just doing a rough comparison between the ICE vehicles and EVs in the two-wheeler space considering that there are a lot more models in the real world today on road. So Activa 125 cc which is the largest selling highest selling two-wheeler, that has a peak power of 6kW and a maximum speed of eighty-five kms as compared to your collect trick vehicles, which is your Ather-450X, TVS iQube or even Ola S1, they are at similar maximum speeds and the power also is quite comparable. In fact, Ola has a much better power as compared to the Activa. The range however is a lot lower for your electric vehicles, but again it depends, so one can say that this range is lower, but however the daily usage for most people on a scooter is not more than 20 – 30 kms a day. Maybe if you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles are really, the office is really far or something you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles land up using 40 – 45 kms a day which is also on the higher side.
So the cost Ex Showroom if we see in Bangalore, the cost of electric vehicles is about 15 – 20% higher than the ICE vehicles. However, on road your Activa and NTorq will also cost to about 95,000 – 99,000 which is comparable to the Ola which should also cost you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles about 105,000 roughly. However ex-subsidy, if we remove the subsidies that the government has given as we saw in the earlier slide, the cost significantly increased for these vehicles. So and the differential between after before subsidies for these EVs compared to the current scooters is so high that it would that there would definitely be a second thought on whether to purchase electric or not. So at this stage the adoption of EV s is completely driven by the incentives. Similar thing on the motorcycle side – so currently there is only one offering that is Revolt. Yeah, but however the peak power offered by that model is significantly lower by two of the higher selling motorcycles. And the range also is considerably lower. And motorcycles are more often used for longer distances as well. So it is important to have a larger range for motorcycles as compared to your scooters is at least. So what are some of the challenges for electric vehicles from the consumer perspective as well as from the OEM perspective and why is it that the existing OEMs have not been aggressive in this space. So let’s try to figure that out. So first thing that we have been hearing is Range Anxiety. As we saw the range of each of these vehicles is significantly lower and even for a four-wheeler, the Tata Nexon which is the highest selling electric four-wheeler currently in India, the range is about 180 – 200 kms which is not sufficient for long distance travel but can only suffice for daily commuting within the city. Availability of charging infrastructure – This is another major pain point for the consumers, as they need to be sure that they can charge their vehicles at any point and can easily avail of those facilities.
Charge time – The charge time again for a four-wheeler, it takes about one hour to charge it upto 80% and even for a two-wheeler it takes about 45 minutes to charge for up to 80%. Sorry for four-wheelers the charging time is on the higher side as compared to the two-wheelers. And these are reasons why electric vehicles for a consumer it’s difficult to adopt them especially while you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles are travelling if you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have to take a halt that is longer than 1.5 to 2 hours on a fast charge also if it takes you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles one hour to get to 80% in a four-wheeler, then it’s something that you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles had not planned for that but now you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have to plan, and you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have to be sure that you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have sufficient range in your vehicle so as to get to the next charging station or not get stuck somewhere between where you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles are and your final destination. There’s a high dependence on government subsidies, which is again so this is a factor that is also considered from the OEM perspective, that the profitability for these vehicles is extremely low currently, and rather they’ll be loss-making. Different requirements for different segments leading to higher cost of R&D – So we’ll elaborate on this point a little more in the next slide. Higher rate of change in battery technology – So again, there’s a lot of innovation continuously happening, and better technologies are being discovered, which can make the current battery technologies obsolete. So the rate of change makes it difficult for any OEM to really pursue just one technology and get really aggressive, so they’re taking a more cautious approach from that perspective. Electric vehicles are currently loss making so the profitability obviously is much lower. So what the existing OEMs have to really decide is whether to opt for a loss making vehicle and really aggressively push that, or you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles sell your current gasoline, diesel vehicles which are actually generating a lot of cash flow for them, which can later be utilised for the R&D, nor just in electric vehicle space but a lot of other areas as well, especially autonomous vehicles and so on.
