Charging Ahead: India's Top Electric Vehicle Stocks Poised for Explosive Growth

The energy transition from fossil fuels to cleaner alternatives is happening at a rapid pace. Clean sources of energy like solar, wind, and green hydrogen, have captured the imaginations of Indians.

According to the government's Vahan Sewa Dashboard, in 2023, the registration of EVs has been 1.4 million so far. This is 37% higher compared to 2022.

This positive sentiment is prevalent in the stock market too. Clean energy stocks are investor favourites. In fact, the sustainability theme is a big driver of stock prices these days.

We think this megatrend will last for more than a decade. Investors who correctly identify stocks in this space could create life changing wealth.

The EV Tipping Point in India

India is the third largest auto market after China and the US. EVs made up 3% of new car sales in the country, in the June quarter of 2023, after doubling in just six months.

5% is typically seen as the level of adoption necessary for a new technology to start being widely used.

EV penetration in India will get to 5% soon. In fact, it's very close to this level in the 2-wheeler segment already. 4-wheelers will follow next. A report by rating agency ICRA states that electric bus, two-wheeler, and three-wheeler penetration is set to grow by leaps and bounds by FY25.

When this happens, the entire EV supply chain in India will fire up. Revenue and profit growth will explode across the value chain.

This is why India's automakers have been investing heavily in electrification. The country is close to a tipping point for EV adoption.

Government Incentives are a Tailwind for EV Stocks

Every megatrend has a major driving force behind it. The global EV megatrend is part of the wider ESG (environmental, social, governance) megatrend that is being adopted by the auto industry.

However, ESG is not the only force diving the EV megatrend. Government initiatives are a big part of it too. Many governments, committed to their climate goals, have rolled out incentives for EV adoption.

The Indian government has also been promoting EV adoption quite aggressively for a while. Back in 2015 the Indian government launched the FAME initiative (Faster Adoption and Manufacturing of EVs).

It was meant to reduce the usage of gas and diesel in automobiles. It also aimed to incentivise EVs. FAME 2 followed later. The government even came out with an EV battery swapping policy.

And then of course there are the various PLI schemes for manufacturing across the EV value chain.

India's Top EV Stocks

Auto industry experts have projected India's total EV market to grow exponentially and reach a size of about US$ 150 billion (bn) by 2030.

Even if the Indian EV market doesn't get to that lofty target, we believe getting to a size of US$ 100 bn by 2030 should be achievable. This is based on current growth rates, the ambitious expansion plans of India's auto makers, and the government's support.

Now let's look at the top EV stocks in India...

#1 Tata Motors

No surprises here. This is the first name that comes to mind when thinking about EVs in India.

Tata Motors is the dominant force in the Indian electric vehicle (EV) market. This dominance will likely continue for at least a few more years, perhaps longer. And every potential car buyer in India is acutely aware of it.

The situation with the company is akin to a brand name being associated with a technology. Like how Xerox was associated with photocopying. In the case of Tata Motors, it's EVs in the Indian auto market.

This situation won't change until the company faces serious competition from other EV makers. That will eventually happen of course. But it's not the case today.

In fact, we believe it's now safe to say that Tata Motors is slowly but surely changing how the world looks at India when it comes to technology.

If someone asked you to name the first thing that comes to your mind about German or Japanese technology, it would likely be their cars. BMW and Volkswagen are symbols of German engineering. Honda and Toyota are symbols of Japanese engineering.

As the world transitions from conventional vehicles to EVs, Tata Motors will make a name for itself globally, just as it has already done in India.

The company has a clear plan to transition to a mostly EV company by 2030 and has backed the plan with billions in funding, leadership support, and technology partnerships.

The most recent example of its EV push is the expansion of their Sanand plant in Gujarat. This plant is Tata Motors' largest manufacturing facility in India. It currently produces a wide range of vehicles which includes the Tiago, Nexon, and Altroz.

The expansion of the Sanand plant will see the addition of a new lithium-ion battery production facility, expected to be operational by as early as 2025.

The Tata Group's investment in lithium-ion batteries is part of its broader strategy to transition to electric vehicles. The company is also working on developing its own electric vehicle charging infrastructure.

To know more about the company, check out Tata Motors fact sheet and quarterly results.

