Pick and Shovel Plays in the EV Gold Rush

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Do you know that one point in time, i.e., the late 19th century, one-third American card were electric.

The discovery of cheap oil and mass production of internal combustion engine (ICE) led this to EV share shrinking from 33% to almost nil.

Well, the wheels are turning again. And this time, it's EV that will propel and dominate the auto sector.

You see, Mr Gadkari is a man on mission.

He wants to see Indian roads free of diesel and petrol vehicles.

You can see some of it already unravelling on Indian roads.

In 2023, EV sales volume stands at 1.5 million, up 50% YoY. With 41% YoY growth, FY24 too has been a good year despite the slashing of FAME II.

Despite such growth rates, given the low base, the penetration remains low - in single digits in most vehicle segments.

As such, the growth opportunity in EV transition is huge.

The biggest driver for this transition will be battery cost. This cost of this component that comprises nearly 30-40% of the vehicle, has come down by 89% in the last decade.

In the coming years, it's expected to decline further. As such, in future, there could be a time when making EVs will be cheaper than internal combustion engine vehicles, making their mass production economically viable. This will be a win win for EV makers and buyers.

Until the natural economics and viability takes the front seat, the government is willing to subsidize the EV revolution. But it has a condition.

It wants localization at a mass scale. For an effective transition, we need to make our supply chains robust and less vulnerable to external disruptions.

While EV could be the biggest megatrend of this century, the popular and leading names in EVs will not be the biggest beneficiaries of the EV transition. Investors who wish to make big gains from EV revolution will need to expand their vision beyond EV OEMs... And will need to shift their focus to EV supply ecosystem.

While hunting for these proxy plays in auto ancillary space, you need to be selective. That's because there are only around 20 moving parts in fully electric car, versus 2000 moving parts in internal combustion engine vehicles. To be on the winning side of the EV bet, it is critical to be wary of the players where product portfolio is suited to internal combustion engines only.

So where should you focus?

Think of companies supplying EV chargers, wiring harnesses, converters, EV motors, motor controllers, EV batteries, cell chemicals, battery management systems, metal , mining and chemical companies.

While auto OEMs have been struggling to produce EVs at a scale and price that makes sense for them to phase out ICE (internal combustion engine) vehicles or to cannibalize their own portfolio, EV component suppliers are rubbing their hands in glee.

That's because the EV transition implies a sharp jump in their offerings. It's a premiumization trend - good for sales and profitability.

Consider this.

For Minda Corporation, the share of EV is over 30% in the new order wins. Its potential kit value in EV is Rs 22000 to Rs 27,000, as compared to Rs 4000-Rs 4500 legacy content in ICE vehicles.

For a company like UNO Minda, the potential kit value for EV is upto Rs 35,300.

For Fiem Industries, 2W EVs are a great growth opportunity with its first mover advantage and tie ups with all major EV OEMs.

Pricol stands to gain too with its international licensing agreement to manufacture and sell Battery Management System (BMS) for Indian market. In this partnership, Pricol will be licensing the product and process technology of BMS from the partner and will be manufacturing complete BMS in-house. This will allow Pricol offer a pure play EV product built on the concept of modularity.

And then there are companies in the battery chemical space - Neogen and Ami Organics and Himadri Specialty Chemicals. In fact, for Ami Organics, the electrolyte opportunity could be even bigger than current business.

These were just some examples - not recommendations but indeed candidates to be marked for the watchlist. There are more such opportunities in the auto ancillary space from EV transition that we will keep sharing through this newsletter. So, stay tuned.

Warm regards,


Richa Agarwal
Editor and Research Analyst, Hidden Treasure