Auto stocks have been zipping along lately, with the Nifty Auto index up 35% so far in 2024, and 61% in the last year alone. Maruti Suzuki and Tata Motors have both been cruising near their 52-week highs.
For a change, EVs (Electric Vehicles) aren’t the ones grabbing headlines and creating hype. It is in fact hybrids, which now seem to be in a lane faster than EVs, in India’s electric journey.
But despite the glamorous sales numbers of EVs, and the regulatory support for hybrids, there are headwinds that might just impact the overall industry.
Guess it’s time to play it selectively rather than backing exuberance blindly (just like for the rest of the market!).
What’s Happening?
In the latest positive development for EVs, the Uttar Pradesh government has decided to waive registration fees for strong hybrid and plug-in hybrid vehicles starting July 1, 2024.
Cars priced over Rs. 10 lakh have an RTO tax of 10%, which the buyers won’t have to pay in the state home to the second largest car market in the country.
Who Will Benefit?
Customers - of course! But other than that, there are 5 prominent hybrid models in the country right now, and two of them are of Maruti Suzuki.
Toyota - the unlisted and reigning champ in the hybrid market (85% market share), is set to reap the most benefits from this move
Maruti Suzuki - Before making an entry into EVs, Maruti Suzuki made a clear mark in hybrids. It has been a first-mover in the market, thanks to its partnership with Toyota, and to the success of models like Grand Vitara and Invicto
If policy and regulation, both at the Centre and State, continue to favour hybrids, other OEMs might just consider revving up their hybrid portfolios, especially in a price sensitive market like India, where EVs are still out of reach for most people.
And Who Will Not Benefit as Much?
Tata Motors and Mahindra have bet big on EVs, and have been able to capture most of the small, yet fast-growing market. But if the market is turning to favour hybrids, these guys might just be forced back to the drawing board to stay ahead in the race.
Tata Motors recently adjusted its EV revenue share (EVs as a percentage to total vehicles) estimate for 2030 to 20%, down from a more optimistic figure.
And, with new CAFÉ norms (fuel efficiency norms) and the inevitable shift to BS-VII, Mahindra may also need to build a hybrid portfolio to stay in the race.
Why Should You Care?
While EV sales continue booming, and regulatory support for hybrid vehicles becomes more apparent, there is a slight speed bump ahead for the industry - inventory, which now stands at a whopping Rs. 60,000 crore.
The market has been witnessing a slowdown, thanks to high borrowing costs, a sweltering summer, election uncertainties, and the rising costs of vehicles. June sales numbers reflect this, with auto players reporting only modest growth of 4% YoY and a de-growth of 3% sequentially.
In a bid to jump-start sluggish sales, Tata Motors and Mahindra have slashed prices on some of their popular SUVs.
Tata's Harrier and Safari are now cheaper by Rs. 1.4 lakh, and even the Nexon EV is getting a Rs. 1.3 lakh discount. Mahindra’s XUV7OO has also seen a price drop of over Rs. 2 lakh for its top-tier models.
The inventory issue is a red flag that could slow down the otherwise bullish auto stocks.
Why to Do?
The auto industry is experiencing a mix of high-speed gains and slow-motion hurdles. While the overall industry looks positive from a structural standpoint, there may be some clear winners in the near-to-mid-term.
We continue to like OEMs focused on hybrid and EVs, OEMs with a meaningful rural exposure, and auto ancillaries with an expanding product portfolio, aggressive capex and prudent capital allocation.
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