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Where are we on the ‘S’ curve?
The auto industry in India is expected to witness multiple disruptions, from Mobility services and Electric Vehicles in the medium term. We believe that EVs are at the start up stage of the S Curve, while shared mobility is in the growth stage. However, sustained profitability is essential to ensure scale and longevity of operations and business models will continue to evolve on the roadmap to profitable growth.
* Shared Mobility is driven by 2W aggregators: The growth is now originating from 2W based operators as the traditional cab-based aggregators (Ola, Uber) are unable to expand beyond the large metros. Startups such as Bounce, Vogo, Yulu are focusing on the bike rental model while Rapido has adopted the bike aggregation model. The latter segment is growing exponentially (off a low base) with a current market size of $150mn. These services are expanding across Tier-I and Tier-II towns due to the economical fares/improved connectivity.
* Electric Vehicles: There has been a spurt of development activity post the FAME-II scheme. 2W OEMs have launched premium scooters (Ather 450x, Bajaj Chetak, TVS i-Qube), passenger car OEMs have launched high end products and Electric buses are being promoted by Chinese and domestic OEMs. Mass adoption of EVs is expected only in the medium term though.
* Interactions with industry experts/govt. agencies: We understand that startups such as Ather are investing heavily in R&D, which has enabled inhouse development of BMS systems; VC investors believe that regulations will turn favorable for 2W ride sharing services as they are addressing transportation problems and EESL believes that as battery costs reduce, adoption of EVs will proliferate (pls see page 7-10 for detailed meeting takeaways).
* 2W growth rates to be impacted in the medium term: As EV technology evolves and ride sharing services make inroads into Tier-II cities, the growth rates for 2Ws will be impacted over the medium term. Industry growth has already moderated to 6-8% (vs. double digit growth earlier) as penetration levels have exceeded 50% of households in India. We believe that as the second vehicle usage in households get cannibalised, industry growth rates are likely to moderate to sub 5% levels.
* Mixed impact on four wheelers: Passenger cars will adopt alternate technologies such as hybrids on the winding road to electrification, while commercial vehicles (passenger buses) are early adopters of EV technology, led by state incentives under the FAME-II scheme. Limited charging infrastructure and elevated product prices is a key constraint though.
* The risks to wider adoption of these disruptors are: (1) Continued cash burn- Growth in car aggregator services have slowed down sharply as they are focusing on improving profitability (2) Regulatory Framework- will play an important role in expansion of these services (3) Infrastructure constraints- Availability of charging infra for EVs is restricted (4) Financing challenges- Determining residual market values of EVs (5) Oil pricesSustained decline in crude prices is a key risk to EV adoption
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