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Rise of Electric Vehicles - Is the ‘electric’ hype here to stay?

Electric vehicles are a phenomenon that is slowly and steadily increasing in prominence across the world. You may know of the 18-year-old Tesla, whose stock overtook the 118-year-old Ford’s back in 2017. Now, there are several companies trying to make their mark in the EV space. With the scope not just of increased production and manufacturing but also of helpful legislation as well as factors like microchip shortage, there sure is a lot to understand! In this article, we will break down each of these factors from an investment perspective so that you can make a more informed decision regarding how attractive the EV space really is.

But before we take a deep dive, let’s cover the basics quickly. There are basically two types of EVs - the first is BEVs, battery-powered electric vehicles, and the second is PHEVs, plug-in hybrid electric vehicles. BEVs produce no emissions and are thus increasingly favoured among environmentally conscious commuters and travellers. PHEVs, on the other hand, can go some distance without producing any emissions (this is called the vehicle’s electric range, typically between 25 to 80 kilometres), but later switch to a different source of fuel like petrol or diesel after this range.

As you may imagine, this is no small impact, even in the case of PHEVs. This gives an idea about why vehicle owners from around the world, as well as all types of investors, are excited about the prospects that EVs have on offer. And better yet, the increasing evidence for climate change, rising fuel prices & consumer conscience all point in one direction and one direction only, and that is EVs.

Is all the EV hype justified? Dissecting various factors

When it comes to any growing space - especially one that promises to solve big problems in the world - there is a chance of getting caught in the hype. In this regard, the EV space is no different, and there are various factors to consider as you evaluate it as a possible investment. Let’s begin by considering how the space has grown, with specific focus on its history over the last few years.

1. Remarkable growth over several years

The global pandemic, which started in 2020, massively disrupted the course of many industries, and the automobile world was also one of them. Yet, if we look at what happened to Electric Vehicles, we’ll find that instead of slowing down in a significant way, they actually grew in a fairly impressive manner. While only 2.5% of global car sales represented EV sales in 2019, this number shot up to 4.1% in 2020 and rose as high up as 9% in 2021! This translated into an effective tripling of the overall market share of electric vehicles in the last 2 years, with eclectic vehicles accounting for all the net growth in car sales across the globe.

But with this in mind, there are other factors that need to be looked at more closely, one of them being the lopsided figures that constitute this growth.

2. China’s domination of the EV market, with regional markets yet to catch up

One of the major problems for the EV market overall is its over-reliance on China; it accounts for almost half of all EV sales, as reported by Deloitte. In the US, for example, the entire success of EVs has depended so far on one of Tesla’s model’s performance, a fact which should at least make some investors feel a sense of caution. Still, it’s not as though there aren’t other brands that have made a mark in the US market - Rivian has had some success recently but is still held back by supply chain concerns. That aside, the general direction of the market seems to be heading towards having a monopoly in China, with Europe and USA being other key players. Now, these are trends that may or may not favour your investment strategy or what you’re looking for, but this can give you a better understanding of what’s in store.

If you’re an investor based out of India and are wondering whether you should invest in Indian EV stocks or US-based EV stocks, this may be a good time to do some more reading! In fact, the next thing we’ll be taking a closer look at is how both these countries are pushing forward toward EVs in their own unique ways.

3. The US is targeting 50% electrification by 2030

Halfway through 2021, President Joe Biden signed an executive order which outlined the country’s plan to achieve 50% electrification by 2030. This alone is a fact that should be highlighted to all investors because it signals without a doubt that the country will be mobilising (or at least attempting to mobilise) its resources towards growing this particular industry. This move was one of many towards meeting greenhouse emission targets, and included within this decision was the move to impose stricter penalties for vehicle emissions that crossed a certain threshold.

 

Thus, it seems likely that the US is making big moves towards growing the EV space as a whole.

Yet, there is another fact about this particular move that is also important for investors.

When Biden made the announcement at the White House, Tesla was not invited. Yes, that Tesla which pioneered EVs not just in the USA but across the world! The White House later mentioned that this was because the move focused on unionised EV manufacturers - a fact that may (or may not) play into how the push towards EVs gets finalised in the US.

