5 Mutual Funds to Benefit from the EV Battery Stocks

September 6, 2023 Mutual Fund

India, one of the largest and fastest-growing economies in the world, currently stands at a pivotal turning point on its path to achieving sustainable development. The nation is likewise having trouble striking a balance between environmental responsibility and economic prosperity.

Having said that, the Government’s backing for electric vehicles is stealing the show in the global automobile industry against mounting concerns about climate change. It is anticipated that switching from a conventional gasoline-powered car to an electric vehicle will have a significant impact on the automotive sector.

The outlook for the EV megatrend in the Indian market and the mutual funds that hold a high exposure to the stocks of electric vehicles have been covered in my previous article – Top 5 Mutual Funds with High Exposure to EV Revolution.

The EV business has seen a promising period in recent years. The Niti Aayog-led Global Mobility Summit in 2018 and the relaunch of FAME 2.0 in 2019 both contributed to the growth of the demand-side incentive in India for electric mobility. In order to fulfil emission targets by 2030, Government regulations are also promoting wider usage of EVs.

EVs are now a feasible option for many drivers worldwide thanks to the advancements in battery technology, an expanding network of charging infrastructure, and rising consumer demand.

About Electric Vehicle Battery

One of the most crucial parts of Electric Vehicles (EVs) is the battery. All these EVs in the market will need plenty of batteries – the single most expensive component in an electric vehicle, accounting for about 30-40% of its cost.

Batteries are necessary for propulsion, starting lights, and ignition (SLI) in EVs. Due to their significance in influencing the driving range, ownership costs, and performance of EVs, batteries play a significant role in the adoption of EVs.

Governments and businesses are scurrying to obtain sufficient supplies of EV batteries in light of the projected rise in demand. China is unquestionably in the lead when it comes to battery technology, according to BloombergNEF.

This Asian powerhouse controls about 75% of the world’s manufacturing capacity for EV batteries, and Chinese companies also have significant sway over a number of supply chain hubs, from mining and refining to final assembly.

Given that, many Western automakers, including Tesla and General Motors, presently source their battery needs from Chinese companies like Contemporary Amperex Technology Co. (CATL), the largest manufacturer of EV batteries in the world. The lithium-iron-phosphate technology from CATL will be used in a new battery plant Ford Motors is building in the U.S. state of Michigan, the company recently revealed.

However, the goal is to keep India’s embryonic EV adoption as far as possible from Chinese technology and raw materials to prevent a new type of geopolitical conflict. India aims to become a manufacturing hub for Electric Vehicles (EVs) under its ‘Make in India’ initiative.

India faces significant air pollution and environmental challenges, especially in densely populated metropolises like Delhi and Mumbai. As a result, there is a prevailing belief that the growing usage of Electric Vehicles (EVs) powered by sustainable energy sources is a key to reducing air pollution and greenhouse gas emissions.

Electric Vehicle Battery Market Analysis

Between 2022 and 2027, the global market for Electric Vehicle batteries is anticipated by experts to increase in size by USD 53,626.86 million, with a CAGR of 19.57%. The expansion of EV applications and consumer demand, the automotive industry’s transition to EVs, and technological advancements in EV batteries and related areas all play a role in the market’s growth.

Global EV battery sales surpassed 6.5 million units in 2021, marking a substantial growth compared to 2020. China led the EV battery sales in the previous year, 2022, followed by Europe and the U.S.

India’s Electric Vehicle battery market is segmented based on Vehicle Type, Battery Type, and Vehicle Class as follows:

The EV battery market currently relies on lithium-ion batteries. Future demand for EV batteries is anticipated to be fueled by improvements in socioeconomic conditions, the expansion of charging infrastructure, and new developments in EV technology.

The EV battery market is at a nascent stage in India; however, it is expanding quickly due to technology advancements that are increasing customer confidence in electric vehicles and driving up demand for EV batteries.

A key factor driving the market for EV batteries is the rising demand for EVs and their wider applications. Additionally, thanks to improvements in battery technology, economies of scale, and improved production efficiency, the price of EV batteries has been declining steadily. Electric Vehicles are now more accessible and appealing to consumers, especially in price-sensitive markets like India, due to reduction in cost.

India has several prominent battery manufacturers that cater to various sectors such as automobile, industrial, renewable energy and consumer electronics.

Here’s a list of the top EV battery manufacturers in India in 2023:

• Exide Industries Ltd.
• Hero MotoCorp Ltd.
• Maruti Suzuki India Ltd.
• Amara Raja Batteries Ltd.
• Bharat Electronics Ltd.
• Tata Power Ltd.
• Tata Chemicals Ltd.

*(The securities quoted are for illustration only and are not recommendatory).

As compared to other nations, India also has a substantial potential for large-scale battery production, and according to industry forecasts, the country’s annual battery market may top USD 15 billion by 2030.

Given the favourable prognosis for the EV ecosystem, many investors might be persuaded to buy shares of EV battery companies. One could think about investing in EV battery stocks through mutual funds as an alternative to buying direct equities of EV battery companies.

How to gain exposure to the EV Battery market through Mutual Funds?

Investing directly in EV battery stocks on the exchange is highly risky and not suitable for every investor. But another way to profit from this EV megatrend is to consider looking at some diversified equity mutual funds with high exposure to EV battery stocks.

