Thread by @Equitymaster

The great #EV transition is one of the the biggest disruptive shifts of the 21st century. Here's Richa Agarwal on how this is playing out right now...

To understand the triggers for this shift, we need to go back in history. In the late 19th century, one-third of American cars were electric. However, the discovery of cheap oil and mass production of internal combustion engine (ICE) shrunk the share from 33% to almost nil.

Well, the wheels are turning again. And this time, it’s EVs that will propel and dominate the auto sector. I’m not just counting on the policy push, which is helping the transition for sure. Nor I’m betting on the pollution control commitments.

The biggest reason for this transition will be battery costs. The cost of the battery that comprises nearly 30-40% of the vehicle, has come down by 89% in the last decade. In next 2 years, it’s expected to decline further by 20%.

At this price, EVs will be cheaper than ICE vehicles, making their mass production economically viable, not just for EV makers, but for the consumers as well.

To understand how big this opportunity is for India, let’s see how this revolution has unfolded in economies that are ahead of us in EV shift.

There are two ways you could look at this chart. The first is that the glass is half empty. The second is that low penetration so far makes the EV opportunity much bigger for India - a country with the highest young population.

With a big policy push, the Paris agreement to bring down pollution, investments in EV production & charging infrastructure, sharp decline in battery costs, shift in consumer sentiment & the recent discovery of Lithium deposits in India, the mass production of EV in India is here

It is already happening in 2 wheeler and 3 wheeler space.With subsidies, the cost of ownership of a 2 wheeler is almost at par, and even cheaper as compared to some popular ICE models. The bridging of upfront investment will further swing the buying decision in favour of EVs.

Even without subsidies, the total cost of operation, i.e, vehicle buying cost plus running and maintenance costs of 2 wheeler and 3 wheeler EVs are lower than that of an ICE vehicle .

In China, 80% of the 2W fleet is electrified. 2W comprise over 80% of the of the auto volumes in India. With low cost of ownership, comparable performance, and conducive charging options (2W could be charged at home at minimal cost), the runway is long.

In last 5 years, two-wheeler sales in India stand at around 18 million units per year. Now auto is a cyclical sector. So let’s consider a moderate 5% growth for the next 10 years. At this rate, we are looking at 29 million units per year by 2030.

Even if we consider electrification level at one third (33%), it comes to 10 million electric 2W per year. In 2021, the EV 2W sales was 600,000. It's a 17x jump. This implies an annual growth rate of 32% over next 10 years.

To know more about this disruptive opportunity and stocks to keep on your watchlist, watch my video here.
eqtm.in/Zr6z8

For more such investing insights, do subscribe to the YouTube channel on smallcap multibaggers.
eqtm.in/x5RNg