How to profit from the Electric Vehicle revolution

The global mobility revolution just begun, but it is going to change the way people travel. The UK this week has laid out plans to ban sale of new petrol and diesel cars from 2030. Norway is doing it from 2025! This transformation is a great opportunity for companies that are already in this space, spearheading the revolution or supporting it. That perhaps explains why Tesla’s stock price has gone up by 6 times since the beginning of this year.

As an astute equity investor, you are probably asking – “Where could we invest to benefit from this?” Here is our view.

Within India, the opportunities are a bit limited.

  • Hero Motocorp’s investment in Ather Energy, an electric two-wheeler manufacturer, makes it one of the candidates. But unlike Tesla, much of Hero’s revenue is from fossil fuel powered vehicles.
  • KPT Industries, a manufacturer of electric power tools, has forayed into electric 3-wheelers. But they are too small and consequently too risky to invest in at the moment.
  • Investing in engineering services providers working in this domain, like ASM Technologies, KPIT etc. could be another way to get exposure. But once again, this isn’t their core business.
  • Investing in one of the two main automotive battery manufacturers in India is another option. Exide industries for example has formed a JV with a Swiss energy storage solutions provider Leclanche to build lithium-ion batteries

Looking outside India, there are so many different listed automotive companies. Chinese giants like NIO, BYD and Geely are at the forefront. One could invest in these companies. But bear in mind, automobile businesses are one of the worst to be in. Valuation guru Aswath Damodaran swears by it.

The other way to get exposure is to invest in manufacturers of battery systems, suppliers of raw materials or in the commodities involved directly. Lithium and Cobalt are two key ingredients that go into the production of batteries. And companies that are involved in mining & processing them will see a major uptick in demand. Over a mile long copper wire is used in manufacturing a single electric car and that will mean that demand for the metal will also increase. For global investors Lithium and Battery Tech ETF (LIT) traded in NYSE offers a simple and straight forward way to get exposure to a number of these stocks.

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