1.UTI Transportation And Logistics Fund (Sectoral Fund)

UTI Transportation and Logistics Fund invest predominantly in a portfolio of stocks of companies engaged in the transportation and logistics business.

The scheme currently has an AUM of Rs 2,358.44 crore and is benchmarked against NIFTY 50 TRI. It invests across the market cap, and as of July 2023, it holds 70.79% allocation in large caps, 18.41% allocation in mid-caps and 6.52% in small caps.

The scheme holds an overall allocation of 16.72% in EV battery stocks as of July 2023. It includes 12.40% in stocks of Maruti Suzuki India Ltd. It endeavours to source lithium-ion battery packs used in Hybrid vehicles from TDSG. (Toshiba Denso Suzuki Lithium-ion Battery Gujarat Pvt. Ltd. is India’s first Lithium-ion battery manufacturing plant with cell-level localisation).

Apart from this, the scheme has a 4.31% allocation to Hero MotoCorp Ltd., which has built a new facility in Tamil Nadu to manufacture EVs. In addition, the company is focusing on the Lithium-ion battery market.

2.ICICI Pru Transportation And Logistics Fund (Thematic Fund)

ICICI Pru Transportation and Logistics Fund invests in a concentrated portfolio of equity & equity-related instruments of companies engaged in the transportation and logistics sector.

Currently, the scheme holds an AUM of Rs 2,531.18 crore. As of July 2023, the fund has a 53.13% allocation in large-cap stocks and 11.17% in mid-cap stocks, whereas 12.84% in small-cap stocks.

As of July 2023, the scheme holds an overall allocation of 16.26% in EV battery stocks; it includes exposure to market leaders in the EV battery industry – like 11.81% in Maruti Suzuki India Ltd., 3.70% in Hero MotoCorp Ltd., and 0.74% in Exide Industries Ltd.

3.Bandhan Transportation And Logistics Fund (Thematic Fund)

Recently launched in October 2022, Bandhan Transportation and Logistics Fund invests in stocks of companies engaged in the transportation and logistics sector in India. The scheme invests across market cap, and as of July 2023, it holds 44.96% allocation in large caps, 20.20% allocation in mid-caps, and 26.37% in small caps.

Currently, the scheme has an AUM of Rs 311.14 crore, and it has an overall allocation of 13.15% to EV battery stocks. As of July 2023, the scheme holds a fair allocation of 6% and 5.15% in Maruti Suzuki India Ltd. and Hero MotoCorp Ltd., respectively, the leaders of the EV battery market.

In addition, the scheme allocates 2% of its total assets in Exide Industries Ltd. India’s largest battery manufacturing company. Exide is currently setting up a green-field multi-gigawatt lithium-ion cell manufacturing plant in Karnataka.

However, do note that the scheme is new in the market and does not carry a long performance track record; thus, investors may consider their suitability before investing in this scheme.

4. Mahindra Manulife Consumption Fund (Sectoral Fund)

Mahindra Manulife Consumption Fund, launched in November 2018, aims to invest in a portfolio of companies that are likely to benefit from consumption-led demand in India. The scheme invests across market caps with a major allocation of 63.42% to large caps, 10.84% to mid-caps and 20.32% in small caps.

Being a Sectoral Fund, the scheme carries a concentration risk. As of July 2023, it has an overall allocation of 12.07% to EV battery stocks, which includes 7.01% to Maruti Suzuki India Ltd. and 5.06% to Hero MotoCorp Ltd.

5. Kotak Focused Equity Fund (Focused Fund)

Kotak Focused Equity Fund aims to generate long-term capital appreciation/income by investing in equity & equity-related instruments across the market capitalisation of up to 30 companies. The scheme endeavours to build a concentrated portfolio of 30 stocks, and it currently holds an AUM of Rs 2,759.81 crore.

Launched in July 2019, the scheme currently holds an overall allocation of 11.18% in EV battery stocks of companies like 4.57% in Maruti Suzuki India Ltd., 3.58% in Bharat Electronics Ltd., and 3.02% in Hero MotoCorp Ltd.

*(All the scheme related data is collated by PersonalFN Research, Source: ACE MF)

To conclude…

Electric Vehicle (EV) adoption is increasing, assisted by the entry of newer competitors and the development of new and better products, despite the initial setbacks and hurdles faced by India’s EV industry. As a result, the sector appears set to grow by leaps and bounds in the coming years.

The key to accelerating EV adoption in India is a comprehensive ecosystem approach. The ecosystem’s various participants can cooperate to advance infrastructure construction, raise EV affordability, and enhance public awareness.

[Read: Are You Investing in the Right Mutual Funds? Think again!]

One of the most important parts of an Electric Vehicle is its battery, and India needs component and battery manufacturers to make investments in high-performing, affordable batteries. Additionally, doing so will assist India in becoming a market leader for EVs worldwide.

All things considered, the EV battery business offers individual investors an intriguing investment opportunity due to its growth potential. Prior to investing in EV battery stocks through mutual funds, one must take into account their suitability for the fund, undertake thorough research of the holding EV battery manufacturers, and evaluate the performance of the mutual fund schemes.

This article first appeared on PersonalFN here