Can the Best EV Stocks Be Agnostic to EVs?

The end game

Once customers got addicted to the comfort of an airconditioned 'on call' vehicle, they slowly and gradually reduced the freebies.

That's how an entire industry was created on two factors - Technology and Need.

The important point is as smart phone penetration increased so did the demand for Ola/Uber.

Let us see how this fits in to the EV context.

Smart phones are what charging infrastructure is in an EV ecosystem.

Electric vehicles are the OLA/Ubers of today.

Low cost 3G/4G is the declining battery costs in an electric vehicle.

For EVs to be successful all these factors have to converge together at the same time.

You cannot build electric charging infrastructure when the costs of EVs are expected to be 2-3x of gasoline cars.

At the same time electric vehicles cannot run without a charging infrastructure.

Now that's a chicken and egg story!

What if I told you, instead of guessing the future of Electric vehicles in India, we found companies which make parts for vehicles?

What if also told you, these companies are oblivious to the fact whether there are EVs or no EVs on our roads?

I am talking about the auto ancillary space.

In my last editorial, I spoke about how market leaders in the automobile space are available at 30-35% discount from their peak prices.

Companies in the auto and auto ancillary space come under the classic playbook of buying wonderful companies at wonderful prices.

Apart from valuations, here are the reasons why I am gung-ho about this space.

What is common among the following ancillary parts in a vehicle?

Head lights, tyres, windshield, wiring harness.

The answer...

Irrespective of what you're driving - a Tesla or a Maruti - these parts will always be needed.

In fact, the usability of these parts will increase in electric vehicles.

However, if you were a company supplying engine parts or the fuel supply mechanism, there are chances you would be outdated in the next decade when electric vehicle penetration increases.

I was on a conference call with a vehicle lighting company.

The management foresees their content per vehicle to increase in electric vehicles. This will definitely lead to better margins and profitability.

It's anticipated that wiring harness content in an electric vehicle is twice than that in a gasoline vehicle.

Another reason to look into auto ancillary players is that they are less vulnerable to the cyclicality that affects auto makers.

As majority of auto ancillary players supply to different sub segments and have a diversified customer base, their businesses are generally less cyclical.

To give you an example, while commercial vehicles were hit badly due to lockdowns, the tractor industry was thriving on a good monsoon.

Two wheelers being a rural play have different demand dynamics than passenger vehicles which are an urban and tier 1-2 city plays.

I have always been intrigued by the writer Nassim Nicholas Taleb and his invention of words to describe situations.

While everybody talks about finding the Tesla of India or betting on the timeline of EV adoption in India, my bet is on finding companies which will be agnostic to EV adoption.

I call these companies Anti-fragile!

In our Hidden Treasure service, we have recommended many such anti-fragile stocks from different sectors.

Watch this space...

Warm regards,


Aditya Vora
Financial Writer