That is the choice that they have to make and they have chosen to continue generating the cash investing and when the time is right, when they can see a clear path to profitability, that is when they expect that is when they decide to get aggressive in this space. So that can be a little tricky, considering startups currently are a lot more focused on just the EV space and not so much on the profitability, so it can get tricky and there are fears or concerns by a lot of people whether the startups would you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles know, take up the entire market share and there’d be a first mover advantage for them, and the existing OEMs would be left behind. So while those concerns are there but they still decide to take a lot more cautious approach of because there are a lot of different technologies and we’ll try to understand that a little more indepth. So the last point is something more unique towards India. So you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles need to have a continuous supply of electricity, especially in the rural areas ehe adoption is going to be upto a 100% because you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can’t have periods where there is no supply of electricity but you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles really need to use your vehicle and you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can’t charge it. And we know that in rural India, access to electricity is still quite measured. So that again creates a big challenge for EVs. So while this slide has nothing to do with the EV space but what we can see in this slide is just how many different segments are there in the automobile sector. So you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have four major segments – two-wheelers, passenger vehicles, commercial vehicles and three-wheelers within which you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have further segmentation in terms of scooters or mopeds and even motorcycles. In passenger vehicles you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have the smaller hatchbacks and Sedans, and then you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have your utility vehicles or even your multipurpose vehicles. And in commercial vehicles you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have your smaller trucks or L. C. V s and the large trucks that is the MH series and the same with three-wheelers where you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have passenger and goods segment.
Even within two-wheelers and EVs, you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have a further segmentation for personal and commercial use. So the requirements of each of these segments is quite different. In your normal ICE vehicles, that technology could be adopted across all these segments. However, considering the range restrictions on a lot of the technologies in the EV space currently, there’s no one size fits all kind of technology and hence different technologies have to be used across different segments. So for example, for a commercial vehicle, the requirement is for a longer range. So they need something that can maybe drive up to 400 – 500 kms at a stretch and not have to wait for every every 200 kilometres, you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles know, take a halt and then charge for an hour. That is something that is not feasible for commercial vehicles. Whereas, if we get a 100 kilometre range as we do today for your scooters, it can actually be. It can actually work really well in the markets today because most of the schooters are actually are just being used for within the city use itself just for daily running. So each segment has their own requirements. As newer technologies get adopted there can be a differentiation in strategy also that can be followed apart from the technology and stuff. So what OEMs can decide is whether to go in with fixed batteries, which requires a extensive charging network or a battery swapping where they have a swapping station so a battery swapping would not require any change in consumer behaviour. But a fixed battery would actually require, especially when you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have to go home every day and put your vehicle for charge. And, God forbid you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles forget the next day of vehicle is not charged and you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles are left stranded as to how to travel to your workplace or anywhere else you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have to go. So a battery swapping station can actually just take care of that, like how you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles go to your petrol pumps today, you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can just simply go to a swapping station, get their battery change within five minutes and continue a daily running requirements.
Detachable batteries – So recently, the government of India came out with the notification saying that electric vehicles can now be sold ex of the electric battery itself, which really reduces your upfront cost because the electric batteries can cost as much as 40% of the total cost of building a vehicle. The Optible mix for the OEMs whether to have battery electric vehicles only, or a mix of hybrid electric vehicles per even alternative fuels like your so ethanol based or CNG or Hydrogen. So there are other options and what is the strategy that they wish to adopt. So that is also something that they need to figure out Again, in terms of distribution, we have seen the likes of Ola, Tesla, all of these OEMs have actually adopted a direct to consumer, which eliminates the need for a dealership. And this can actually save some margins, considering they’re about 4 to 5% of the cost of the vehicle would be the margin for a dealer. However, how this distribution model would really work for existing OEMs is something and whether that is more feasible or a better way, it’s something that is still unanswered. However, consumers would always prefer a dealer in some sense, at least if they have a lot of maintenance requirements, or especially in the initial stages when the technology is still new. And the last is outright sale or leasing options In India we don’t have a large leasing option model available, but Maruti has been trying this out in a few cities and have been slowly increasing that offering across cities. So whether to lease the vehicle, which can actually bring down your initial payments and so on or a outright sale. So all these different strategies along with the different technologies, along with the different requirements of each segment, these are a lot of decisions these any manufacturer has to take today and you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles know, just stick by it.
