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  • Nov 23, 2023 - Top 6 Stocks Supplying Critical EV Components to Tesla

Top 6 Stocks Supplying Critical EV Components to Tesla

Nov 23, 2023

Top 6 Stocks Supplying Critical EV Components to Tesla

After years of anticipation, Tesla's entry into the Indian waters is finally within sight.

The American automaker has been in discussions with the Indian government to reduce import regulations and taxes on electric vehicles (EVs).

After years of negotiations, it looks like Tesla's persistence has paid off. With the Indian government eager to promote EV adoption and boost manufacturing in the country, it might be on the verge of granting Tesla's wish for concessions on import duty.

If all goes well, you could spot a Tesla on Indian roads in 2024 and also witness Tesla setting up a factory in the next two years.

Tesla's entry into Indian markets will provide multifold benefits. It will accelerate the adoption of EVs and boost the growth of Indian auto component manufacturers.

Tesla is already sourcing components from several Indian companies, and this trend will continue if it starts its operations in India.

In 2022, the company imported components worth US$ 1 billion (bn), and the 2023 target is around US$ 1.7 bn.

If Tesla sets up its manufacturing unit in India, auto ancillary companies will benefit from high demand.

Here's a list of six Indian companies that are already supplying their products to Tesla.

#1 SKF India

First on the list is SKF India.

A subsidiary of the AB SKF company, which is a Swedish bearing and seal manufacturing company, SKF India is a leading supplier of bearing, seals, mechatronics, and lubrication systems.

In the automotive segment, it caters to the light vehicle market, truck market, and aftermarket.

Some of its clients include Bajaj, Tata, Mahindra, TVS, and Yamaha.

If Tesla sets up a manufacturing unit in India, SKF will be one of the primary beneficiaries.

SKF India's parent company has worked with Tesla right from the time Elon Musk's firm launched its first sports car in 2008.

At present, SKF India is manufacturing and supplying deep groove ball bearings and ceramic bearings for the electric motor and gearbox for Tesla vehicles.

The company is also preparing itself to cater to the needs of this popular automotive company by actively investing in developing new products.

As of March 2023, the company has 63 new products in its pipeline. If needed, the company will also expand its capacity like it did in the past to cater to the growing demand for ball bearings.

Coming to its financials., the revenue has grown at a compound annual growth rate (CAGR) of 6.9%, driven by growth in sales and realisations. The net profit also grew by a CAGR of 9.3% during the same period.

To know more, check out SKF India's financial factsheet and latest quarterly results.

#2 Suprajit Engineering

Second on the list is Suprajit Engineering.

The company is one of the largest suppliers of mechanical cables to domestic two-wheelers and passenger vehicles. It also supplies to aftermarket and export markets.

Suprajit Engineering started its journey from a single customer (TVS), catering to a single segment (two-wheeler) from a single location (Karnataka). Today, the company caters to multiple customers, segments, and locations.

This was made possible mainly through acquisitions. The company has acquired many companies over the years to grow and strengthen its presence in the cable market in India and abroad.

Some of its acquisitions are Shah Concabs, CTP Gills, Pricol's Speed business, and Wescon Controls.

It also entered the halogen lamps market by acquiring Phoenix lamps.

In 2022, the company started supplying its products to several reputed global companies, including Tesla, Fiat, Land Rover, and Mercedes, after acquiring the Light Duty Cable (LDC) business unit of Kongsberg Automotive ASA, a Norwegian company.

LDC has a diverse manufacturing footprint and supplies its products to automotive, non-automotive, and two-wheeler segments.

With this acquisition, Suprajit Engineering has expanded its footprint across the USA and Europe while improving its position as a leader in non-automotive and off-highway controls in both geographies.

Since the company is already supplying its products to Tesla in the US through the new acquisition, when Tesla starts manufacturing in India, Suprajit Engineering will already be a part of Tesla's trusted suppliers list.

Coming to the financials, the revenue and net profit grew at a CAGR of 11.4% and 2.6% in the last five years.

Going forward, the company's continuous efforts to expand its footprint and introduce new products will drive its revenue and net profit in the medium term.

To know more, check out Suprajit Engineering's financial factsheet and latest quarterly results.

#3 Z F Steering Gear (India)

Third on the list is ZF Steering Gear.

The company was incorporated as a joint venture with ZF Friedrichshafen AG, a German company.

It is primarily engaged in manufacturing and assembling steering systems for vehicles, buses, and tractors.

The company's products include steering systems, vane pumps, pump pulleys, steering columns, and bevel gearboxes.

Some of its clients are Ashok Leyland, Daimler, Force Motors, and Mahindra Trucks and Buses.

The German company ZF Friedrichshafen AG has collaborated with Tesla in the USA to manufacture brake discs and spare parts for Tesla cars.

