What to Expect from India's Top EV Stocks in 2023

The future of electric vehicle (EV) stocks is bright!

Although they are still a small percentage of the overall automotive market (at least in India), electric vehicles are gaining popularity and momentum.

The increased demand for EVs will lead to higher sales, which will lead to more research and development into EV technology, which will lead to even better EVs being produced. This cycle will continue until all cars and bikes sold are electric.

We say this because several factors are at play here.

First, more and more companies are producing electric vehicles.

Second, these companies are making significant investments in research and development (R&D).

Third, there's been an increase in demand for electric vehicles as consumers learn about their benefits.

Fourth, overall sales figures indicate that consumers are willing to pay more for cleaner transportation options like EVs.

We could see millions of electric vehicles hitting the roads over the coming years and decades.

In fact, as per a report by India Energy Storage Alliance (IESA), in India itself, electric vehicle sales are expected to hit 6.3 million (63 lakh) units annually by 2027.

And these are just India's numbers. When we look at potential global sales, this number could be in multiple millions every year.

The only question that remains is: which electric vehicle stock should you invest in?

We will let you decide that on your own, but to fast track the process, we'll highlight what India's top EV stocks have in plan for the future.

Let's get started.

#1 Tata Motors

In November 2022, Tata Motors rolled out its 50,000th electric vehicle. It became the first Indian auto company to achieve the feat.

Given its ambitious plans for the EV segment, no wonder Tata Motors is the market leader and the top EV company in India.

Tata Motors, being a part of the Tata group of companies, has a strong historical background. The management has proven itself at the time when the company's business was facing several headwinds.

Tata Motors has big plans for the EV segment and is expected to roll out around 10 variants of EVs by March 2026.

To go back to where the journey initially started, Tata Motors made just eight SUVs per day. Today, it makes more than 100 a day.

In financial year 2022-23, Tata Motors plans to produce electric 80,000 cars, which is 4 times more than previous year.

The EV journey of Tata Motors so far has remained fruitful. It continues to enjoy group synergies. How else can you justify the sharp rise in its share price despite raking in losses?

Tata Motors has reported losses for past four financial years.

Going forward, the journey may not be as fruitful as it seems because competition is heating up. As government wants 30% of all cars to be electric by 2030, Hyundai Motor and Kia Motors have aggressive plans to start selling EVs in India.

M&M is also likely to come out with new products by 2024. While Maruti is set to enter the EV market by 2025.

One advantage which Tata has is affordability. It has three models at present - Tiago, Tigor, and Nexon, which are priced between Rs 0.85 m and Rs 1.75 m.

But now, MG Motor has announced to launch an affordable EV priced below Rs 1.5 m. One can also expect Maruti's EVs to be affordable, given its focus on volumes.

Tata Motors is now betting big on the battery electric vehicle (BEV) technology. The company has laid out a strategy where it will launch a new electric vehicle in every two years. It will also tap into European EV markets via the Avinya concept.

In its latest quarterly results, Tata Motors said the demand is strong but there are global uncertainties. Going forward, the semiconductor shortage will ease as the company has made new agreements with semiconductor partners.

Meanwhile, commodity prices are already cooling which can help Tata Motors' margins.

With strong backing from TPG to the tune of Rs 75 bn (half of which is already received), Tata Motors will fare well in 2023 as long as if continues to introduce affordable EVs.

#2 TVS Motor Company

Part of the TVS group, TVS Motor Company is one of the companies betting big time on Indian EV supply chain.

The company has successfully established its name in the Indian EV market, both directly and indirectly. While the company manufactures 2 and 3-wheeler EVs, it has also built an efficient and sustainable charging infrastructure.

The company has been working on EVs for last one decade, but it was in 2017 when the company started betting big. In 2017, TVS invested in Bengaluru-based electric two-wheeler manufacturer Ultraviolette Automotive. Over the years, TVS has invested more in Ultraviolette.

Then in 2020, the company decided to invest a small sum in clean energy generation through solar and wind power for its EV charging infrastructure.

iQube was also launched in 2020, which is currently the only all-electric battery powered scooter in the market from TVS.

A major boost came in July 2021 when TVS committed a whopping Rs 10 bn to manufacture EVs under a separate vertical.

The company has set up a dedicated facility for EVs and is also developing integrated vehicle architecture with a critical backend manufacturing of battery and other critical parts managed in house.

In September 2021, TVS picked up 80% stake in a Swiss company EGO Movement for US$17.9 m. EGO Movement is a Swiss technology company providing a wide range of mobility solutions through a portfolio of e-bikes, e-cargo bikes, and e-scooters.

With all this focus on EVs, it should come as no surprise that markets have factored in the positives and sent the stock upward.