And if they’re wrong, then the risk of being wrong is they will not they would not be able to compete in the future. And hence the cautious approach that you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles see from a lot of manufacturers today. So just some pros and cons about battery swapping. So the pros are that it really reduces the initial cost of acquiring the vehicle, as batteries would be least, and you’d be paying a monthly subscription. So about 40% initially is what you’ll land up spending less upfront. It eliminates the long charging time, alleviates range anxiety, better Grid Load management because maybe, all the vehicles are being put to charge at night, where it can overload the grid as compared to swapping where it can be charged across the day whenever the need arises. Easier battery re-cycling and disposal, so this is still very nascent and we’ve not seen this as an issue just yet because the volumes are still low, bur it can potentially help to a more organised manner of battery recycling and disposal. No change in consumer behaviour is required for battery swapping. Some of the negatives however are that you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles require a standardisation of the battery packs across the vehicles and the consumer is likely to always question the reliability of the least battery pack – whether that battery pack is good enough or you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles know, does it have the capacity to run the kilometres that is promised to you. So some of these questions are always there. Some of the other challenges are, the low confidence in terms of financing these vehicles. So we see there’s an operations and maintenance risk in terms of because this is a new technology and there are no electrical engineers at your local dealerships, how they operate and how they maintain these vehicles might require a different expertise in that sense. Customer risk, utilisation risk. So in terms of utilisation for financiers, there needs to be a higher utilisation of these vehicles at the level if they have to provide financing to the OEM directly or even their dealership so the utilisation levels have to be on the higher side.
If we see the asset risk, there’s a technology risk considering the rate of change of technology today, there is a a good chance that the technology that is being used today might be obsolete just 10 years down the line. And if there is no re-sale value of the vehicle down the line then the financier might be left with a vehicle which is obsolete and hence that creates a additional risk for the financier. Policy risk – again, if the governments decide just to focus on battery electric vehicles only, and not hydrogen or CNG or any other vehicle, it can really drive down the value the resale value of those alternative options And the manufacturer risk. So considering, while this industry is something that is definitely going to grow in the long term, there will likely be a lot the mortality rate within this industry is going to be pretty high as well considering the number of startups. Not everyone is going to be successful. There will be a lot of failure, so there’s a lot of manufacturer risk as well. So all of these reasons actually lead to some higher interest rates or lower LTV ratios or limited financing options that we see today, or even higher insurance rates for these vehicles, especially because the cost of the vehicle is higher so your insurance premiums are likely to be high. And when we see, especially in two wheelers in India, over 40 to 50% of the vehicles are financed. In four-wheelers it can go as high as 70 to 80% and in commercial vehicles it’s even higher at about 85 – 90%. So clearly, the automotive industry is highly dependent on the availability of good financing. and what happens with electric vehicles, especially because their initial costs are higher than your modern vehicles, even if the interest rates are the same, the actual, absolute EMI costs are significantly higher, considering the higher initial cost that you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have to bear. So this makes it a lot more difficult to speeden up their entire adoption process for EVs.
So addressing the fact whether the incumbants are far behind the curve when compared to start-ups who are very aggressive and growing at a very good rate and taking market share from the existing players. So does that mean that the incumbents you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles know, won’t survive and or probably will be left with much lower market share. So if we see this chart – so in the automotive industry, patents are not something that determine the success of the company. However, this is just to show that there is a lot of work being done. Now for example, the highest number of patents filed in India for EV Powertrain Technologies is by Honda Motor and Honda Moto has the largest selling two-wheeler in India, which is your Activa and also has a four-wheeler business in India. And yet they have zero EV offerings currently in the Indian market. However, on the back-end they are really doing a lot of work. This can be risky that they don’t have any on-field data as to how these technologies are performing. But it doesn’t mean that they’re not doing any work. So that is all that this chart is trying to say. So even if we see some of the other incumbents Mahindra and Mahindra has already publicly stated that they’ll be investing 3000 crores over the next 3 to 4 years in the EV space. Hero MotoCorp has mentioned that 50% of their new Capex will be towards EV’s. Plus they have done a tie-up with Gogoro which is a battery swapping that is currently a battery swapping technology that Gogoro has been very successful in Taiwan and they plan to replicate that model in India and they have done the tie-up with Hero. And the swapping model in terms of the EV is likely to be launched next year, that’s what Hero has already stated. They also have a investment in Ather energy. For TVS they’ve invested in in Norton and also have stated in to invest 1000 crores in this space. Maruti, so the parent for Maruti Suzuki has a tie-up with Toyota and also Suzuki the parent company is setting up a battery manufacturing plant in India.
