Electrification - Disruption: Now admirable reality in domestic auto space

What's Buzzing 

Electrification, as a trend, is picking up pace more swiftly than expected with domestic aggregate penetration now pegged at 4.7% in CY22 vs. sub 1% in CY19. Among vehicle categories, this transition is led by the 3-W domain with penetration increasing to 52.8% in CY22 (3.4 lakh units amid total sales of 6.4 lakh units) largely dominated by e-rickshaws. In the 2-W domain, it has increased from <1% in CY19 to 4.1% in CY22 (6.2 lakh units amid total sales of 1.54 crore units) with electric PV space slowly picking up pace with penetration still below the 1% level (33,000 units amid total sales of 40.6 lakh units). 

Context 

As per retail data available on the Vahan portal, total EV retail sales in CY22 were at 10 lakh units amid total vehicle retails at 2.12 crore units, implying a penetration of 4.7% vs. total EV retail sales of 1.63 lakh units in CY19 amid total vehicle retails at 2.25 crore units, with implied penetration of 0.7%. In absolute terms, the growth is exponential in the 2-W and PV space with retail sales figures growing 21x, 40x, respectively, over the years (CY19-22). The industry has come a long way with electrification a widely accepted technology transition and industry players now readily transforming themselves in keeping with this sea change. 

Our Perspective 

Sensing greater adoption of EVs amid supportive government policy framework in terms of PLI Schemes, the players across the value chain have committed domestic capex in excess of US$15 billion (Rs1.2 lakh crore) over the next five to seven years. Capex in this field is led by both listed (Tata Motors, M&M, TVS Motors etc.) as well as new age OEMs with prominent names being Ola Electric, Ather Energy, Hero Electric among others. Interestingly, new age OEMs are expanding their existing capacities by ~4x vs. the existing capacity base with total capacity in electric 2-W domain in the next five years seen at a massive ~1.8 crore units. This is substantial in comparison to existing system wide conventional ICE powered vehicles capacities pegged at ~3 crore units in the 2-W domain. Key enablers to drive electrification are government schemes like PLI scheme for automobile & auto components (Rs 25,938 crore) and PLI for Advance Cell Chemistry (Rs 18,100 crore) largely promoting capex spend in this new field along with FAME-2 Scheme (Rs 10,000 crore). We expect the exponential growth in the domestic EV space to continue amid large capex commitment and execution underway by industry players within the ambitious government target of achieving 80% EV penetration in the 2-W & 3-W space by 2030 with similar targets placed at 40% for buses, 70% for commercial cars and 30% for private cars. Minor hiccups along the journey could be adherence to stringent battery norms, localisation content benchmark for availing FAME subsidies and the timeline of FAME subsidies itself (helps reduce initial cost of vehicle ownership by ~20%+), which is in force till FY24 end.