#2 TVS Motor

It's not an exaggeration to say the EV segment could make or break the case for TVS Motor.

The two-wheeler company has invested heavily in R&D to develop technology, improve its product development, and more. The management has clearly made a bold strategic decision.

TVS Motors has already implemented an EV capex plan of over Rs 10 billion (bn). It will spend much more over the next few years developing an EV ecosystem.

It aims to have electric vehicles across segments like delivery, commuter premium, high-performance sports, and electric three-wheelers. The company also aims to launch its range of EV products in foreign markets.

TVS Motor will dispatch a record volume of more than 200,000 scooters, based on its electric vehicle (EV) platform, in the current financial year. The company plans to launch more products in the 5-25kW segment in 2024. It's also planning to launch an electric three-wheeler.

Starting from August 2023, the company accelerated the production of its existing EV scooter, iQube, by an additional 25,000 units per month. The company has a production target of 100,000 EVs in FY24, up from 50,000 units in FY23.

In FY23, the company became the second-largest player in high-speed electric two-wheeler segment only behind Ola Electric.

The company has also unveiled a novel electric two-wheeler called TVS X. It's designed to appeal to the younger demographic, particularly Generation Z and Millennials. It has committed to a capex of Rs 2.5 bn for this effort.

To know more about the company, check out TVS Motor fact sheet and quarterly results.

#3 Hero MotoCorp

Back in 2021, Hero MotoCorp announced its entry into the EV 2-wheeler space.

At that time, it was considered to be a late entrant. The market wasn't convinced about its strategy.

But that was then. Things have changed now. The market has accepted the slow and steady strategy of the company.

Under its VIDA EV brand, the company has embarked on a clear expansion plan across the country. The FY24 target is to distribute the brand across 100 cities.

Keeping the cost-conscious Indian consumer in mind, the company cut the prices of VIDA V1 Plus and VIDA V1 Pro scooters by around Rs 20,000. The management said it would use its existing dealer network to scale up EV sales across the country.

In September 2023, the company announced a further increase in stake in Ather Energy with a Rs 5.5 bn investment. Prior to this, Hero already owed 33.1% stake in the company

Ather designs, manufactures, sells, and services electric two-wheelers. Ather also has its own charging infrastructure. It's also engaged in the EV battery business.

To know more about the company, check out Hero MotoCorp fact sheet and quarterly results.

#4 Fiem Industries

Fiem Industries is one of the leading manufacturers of automotive lighting, signalling equipment and rear-view mirrors in India.

In India, the 2-wheeler segment is the most promising segment for a fast EV transition. Fiem is on this list as it derives most of its revenue (over 90%) from this segment.

Ola Electric gets all LED based products and mirrors for its electric 2-wheelers from Fiem. Besides Ola, the company is already a supplier to Revolt, Okinawa, Hero Electric, Electrotherm, and Ampere.

In India, Fiem was the first to introduce LED lights in 2-wheelers. Unlike other players that have been sourcing the technology from abroad, the company focuses on its in-house R&D.

While its products could be classified as EV agnostic, the EV transition and incremental demand for auto LEDs has been a big inflection point for the business.

The company is actively working on new products and has added several new customers in the EV segment. These include Raptee, Polaris, and Numerus.

Its recent agreement with Gogoro India to expand its product portfolio in the 2-wheeler EV segment has made its position in India's EV market even stronger.

Under this agreement, Fiem will gradually indigenise the hub motor assembly and motor control units. This will give it a firm foothold in the emerging EV market, boosting its growth prospects further.

To know more about the company, check out Fiem Industries fact sheet and quarterly results.

Conclusion

These are four stocks - 3 OEMs and one ancillary firm - are among the most likely beneficiaries of India's EV boom as things stand today.

You should have them on your EV watchlist. However, the EV ecosystem in India is much bigger and also growing rapidly in size and complexity.

If you're interested in investing in EV stocks, you should also keep an eye on India's Lithium megatrend. It's closely tied to India's EV megatrend.

Also don't blindly invest in any EV stock. Due your due diligence. Select only fundamentally strong stocks. And finally, always give importance to the valuations of any EV stock you are considering.

Since you're interested in EV stocks, check out Equitymaster's stock screener which has a separate section for the best electric vehicle stocks.

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...