Govt in Talks with Stakeholders to Boost Local Production of EVs

Government’s Push for Electric Vehicle Manufacturing in India

Analysis for a Layman

The Indian government is working on a new policy to encourage the manufacturing of electric vehicles (EVs) within the country. This initiative aims to boost investment in the domestic EV industry.

Discussions are taking place with both Indian and global companies to finalize the plans. Reports suggest that even well-known EV manufacturer Tesla is among the companies the government hopes to attract.

Germany, the UK, and South Korea have also been identified as target countries for investors and technical partners to collaborate with Indian firms and establish manufacturing facilities in India.

The policy is expected to offer incentives such as tax breaks, special economic zones, subsidies, and favorable land and power rates to attract manufacturers. The ultimate goal is for India to become a hub for exporting EVs while also meeting local demand as part of the country’s vehicle electrification goals.

For global automakers, India offers a massive market opportunity, especially with the incentives provided, making investment more attractive. For Indian suppliers, this initiative helps them develop capabilities in a crucial future industry while benefiting from foreign expertise.

Govt in Talks with Stakeholders to Boost Local Production of EVs

Impact on Retail Investors

For stock investors, the new EV manufacturing policy presents potential opportunities in various publicly traded sectors:

Auto OEMs: Major players like Tata Motors and Mahindra & Mahindra stand to gain a competitive advantage from localizing EV production rather than relying on imports. Their EV divisions could experience accelerated growth with policy clarity.

Auto Ancillaries: Companies like Motherson Sumi, Bharat Forge, and Amara Raja, which supply components to all automakers, could benefit from increased demand as EV manufacturing expands. Additional demand volume contributes to growth.

Infrastructure & Renewable Energy: State-owned power companies (NTPC, PowerGrid) and cities housing new EV cluster zones could secure large contracts for power supply and transmission infrastructure as enabling players.

Technology & R&D: Tech giants like Bosch, Infosys, HCL, and scientific research organizations are positioned to support ecosystem development through partnerships and IP licensing for the design, prototyping, and testing of new EV models.

However, it’s important to exercise caution as global automakers have the option to export to India from overseas rather than establishing local manufacturing facilities, which could limit the impact. Additionally, most existing OEMs are still at the early stages of EV adoption in India. Therefore, it’s advisable for investors to await concrete project announcements before making significant investment decisions based solely on this news.

Impact on Industries

The push for greater EV manufacturing has positive effects on India’s automobile and ancillary sectors, benefiting adjacent industries as well:

Auto and Components: After leading in 2/3-wheelers, the focus now shifts to EV cars and buses with fresh investments under the “Make in India” vision, which spurs capacity growth.

Utility Infrastructure: The expansion of the EV charging network across cities and highways will require upgraded power generation and distribution infrastructure to support demand growth over the next 5-10 years.

Advanced Materials: Domestic battery cell/pack assembly and motor magnet production are expected to expand with approved Production-Linked Incentive (PLI) schemes alongside research and development into new locally relevant technologies.

Electronics Manufacturing: Assembly and testing of AC charging units, vehicle computer systems, IoT modules that manage battery performance, charging, and thermal regulation in EVs, as well as components imports, are expected to rise.

Overall, the aim is to nurture an integrated end-to-end EV ecosystem spanning core product manufacturing, components production, and end-use infrastructure availability – all within India.

Long Term Benefits

Over a 5+ year horizon, if executed effectively, major benefits for India from the envisioned EV manufacturing expansion and localization are:

Import Substitution: Gradually reduces the billions spent on importing EVs and custom duties, lowering foreign exchange outflows. Global Supply Hub: Well-developed, world-scale export-oriented ecosystems and cost advantages make India a production base for global OEMs, even exporting technologically back to their home countries. Auto Sector Transformation: A structural pivot from traditional internal combustion engine (ICE)-based value chains to the future EV space is seen as an essential strategic move. Proactive policy helps manage risks from potential global industry displacement. Technical Skill Development: Imbibing advanced R&D, design, and system integration capabilities transfers niche competencies into India’s engineering talent pool with positive ripple effects.

However, execution challenges, such as battery sourcing limitations, power infrastructure, and higher cost structures compared to East Asia competitors, pose downside risks that may inhibit the full realization of benefits over the long term.

