How to Play the EV Story without Actually Playing the EV Story

I recently returned to Mumbai after taking a solo trip to the mountains for a week. My destination was the picturesque Ladakh, the land of high passes and mountains.

It felt great to take a break from reading annual reports, talking with company managements, and making financial projections.

My tour guide, a local talkative Kashmiri, was an enthusiastic soul.

Our discussions started with the obvious topics i.e. the declaration of Ladakh as a union territory, and covid.

He told me covid has turned out to be a blessing in disguise for local tourism, especially the North Indian states, as tourists can't travel abroad.

The analyst in me decided to talk to him about the effect of rising fuel prices on his livelihood. I knew that standalone tourist drivers are likely to have a tough time.

In a grim voice, my driver asserted that rising fuel prices are killing the transport business.

Based on his calculations, while the diesel prices have gone up by 30-35% in a year, the rate per km, which he charges customers, has increased by only 15-20%.

His income has gone down by at least 15% due to rising fuel prices.

I asked him what next?

He said he hoped electric vehicles (EVs) would bring his costs down.

My eyes lit up at once.

On enquiring further, his knowledge about recent developments like the launch of Ola electric and subsidies by the government was at par with most people in the industry.

Both of us were excited about the price of OLA s electric 2-wheeler at launch, which certainly didn't disappoint.

It's clear to me that it's not only analysts and auto enthusiasts who are excited about the upcoming EV revolution. The masses too, are tracking the EV space closely.

The sentiment for EVs is ripe due to many tailwinds - high fuel prices, the falling price gap to petrol/diesel vehicles, and the government's push.

In a previous editorial, I wrote about how an electric 2-wheelers offer a payback within 3-4 years and after that, cost savings can be high.

Let's assume the EV adoption in India is likely to jump sharply over the next couple of years.

This is great news for private equity players who have backed electric vehicle OEMs like OLA Electric and Ather Energy.

What about investors like us who deal in the stocks market?

Unfortunately, pure play EV firms are not listed and those which are listed have dismal financial performance. Some even have negative net worth.

Some pure play EV companies have been incurring losses since inception. Their order book has been improving gradually but sales do not amount to profitability.

I believe this is normal for the EV industry because economies of scale are absent i.e. the industry is too small.

Investing in these companies is a risky bet on the future.

Factors such as speed of adoption, government subsidies and competition among electric OEMs will determine the road to profitability for these companies.

Now, that is risky gamble...

There are too many unknowns to bet on a narrative, right?

So, why not focus on safe and sound companies which supply parts to these electric OEMs? They have strong balance sheets too.

I am talking about auto ancillary companies. This is the safest bet on the EV boom.

An Ola or Ather scooter or a Tata Nexon will need LED headlights, side mirrors, light weight tyres, and lots of electronics among many other parts.

I think it's best to identify which set of auto ancillary companies will benefit and which ones will go out of business.

Imagine a company manufacturing key engine parts. Even if we assume 8-10% of all vehicles sold in India in 2025 will be electric, the revenue visibility of the engine parts manufacturer will go down substantially.

And don't forget, markets are forward looking. These are the set of companies which one should avoid.

Given a choice between investing in companies which are expected to benefit when EV picks up (OEMs) and companies which are likely to benefit incrementally (auto ancillaries supplying to EVs), my choice is clear.

The auto ancillaries are the way to go.

Until we get visibility on which OEM emerges as a market winner, auto ancillaries will not only see an increase in revenue - more parts used in every vehicle - but also have an insurance net in them.

At the end of the day the most important factor determining any customer's buying decision is the cost benefit analysis.

While the cost difference is gradually declining in electric 2-wheelers, it might take some time for passenger cars and commercial vehicles.

In such cases, auto ancillaries have the cushion to adapt if EVs don't pick up.

In my view, the best way to play EVs without playing EVs is playing the auto ancillary companies supplying to EV players.

When the industry picks up steam, only then consider the OEMs.

I believe, in life and in the stock market, every opportunity should be evaluated by giving more weightage to downside risks rather than upside potential.

In the current euphoric market, this should be your golden rule.

Warm regards,


Aditya Vora
Research Analyst, Hidden Treasure