Of the total EV sales in FY23, electric two-wheelers and three-wheelers accounted for 62% and 34%.
A few months ago, 5.9 million tons of lithium resources were found in Jammu and Kashmir.
As per the Union Minister Nitin Gadkari, it could make India number one auto manufacturer in the EV segment.
Frankly, I am not sure of that.
You see, there’s many a slip between the cup and the lip. Little is known about these reserves, how these will be mined in a viable way, the process to extract the output, and so on.
So that’s not the reason I will bet on an EV revolution. But I’m optimistic about the rise of EV adoption in India.
The electrification of vehicles is not just a narrative anymore, but a megatrend that is talking over in the country.
This transition has been made possible by multiple factors, the biggest of which is the decline in the battery costs.
Then we have policy tailwinds – PLI schemes, carbon footprint commitments, subsidies, and investment in electric vehicles by corporates.
It’s like little pieces coming together to make this vision a reality, specially in two wheeler segment.
And there is data backing it. Of the total EV sales in FY23, electric two-wheelers and three-wheelers accounted for 62% and 34% respectively. Overall EV sales in FY23 were up 58% YoY.
Now India is a unique country, in the sense that 2 wheelers comprise over 80% of the of the auto volumes.
If we look at our closest neighbour China, 80% of the 2 wheeler fleet is electrified.
With low cost of ownership, comparable performance and conducive charging options, as two wheelers can be charged at home at minimal cost, the EV transition in the two wheeler space is on an accelerator.
Here’s how to visualise the size of this opportunity.
In FY23, two-wheeler sales in India were 15.8 million units.
Now auto is a cyclical sector. So let’s consider a moderate 5% growth for the next 10 years. At this rate, we are looking at two-wheeler sales of 22 million units per year by 2030.
Due to all the reasons mentioned above, one third of these could be electric vehicles. That is 7.3 million electric two-wheelers per year. In FY23, the two wheeler EV sales volumes stood at 0.7 m.
That’s a 10x opportunity in this decade.
Early investors in this opportunity are in for a big wealth creation journey.
If you have been following me, you would know that I’m not too keen on direct players – EV automakers for whom the rise of EVs is more like a cannibalisation. I’m more interested in the pick and shovel plays – the EV ecosystem.
We have seen some of smallcap recommendations like Minda Corp, Fiem Industries, and Kabra Extrusiontechnik capitalise on the EV trend. But that’s just one niche.
I see another big opportunity unfolding in the chemical industry.
As per the World Economic Forum, and Mckinsey, battery demand in 2030 for EVs, energy storage, and consumer electronics, is estimated at 2,633 GWH with EV battery chain providing revenue opportunities of US$ 300 bn.
Almost a dozen companies are planning to set up EV battery manufacturing plants in India over the next few years, with the government push to make India a significant global manufacturer of EV vehicles.
After inviting global bids for giga-scale Advanced Chemistry Cell (ACC) production units, the government has selected four bidders from ten for allotment of 50 GWh of battery capacity.
These include Reliance New Energy Solar Ltd., Ola Electric Mobility Pvt. Ltd., Rajesh Exports Ltd., and Hyundai Global Motors Company Ltd.
They will receive incentives to boost local battery cell production. The battery manufacturers would have to set-up ACC capacities under PLI scheme within a period of two years.
This is expected to lead to direct investment of around Rs 450 bn in ACC Battery storage manufacturing projects. As such, a great window of opportunity has been opened for the chemical companies that are or going to be a part of the EV battery supply chain.
One such player is Neogen Chemicals – a leading manufacturer of Bromine and Lithium-based specialty chemicals. It has customers across multiple industries including Pharma, Engineering, Battery Chemicals, and Agrochem.
Almost 50% of the revenue come from export markets. The company is backed by technocrat promoters.
Neogen has planned new initiatives in the Li Battery sector. It is developing a portfolio of battery application products that include electrolyte formulations, electrolyte lithium salts, specialised cathode materials and other advanced intermediates. A lot of these products are at quality and efficiency optimisation stage, and have the potential of commercial scale up.
The company is having discussions with over 15 potential cell manufacturers across the world that are interested in electrolyte and electrolyte salts.
I spoke about this opportunity in my video below a quarter ago.
The stock has gained nearly 34% in the last four months.
Another player in EV chemical space is Balaji Amines. The company is a well-known market leader in the production of aliphatic amines that find uses in pharma, agrochemicals, dyes, and paints industry.
In a recent capex plan, Balaji Amines has added another chemical to its basket that will help it foray in the electric vehicle segment.
In September 2022, it has started producing DMC chemical or dimethyl carbonate with an installed capacity of 15,000 MTPA.
DMC is used as an electrolyte in lithium ion batteries. Besides, it is used in manufacturing polycarbonate – a light weight high strength polymer that finds use in contact lenses, medical devices, automotive components, and electronic devices.
The company will be the sole producer of this chemical in India. So far, the domestic demand has been met through imports. With rise in electric mobility, this demand is expected to rise. Besides, the product will also be used for exports.
Another example is Gujarat Fluorochemicals (GFL).
It is a leading chemicals company with niche in fluorine chemistry. Its products find applications in pharma, food, auto, aerospace and defence, telecom, electronics and semi conductors, cookware, paints, and so on.
Along with fluoropolymers, it deals in refrigerants, specialty and bulk chemicals. It is a major producer of chloroform. It claims to be the sole manufacturer of PTFE/fluoropolymer. It is also the largest producer and exporter of R22, which is a feedstock for refrigerant gas.
More importantly, it is developing products and chemical grades that are catering to new age businesses such as EV batteries, Solar Panels & Hydrogen Fuel Cells.
One such category of products is PVDF polymer, that is widely used as binders in lithium ion batteries. It can be injected, molded or welded and is commonly used in the chemical, semiconductor, medical and defense industries, as well as in lithium-ion batteries.
GFL has developed suitable PVDF grades for cathode binder application.
Further, the company is in the process of setting up an integrated battery chemicals complex.
These were just some examples to keep on your radar. Please do not treat them as recommendations.
The key idea is – huge opportunities are emerging in the EV ecosystem and EV stocks.
To stay updated on these, stay tuned.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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