View on ARBL’s Lithium Play
My only problem with Amara Raja’s Lithium ion optionality is that they are not aggressive in building relationship with the OEMs / TIER-1s. The difference between a Lead acid battery and Lithium ion battery is that Lead acid batteries can be bought from anyone and fitted in your car. Lithium ion batteries cannot be treated that way. The vehicle level controller ( VCU – think of the brain of an EV ) needs to know details about the battery – State of charge, state of health , resistance buildup etc. The VCU is mostly designed and owned by the OEMs and they ultimately will build the system with 2-3 suppliers.
Using a non OEM authorized battery can cause hazard and this is where ARBL’s relationship with the OEM deteriorates.
Knowledge of making lead acid battery at scale is not transferrable to making Lithium ion battery.
Lead acid battery is very simple and can be done in cottage industries ( un-organized sector ) The VRLA batteries are a bit more complex. But since lead acid batteries rarely pose a fire risk OEMs and Customers will not be too worried about the batteries. The Lithium ion battery is completely opposite and not knowing the characteristics of the cells and the chemistry in it can cause fire hazard. The process of producing Lithium ion is complicated with heavy upfront capex and wafer thin margins. The requirement of clean rooms are also crucial. The manufacturer will also be impacted with the commodity price fluctuation of Lithium which has become geopolitical in nature
Large Chinese, Korean OEMs will partner with Indian business houses India a part of the global supply chain
My experience says that if the volumes of an OEM is large, they will design the battery around the vehicle. E.g. OLA would provide requirements to their battery supplier to make them a custom battery. If the volumes are low, the vehicle is designed around the battery. Many Indian startups who had imported the batteries from China had to also import compatible, BMS, Motor with them ( this is why they were not able to keep the proportion of the indigenous components level to less than 40% ). My question is what stops a CATL, Panasonic to form JV with a non automotive business house flush with cash to set up a shop to serve the fragmented market.
Jindal for example will partner with LG. Tata, Mahindra’s might have similar partnership. Globally Mercedes has partnered with CATL
Silver Lining
What might act as a good trigger for me is that if ARBL is able to absorb LOG 9 within itself as I see LOG9 aggressively partnering with 3W and 2W startups. Maybe LOG9 will be able to supply a 2W and 3W powertrain on which EV startups can build their vehicles.
Disc : Held the stock, exited 3 months back.
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