EV Policy to intensify competition in Passenger Vehicle segment, auto component makers key beneficiaries, say analysts

The new Electric Vehicle Policy is likely to intensify competition in the electric passenger vehicle (PV) segment, but will benefit domestic auto component players due to its emphasis towards localization, analysts said.

The Government of India approved a new EV policy that will pave the way for global brands like US-based Tesla & Vietnamese carmaker Vinfast to enter the Indian market. The policy allows automakers to import up to 8,000 Electric PVs priced $35,000 or higher for a period of five years at a reduced import duty of 15%, as against 70% earlier, provided that the company commits to invest at least $500 million in India for local manufacturing. 

The policy envisages 25% domestic value addition (DVA) over 3 years and 50% over 5 years. The investment commitment made by the company will have to be backed by a bank guarantee in lieu of the forgone custom duty.

Read here: India lures EV makers with import duty cuts, paves way for Tesla's entry

Sector experts believe the new policy will certainly encourage global Original Equipment Manufacturers (OEMs) to set up manufacturing facilities in India and any launch priced at or below the ₹20 lakh mark in India will likely garner significant consumer interest, and hence, can be a cause of worry for Indian OEMs.

Competition to intensify

Analysts at Emkay Global Financial Services said that the competition on the electric PVs was set to intensify as - apart from launches by domestic majors - international players were also potentially looking to set up facilities. 

They believe the PV industry is entering a phase of uncertainty around growth as well as disruption.

Considering that India sold 42,000 luxury cars in CY23, the plan to import a maximum of 8,000 premium EVs per annum at a concessional rate will lead to a market penetration of around 20%. 

“The scheme is attractive for global new EV makers like Tesla or recent EV joint ventures like Mahindra-Volkswagen in case they embark on setting up a plant. There is a marginal disadvantage to incumbents like Mercedes and BMW’s ICE capacity and EV vehicles imported at a high duty,” said analysts at InCred Equities.

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Motilal Oswal Financial Services, in a note, said it believes that the new EV policy aims to promote the development of the EV ecosystem and local manufacturing in India, while reasonably protecting the Indian OEMs largely operating below the $35,000 price point. 

“Nevertheless, there could be some risk to a few of the upcoming models of M&M and Tata Motors at the upper end of the SUV market. It could also potentially impact sales of luxury vehicles (German brands) with an increased entry of mid-to-premium EVs at competitive pricing (potentially impacting Landmark Cars - a Mercedes dealership),” said the brokerage firm.

However, Kotak Institutional Equities believes there will be negligible impact on the domestic passenger vehicle market due to EV manufacturing policy in the near term owing to higher price points of the imported electric vehicles, where the market size is limited in India and cap on imports on an annual basis. 

The brokerage firm believes the entry of Tesla into the Indian market will lead to an increase in competitive intensity and the domestic players will have to step up their play in the electric vehicle segment.

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Auto Component Makers in Focus

However, the new EV policy is expected to benefit domestic auto component players who invest in advanced technologies that are currently not manufactured in India. It can help the auto component sector absorb high-end technology faster, as 50% localization is needed in five years.

Emkay Global believes Motherson Sumi Wiring, which supplies to most of the PV OEMs, would be a better proxy play on the PV story, instead of taking market share risks among OEMs, with bottom-up superior growth, new client additions such as Tata PVs, and margin triggers.

According to InCred Equities, the auto component companies already supplying to EV vehicle makers globally will also be key beneficiaries. These include Samvardhana Motherson International (SAMIL), Bharat Forge and Endurance Technologies. 

SAMIL’s penetration into premium car manufacturers globally and new order wins in the EV space can help if any global manufacturer sets up a plant in India and needs to localize production, InCred Equities said.

It has an ‘Add’ rating on SAMIL with a target price of ₹133 per share.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.