Raunak Onkar from PPFAS MF suggests that investors in India may have an advantage when considering incumbent companies in the electric vehicle (EV) sector. According to Onkar, the advantage stems from the fact that India does not have a complete local value chain for EV components. Consequently, there is a heavy reliance on imports for various components like subsystems, batteries, and chips. For internal combustion engine (ICE) vehicles, however, there is a local supply chain.
Onkar points out that EVs offer features designed for comfort, which are often more costly to incorporate in ICE vehicles due to India’s differing taxation structures. The lower taxes on EVs facilitate the inclusion of advanced features, potentially improving comfort and making EVs a compelling option.
The transition to EVs raises several questions. One is whether investors should focus on current players who may become more prominent, or on disruptors capable of altering the EV landscape. Onkar believes incumbents have an edge due to their established after-sales service networks and can draw upon their experience with ICE vehicles to support EVs as well. While EVs may have fewer moving parts, they are not exempt from issues, such as software glitches, which incumbents are better equipped to handle.
Additionally, Onkar highlights the pricing advantage of EVs due to favorable taxation, allowing for the introduction of larger and more comfortable vehicles. He notes that while other countries have seen rapid adoption of EVs due to incentives and restrictions on ICE vehicles, such measures are not as prevalent in India.
The entry of new players like Tesla could create healthy competition, prompting existing manufacturers to elevate their standards and offer consumers more options. While Tesla’s potential arrival in the Indian market has impacted local auto stocks, Onkar believes that new entrants could enhance customer choices by offering vehicles with global standards.
On the topic of profitability, Onkar advises caution, noting that the Indian market for EVs is still emerging. Although companies are incrementally scaling, this gradual approach helps avoid excessive upfront investment costs that may not swiftly yield returns. Onkar likens the evolving EV ecosystem to the early days of the smartphone industry, emphasizing the need to build a local value chain over time.
When considering an EV investment portfolio, Onkar recommends including a diverse range of entities. He suggests incorporating incumbents, challengers, assemblers, battery makers, semiconductor companies, and other component manufacturers, emphasizing that all these should contribute to a comprehensive EV portfolio. This diverse approach aligns with the anticipated growth in EV adoption and manufacturing within India.