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EV Industry Analysis: Future of the Automotive Sector

Created on 08 Jan 2024

Wraps up in 7 Min

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Were you aware that the adoption of electric vehicles (EVs) in India increased by over 50% in 2023? Even your neighbours and acquaintances must be buying and flaunting those smooth-riding, stylish vehicles. And they do so with pride, don’t they? 😌

It’s not farfetched to say the automotive industry, one of the top growing industries in India, is seeing a major revolution because of EVs. As per a global consultancy firm Bain & Company’s report, around 40% of the automotive sector consists of EVs, with the probability of generating over $100 billion (₹8.3 lakh crore) revenue by 2030.

Along with the economy, EVs are helping reduce fossil fuel usage and directly contributing to increasing our green planet’s life expectancy.

But is everything really rainbows and unicorns where the newly evolving automotive sector is concerned? 🤔

With occurrences like Funding Winter and other troubles, the EV sector is facing multiple challenges. Let’s dissect what they are, along with the EV industry’s present and future prospects.

Revolution of the Automotive Sector with Electric Vehicles

Contributing 7.1% to India’s GDP, the automotive sector presents a multitude of opportunities for the nation’s economy. As per the Economic Survey for 2023, the EV sector in the automotive industry is bound to boost a 49% Compound Annual Growth Rate (CAGR) from 2022 to 2030.

The EV industry is a hotbed for innovation. With rapid advancements in battery technology, charging infrastructure, autonomous driving, and connectivity, not only the automotive sector but other industries will see boosting progress.
The IT sector is a good example, as features like self-driving cars, GPS, and other automation are a part of the tech industry.

Apart from the numerical analysis, the EV sector has contributed to the betterment of the environment and the economy. Here’s a dissected insight into the several categorisations:

a. Tackling Climate Change

EVs produce zero tailpipe emissions, dramatically reducing greenhouse gases and improving air quality. This combats climate change and creates healthier cities. It’s safe to say that the idea behind the advancement of EVs is finally showing fruition.

With global warming rising and pollution clouds visible in cities like Delhi, this advancement would be very beneficial. ☁️

b. Renewable Energy Integration

What came as a pleasant surprise was how much effect the EVs had in reducing the fossil fuel demand. Around 2% of global supply, 1.8 million barrels per day, was reduced in 2023, as per BloombergNEF.

EVs can tap into renewable energy sources like solar and wind, promoting energy independence and sustainability. Hence, they also boost the advancement and usage of renewable energy resources, making the planet clean and green. It is a testament to a good partnership between the renewable and EV sectors. 🤝

c. Economic Growth

The EV industry creates new jobs in manufacturing, charging infrastructure, and related sectors, propelling economic development. Along with employment, the industry has increased the nation’s economic standing.

EV sales have seen a robust 155% year-on-year increase, with 11,71,944 units sold in FY 2023 in comparison to 4,58,746 units in FY 2022. People are becoming more aware of the environment and self-health and are thus investing in electric vehicles for safer commutes. 🚗

d. Healthier Communities

It goes unsaid that EVs reduce noise pollution and help reduce air pollution, creating healthier living environments for urban populations. They also reduce fossil fuel demand and usage.

EVs Funding Landscape

In an effort to decarbonise Indian roads and transport, the electric vehicles sector is slowly yet steadily mounting. The recent surge in EV sales offers a glimmer of hope in the fight against climate change. If this upward trend continues, CO2 emissions from cars could potentially align with the ambitious Net Zero Emissions by 2050 scenario.

In that light, let’s analyse the funding division of the electric vehicle sector. There are primarily three sectors dissected under EVs.

  • EV Original Equipment Manufacturers (OEM)
  • EV Battery Manufacturers
  • EV Charging Infrastructure

In terms of funding, the EV OEM sector has been the most funded for the past few years. The doughnut chart below describes the diversification of funding precisely:

EV fundinglandscape from 2015 to 2023
Source: INC42

Traditionally, investors poured money into OEMs, the companies that make electric vehicles. However, there has been a recent shift towards investing in other sub-segments of the EV industry, such as battery technology, charging infrastructure, and financing.

For 2023 specifically, EV Charging Infrastructure has been giving intense competition to OEMs with a rapid rise of $169 million (around ₹1,40,270 lakh) in funding.