Same for Bajaj, who was a stake in KTM and is in talks to shift that stake to the parent company Pierer where they again have some EV technologists. So all these incumbents are working on the EV space and TATA, as as we all know already have a few models on the road. So it’s not like they’re not working; whether they’ll be successful or not is a different question, but definitely there’s work going on in the back-end. Some of the global investments and collaborations that we have seen so even this the same thing holds true for a lot of the global OEMs as well. All the major OEMs have announced their electrification targets, which are as high as about 30 to 50% of their new sales between 2025 to 2030 being electric vehicles. The Volkswagen group has stated to invest $85 billion over the next five years. There’s a collaboration in Japan between Toyota, Suzuki, Daihatsu, Hino and Isuzu to further understand the space of electric vehicles, autonomous vehicles, etc. In Asia, we have Suzuki and Toyota Partnership. GM and Stellantis, each have committed $35 billion as investments in this space by 2025. Hyundai is setting up a battery plant in Indonesia with LG, which will cost them about $1.1 billion. So all the existing OEMs are definitely putting in resources behind this technology, even though they may not have been as aggressive in launching vehicles as some of the other start-ups or other companies may have been. Coming to the next segment, which is the electric vehicle batteries – So the market share in electric vehicle battery today is that about 65% of the entire market is held by Contemporary CATL; basically, it’s the Chinese company, LG Energy Solution or LG Chem and Panasonic. So about 65% is held by them. And some other players are Samsung, SK Inovation and some others. So we’ll try to understand why these three players are able to command such a high market-share.
Even in the fuel cell vehicle space, Hyundai has about 48% market-share and Toyota has 15% market-share so effectively about 60% over there as well, is just between the two players, Hyundai and Toyota. So one of the major motes for the battery manufacturers are the partnerships that they create with the automotive OEM and this is something that we have seen in auto ancs also earlier, the ancillary companies where they have partnerships which are 15 – 20 years long, and this makes the customer a little more sticky and more trustworthy that they would not just change their supplier the next year. So a lot of the known brands have already tied up say with CATL, Panasonic, BYD, LG Cam, Samsung and so on. So what are the cost of the electric vehicle batteries? So it’s related to pack and cell. The cell costs are about so the pack costs about 30% higher than the cell costs. So this is one of the major reasons why this technology is now so attractive in terms of adoption in the future and is likely to be the front runner in that sense. So the pack in 2011 cost about almost about $1200 per kWh, which is dropped to $137 in 2020. So it’s almost 88% drop since 2011. And this will continue due to a lot of efficiencies and new technologies being discovered in this space. So some of the terminology on the battery side – so there are mainly two, which is energy density and you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have your battery types. So commonly referred in the industry has LFP, NMC, NCA, Sodium Ion batteries in bad to insolvent solid state battery, hydrogen fuel cell and so on. So let’s discuss energy density first. The concept of energy density is basically in the same amount of space, how much energy can be stored. The higher the energy stored in the same amount of space, the larger the range or the higher the range that you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles can provide for that vehicle. And that is the main concept of energy density and as companies are able to pack a lot more energy within the same space going forward, the cost really come down for the batteries as improvements happen for the energy density.
