Top 3 Auto Stocks Leading India's Vehicle Scrapping Revolution

With growing concerns about climate change, corporate companies and governments are turning their heads towards the recycling and recyclables industry.

The transportation industry is a major polluter, accounting for 24% of all man-made CO2 emissions. But a revolution is brewing.

The government is cracking down on dirty emissions, and electric vehicles (EVs) are taking over the roads.

There's also another way the automotive sector is contributing to a greener world - through car recycling.

Did you know that recycling a single car saves approximately 2,500 kg of iron ore, 1,400 kg of coal, and 125 tonnes of limestone!

India is now leading the charge with its brand-new Vehicle Scrappage policy. This means all commercial vehicles older than 15 years, passenger vehicles older than 20 years, and government vehicles older than 15 years must be scrapped if they fail the roadworthiness test.

Birth of Vehicle Scrapping in India

In the past, Germany and Singapore have successfully implemented car scrappage programs, while the USA programs saw moderate results. These programs take old, polluting vehicles off the road.

End of Life (ELV) scrapping is still nascent in China, India, and South Africa.

India's Vehicle Scrappage policy aims to provide financial incentives to get people to trade in their old gas guzzlers for newer, more fuel-efficient models.

On top of government rebates, automobile manufacturers are also offering a discount of 5% on the purchase of a new car if you can show proof that you scrapped your old one.

Currently, India has over 5 million (m) light motor vehicles older than 20 years old on the road. That's not all! There are another 300,000 that are at least 15 years old.

A report predicts that by 2025, India will have 20 million unfit vehicles that must be scrapped.

And India has already taken a giant leap by opening the first ever government-approved registered vehicle scrapping facility (RVSF) in Noida. The facility was a result of the Maruti Suzuki - Toyotsu collaboration.

Why Leading Indian Auto Companies Are Foraying into Recycling Business

With pressure mounting for a cleaner environment, car companies are seizing a golden opportunity: turning old vehicles into valuable resources.

It's a smart move for automakers as recycling showcases their commitment to sustainability, and it can potentially boost their bottom lines.

By 2028, scrapping vehicles could inject 46 m tonnes of steel back into the domestic market. As cars are 70% made of steel, this can translate to a potential reduction of 6-8 m tonnes of steel scrap imports, saving almost US$3-4 billion.

And it's not just about steel. Other valuable non-steel parts from old cars can be recycled, too.

The recycling process is itself becoming more streamlined with the new government policy:

1. Get a quote for an old car
2. Have it conveniently collected
3. Receive support with deregistration

There are three dominant players in the RVSF space in India at present.

#1 Mahindra & Mahindra (M&M)

Mahindra & Mahindra (M&M) is a leading vehicle manufacturer that has a presence in several industries like automotive, aerospace, agri-business, IT, consulting, clean energy, financial services, and defence.

CERO, a trailblazing joint venture between Mahindra Accelo and MSTC, is making waves in the Indian car recycling scene. As the first organised vehicle recycler, it has a head start in this booming industry.

With over 150,000 ELVs scrapped already, the company is proving that eco-friendly car recycling is the future.

Currently, the company has nine plants strategically located across 36 cities to improve accessibility to vehicle scrapping. By 2025, CERO aims to establish a presence in over 100 Indian cities with a projected annual capacity of 15,000 units per plant.

CERO can recycle 95% of the cars, but with technology advancements, this number is expected to climb to 97%-98%.

CERO is currently exploring ways to recycle plastics from old cars.

It has an annual capacity of 300,000 cars, but that's just the beginning. The company has ambitious plans to scale up to 1 million cars annually by 2026, depending on the availability of ELV vehicles.

#2 Tata Motors

Keeping up with the green momentum, in February 2023, Tata Motors started its first RVSF near Jaipur in Rajasthan. It is a collaboration between Tata Motors and CV dealership Ganganagar Vahan Udyog. This facility can dismantle both passenger vehicles and commercial vehicles.

Recently in March 2024, Tata Motors inaugurated its 5th RVSF - Re.Wi.Re (Recycle With Respect) near Delhi. It is built in partnership with Johar Motors, boasting an annual capacity of 18,000 ELVs.

It also has plans to scale up its RVSF business by doubling Re.Wi.Re facilities by the end of FY2024.

#3 Maruti Suzuki (India)

Maruti Suzuki is India's largest passenger car maker, with a 44% market share in the passenger car segment. It is responsible for starting the automobile revolution in the country.

Recognising the potential of the car recycling business in India, Maruti Suzuki decided to start another green automobile revolution in India.

The Maruti Suzuki Toyotsu India (MTSI), a JV between Maruti Suzuki and Toyota Tsusho Group, has a state-of-the-art car recycling facility in Noida with an annual capacity of 25,000 cars. It was the first RVSF facility in India.

The company takes measures to responsibly dismantle and recycle vehicles, reduce pollution, and conserve resources.

It is a pioneering customer-centric car recycling operation with doorstep pick-up for ELVs. Car owners can also walk in and drop their ELVs off for recycling.

The company generally offers 4% to 6% of the ex-showroom price of a new vehicle and deposits in the car owner's bank account for a streamlined process.

In Conclusion

While the EV revolution in India is good, it also puts pressure on recycling companies. The country has 46 million EVs that need new technologies for battery recycling and recovery of precious metals and plastics.

The RVSF landscape faces challenges due to lack of scale. The entry of major companies in the recycling space could spur innovation and address these challenges as the competition heats up.

Even though the country doesn't have to worry about EV recycling imminently, extracting and recycling lithium-ion batteries is difficult.

The government has welcomed private players in the RVSF space, but there is a low demand for scrapping vehicles. The recycling companies blame the lack of awareness and competition from unorganised scrappers for the low demand.

Additionally, the government is criticised for auctioning its old vehicles instead of leveraging these scrapping facilities, further reducing the potential customer base.

To turn this situation around, the government plans to implement a robust network of Automated Testing Stations (ATS) to determine a vehicle's fitness. Plans are underway to invest Rs 100 bn in this project.

Right now, the leading automakers are unlocking new growth opportunities in this space with hopes for large-scale implementation of the necessary infrastructure.

But there will be more companies that will follow... and more proxy plays that will benefit.

Even the top recycling companies in India may tie up with auto companies in the future via a JV or partnerships.

Stay tuned to this space for more.

Happy Investing!

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