In 2021-22, TVS Motor Company sold over 10,000 electric vehicles. It also achieved one million annual exports for the first time.

Going forward, the company has plans for a 'product offensive' strategy and expects a strong growth story on the export front this year, fueled by growing demand for products as also due to operations in diverse geographies.

The electric two-wheeler industry is slated to grow rapidly and TVS has robust plans for this segment. The company will be launching a series of new products focusing on different customer segments.

The company expects the association with BMW to grow multi-fold in the coming years. TVS and BMW are also working on electric two-wheelers in the sub-15 kW platform.

The recent acquisition of Norton carries tremendous value and legacy. Norton has started production and will soon be available to customers. Norton is also in the process of developing an electric superbike.

According to reports, TVS Motor is set to launch five EVs over the next 12-15 months. The company is ramping up EV capacity to meet its target of 25,000 units by March 2023.

What separates TVS Motor from peers Hero and Bajaj Auto is that it has a steady market-share in the internal-combustion engine (ICE) vehicles segment. So, along with the EV transformation, the company is also catering to the traditional segment with newer and premium models.

No wonder the company achieved a milestone recently by becoming more valuable than its closest competitor Hero MotoCorp.

A worry for the near term for TVS Motor is its export sales have not been doing well due to geopolitical tensions.

Exports contributed to around 36% of the total revenue in financial year 2022 as compared to 28% in 2021. If exports pick up, it will be an added benefit.

With strong backing from the group and semiconductor issues easing in the next two quarters, TVS Motor Company is expected to do well in 2023. It could even outperform Tata Motors and other peers.

#3 Amara Raja Batteries

There's an emerging industry in India that is powering the EV shift. It's the EV battery industry.

Electric batteries have been in existence for decades. But the change we're seeing now is unlike anything we've seen before. Just between 2021 to 2025, the global EV battery market is projected to grow by 25% annually.

With so much growth happening in such a short time, EV battery makers could potentially generate life-changing gains for their investors.

Among the stocks involved in this space, Amara Raja Batteries stands as a key beneficiary.

The company is India's second-largest automotive batteries manufacturer. It has set its sights on the EV sector and is firmly poised to capture future growth opportunities.

The company will be investing around Rs 70 bn in lithium-ion over the next 5-10 years, while continuing its focus on traditional lead acid batteries.

The company has taken the first steps towards its next phase of growth in the New Energy business by supplying li-ion battery packs to three wheelers.

For the technology, it has invested in two start-ups (Log9, InoBat) and is open for more partnerships, in addition to organically developing technology.

Recently, the battery maker also announced incorporation of a subsidiary that will set up a multi-gigawatt hour lithium-ion cell manufacturing facility.

Capex in the financial year 2023 is expected to be in the Rs 5-5.5 bn range, for which it will be investing in the li-ion cell technology.

The company's performance in the last three years has been subdued due to the pandemic and increasing raw material costs. Its revenue increased at a CAGR of 9% in the last three years while its net profit increased at a CAGR of only 2%.

However, going forward, the company's revenue is expected to grow in the medium term driven by a steady offtake by automobile OEMs, pick up in industrial activities and focus on exports.

Profitability is also expected to improve supported by higher volumes, likely proposed price hikes and expected softening of lead prices.

The effect is already visible in its latest quarterly results where the company delivered strong operational performance. Net profit rose to Rs 1.1 bn, compared to Rs 18.2 m in the quarter a year ago.

What followed was a sharp rise in the company's share price. Soon after the company reported its September 2022 quarterly results, shares saw a sharp spike and continued momentum for the next few sessions.

Other EV Stocks to Track

The EV ecosystem is large. There are many players involved in charging infrastructure, battery swapping, EV ancillary manufacturers, companies with expertise in product and EV software designing, battery makers, metal, mining, and chemical companies.

So, apart from the three EV companies highlighted above, here are some others to track in 2023. With decent fundamentals, these companies will be relatively safer bets in the EV transition.

#1 Exide Industries

#2 Kabra Extrusiontechnik

#3 Minda Corporation

#4 Sona Comstar

#5 ABB India

#6 Fiem Industries

#7 Tata Elxsi

You can further check out these companies' fundamentals and valuations on Equitymaster's Indian Stock Screener.

This screener lists out the best electric vehicle stocks in India along with their valuations and return ratios.

In conclusion

Thankfully, India is now more serious than ever about electric vehicles. The country is gearing up for a mind-boggling transformation. Even car companies have shown the inclination to be a part of this revolution.

With so many factors acting in concert, it would be a mistake if investors don't start preparing for an electric car revolution.

Before signing off, we recommend you check out the below video where Co-head of Research at Equitymaster Rahul Shah explains how to pick the best EV stocks.

You can also check out the playlist on electric vehicles on Equitymaster's YouTube channel.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...