TVS Motor: EV bubble may burst in 12 months

17 Apr 2023 , 10:11 AM

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Target Price: Rs 1,180

Analysts at IIFL Capital Services see two risks to TVS’ EV story over the next 12 months:

1) Honda’s entry into e-scooters

2) Possibility of withdrawal of FAME subsidy for all players from April 2024. 

Honda is the market leader in ICE scooters. Launch of Honda “Activa EV” is likely to shake up the 2W EV market, given its strong brand appeal. If government withdraws FAME Subsidy scheme, as is being reported in the media, it would result in 35-40% increase in price of 2W EVs. This would result in sharp fall in affordability and volumes.

Honda’s Activa EV launch would pose threat to TVS’ EV market share

Recently, Honda announced plans to enter the 2W EV segment in India, with two launches targeted in 2024. Honda is the leader by far in ICE scooters, with ~50% market-share. Its Activa brand alone has 44% market-share in scooters. Given Activa’s strong brand appeal, there is a strong case for Honda to replicate its ICE dominance even in 2W EVs. This would pose a serious threat to TVS’ EV volume growth beyond FY24.

Withdrawal of FAME subsidies would result in sharp fall in affordability and volumes

Recent media reports suggest that the government may not extend FAME Subsidy beyond FY24. If subsidy is withdrawn, it would result in 35-40% increase in price of e-Scooters. This would hurt affordability and volumes significantly. As a case in point, EV volumes of Hero Electric and Okinawa (2W EV leaders in FY22) took a tumble after their FAME subsidy eligibility was revoked. Their combined market-share fell from 46% in FY22 to 15% in Q4FY23. Analysts at IIFL Capital Services have in the past highlighted that EV sales rely largely on subsidies and a favorable GST regime; this is not a sustainable business model.

Stock de-rating likely as aforesaid risk events draw closer

TVS’ market-share gain in 2W EVs has led to sharp re-rating in the stock. It is now the most expensive Auto OEM in India, trading at 30x FY24 PE. As the above risk events (Honda launches, FAME withdrawal) draw closer, analysts at IIFL Capital Services expect the stock to de-rate as the market will price in the risk of fall in volumes and/or market-share.