Pankaj Murarka, CIO, Renaissance Investment Managers, says Tesla coming to India and the big bang launch will expand the luxury end of electric vehicles and will also help in the evolution of the market at the mass segment. Also, with Tesla, they will bring their global vendors as well and more importantly, given the indigenisation clause, they will increase their sourcing from India as well. A host of auto ancillary companies will benefit. There are already a handful of companies from India which are supplying different kinds of parts to Tesla globally.”
You track the market with a magnifying glass. There are half a dozen or longer lists of ecosystem participants like auto ancillary companies and battery companies, which are doing a lot of work on the EV side. How do they stand to gain with this opportunity? Obviously, others are also doing it, but this will definitely be a big bang splash in the EV space. Pankaj Murarka: Absolutely. Elon with Tesla is the poster boy of EVs globally. So, it does bring a lot of attention in that sense. Having said that, I firmly believe that it is very evident that India will become the third largest passenger vehicle market in the next five to seven years and in that sense, any global player cannot afford not to be in India.
Also, it is very evident from the trend that we are seeing that the future of automobiles is electric, irrespective of whether it is two-wheeler, three-wheeler or passenger vehicles and so on and so forth. Indian companies have a significant market share when it comes to auto installers in global exports. India is a key sourcing destination for global companies. You talk about it any way globally, be it Daimler, Volkswagen, or even for that matter Tesla as well.
Tesla already sources from some of the Indian vendors for their cars which are sold in the US and Europe. So, in India, from an auto ancillary perspective we have a strong manufacturing base. We have the technology and know-how which India has built over the last 20 years and India auto ancillary companies work with global OEs on their new products and developments in that sense and so we have fairly robust auto ancillary exports in that sense.
It will benefit India in both sense — one, obviously, Tesla coming here and the big bang launch will expand howsoever small that market at this point of time at the luxury end of electric vehicles, I still think it will expand that market and it will also help in evolution of the market at the mass segment in that sense. Also, with Tesla, they will bring their global vendors as well and more importantly, given the indigenisation clause, they will increase their sourcing as well from India. I am sure a host of auto ancillary companies will benefit and as I said, there are already a handful of companies from India which are supplying different kinds of parts – be it the DC motors or the lightings and stuff like that to Tesla globally.
Just for the benefit of our viewers, I will just lay down some of the companies which are working closely with Tesla and other companies in the EV space and then you tell me where the opportunity lies. SK is supplying bearings; Sundram Fasteners, gear transmission; Suprajit is doing light duty cables; Motherson; Sandhar Techand of course, the big bang tie-up which Exide recently did for two Asian companies for EV batteries. Where does the maximum amount of opportunity lie?
Pankaj Murarka: Apart from what you said, there are other companies as well like Sona Comstar or Varroc and some other companies which work with Tesla and global EV players as a part of their global supply value chain in that sense.
When it comes to EVs, all of us know that the value of the battery becomes very significantly higher in EV versus in a normal ICE vehicle and plus, the replacement cycle of the battery is probably shorter in that sense obviously. But apart from that, there are other components where, for example, when you talk about Motherson Sumi, the wiring in an electric car could be 2.5x, 3x times what it normally is in an ICE car and likewise, there are other components as well.
So, the opportunity is very significant. More importantly, what I have seen over the last few years is that the Indian auto ancillary companies have made investments in their business over the last five years in terms of building capabilities, in terms of developing new products which are required for the EV and they have been working with a lot of these global OE on the EV side and as I said, some of these companies – one, they are already supplier and more importantly they have built a sizable order book on the EV side with global companies as well as with some of the local companies in that sense.
So, the opportunity is immense and it will be supported not only by export but also by the fact that India’s domestic automobile market be it passenger vehicles or two wheelers and other things will also have a very healthy growth over the next 10 years.
I know you will not talk about stocks but let us put it in categories. Would you play for a wire harness company? Would you play a tyre company or a battery company or a charging infra company, where would you find the highest amount of comfort which may do very meaningful work in the entire EV ecosystem, not only Tesla?
Pankaj Murarka: We are open to looking at companies across the spectrum. All that you mentioned and probably much more in that sense and in fact we already own some of these companies. The opportunities are across the segment. I think that there are significant challenges in terms of creating the ecosystem and putting the infrastructure in ground. But things will happen over a period of time and markets are always forward looking, so markets tend to discount the future well in advance in that sense.
For example, we own a company called Exide Industries. Exide is the first company to set up on-ground lithium-ion battery plant in India near Tirupati. That means the capital expenditure on the plant is already on and they expected that plant should see commercial production probably by January, February next year and they are making Rs 4,000 crore investments in that.
I am sure many more plants will come up in that sense, but we believe that is the first one. Exide has already tied up with a couple of OEs and they made announcements a few weeks back in that sense which is an endorsement of their underlying technology.
Likewise, we own some of the other companies which are in the whole value chain of EVs like Sona Comstar and Varroc Engineering which supply either the BLDC motors or the lightings to some of those EV companies globally. We have seen a fair degree of penetration in the two-wheeler when it comes to EVs already now.
In my experience, one of the key inflection points is when you have 5% market share coming in for a category that is where you will really see a big take-off happening in the new technology or new product. Last year, we had 5% of two-wheeler sales coming from electric vehicles, effectively hoping that that should accelerate from hereon in that sense.
We like companies across the value chain. While the transition could be slow and gradual to begin with over the next few years, in India, whenever we have new technology, new evolution, it is always my experience of investing over the last 25, it is always a two-step forward, one-step backward story.
We have our own set of challenges in terms of execution, and they are constrained from governments in terms of funding. But eventually, the ecosystem will evolve and from a slightly more medium-term to longer-term perspective, a huge opportunity is there.
