Exide’s EV battery pact is positive, but not without challenges

Exide Industries Ltd stock shot up 20% this week, after the announcement on Monday of a memorandum of understanding (MoU) with Hyundai Motor Co. and Kia Corp. for supply of batteries.

The agreement, which entails the supply of batteries for electric vehicles (EVs) to be manufactured by the two automakers, highlights a significant step forward in domestic capabilities within a burgeoning, albeit nascent, market.

As such, the market’s future, its capacity absorption, and the potential for adequate investment returns remain uncertain.

Exide, known for its lead acid batteries, has ventured into lithium-ion battery making, crucial for EVs, by beginning the construction of a facility equipped with technology from China-based manufacturer SVOLT. The plant will have a 6 GWhr capacity initially, entailing a ₹4,500-5,000 crore investment. Of this, it had invested ₹1,800 crore till December. The MoU will help Exide find assured customers for its batteries.

The production capacity suggests potential sales of about 170,000 passenger vehicles, given an average battery size of 35 KWhr. Currently, Hyundai and

Kia import EVs either as completely knockdown (CKD) or completely built unit (CBU) but have plans to start local production in the coming years. This deal is crucial for their strategy to localize production, specially as batteries are a significant portion of an EV’s cost.

While the Exide facility is expected to be commissioned by end of FY25, incremental sales in FY26, and beyond, would depend upon how soon Hyundai and Kia are able to start their local operations. Even then, since it is a “non-binding” agreement, the auto manufacturers retain the right to import batteries, which could affect Exide’s business.

This is more plausible since battery making is a commoditized market, despite the huge capex requirement, which means returns to Exide from this venture may be limited.

As such, the business is at least two years away from producing any significant benefits. Also, EV adoption in India is low. Despite a large domestic automobile market, EV share is just 2% in PVs and 4% for two-wheelers, as per a Kotak Institutional Equities report.

Exide projects the Li-ion battery market to go up to 100-110 GWhr by 2030, from about 4 GWhr in 2023. This would require EV share to go up to 15% for PVs & CVs and to 40% for 2-wheelers. These projections seem difficult.

On a positive note, Exide’s zero debt status is promising, giving a solid foundation for project funding. Exide's shares have surged a massive 111% over the past year, indicating investor optimism for the company's prospects, for now.

Despite a large domestic automobile market, share of EVs is quite low in PVs and two-wheelers