Short Term Positives

In the next 1-2 years, the primary benefits of the government’s push to expand India’s EV manufacturing ecosystem are:

Foreign Investment Inflows: International EV automakers and suppliers are looking to enter India, seeing the potential to cater to the fifth-largest car market globally over the next decade. Policy Signaling: Clear articulation of priorities provides visibility into the growth roadmap for both incumbent and new players, allowing them to allocate resources accordingly rather than waiting for clarity. Ancillary Industry Tailwinds: Even ahead of actual new EV capacity installation, the entire auto component supply chain anticipates long-term volume gains as electrification adoption advances.

However, short-term risks remain around stretched government finances constraining viable incentive offers to match manufacturer expectations and existing product-market fit issues in nascent categories like electric cars and trucks. Investors should await actual signed commitments before making major portfolio adjustments based on this news.

Companies Impacted by Government Push for Local EV Production

Indian Companies Gaining:

  • Tata Motors (TATAMOTORS:NS): As India’s leading EV manufacturer, Tata Motors stands to benefit directly from increased incentives and investment in local production. This could boost their electric vehicle market share and potentially lead to higher sales and profitability.
  • Mahindra & Mahindra (MAHMHINRA:NS): Like Tata Motors, Mahindra & Mahindra is a major player in the Indian EV market with ambitious electric vehicle plans. They are well-positioned to attract investments and benefit from government subsidies linked to local production.
  • Auto Component Manufacturers (Bosch (BOSCHLTD:NS), Bharat Forge (BFORGE:NS), Motherson Sumi Systems (MMSSYSTEM:NS)): Increased domestic EV production will drive demand for auto components, benefiting domestic manufacturers. Increased component sourcing within India could reduce costs for EV makers and potentially improve profitability for auto component companies.
  • Lithium Battery Companies (Exide Industries (EXIDEIND:NS), Bharat Electronics (BEL:NS)): Establishing a strong domestic battery ecosystem is crucial for local EV production. Companies involved in lithium battery manufacturing or lithium mining could benefit from government support and increased demand for batteries.
  • Charging Infrastructure Companies (Tata Power (TATAPOWER:NS), Adani Green Energy (ADANIGREEN:NS)): The government’s focus on boosting EV adoption likely includes expanding charging infrastructure. Companies involved in building and operating charging stations could benefit from this potential shift.

Indian Companies Potentially Losing:

  • Traditional ICE (Internal Combustion Engine) Vehicle Manufacturers (Maruti Suzuki (MARUTI:NS), Hero MotoCorp (HEROMOTOCO:NS)): While the EV market is growing, it is still a small fraction of the overall automobile market. Increased support for local EV production might divert attention and resources away from traditional ICE vehicle manufacturers, potentially impacting their growth prospects.
  • Importers of EV Components: If the government implements stricter domestic sourcing requirements for EVs, companies heavily reliant on imported components might face challenges and increased costs, impacting their competitiveness.

Global Companies Gaining:

  • Global EV Technology Leaders (Tesla (TSLA:US), Volkswagen (VOW:GR), Stellantis (STLA:IT)): The government’s aim to attract foreign investment in EV production opens doors for global EV giants. These companies could secure lucrative deals to set up manufacturing plants in India, tapping into the country’s large and growing market.
  • Global Mining Companies (BHP (BHP:AU), Rio Tinto (RIO:AU), Glencore (GLEN:L)): Increased demand for lithium and other battery materials due to local EV production could benefit global mining companies with significant reserves of these resources.

Global Companies Potentially Losing:

  • Foreign EV Component Suppliers: Increased local sourcing requirements might pose challenges for foreign companies solely focused on exporting components to India. They might need to adapt their strategies and potentially invest in local manufacturing to maintain market share.

Market Sentiment:

  • Positive for Indian EV and related sectors: The news is likely to boost investor sentiment towards Indian companies involved in EV production, battery manufacturing, auto components, and charging infrastructure. Increased government support and potential investments could drive higher growth and profitability for these companies.
  • Neutral to mixed for global companies: Global EV leaders could gain from potential manufacturing opportunities in India. However, foreign component suppliers and traditional ICE vehicle manufacturers might face headwinds.
  • Mixed for Indian ICE vehicle manufacturers: While long-term growth prospects might be impacted, short-term concerns could be mitigated by strong demand for traditional vehicles and potential benefits from government policies aimed at overall automotive sector growth.

Note: This analysis is based on the provided information and may not be exhaustive. Other companies could be impacted depending on their specific business models and exposure to the Indian EV market and related sectors.

Citation: ET Bureau. “Govt in Talks with Stakeholders to Boost Local Production of EVs.” Economic Times, 29 Dec. 2023.

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