Top 4 Reasons Why EV Sector Stocks are Buzzing

The electric vehicle (EV) sector is buzzing with activity all over the world.

Switzerland recently announced it's considering a potential EV driving ban due to power shortages.

Meanwhile, the Indian government is considering allocating a huge amount in the upcoming budget to promote the adoption of EVs and provide incentives for battery manufacturing.

These developments demonstrate the growing interest in electric mobility and the potential for it to become a major part of the transport landscape.

However, the introduction of new rules for electric vehicles in India will be crucial to ensure the safety and reliability of the vehicles. As the world moves towards a more sustainable future, electric vehicles are set to play an important role in the transition.

Today, we look at the latest developments in electric vehicle sector and more.

Let's get started...

Switzerland planning to ban electric vehicles. But why?

The rumored news of banning EVs in Switzerland has caught all the attention lately. At a time when most countries are encouraging EV adoption, Switzerland could become the first country in the world to ban EVs.

Reportedly, Switzerland is facing an energy crisis this winter season. It imports most of its electricity from other European countries like France and Germany, but the supply chain is affected due to the Russia-Ukraine war.

The war resulted in an energy crisis in Europe and electricity production has been at the lowest in these countries.

It has come to the knowledge that Swiss government has drafted emergency proposals that seek a partial ban on EVs.

Here's an excerpt from the draft letter:

• The private use of electric cars is only permitted for absolutely necessary journeys (e.g. exercising one's profession, shopping, visiting the doctor, attending religious events, attending court appointments).

Now these developments will probably scare you if you have invested in electric vehicle stocks.

But making knee-jerk actions without understanding long term implications will be a futile exercise. If you have invested in a fundamentally strong EV stock, you don't have to worry about Switzerland's "possible" ban.

A similar situation arose in July this year when leading Indian EV companies reported incidents of electric vehicles abruptly bursting into flames.

Many questions were raised. Despite the fires, the trend continued, and companies registered increasing EV sales.

This is because we know 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.

In November, EV companies witnessed record sales on the back of festive season demand.

New EV rules dampen sentiment back home...

Recently, the Ministry of Road Transport and Highways amended the AIS156 norms.

These amendments are being implemented in two phases, one from 1 December, and the second phase will be from 1 April 2023.

This is a stringent testing and certification standard to ensure better safety following fire-related incidents in electric vehicles this summer.

Pure play EV companies and EV battery makers are now concerned that the shorter timeline to certify products could affect their production as well as sales in the near term.

Here's what managing director of Battrixx Anand Kabra had to say:

• The new standards require a redesign of the battery packs, BMS (battery management systems), as well as the development of new tooling for the aluminium casing and new capital equipment.
  
  There are constraints for the number of approvals to come together in such a short time.

Battrixx is a battery division of listed smallcap company Kabra Extrusion.

Meanwhile, here's what another executive had to say,

• It takes a month to certify the battery, a month to certify the vehicle and three months to get the supply chain up and running. That is fine for one vehicle, but when there are dozens of vehicles then everything cannot be done in such a short period.

Companies are now asking the government for more time. They have asked to extend the deadline till August 2023.

But their demands may not be met this time as the summer season will be soon here. High temperature is seen as one of the reasons for batteries in electric vehicles getting overheated and catching fire, according to a senior government official.

Can Union Budget 2023-24 be a game-changer for EVs?

'What are your budget expectations'? - is a common questions asked before the Union Budget.

Every budget has given us a theme. Be it a new announcement or allocating funds.

Last year, the big boost was given to infra space. Outlay for capital expenditure was raised by 35% from Rs 5.5 trillion (tn) to Rs 7.5 tn.

You should add this question for the upcoming budget - Will this budget's theme be electric vehicles and the additional funds being put into the industry?

Several media reports are already stating that a big boost will be provided to the EV sector in the upcoming budget of 2023-24.

Government officials have stated that the upcoming Union Budget could see the Indian government announcing incentives to promote the domestic production of EVs and energy storage systems (ESS).

Additionally, there are also rumors that center may reduce the existing import fee of 5-20% on various parts used to make lithium-ion batteries.

• To encourage domestic manufacture of EVs, taxes on items like synthetic separators, anodes, and cathodes used in lithium-ion batteries could be reduced.

These new efforts are in addition to the ones which center has already dedicated to this space...

- A production-linked incentive (PLI) scheme worth Rs 259.4 billion (bn)

- A separate PLI for advanced chemistry cells worth Rs 181 bn. This will promote domestic battery manufacturing and bring down battery prices.

Further, the government has also decreased the goods and services tax (GST) on EVs. The rate now stands at 5% from 12% earlier.

All this is good news an proves one thing...the government has shown serious intent to take things forward.

Over Rs 1 Trillion in Cumulative Investments for EV Charging Infra

A latest research report elaborates how India will require about 63,000 charging stations and cumulative investments of Rs 269 bn for setting them up over the next five years to cater to the growing demand for power for operating EVs.

By 10 years, India could need 0.23 million (m) charging stations, entailing a total investment of Rs 1 trillion (tn) by 2032. The investment value could go up, in line with inflation as well as demand pick-up in the EV industry.

Along with the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, government has been offering capital subsidies for installing charging stations. Many companies, listed and unlisted, are investing big time into establishing EV charging infrastructure in India.

The top EV charging infrastructure stocks will be the biggest beneficiaries.

To conclude...

Despite all the challenges, the electric vehicle sector is buzzing with activity. The government is aiming at not just increasing the number of electric vehicles in the country, but also maximizing their share of the overall transport market.

As more people begin to adopt EVs, manufacturers will adapt their business models to cater the changing market dynamics.

However, the coming budget will be crucial to ensure that the government continues to support the industry because it has a lot of potential to reduce pollution and fuel costs in the long-term.

But before you invest a single rupee in EV stocks, we recommend you watch the below video to study the results of our latest research project.

Do check out the playlist on electric vehicles on Equitymaster's YouTube channel.

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...