TPG to contribute $1 billion in Tata Motors' electric vehicle subsidiary

 

TPG to invest $1 billion in Tata Motors' electric vehicle subsidiary

The EV business in the commercial vehicle segment will remain with the parent company and is out of the purview of the deal.

To boost its electric vehicle (EV), Tata Motors on Tuesday closed a deal to raise Rs 7,500 crore from TPG Rise Climate and Abu Dhabi's ADQ. This is the first major fundraising by an Indian carmaker to advance clean mobility.

The investment will be in a newly formed subsidiary that Tata Motors has created for the EV business. Rs 7,500 crore (close to $1 billion) will give 11-15 per cent stake to the TPG-ADQ alliance in this subsidiary.

Bank of America was an advisor to TPG Rise Climate, and Morgan Stanley and JP Morgan have advised the EV arm of Tata Motors. The group is a leading player in the EV business with over 70 per cent market share.

Chief Financial Officer PB Balaji said the company will invest over Rs 16,000 crore in the next five years. Compulsorily convertible instruments will be issued to investors over a period of 18 months. Investment will be made in installments.

The company said that the first round of capital infusion will be completed by March 2022 and all the money will come by the end of 2022.

N Chandrasekaran, Chairman, Tata Sons said that over the next five years, the company will build a portfolio of 10 EVs and collaborate with Tata Power to catalyze the creation of charging infrastructure to facilitate rapid EV adoption in India.

"We are committed to playing a leading role in the government's vision for a 30 percent electric vehicle penetration rate by 2030."

"The new EV company will leverage Tata Motors' existing investments and capabilities and channelize future investments in electric vehicles," he added.

The wholly owned electric vehicle subsidiary, which the company calls EvCo, will carry out the passenger electric mobility business, while the passenger business unit will have existing assets such as a manufacturing plant, dealership and brand.

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TPG to hold 11 to 15% stake in ADQ

Funds will be used for EVs, dedicated battery electric vehicle platforms, charging infra and battery technologies

Over the next 5 years, the company will build a portfolio of 10 EVs

According to consulting firm AlixPartners, EV sales could grow from about 2% of total global vehicle sales to nearly a quarter by 2030.

“This new subsidiary will be asset-light, and all investment will go towards creating intellectual property such as new vehicle designs and EV platforms. The passenger vehicle business of Tata Motors does not have the means in the EV space. An investment of $2 billion is required to make it happen,” Balaji said in a conference call held after the deal was announced.

The EV business in the commercial vehicle segment will remain with the parent company and is outside the scope of the deal.

Shailesh Chandra, Head of Passenger Vehicle Business, Tata Motors. Said the investment will be used to develop vehicles, platforms and charging infrastructure and drive localization.

Experts said the investment has reflected the interest of global investors in India's effort to electrify transport.

“It is a welcome move. It will be interesting to see how the proposed networks of charging infra are set up and their relation with the cost of electricity with various state distribution companies. This road is massive for many people. This can be the first step,” said Santosh Janakiram, partner and head (projects), Cyril Amarchand Mangaldas.

Headquartered in San Francisco, TPG Rise Climate was founded in 2016 and has $5 billion under management. It primarily invests in companies with an environmental and social focus.

"The investment is in line with TPG Rise Climate's focus on carbonless transportation and builds on TPG's long history in India," said Jim Coulter, TPG's founding partner.