Electric Car Revolution: Stock Watch list

Electric car final.jpeg

This is our third and final article of the series ‘Electric Car Revolution’ and today we will discuss about the stocks which can potentially benefit from this shift. For recap, in the first article, we wrote about the challenges to the adoption while the second article was about different industry sectors that can be positively or negatively impacted.

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Assuming that you have already gone through first two articles, let’s straightaway jump to stocks that can potentially benefit from electric car production. This list is not a recommendation but take it as a watch list of stocks as of now. Many stocks are overpriced so you should watch out for margin of safety before buying these stocks. There is no hurry to buy since these overpriced stocks will certainly correct in future as earnings are not going to support these price levels. It will take at least another two years for earnings to kick in when companies can actually start selling electric cars to masses in India. So be watchful and grab them when Mr market corrects them.

Exteriors of the car

  1. Car Body: Exteriors of a car are the major contributor of weight since it is made up of steel. A large weight can hamper car’s performance if it is running on battery. This will force manufacturers to look for aluminium and iron-alloys for shaping car’s exteriors. It can benefit Hindalco & NALCO as they are top producers of aluminium in India. Among smaller companies, Maan Aluminium and Arfin India can also be an interesting play in future.
  2. Lights: Lights are going to be LED based for all-electric cars so stocks to watch out can be FIEM Industries, Suprajit Engineering, Phoenix Lamps & Lumax Industries.
  3.  Tyres: Tyre industry will only benefit since there is no threat to them from electric cars. However, they might need to evolve in terms of tyre technology to reduce rolling friction for cars. While there are only handful of tyre producers in India so beneficiary can be stocks like Balkrishna Industries, Apollo Tyres, Goodyear, CEAT & MRF.

Interiors of the car

  1. Wiring & Internal components: Electric car will need three times more wiring than conventional cars. This will result in more content in terms of wiring harness per car and can positively impact leading players like Motherson Sumi, Minda Corporation, etc.
  2. Seating System & Ancillary: Seating system including seat belts and hosting assembly suppliers can also have a positive impact and expected beneficiary can be Harita Seating, Bharat Seats & PPAP Automotive.
  3. Power: Future electric cars will draw power from lithium ion batteries which are light weight and more powerful than lead acid batteries. At present, no listed company is manufacturing lithium ion batteries in India. However there is technology available with Johnson Controls which has 30% stakes in Amara Raja Batteries. Suzuki Motors has decided to set up lithium-ion battery plant in Gujarat in collaboration with Toshiba & Denso Japan. Similarly BHEL is also planning to spend Rs 5000 crores to setup manufacturing plants for lithium-ion batteries. It is partnering with ISRO (Indian Space Research Organization) for developing low-cost lithium ion batteries. Battery is hoing to become new oil and it will not be surprising to see many big names entering into this space. Recent development includes Reliance Industries, British Petroleum, Indian Oil & Adani Groups, all are planning strategies to setup lithium ion battery giga factory in India. NTPC is seeking pan India license to setup charging stations and so far it has setup charging stations in its Delhi & Noida offices.

Inside the Lithium Ion Battery

Manufacturing of Lithium-Ion Battery is a complex technology and requires sophistication. At the moment, there are various types of chemical compositions which are used for manufacturing a lithium-ion battery. This is a high focus area where a lot of research is ongoing. In the future, company having best technology will eventually capture most of the market share. Since most of battery manufacturing is happening outside India, so our best bet can be chemical companies dealing in these materials. Lithium Ion Battery Maturity

The above graph depicts the maturity level of various chemical compositions that goes into battery making. Tesla (American electric car manufacturer) uses Li-Ni-Co-Al combination while BYD (Chinese electric car manufacturer) uses Li-Fe-P combination.  As you can see from the above graph, most commonly used chemicals for cathode are of course Lithium (Li), Magnesium (Mn), Cobalt (Co) & Phosphorus (P) in respective order. The anode remains carbon composite. There are many mining & chemical stocks which should be on your watch list from these sectors:

  • Himadri Chemicals
  • Sandaur Magnesium & Iron Ores
  • Graphite India
  • HEG
  • Phillips Carbon Black
  • MOIL
  • UPL
  • Oriental Carbon & Chemicals

With this, we come to an end of our series on electric car revolution. As we have been stating through-out the series, it is still very early to pick up winners which will eventually emerge from this change. However to begin with, one can invest in the stocks which serves both internal combustion engine based cars as well as electric cars. Tyres,  shock absorbers, seating system and wiring companies do not have any threat from this change and can be a safer bet while auto & battery manufacturers and chemical companies are riskier bets at this stage. As an ace investor, keep a watch list, remain updated with latest developments & wait for the ripe opportunity before investing big into electric vehicle themed stocks.

We @ AI are also keeping a track and will be recommending high potential stocks with our paid subscribers as and when opportunity arises. Story has just begun and it has a long way ahead!!

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