It’s important that Indian investors focus on the EV ecosystem first
If babies could choose where they wish to be born, today they would choose India.
These words of Teamlease Vice Chairman, Manish Sabharwal at Equitymaster’s recent Investor Hour nicely sum up the chase for the India opportunity.
The podcast is a must listen if you haven’t already.
Coming back to the birth choices of babies. Warren Buffett has often attributed his lifelong success as an investor to what he called ‘ovarian lottery’.
Basically, he believes being born an American male in 1930 offered him extraordinary advantage as an investor. It allowed him to buy some of the most iconic businesses early and cheap. Plus, it allowed him the opportunity to ride American megatrends for decades.
So, if a newborn today had the choice of ovarian lottery, an Indian citizenship wouldn’t be a bad idea.
The reason I completely concur with Sabharwal is because several megatrends are simultaneously picking up pace in India this decade.
So, the opportunities for investors to create wealth in India is now far higher than most other countries.
One of them is the electric vehicle megatrend.
The reason I picked the EV megatrend is because, none other than Warren Buffett himself has been an early investor in an EV stock.
Quite early on, Warren Buffett backed Chinese carmaker BYD (Build Your Dreams), which rivals Elon Musk’s Tesla, in the global leadership race for EV sales.
How does that impact India?
Well, BYD is looking to foray into India and corner 40% share of India’s electric vehicle market by 2030.
BYD recently launched its electric passenger car in India, where Tata Motors currently leads the EV race. Also, unlike Tesla and Tata Motors, BYD also sells hybrid vehicles.
Now, does the Chinese competition mean investors looking opportunities in Indian EV stocks should give up?
Well, absolutely not. Remember, I always talk about how the ecosystem is critical to the EV industry.
Lithium-ion batteries are critical in the making of battery packs for electric vehicles. Lithium-ion batteries account for 35-40% of the cost of an electric vehicle and lithium cells constitute around 70% per cent of the battery cost.
Rechargeable batteries are the most valuable part of an electric vehicle. In fact, it often differentiates the frontrunners from the rest. So, most EV companies in India are rightly focussed on building giga-factories to anchor the battery to the EV value chain.
But once again questions arise on the sustainability and geopolitical consequences of relying on single kind of fuel.
EV batteries need consistent and abundant supply of lithium and cobalt. Mining these ‘rare earth’ elements raise serious environmental and geopolitical questions.
China has already conquered every stage of the global lithium supply chain to emerge as the dominant player in e-mobility. To make India a hub for manufacturing EV batteries, the government must build a local supply chain for EV batteries.
A total of 10 bids with a combined capacity of 130 GWh were received in January 2022 under the Production Linked Incentive (PLI) Scheme for ACC Batteries.
The private players who won bids are expected to create additional battery manufacturing capacity to the tune of 95 GWh. However, none of the major carmakers or battery makers in India like Amara Raja and Exide were among the key winners.
India’s current annual demand is only around 3 GWh, which is miniscule.
Though there is strong demand in India for lithium-ion batteries for stationary energy-storage, these cells have different characteristics from the ones used in automobiles.
Automotive-grade EV batteries need higher energy density, more power and fast-charging capability. Also, they must be safe even in extreme climates to avoid incidents like fire.
Therefore, with components being imported, the demand for EV cells is insignificant in India for now. However, India’s EV-battery potential is significant over the long run. The demand for EV batteries is forecast to jump over 20x, from 3 GWh currently to 70 GWh by 2030.
Companies that manage to set up the ecosystem for EVs, starting with indigenous battery components, could eventually supply to car makers like BYD in India.
Therefore, it’s important that Indian investors focus on the EV ecosystem first.
Riding the EV battery megatrend will automatically allow you to ride on the coattail of Warren Buffett’s journey of EV riches.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
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