Being the India counterpart to the German company, ZF Steering Gear India primarily benefits from this partnership with Tesla.

When Tesla starts manufacturing in India, ZF Steering Gear India can fulfil the orders for Tesla on behalf of ZF Friedrichshafen AG.

Coming to the financials, ZF Steering Gear India's revenue and net profit have grown at a CAGR of 26.7% and 40.1%, respectively.

Going forward, the company's efforts to expand its product portfolio through high investment in research and development (R&D) can drive its growth in the medium term.

To know more, check out ZF Steering Gear India's financial factsheet and latest quarterly results.

#4 Sundram Fasteners

Next on the list is Sundram Fasteners.

Part of the TVS Group of companies, it is engaged in manufacturing critical, high-precision components such as fasteners, gear blanks, turbine and output shafts, oil pumps, radiator caps, and rotors and gears.

The company's clients are major original equipment manufacturers (OEM) such as General Motors (GM), John Deere, Daimler Chrysler, and Cummins.

In 2017, Sundram Fasteners bagged an order from Tesla to supply key parts in gear transmission and equivalents of radiator caps.

Some of the products it supplies to Tesla are rotator caps, bevel gears and surge tank caps.

Being a trusted supplier of Tesla, it may benefit if Tesla starts manufacturing in India.

Coming to its financials, in the last three years, the company's revenue and net profit have grown at a CAGR of 15.8% and 11.3%, respectively.

This is primarily due to the healthy growth across all its product segments.

The company is expecting to invest Rs 3 billion (bn) in two years to expand the capacities of new products at existing plants.

Going forward, high research and development (R&D) spending to develop new products will drive its revenue in the medium term.

To know more, check out Sundram Fasteners' financial factsheet and latest quarterly results.

#5 Sandhar Technologies

Fifth on the list is Sandhar Technologies.

The company is engaged in manufacturing and assembling automotive components such as locks, aluminium die-casting components, sheet metal components, cabins, and mirrors.

It caters to several reputed clients, including Royal Enfield, TVS, Honda, Ashok Leyland, Suzuki, Mahindra, JCB, and Caterpillar.

The company manufactures its own products and also has technical collaborations with various companies in Japan, the USA, and Korea.

In 2017, Sandhar Technologies manufactured two components for the wiper system assembly for the Tesla Model 3. Since then, the company has been manufacturing various components for Tesla directly or through technical collaborations.

As the company is already manufacturing components for Tesla, it will be a primary beneficiary if Tesla starts manufacturing in India.

Sandhar Technologies is planning to invest Rs 5.4 bn in capex over the next two years towards manufacturing new products.

Coming to its financials, the revenue and net profit have grown at a CAGR of 15.9% and 3.5% in the last three years, primarily due to growth in volumes and realisations.

To know more, check out Sandhar Technologies' financial factsheet and latest quarterly results.

#6 Varroc Engineering

Last on the list is Varroc Engineering.

Part of the Varroc Group, Varroc Engineering is a manufacturer and supplier of automobile components to a wide range of OEMs across the globe.

It has a diverse product portfolio across vehicle segments (2-wheeler, 3-wheeler, and 4-wheeler). Some of its products are lighting, polymer-based solutions, electrical electronics for automotive, and forged and machined parts for engines and transmissions.

The company clientele includes reputed companies such as Bajaj, TVS, Hero, Mahindra, Ford, Volvo, Suzuki, JCB, Renault, and Land Rover.

In 2017, the company bagged the first order from Tesla. It provided the entire lighting system for the Tesla Model S sedan and Tesla Model X crossover.

Since then, the company has bagged multiple orders from Tesla. Even now, Varroc Engineering is one of the top names on the list if Tesla plans to set up a manufacturing plant in India.

The company divested its loss-making 4-wheeler lighting business in Europe and America to concentrate on high-growth margin business.

Coming to its financial performance, the revenue has grown by 17.7% year-on-year (YoY) in the financial year 2023. It also reported a net profit of Rs 388 m against a loss of Rs 783 m the previous year. This was primarily due to divestment.

During the financial year 2023, the company won orders worth Rs 51 bn from several prominent OEMs.

Apart from catering to existing orders, it is focussing on developing new products to expand its product portfolio and boost its revenue.

To know more, check out Varroc Engineering's financial factsheet and latest quarterly results.

Conclusion

Once Tesla enters Indian markets and sets up its manufacturing unit in India, the above companies could possibly also gain significant exposure to the global EV market.

Although the opportunities for top Indian auto ancillary companies are immense, and the future looks bright, you must do your due diligence before considering any company for investment.

Sustained research must not be compromised.

You can also check out the video version of this editorial on Equitymaster's YouTube channel.

Happy investing!

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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