4. India, too has ambitious growth targets - 100% electrification by 2030!

When it comes to the automotive industry, India is the fifth-largest market in the world currently. In a report released by the government, it said the aim is to achieve “Shared, Connected, and Electric” mobility opportunities for all by 2030, a move which the CEEW-CEF predicts will make India a US $206 billion market by that time!

India has also made some other moves to increase adoption of EVs within its borders, one of them being an amendment of the Faster Adoption and Manufacturing of Electric Vehicles in India (FAME) II scheme, whose target is to offer two-wheeler EVs at significantly lower rates. In addition to this, India is taking steps to involve those outside its borders as well. It is allowing 100% foreign direct investment in the automatic route in this particular industry, thereby facilitating greater access to investors across the globe. Furthering this drive towards EVs is another Indian company, Ola, whose CEO recently tweeted that the company had delivered 7000 vehicles in February of 2022, with March deliveries expected to touch 15000 units.

 

 

Final Verdict: How do the Facts Stack?

It’s tough to give a one-size-fits-all opinion about the EV space, since it’s hard to know individual investors’ risk appetites, investment horizons, as well as preferred investment styles. But there are some general observations about the space which will help both believers and skeptics alike.

To begin with, all EV stocks are significantly risky if you’re someone who cannot see red in their portfolio in the short run. To take just one example, as of 8 April, 2022, Tesla ($TSLA) is up 34.6% over the last 6 months, whereas it was 11.88% down year-to-date. To take yet another example, Rivian ($RIVN) is down 60% year-to-date, without the highs that Tesla had experienced. RIVN corrected 76% from its recent all-time high, and although the company’s future is promising in terms of sales and expansion, this is still a tricky situation for conventional investors to navigate!

What makes it somewhat plausible is the fact that EV stocks include companies manufacturing electric buses, electric trucks, electric scooters, etc. Even companies involved in operating and manufacture of electric vehicle charging points and stations, and battery manufacturers come under the ambit of EV stocks. Here, our in-country options expand. There are more than 44 listed players operational in the Indian market, including Reliance Industries (through Reliance New Energy that acquired a stake in Altigreen), Mahindra & Mahindra (EV cars launching soon) and Ashok Leyland (EV buses in production).

In addition to this, this is an area of investment where growth seems inevitable. The world is literally getting hotter every day, thanks to global warming, and you’d imagine that at some point people will start to notice how it’s affecting the way we all live our lives. Still, it’s better to hope that this point comes sooner rather than later, and with many countries already moving legislation to support the development of EVs, it appears as though the first steps towards the realization have already been initiated. Nothing can be said decisively at the moment however, but the overall situation is definitely promising.

Conclusion: The Long Haul

If you’re someone who is comfortable with regular corrections in their portfolio, and who believes in the larger vision that electric vehicles cater to, then you should definitely consider investing in the space. However, do make a point to do more research - since there are a lot of counterarguments to be made as well, and each deserves to be considered in detail. In case you are more suited to safer investments, then you should take a look at various mutual funds in the market, which offer varied portfolios on the basis of your risk tolerance, as well as on the basis of your investment horizon.

Do speak to a qualified expert like an MF Distributor who can speak to you and guide you more personally and in-depth, on this space.

This is an innovative space that will continue to disrupt the world. How fast or slow it completely changes the game, only time (and economics) will tell.

 

Disclaimer

This note is for information purposes only. In this material DSP Investment Managers Pvt Ltd (the AMC) has used information that is publicly available and is believed to be from reliable sources. While utmost care has been exercised, the author or the AMC does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers, before acting on any information herein should make their own investigation & seek appropriate professional advice. Any sector(s)/ stock(s)/ issuer(s) mentioned do not constitute any recommendation and the AMC may or may not have any future position in these. All opinions/ figures/ charts/ graphs are as on date of publishing (or as at mentioned date) and are subject to change without notice. Any logos used may be trademarks™ or registered® trademarks of their respective holders, our usage does not imply any affiliation with or endorsement by them.

Past performance may or may not be sustained in the future and should not be used as a basis for comparison with other investments.

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