EVs are Burning. But What About the Future of EV Stocks?

On 23 June 2022, a video of an electric vehicle, the Tata Nexon EV, bursting into flames went viral on the internet. The video caused concerns about the safety of EVs even among the firmest believers of the EV megatrend.

But this is not the first electric vehicle to have caught fire in India.

Over the last few months, there have been many reported incidents of two-wheeler electric vehicles abruptly bursting into flames.

These EVs were manufactured by the likes of Ola, Okinawa, and Pure EV.

However, this is the first from a reputed Indian automaker - Tata Motors.

Tata Motors is one of the top EV companies in India. The company has more than 70% market share in passenger EV sales.

The group is also busy building what it calls Tata UniEVerse, an ecosystem that will leverage group synergies.

In this ecosystem, several Tata companies are coming together to provide electric vehicle solutions to consumers to improve EV adoption in the country.

What led to the fires?

Not much is known about the Tata Nexon incident, but an investigation is being conducted by the company.

In a press release, Tata Motors said,

• 'We will share a detailed response after a complete investigation. We remain committed to the safety of our vehicles and their users.
  
  This is the first incident after more than 30,000 EVs have cumulatively covered over 100 m km across the country in nearly 4 years'.

In the case of Ola, Okinawa, and Pure EV, sources claim that it could result from short-circuiting due to 'negligence in charging the vehicle'.

Now accidents happen all the time, but all experts point toward the one common element between all these vehicles - the lithium-ion battery.

EVs are powered by lithium-ion (Li-ion) batteries. These batteries can typically store 150 watts-hour per kg as compared to a lead-acid battery which stores only around 25 watts-hour per kg.

While this is its biggest benefit, it can also cause them to become unstable in certain conditions. They work best within a safe operating limit.

There have been a number of instances where devices or vehicles powered by Li-ion batteries have erupted into flames.

Samsung's Note 7, and Tesla's Model S are two examples of devices that use Li-ion batteries that have abruptly caught fire in the past.

What does this mean for the future of electric vehicles?

In relative terms, the number of EVs catching fire is still small compared to the number of units sold.

As per industry statistics, EV sales hit their highest at 429,217 units in the financial year 2022, up 218% from 134,821 units in the financial year 2021. This was also 155% higher than 168,300 units sold in 2020.

Despite the fires in the last couple of months, the trend continues. EV sales in India came in at 211,398 units during the June 2022 quarter, up by 686% from 26,833 units in the June 2021 quarter.

Of this Tata Motors EV sales stood at 9,283. The company also reported its highest-ever monthly sales of 3,507 units in June 2022.

The surge in sales can be attributed to an increase in the availability of products in the market, high petrol, diesel and CNG prices, state subsidies, and sops offered under FAME II.

There is also a growing consumer awareness about the need to use environment friendly transport.

To cater to this demand, companies are investing heavily in the EV space.

Mahindra & Mahindra is betting big on the tectonic shift in the automotive market and plans to invest Rs 30 bn in EVs in the near term.

On the other hand, Exide is set to invest Rs 60 bn to establish a lithium-ion cell manufacturing plant in the country in collaboration with China's SVOLT Energy Technology.

Maruti Suzuki's parent company Suzuki Motor corporation along with its subsidiary SMG has also signed a memo of understanding with the government of Gujarat to invest Rs 104 bn in EV batteries.

This would help the company to localise and expand its presence in EV space.

You see, in spite of the fires, the day is not far away when most of the cars sold in India will be electric. To cut down expenses and reduce dependency on crude oil, electric cars will become more of a necessity than a choice in the near future.

The government's nudge is another area that is creating an opportunity for the sector.

But are EVs safe to drive?

While there are valid concerns regarding the safety of these vehicles, measures are being taken by both EV manufacturers and the government. After Transport minister Nitin Gadkari warned of penalties, Ola Electric, Okinawa, Pure EV, and Boom Motors made around 7,000 recalls.

The government of India also stepped in with a plan to formulate procedures for battery certification and quality control. The move is a bid to prevent such incidents from reoccurring.

Besides this, it has formed a panel of experts from the Naval Science & Technological Laboratory, the Indian Institute of Technology, the Indian Institute of Science, Bengaluru, and an expert in advanced chemistry.

Another committee with was formed to probe the circumstances that led to the incident and suggest remedial measures.

Meanwhile, EV manufacturers are transitioning away from li-ion batteries to bring down the risk.

Some companies such as Zypp Electric, a last-mile delivery service, using Hero Electric EVs are already using alternatives such as a lithium ferro phosphate (LFP) battery. The battery has a lower energy density but is relatively more robust and stable compared to a more advanced lithium cell.

They could also opt for green hydrogen cells.

Green hydrogen is produced by splitting water into hydrogen and oxygen using an electrolyser. Electricity from renewables, like wind and solar, power the electrolyser.

This could be a game-changer for EVs that rely on Li-ion batteries.

Tanushree Banerjee, Co-head of Research at Equitymaster, recently wrote about how green hydrogen cells could be a great option for EVs in one of the editions of Profit Hunter.

You can read it here - Can Green Hydrogen be India's EV Battery Solution.

For more details, you can also check out the playlist on electric vehicles on Equitymaster's YouTube channel.

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