MUMBAI: The advent of electric vehicles (EVs) is causing disruptions for incumbents, while creating big opportunities for smaller players, new entrants and start-ups alike, according to a report.
It also said the valuations of pure EV businesses are driven by the expected pace of electrification in the segment as well as the competitive landscape in the EV segment.
In the Indian context, the speed of electrification can differ substantially across segments, brokerage firm Motilal Oswal Financial Services Ltd (MOFSL) said in its report on Monday.
It noted that the passenger vehicle segment is seeing the fastest shift to EVs in the developed markets, resulting in much higher valuations for pure e-PV players.
The report added that commercial vehicles are expected to witness slower electrification in medium and heavy CVs, but light commercial vehicles are expected to see faster electrification resulting in relatively lower valuations compared to e-PV original equipment manufacturers (OEMs).
MOFSL estimates that EV penetration in the two-wheeler segment at around 15 per cent by FY27E, from around one per cent in FY21, driven by around 35 per cent penetration in the scooter segment as against around three per cent in FY21.
This will be supported by high subsidies from the government, it said.
According to the report, the lowest electrification in PVs is expected due to the lack of the FAME-2 subsidy for personal use and the need for extensive charging infrastructure.
It stated that India is still in the early stages of electrification across segments and there has been a de-rating of some stocks in the 2W space due to the risk of electrification.
Markets have also rewarded companies with either tangible progress on EVs or with the likelihood of a fundraiser in the EV business, the report added.
Value discovery from other OEMs making a foray into the EV space is yet to be seen.
However, the EV business for these OEMs is at different stages of evolution in a nascent market, it added.
In two-wheelers, in the base case, Motilal Oswal values the EV businesses of incumbent OEMs at 2x FY27E EV/sales; while in commercial vehicles (CVs), in the base case, the report values the EV businesses of incumbent OEMs at 3x FY27E EV/sales.
The brokerage firm said it believes that EVs will disrupt the ICE (internal combustion engine) segment rather than expand the underlying market and, therefore, value migration is expected from ICEs to EVs.
Thus, the incumbent OEMs would see the loss in value in the existing ICE business as electrification catches up.
Net value accretion could occur from the EV disruption for the incumbent OEMs from an increase in segmental market share and/or sub-segment expansion due to inter-segmental changes, according to the report.
In two-wheelers, the scooter segment is the most vulnerable to electrification as around 35 per cent EV penetration is expected by FY27E, it said.
The report added that in the domestic three-wheeler segment, it estimates EV penetration of around 19 per cent by FY27E.
In CVs, the brokerage firm said it expects buses (around 23 per cent EVs by FY27E) and light commercial vehicles (around 18 per cent) to see reasonable EV penetration by FY27E.
According to the report, globally, pure EV OEMs are richly valued, driven by the expectation of rapid value migration from ICEs to EVs across segments.
Even in India, the recent fundraisings in the EV segment have been at rich valuations for businesses that are at their nascent stage of evolution, it stated.