And all these different battery types, they mainly differ on their energy densities or theoretically speaking, what their maximum achievable energy density can be. So two of the most common battery chemistries used today are Lithium Ion Phosphate and Nickel Manganese Cobalt. Solid state so sodium Ion batteries are something that has been recently being worked upon but they have one of the lowest energy densities. Solid state batteries takes away, so it’s different in the sense that it does not use a liquid electrolyte within the energy pack which makes it easier to store, which makes the energy density for that battery significantly higher than the current technology. So this is a technology that is still not in commercial use as they have not figured out a way to mass produce it yet so they’re still working on that. But that is the next step in the EV batteries so as to improve the range of the vehicle. And hydrogen fuel cells is so hydrogen as a fuel has the highest level of energy density, and hydrogen can be further classified into grey, blue or even green. So why are there these different colours? It’s basically the method with which the hydrogen was extracted is what determines what kind of a hydrogen it’s called. Grey hydrogen is obviously where there was least amount of pollution in the process or pollutants released in the process of extracting that hydrogen and Grey is the highest. So we’ve seen that since 2010, the achievable energy density in Lithium Ion batteries has actually increased significantly from about 200 wh/kg to 300 whs and this is continuously rising. So this this is one of the major reasons by the battery costs have been coming down. So Lithium Ion batteries have the lowest energy density as compared to gas, diesel and patrol, and hydrogen is the highest. Because of the improvements in battery technology that we have seen over the years, this has led to a significant drop in the battery plant capital cost from a few years ago.
In fact, in China the cost is now as low as about $64 million per gigawatt power In Europe and USA it is significantly higher because of a lot of variable costs or the availability of cheaper labour in China and which leads to the cost differential. These companies have to significantly invest in R&Ds to continuously improve the battery technology and pack a lot more within the same battery. So if you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles see some of the major players CATL, Samsung, LG CAM or even Tesla, they all so the R&D expenses is a percentage of revenues closer to 6 to 7% in that kind of a range so it’s a R&D intensive CAPEX intensive industry, which also creates another barrier of entry for any new entrants to compete with the existing players. The EBIT margins again. This is somewhat of a lower margin business, EBIT margin being closer to 10% for the battery manufacturers, which again makes it very difficult for the smaller players to compete with the larger platers as there’s a significant operating leverage and economies of scales for companies with higher utilisation levels. And as we saw, because China has better economics in terms of battery manufacturing, they are able to generate a higher gross margin in that country as compared to U.S. where if you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles had to sell the battery at the same rate, the gross margin is 6% points lower on estimate and the operating margin is even lower. So as I mentioned this industry has a higher operating leverage so the larger players are likely to generate better margin. So we can see within China as well CATL, which is the largest, has a much better gross margin and EBITDA margin as some of the other players. So to summerise in the battery space, higher operating ~ leverage, CAPEX intensive, R&D intensive, as well as partnerships with the existing OEMs. These create a strong barrier to entry for some of the players or new entrance in the industry, and that’s why it’s easier for them to maintain those higher market shares that they currently have.
So there’s a increasing need for Make in India or localisation of battery because currently a majority of it is being imported, so to further reduce the costs for the vehicles and bring down the cost of acquisition of the final vehicle, there’s a very high requirement for having a localised supply chain. So some of the technology battery chemistries, which are likely to be set up in the future in India So while NMC is higher preferred because it has a much better energy density but LFP is something despite having a lower energy density is cheaper and the raw materials for that are easily available in India. So the raw materials for LFP technology are basically Ion and Phosphorus which is available in India as compared to Manganese, Cobolt, some of which are not easily available in India and again, they have to rely on a lot more imports. So there was an article in The Wall Street Journal where they said that LFP was the mainstay battery in 2017 in China, when it was still very small, the EV market. However because of the government subsidy programme which favoured longer range vehicles which LFP cannot provide because of its energy density, they lost a lot of market share. However, once those subsidies went away, there has been a comeback in that battery chemistry. So we can see clearly how the government policies will also decide what kind of battery chemistries and technologies and vehicles are due to launch in India in the future. And this technology has also been favoured by Mr Elon Musk. So LFP also has his stamp of approval. So what he said in his tweet was that Nickel is our biggest concern for scaling lithium-ion cell production due to its availability. So that’s why we’re shifting standard range cars to iron cathode. Plenty of Ion ! So in India to incentivise the battery manufacturing and setting up local capacities, they have come out with a 18,100 crore production-linked incentive scheme for advanced cell chemistry for ACC batteries so further research on the battery.
