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Global electrification, previously driven by strong EV sales, is now showing signs of growth moderation despite supply chain normalization and price reductions by OEMs. Global automakers (Mercedes, Ford, GM, VW, etc) are scaling back EV investments and turning towards hybrids due to shifting consumer preferences and challenges like inadequacy and slow pace of charging infrastructure expansion. We believe the situation is no different in India. Tata Motors reduced its EV sales estimate and prices recently to boost adoption, citing similar hurdles. MSIL, with its tech-agnostic approach (Hybrids, EVs, CNG, Flex-fuel, etc.), is well-positioned (& hedged) amidst slowing pace of electrification. Media reports indicate of MSIL’s strong Hybrid model launch pipeline going forward (five models in next 2-3 years). Tax rationalization on Hybrids could act as a fillip and shift consumer preference towards this choice of powertrain. Given the evolving global landscape and MSIL’s tech-agnostic approach, we remain positive on the company and maintain BUY with TP of INR 13,000.

* Pace of electrification slowing down?: Till last year, global EV sales continued to outpace supplies (partially owing to semiconductor shortages) with OEs’ orderbook piling to record levels. However, despite normalisation of supply chain, pace of electrification seems to have moderated. Reduction in EV prices (by Tesla, Ford etc.) to drive wider adoption also isn’t helping. Global automakers like Mercedes, Ford, GM, VW have deferred EV related investments, reduced their EV sales guidance indicating moderation in EV growth going ahead. Few of these auto OEMs are turning their focus back to Hybrids amidst shifting consumer preference. Domestic demand scenario for electric PVs is no different. Recently, Tata Motors (mkt. leader with c.73% share) reduced its FY24 EV sales estimate by c.20% (to 75-80k units) and also cut prices by upto INR 125k/vehicle to drive wider adoption. Lack of adequate charging infra and hesitant customers (to pay premium over ICE vehicles) are the primary reasons for slower EV adoption.

* MSIL’s tech-agnostic approach hedges all such risks: Back in 2010, MSIL was the first OEM in India to introduce factory-fitted CNG vehicles owing to its affordability and ability to offer better TCO over other petrol/diesel vehicles. Its CNG sales have grown 5x in the last 5 years and its CNG penetration has increased to c.30%. Peers like Hyundai (2018) and Tata Motors (2022) followed suit at a much later stage. MSIL’s decision to exit diesel has also turned out to be in the right direction as industry diesel penetration continues to fall (<15% currently). Currently, MSIL is working on multiple technologies (Hybrids, EVs, Flex-fuel and Bio-gas in addition to ICE/CNG) as the company believes multiple technologies can co-exist in the medium-to-long term. The company had a foresight back then (when it launched CNG) and we believe its current tech-agnostic approach is again a well thought-out approach against committing resources to a single technology.

* MSIL’s upping its Hybrid game; tax rationalisation remain key: Various media articles suggest that MSIL is developing its own cost-effective ‘series’ hybrid solution for small car segment and will continue to source Toyota’s Hybrid technology for larger SUVs/MPVs. It plans to launch 5 Hybrid models over next 2-3 years (exh.11). Our calculation highlights that currently (with 43% GST) TCO of a mid-sized EV-SUV* is 10% higher than Strong Hybrid Grand Vitara. Rationalisation of GST rate can reduce TCO of a Strong Hybrid Grand Vitara by another 8% and that would bring it almost at par with compact EV-SUV.

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