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Switch Mobility to house AL’s EV initiatives…

… OHM mobility solution taps end-customers through e-MaaS

AL showcased (click here for the presentation) growth opportunities in the EV segment on 28th Jul’21. Its latest strategic initiative, through Switch Mobility, is in shaping the commercial e-Mobility space in India and overseas. It has also setup OHM Global Mobility to provide customized solutions for improving access to clean Commercial Vehicles.

Key highlights from the event:

* With the economics of EVs in CV driven by diesel (rising) and battery prices (falling), AL sees EVs as a great opportunity to capture the end-customer market through e-MaaS (via OHM), besides being a global EV manufacturer (via Switch Mobility).

* AL has created a dedicated EV only entity – Switch Mobility – to house all EV initiatives, with manufacturing facilities in both India and UK.

* Switch Mobility would: a) have a clear focus and capabilities in EVs, b) explore synergies with AL, and c) become independent in the medium term with respect to capex plans and raising of capital for R&D, innovation, and expansion.

* Switch Mobility targets an addressable market of over USD70b (USD16b for e-Bus and USD55b for e-LCV) by CY30 in the largest and fastest growing EV markets (excluding China).

* AL has invested UDS130m in Switch Mobility and already has electric Buses on the road. It has a product pipeline of e-Buses and e-LCVs, which are expected to be technologically advanced as compared to its peers.

* Switch Mobility would invest USD150-200m over the next few years. While AL will not be incurring any major capex for the same, Switch Mobility is looking to raise investments from strategic as well as financial investors.

* It will roll out an e-Van in India by CY22-end. It is conducting customer trials and has already sold 2,000 units. It will launch a global e-Van by CY24.

* OHM Global Mobility would focus on e-MAAS – Electric Mobility as a Service – enabling a shift to an opex from a capex model. While an e-Bus, post subsidies, cost ~1.2x of an ICE Bus (v/s 3x without subsidies), OHM Global Mobility provides customized business models with underlying pay-as-youuse mobility solutions with the lowest TCO proposition:

* Gross cost contracts targeting State bus transport operators

* Battery as a Service targeting Bus fleet operators

* Vehicle as a Service targeting LCV fleet operators

* Vehicle subscription targeting SME green LCV fleets

* Our view and valuation:

AL’s EV strategy is in line with the technological revolution seen globally. We expect electrification in CVs to play out earlier in intra-city Buses and LCVs. While AL’s strategy is exciting and leverages on the strengths of both Optare (Switch Mobility) and AL, details are awaited for a more concrete plan and timeline for their EV roadmap.

We expect a demand recovery in CVs by the end of 2QFY22E and the same to gather momentum in 2HFY22E, resulting in a recovery in M&HCV volumes to FY20 levels in FY22E. Volumes in FY23E would still be lower than the peak of FY19, with the possible crossing of peak volumes of FY19 in FY24E. AL would benefit from an expansion of its revenue/profit pool by ramping-up in LCVs, Exports, Spares, and Defense. The stock trades at 18.3x FY23E EPS and 9.9x EV/EBITDA. We maintain our Buy rating.

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