So they have dedicated this fund towards that. So some of the requirements of this incentives are that they intend to set up a cumulative of 50 gigawatt hours over the next few years via all the participants in this scheme. The maximum that a company can claim as benefit within or incentives within this scheme is up to 20 gigawatt hour. And there’s another the requirement of localisation of upto 25% within the first two years and 60% within the five year period. So higher dependence on Make in India clearly boosting that as well. And one of the other requirements is that all the investments in setting of this capacity has to be incurred within the next two years itself. Clearly there’s a lot of push towards localisation in India to further bring down the cost for electric vehicles and increase the adoption. So we’re likely to see a lot more push in EVs 3 – 4 years down the line when all these capacities come on. So some of the investments in India are – Amara Raja has decided to invest a billion dollars over the next 10 years to create a 10 gigawatt facility, even though the minimum requirement is just five gigawatts to claim the incentives which I mentioned earlier. Suzuki, Denso and Toshiba have set up their battery manufacturing plant which will cost them about Rs. 5,000 crores. This is phase I and phase II combined. Amperex Technology Limited has decided to invest upto Rs. 7,000 crores in India. Exide Industries is also likely to participate. And Reliance Industries at their recent AGM have set aside 60,000 crores for four Gigafactories. So while this is not all towards batteries, but it includes Solar PV modules, Electrolizers Fuel Cells, as well as batteries. So a part of that 60,000 crores will be towards these technologies. Coming to the third section, which is the Charging Infrastructure. So, according to a Business Standard report, India would require up to 400,000 charging stations for two million EV’s by 2026 and currently, according to the Society of Manufacturers of Electric Vehicles, there are only about 1800 charging stations in India as of March 2021.
So clearly there’s a huge gap which will again boost the adoption of EVs in India. Just for context, currently there are about 70,000 fuelling stations in India, and the number of nostrils that each of these fuel stations obviously would range from 2 to maybe 6, 7 or so. So that’s the number of fueling stations that are available today. But the requirement for EVs is a lot more but this number can really differ if battery swapping is considered the major technology, especially when it comes to say, commercial two-wheelers or even your personal two-wheelers or hydrogen fuel cell is used for commercial vehicles because commercial vehicles require a longer range, so Hydrogen fuel is used for that. So the number of charging stations would really differ based on the technologies that are best suited for that segment. Within charging infrastructure so how we have different kind of connectors for our mobile phones, so you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have USB Type C and so on and so forth, for mobile phones there are different charging connectors for electric vehicles as well. The most common is CCS 2, which is widely used in India. So Plug Share this is a app so it’s a very interesting app as it continuously monitors the number of charging stations in India and tells you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles exactly the location of those charging stations. And it also gives you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles the information as to what type of charging connector is available at those charging stations. So this is something very interesting I came across that there are supporting apps that were trying to increase the awareness of these technologies and charging stations as well. So this is a estimate in terms of the cost of the charger itself, not the entire charging station. Apart from the cost of the charger there’d be maintenance fees, land lease, the personnel cost and so on.
So the cost would really increase. However the CCS, which is the most widely used charging technology, especially for four-wheelers, the cost of that charger itself is about 15 lakhs; closer to 15 lakhs and the additional cost for land lease and everything could easily bring the cost upto 30 – 35 lakhs or even higher depending on the area and location. So this is just for one charging port which can charge one vehicle at any given point in time. So Magenta Power is a company which is are trying to set up a charging infrastructure in India. And in a recent interview the MD mentioned that on a normal DC charger, one can make money only if used for five charging sessions a day and continue to use continue to use it every day for the for five consecutive use. So, and considering that the volumes of EVs are significantly low and even the global utilisation rates of these charges are at best about 26% only. So in it is very difficult to make money. Even though they may be able to set up the infrastructure, they might be disheartened by the kind of payback that they might expect from the charging infrastructure in the future. So all in all, what I believe is that in any technology, the adoption life cycle moves from techies to visionaries who want to try new things or earlier adopters basically to the early majority or Pragmatists who like to use it when the technology is ready. Conservatives who are assured that there are no issues, I will not face any battery problems or range anxieties and so on; and finally people who thought it’s not possible for this technology to succeed in the long term. So what I believe is there we’re somewhere towards the early part of the early adopters phase in India at least, and there’s a lot of work still to be done. But this is definitely the technology for the future. Again, not investment recommendations, but just different ways that one can get exposure to the electric vehicle theme in India today. So some of the companies that are listed and are likely to benefit from the shift – so this is not an exhaustive list – there will be far more companies – but these are just some of the companies that I came across so if we see manufacturing OEMs, you electric vehicles research paper, electric vehicle research paper, research papers on electric vehicles have Tata Motors, Hero MotoCorp, Bajaj Auto, Maruti, M&M, TVS, Rattanindia Enterprises, which owns a stake in Revolt, Bharat Forge which again has a stake in top motorcycles which is still to launch their two-wheeler, even Ashok Leyland.
