This is the second article from our series of three articles covering electric car revolution in India. In this second article, we are going to explore various sectors that are likely to get impacted (positively or negatively) from this phenomenon. To read our previous article of this series, please click here.
- Auto Industry: Ever since government has decided to go all-electric by 2030, all auto companies are reshuffling their plans to push electric car production in front. Auto manufacturers will be the first one to be impacted and depending on their strategy, it can have either positive or negative impact. Since major auto players have established distributors network, they will remain immune to threat of new players in India. Also it is not easy for a new player to match the scale of production which these companies posses. So we don’t think there will a new name among auto companies, rather current companies will have their market share redistributed. Presently in India, Maruti Suzuki leads this industry followed by Hyundai. This order may change if these companies fail to reinvent themselves. While cat is still in the bag, there is no clear winner at the moment. Mahindra & Mahindra (M&M) has Reva under its product portfolio for long but it has failed to take off. Tata Motors is also working with various start ups to build an eco-system for its future electric car. So in a nut shell, at the moment, pan is hot but no one can smell the food. It will take a year or two for these companies to start rolling out their product strategies for electric cars. M&M has an early movers advantage but it is very thin & some other manufacturer might beat it by building much advanced electric car. So look out for companies having joint venture with foreign companies or access to latest technologies. It is going to be key in future.
- Aluminium Industry: Auto makers & auto ancillary are re-engineering their products to save a few grams or kilos. A lower car weight can significantly improve battery range and also indirectly decrease the costs for the expensive battery pack. Aluminium which is lighter than steel but can still provide good structural strength may replace steel. It is widely used in aircraft industry where every kilo is counted. So it is bound to play a dominant role in order to bring the weight of electrical vehicles down. Aluminium metal prices on London stock exchange have risen 15% this year on back of increased demand vs supply. In India, we have some large aluminium manufacturers like Nalco & Hindalco. It will be interesting to see their future alliance with auto manufacturers.
- Battery Manufacturers: The most critical component in electric car will be battery. It is life-line of the car & will also become the best kept secret of manufacturers. Tesla uses lithium-ion batteries but their manufacturing technology is kept as top-secret. Lithium Ion is the same type of battery which is used in smartphones as well. Different types of lithium-ion batteries are in use & they have cathodes made of lithium molecules. The anodes are usually made of carbon. Like any other batteries, chemical reactions between the anode, cathode and electrolyte generate electric current. The materials used for the anodes and cathodes will impact the battery’s performance, capacity, cost and safety. For example, lithium ion batteries having lithium cobalt oxide cathode has higher capacity but are more prone to heating. Lithium iron phosphate is another type of battery, which has five times longer lifetime, eight times higher power density and wider operating temperature range than standard lithium ion batteries. Currently battery industry is very flat industry in India. It’s a duopoly between Exide & Amara Raja grabbing more than 90% of market share. As of now, both are engaged in lead acid battery manufacturing, which is not going to find application in future electric cars since lead acid batteries are very heavy. This sector may see a new name if some other biggies venture into lithium ion manufacturing (BHEL & Maruti Suzuki are mulling the idea of manufacturing lithium ion batteries). As of now, this sector will have definite positive impact but will Exide & Amara Raja be able to reinvent & produce technologically advanced lithium ion batteries is something only time can tell.
- Copper & Auto Ancillaries (Electric wiring & LED manufacturers): This sector should be positively impacted by this shift. It is estimated that there will be three times more usage of electrical wiring & copper in an electric car as compared to combustible engine powered cars. Also there will be more usage of LED based lights rather than usual bulbs as LED is more efficient in terms of energy utilization. The auto ancillary companies dealing in electric wiring harness & LED lighting can benefit from this shift. Apart from that, we see copper industry also benefiting from this trend as the usage of copper goes up significantly per car. Copper will also be used in charging station infrastructures as well.
- Power Companies: Power will become the new gasoline for electric cars. Definitely this is another sector that will benefit from this revolution. Large power producers & power distributors will be the beneficiary. We expect power companies like NTPC & Power Grid to become new ONGC, BPCL & HPCLs of future. Some of these companies are aggressively pushing up their plans for building up charging stations infrastructure.
- Chemical Companies: Battery manufacturing is a complicated process which will involve many special chemicals for manufacturing of anode & cathode. As we explained earlier, anodes & cathodes will directly impact battery performance and thus vehicle’s performance. Think of them as injection valves of combustible engines. Today’s technology uses mainly graphite & carbon composite anodes while cathodes are mainly consisted of lithium along with cobalt, nickle & some portion of aluminium. The companies manufacturing specialty chemical products for these battery makers can make significant profit in wake of this boom. Apart from this, we expect plastic manufacturers to also gain traction since most of non-structural components will be made up of plastic composites instead of metal.
- Engine makers, engine component makers & lubricants: Possibly the latest combustible engine has already been developed. R&D spend on combustible engines has already stopped & engine manufacturers are sweating at the idea of all-electric vehicles. Their customer base should shift from auto companies to large-scale industries which might still need an engine (such as generators etc). This will reduce them in size and market cap. All companies dealing in engine components such as pistons, valves, carburetor & cam shaft will also face the same fate. In electric car, there are only 25 moving parts as compared to 150 moving parts in traditional cars. This means lesser friction & lesser need for lubricants as well.
- Oil Industry: Oil industry will be direct in firing line in the wake of electric car revolution. With more electric cars replacing gasoline cars, oil industry might collapse (major oil companies repeatedly denies any impact but will recognize in future since there is still lesser electric vehicles to make an impact). This can have a ripple effect on petrol & diesel prices as well and in future one liter of gasoline is certain to cost far lesser than today but it can not go down beyond a certain level since the cost of oil extraction, transmission, refinery has to be factored in to make it a profitable business. Environmental concerns will also keep a check on growth of polluting industries like oil.
- Steel Industry: Steel industry will be moderately impacted since steel is used in a variety of industries apart from auto. While steel demand from auto manufacturers will go down, it may get compensated by increased demand from infrastructure & real estate in future.
In summary, there will be positive & negative impacts to various sectors of the economy but at this moment when there is not many electric vehicle actually on the ground, speculating on certain stocks can backfire. Imagine if you had invested in M&M thinking they have India’s first electric car (Reva). Reva is loss making while M&M is growing, thanks to tractor segments. Also the type of technology that will be used for manufacturing future electric cars may undergo major overhaul in next two years (considering the fast pace of R&D in this space). Tomorrow Tata Motors or Maruti can come up with more advanced electric cars who knows. Right now there are many moving parts and it is best to wait for some more time till clarity emerges. Buying an overpriced stock which is trading above next two years earnings makes no sense since there is still some time for earning to come from this boom.
In the next article, we will talk about various stocks that may benefit due to this disruption. Till then stay tuned!!
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