The reason for these occurrences and the importance of change in the funding landscape are explained below:

First, OEMs are capital-intensive and have long gestation periods. This means that it takes a lot of money and time for them to start making profits.
Second, the Indian EV market is still relatively small, so there is a lot of competition among OEMs. This makes it difficult for any one company to stand out.

As a result, investors are looking for other ways to play the EV market. They are betting that by investing in sub-segments like battery technology and charging infrastructure, they will be able to get a piece of the action without having to take on the risks associated with OEMs.

There is also a lot of potential for innovation in these sub-segments. For example, some companies are developing new types of batteries that are cheaper and more efficient. Companies are also working on creating new charging technologies that are faster and more convenient.

In the case of the new players in the sector, investments in EV startups also portray a significant rise with the passing of years. As per INC42’s survey, EV startup funding has had a strong uptrend since 2018.

If the innovations planned are successful, they could have a major impact on the EV industry. They could make EVs more affordable and more accessible, which would lead to increased adoption. This, in turn, would create even more opportunities for investment in the EV sector.

Electric Vehicle and India

EV has been creating pleasant waves worldwide, and a particularly big beckoning is seen in India. Big names like Tata and Mahindra are already leading the race of manufacturing and selling EVs, and other players are joining.

In fact, foreign companies like Volvo are increasingly becoming interested in establishing grounds in India and expanding their businesses. Tesla’s desire to set up a manufacturing unit in India is being met with revolutionary regulation changes. The below headline from The Economic Times is a good example of that. 👇

The nation’s plans for the upcoming years in relation to EV are discussed below:

a. Big bucks for bigger ambitions:

India's Union Budget 2023-24 has allocated a whopping ₹35,000 crore to accelerate the country's transition to clean energy and achieve net-zero emissions by 2070.
This means more renewable energy sources, cleaner ways to store that energy, and a big push for electric vehicles.

b. Storage solutions:

One major focus is on Battery Energy Storage Systems (BESS). With ₹4,000 crore dedicated to building these big batteries, India wants to ensure the smooth flow of renewable energy even when the sun isn't shining or the wind isn't blowing. Imagine it as a giant power bank for clean energy!

c. Rise in Production of Electric Vehicles (EVs):

Get ready to see more electric cars, bikes, and buses zooming on Indian roads. The budget has given ₹51.72 billion to programs like FAME-II that make EVs cheaper for both manufacturers and buyers. Lower taxes on EV parts like lithium-ion batteries could also mean more competition and choices for Indian consumers.

Challenges Faced by the EV Sector

Everything is not merry in the EV world as various phenomena like the Funding Winter have caused great damage to the industries. Apart from this, the infamous FAME Phase II initiative by the central government also resulted in controversy, marginally reducing the prospects of growth.

Let’s see what other troubles could hinder the growth of the EV sector in India:

a. Government policies:

Government policies can play a major role in promoting or hindering the adoption of EVs. For example, tax breaks, subsidies, and investments in charging infrastructure can help to make EVs more affordable and accessible. The FAME II initiative, which was established to be a boon for the sector, has now resulted in creating trouble in numerous ways.

b. Battery technology limitations:

Battery technology still needs to improve in terms of range, energy density, and charging speed. This will be essential for making EVs more competitive with gasoline-powered vehicles.

c. Lack of charging infrastructure:

On the same note, the availability of charging stations is still limited in many parts of the world, making it difficult for EV owners to charge their vehicles on the go. This can further contribute to range anxiety.

d. High upfront cost:

EVs are still generally more expensive than gasoline-powered vehicles due to the high cost of battery technology. This can be a barrier to entry for many consumers, especially in developing countries.
Producing less expensive measures for the manufacturing and distribution of EVs is required to deal with this challenge.

The Bottom Line

EVs are a boon for the automotive industry and planet Earth. With the rise in global warming and other concerns, it is a good thing that at least one industry is showing solutions for the problem.

However, that particular industry was also one of the biggest perpetrators in colouring the planet’s skies grey. That’s another story.

All in all, the electric vehicle (EV) industry isn't just a niche player in the automotive market; it's poised to become a full-blown revolution, redefining transportation and the automotive landscape itself.

Still, it’s far away from achieving its full potential and bringing a massive change to the planet.

Also read: Best EV Stocks in India.

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A book-lover who adores everything fictional, Preeti has undertaken the life mission of tasting every flavour available in the pantry. A science student with a Master's in Mass Communication, she now wishes to conquer the Finance world as a writer. With the power invested by the randomly chosen music, she is here to make Finance fun for you.

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