And any new startups if they ever get listed, they will also fall under this category. Battery manufacturing side, there’s Amara Raja, Exide, Reliance Industries, however the percentage of business from this space would be fairly lower for Reliance, BHEL, even JSW Energy. In terms of Charging Infrastructure – Tata Power, NTPC, Indian Oil so Tata Power and HPCL have actually done a tie-up for the charging infrastructure. So even HPCL would fall under this space. Auto Components – so there are specific components that are required for the electric vehicles. And so, like the electric motor, so these ancillary companies would also really benefit. Apart from that, there are also companies whose value addition would really increase as there’s a shift towards the electric vehicle space. So there’s Sona Comstar which is a very recent listing Bosch, which had actually for the last three odd years, they have actually done a major restructuring to align themselves with the futuristic technologies and this is not just electric vehicles, but also autonomous vehicles and so on. Minda industries, which is also continuously trying to launch newer products which are related to the EV space. Endurance Technologies who have a aluminium die-casting business and the need for aluminium might increase because as the weight of the vehicle as the more light weghting of the vehicle, the better the range. So these are some of the technologies that are likely to benefit. So in auto components, there will be far more companies that I have mentioned here but these are just some of the companies.
Battery Recycling – very, very small a business but Tata Chemicals has said that they have started work on this. But again, it’s going to be something very, very small. And Raw Material Suppliers – again, your steel, aluminium, your commodity companies which can benefit from a continued adoption of such technologies. And then finally, there’s a Third Order Effect – basically beneficiary industries from moving to towards electric vehicles. So logistics would be one of the best spaces as the operating cost would really drop and this would really help them or even the companies like Uber, Zomato, DoorDash, Swiggy, all of these companies which work on prudent economics would really improve if they are to use electric vehicles and the cost would actually drop by almost say, 70 – 80% on a per kilometre basis. Also, Airbuses continuously working on a zero emission commercial aircraft which is more likely towards Hydrogen fuel and they are targeting to launch it by 2035. So while this is a really long term, but if they’re able to do that, the dependence of the aviation industry on crude oil as their petroleum source would really reduce. And that has been one of the biggest cost for that industry. So that if this comes to fruition, your airlines can actually really benefit from this technology. So while this is while it’s easier to say that this technology will definitely get adopted, there is a large Third Order Effect as well. And to understand that better, I’d recommend this book called ‘Clean Disruption of Energy and Transportation’ by Tony Seba. So he’s actually not just the disruption from electric vehicles, but he’s actually trying to connect how different disruptions like the growth of renewable energy through solar cells and solar cells, and so on. All these come together to really benefit and bring down the cost even more. So what we pay as electricity cost, say upto ₹10 per unit, can actually drop even further if we use the solar cells in the future.
So how all of these new technologies can really come together and have a completely different impact than just any single technology all by itself. So, and this industry is definitely something that will grow considering all its use cases in the future. So this would be a very interesting read. However, I would warn in terms of the investments in this space. So Rajeev also had a very recent interview just I think about two days back on the technologies space, New Age technology companies where he mentioned that the mortality rate for a lot of these New Age technology companies is likely to be high especially when they are smaller, it’s the same thing in this industry as well, considering the number start-ups and companies trying to get a share of this space, there will be a lot of mortality risk or that the companies go out of business. And that is something that one needs to beware of, despite knowing that this is the technology of the future and this will definitely be successful. But which company will actually land up taking the major piece of the entire pie, that is something that is still unclear. So a very interesting space to track, and we’ll continue tracking it in the future. So some of the sources that I have used, I have mentioned here and I have even provided the link. So this presentation will be shared later on. So some of the links to the reports are also mentioned on the slides itself. And these are some of the other magazines or articles that I have been reading to keep track of this space. Thanks.
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