Mumbai: Tata Motors is in talks with global investors to raise at least $500-600 million more for its fast-growing electric vehicles business, just over a year after it received $1 billion from TPG’s Rise Climate Fund and Abu Dhabi state holding company ADQ, said people aware of the matter.
Tata Motors is looking at a premium of 15-20% from the last round when Tata Passenger Electric Mobility Ltd was valued at $9.1 billion, the people said. That would translate into a valuation of as much as $10.9 billion for the business, which it had carved out as a subsidiary in late 2021.
The move is part of an ambitious strategy by the leader in the electric passenger vehicle market to raise significant funds, both via external and internal sources, to support its growth plans through product innovations, especially of EV platform, top executives close to the development said.
The company is working with its adviser, Morgan Stanley, and has sounded out several marquee investors, impact funds, sovereign wealth funds from the Middle East, Korea and Singapore, as well as Canadian pension funds for the funding.
Some of the legacy buyout funds have dedicated pools of capital for energy transition.
“Several new pedigree investors are keen to be part of the new narrative at Tata Motors. The company is actively working on the combination of external and internal funds,” an executive said. “Interest for funding in the EV space has picked up significantly and the company is evaluating the options.”The discussions with potential investors are preliminary in nature and non-disclosure agreements are getting signed, said a person in the know. The company may increase the fundraising target depending on investor appetite, another person said.
However, the premium sought may prove to be expensive, warned some analysts.
As a policy and practice, Tata Motors does not comment on speculation, a company spokesperson told ET.
Tata Motors is the first automaker in the country to sell 50,000 electric passenger vehicles a year, which it achieved in 2022 selling the Nexon and Tigor EVs and commanding a more than 80% market share.
Growth and innovations at Tata Motors are tech-led, with a focus on sustainability, said an executive close to the company. “So, funds to support this growth will be made available to the management and the clear directive is this time Tata Motors should not miss the bus and instead be ahead of the curve. Availability of funds will not be an issue, the balance-sheet is today strong enough to attract good investors.”
Tata Motors is expected to sell part of the shares held by it in the unit as well as issue new shares to the investors, which will help it deleverage the balance sheet and also get growth equity for expansion.
In the first half of fiscal 2023, Tata Motors’ net automotive debt totalled Rs 59,900 crore, as per a company presentation. This comprised Rs 32,200 crore of external debt, Rs 19,900 crore of working capital debt and Rs 7,800 crore in leases.
Tata Motors incorporated the subsidiary, Tata Passenger Electric Mobility, in December of 2021 to focus on design and develop all kinds of services related to passenger electric vehicles/electric mobility and hybrid electric vehicles. Tata Motors became the promoter of the company with an initial capital of Rs 700 crore.
In October of the same year, while announcing the spinning out of the EV vertical into a separate arm, Tata Motors said it planned to invest more than $2 billion in the EV business over five years. It raised funds from the two external investors, TPG Rise and ADQ, by issuing compulsorily convertible preference shares, which upon conversion over an 18-month period would give them an 11-15% stake in the EV arm.
ET was the first to report the news of TPG-led investment in its October 8, 2021 edition.
According to a five-year plan outlined by the company at the time, it would look at a portfolio of 10 EVs and, in association with Tata Power, catalyse the creation of a widespread charging infrastructure. As per the original plan, the EV company was to be asset light and would house only the technology and future IPs, it had said.
In August last year, Tata Motors’ EV subsidiary signed an agreement for the acquisition of Ford India’s manufacturing plant at Sanand in Gujarat, along with machinery and all employees of the vehicle manufacturing operations for Rs 725.7 crore. So, even though Tata Motors’ passenger vehicle division manufactures the older EV versions of the Tigor, Nexon in lieu of a fee from the EV arm, the new-generation models — Curve, Avinya and others — are likely to be made in the Ford plant by the EV unit.
“So, from asset light, the company has become asset right,” said a company executive, speaking on the condition of anonymity as the talks are still in private domain.
ROAD TO GREEN
Tata Motors expects about half its sales to come from EVs by the end of this decade, up from 8-9% at present, ET reported on January 13. “Consumer awareness about electric vehicles is increasing,” Vivek Srivatsa, head of marketing, sales and service strategy at the EV unit, had told ET.
The company is set to commence deliveries of the Tiago EV, priced at Rs 8.49 lakh ex-showroom, later this month, and is scheduled to launch two more EVs shortly.
It has recently reduced the prices of the three variants of the Nexon EV Prime by up to Rs 50,000 and the EV MAX range by up to Rs 85,000. It’s also offering an enhanced range.
Sales of passenger EVs are growing at a rapid pace. From 3,000 units three years ago, the industry expects a surge to about 60,000 units in this financial year.
“India is in the nascent stages of electrification, with EVs forming just around 1% of PVs. Tata has taken an early lead, with EVs now contributing around 8% of its India PV volumes,” said Nitij Mangal, an analyst with Jefferies.