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market | IST

Hybrid vehicles to enable transition from fossil fuels to EVs; accumulate auto stocks: Nilesh Shah

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Nilesh Shah of Kotak Mahindra AMC is of the view that this is the time to accumulate auto stocks. Keeping in mind that the next 6-12 months could see underperformance thanks to the raw material shortages, the metal price increase impacting margins, but companies that are focused on hybrid, as well as electric vehicles, should do well over a period of time

Nilesh Shah, managing director, Kotak Mahindra AMC, is of the view that the transition of the auto sector from fossil fuel vehicles to electric vehicles is most likely going to be made possible by hybrid vehicles.
He said, “We are not straight away going to jump from fossil fuel to electric vehicles (EVs), the battery technology limitation, chip shortages, the rare earth material shortages will cast its shadow on the electric vehicles. Hence hybrid vehicles will play an important role before electric vehicles reach its pinnacle.”
“All those companies which are engaged in hybrid vehicles, as well as electric vehicles, probably will be a better bet. Also, within passenger vehicles and commercial vehicles, we believe with efficiency improving on highways, the turnaround time for commercial vehicles will improve. Dedicated Freight Corridor (DFC) will also attract a lot of ships. And that being the case, commercial vehicles, one will have to be careful in picking up. The passenger vehicles will continue to rise -- today, there is supply-side issue, not necessarily a demand-side issue,” Shah said, in an interview with CNBC-TV18.
“This is the time to accumulate auto stocks. Keeping in mind that the next 6-12 months could see underperformance thanks to the raw material shortages, the metal price increase impacting margins, but companies that are focused on hybrid, as well as electric vehicles, should do well over a period of time,” he further mentioned.
The Union Cabinet also recently approved a revised production linked incentive (PLI) scheme with an outlay of Rs 25,938 crore for the auto and auto components industries to enhance its domestic manufacturing capabilities. This would attract global EV players, auto component makers, say, auto analysts. Last year, the government had announced a scheme for the sector with an outlay of Rs 57,043 crore, earmarked for five years.
As per brokerages, the government’s recent steps are only reiterating its commitment to electric vehicles.
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According to Citi, the change in the PLI scheme accentuates the government's focus on electrification of vehicles. Although, it is quite disappointing for companies planning capacity expansion in the internal combustion engine (ICE) vehicles, it could result in existing OEMs further investing in electric vehicles. Also, Citi expects the global electric vehicle or OEM part makers to invest in India eventually.
Antique Broking is of the view that faster transition from ICE to EVs is a negative for traditional OEMs. They may not be able to catch up to speed, however in terms of the listed players, Tata Motors has the most credible plans to grow their EV sales, as in any case they have leading market share in the passenger vehicle electric vehicle space.
Meanwhile, Tata Motors on Friday achieved a cumulative sales milestone of 10,000 units in its EV segment. In a press release, Tata Motors said that the company had recorded a remarkable feat of on-boarding its 10,000th EV customer. With over 70 percent market share (year-to-date FY22), Tata Motors has crossed 1,000-unit volume in August this year with a strong order book, it said. The company also said, "The first 10,000 EVs have been led by the early adopters and with this encouragement, Tata Motors has built a viable roadmap for the future and is committed to staying on course with making EVs mainstream.”
On the other hand, Ola Electric Mobility is in talks to raise $1 billion for expansion in the electric two-wheeler space. It had already raised $100 million from the state-run Bank of Baroda in July, for the first phase of construction of a factory, which the company claimed would be the largest electric two-wheeler manufacturing set-up in the world. It was hailed as the largest long-term debt financing agreement in the Indian EV industry.
Ola Electric, set up in 2017, is a fully-owned unit of Ola, the ride-sharing start-up and owned by parent company ANI Technologies Pvt. Ltd. Ola Electric became a unicorn start-up by 2019, two years after its launch.