M&M, British Int'l Investment to build portfolio of five e-SUVs by 2027

British International Investment and Mahindra & Mahindra have reached a binding agreement to co-invest Rs 3,850 crore (Rs 1,925 crore each) at a valuation of Rs 70,070 crore

Mahindra and Mahindra (M&M) and British International Investment (BII)-backed EV Co will co-develop a portfolio of five electric SUVs through the former’s wholly-owned subsidiary, into which the two firms shall invest around Rs 10,000 crore over the next four years, their executives said on Friday. 

This deal will help M&M reduce its planned automobile capex over FY22-26 to Rs 9,975 crore, from Rs 11,900 crore.

BII and M&M have reached a binding agreement to co-invest Rs 3,850 crore (Rs 1,925 crore each) at a valuation of Rs 70,070 crore ($9.1 billion) in the yet-to-be-named EV company, M&M said in a notification to stock exchanges on Thursday night. The Indian company would invest Rs 1,925 crore in two tranches -- Rs 1,200 crore by June 2023 and Rs 725 crore on certain pre-decided company milestones.

The agreement marks one of the major investments in the e-mobility space. Mahindra is the latest among the legacy auto firms to tap the green fund. The company has taken a leaf out of Tata Motors’ playbook. In October 2021, the Tata Group flagship sought an investment of $1 billion (then Rs 7,500 crore) from TPG Rise Climate for its EV arm, Tata Passenger Electric Mobility (TPEM), at a valuation of $9.1 billion.

"We are very confident that we will take leadership in this (EV) space,” said Anish Shah, MD & CEO, Mahindra and Mahindra, during an investor-analyst meeting on Friday. “This is not just one investment. This is also the starting point.” 

Mahindra would work jointly with BII to bring other investors into the EV company to match the funding requirement in a phased manner, said Shah.

The supposed high valuation for an entity that is currently on paper -- with no products and just BII investment -- failed to enthuse the Street. The M&M stock opened 5 per cent up at Rs 1,180.25 but gave up the gains at the end of the trading session, closing at Rs 1,132.65, down 0.06 per cent. “They (M&M) are getting a small amount of $250 million and extrapolating it to arrive at a $9.1 billion valuation,” said an analyst at a brokerage. 

This is in contrast with Tata Motors. When Tata Motors stitched the deal with TPG, it had products and a share of 75 per cent in the e-passenger vehicle market. “Therefore, investors are looking at the whole (M&M-BII) deal with scepticism… May be after the brand reveal on August 15, investors will have greater confidence,” the analyst added. 

The aforementioned e-SUV portfolio will include the electrified version of the XUV3OO (to be called XUV4OO) -- to be unveiled in September 2022 and available for sale in January 2023 -- and four “born” or pure electric SUV platforms.

By 2026-27, M&M expects its e-SUVs’ share to be 20-30 per cent of its overall SUV portfolio. This would translate into a volume of 200,000 units per annum, said Rajesh Jejurikar, executive director, farm and automotive sectors, Mahindra and Mahindra. 

Industry body Society of Indian Automobile Manufacturers (Siam) expects the M&M share as a percentage of the total passenger vehicle market to grow to 54 per cent, from 50 per cent in 2022, Jejurikar said in his presentation.

The company will unveil its “born electric” strategy in its newly opened design studio in Oxfordshire, the UK, which has been instrumental in designing these concepts. Mahindra is also exploring a partnership with Germany's Volkswagen to source EV components, it said in May.

The EV company will utilise Mahindra’s product development set-ups in Detroit, Bengaluru, and Chennai. Besides manufacturing, Mahindra would also engage in non-EV part sourcing.

“For BII, it’s a long-term commitment with Mahindra,” said Samir Abhyankar, MD and head of direct private equity at BII. The British Government-backed fund is not planning any investment in a rival company, as of now.

Deal structure for the proposed EV subsidiary 

• BII to invest up to Rs 1925 cr in two tranches (Rs.1,200 cr & Rs 725 cr) 

• M&M to co-invest Rs 1925 crore

• BII Ownership: 2.75% to 4.76%

• EV Co valuation-Rs70,070 crore ($9.1 billion) 

• EV Co to invest approx. Rs 8,000 cr between F24-F27

 Nuts & bolts of the EV Co

• The new entity to be asset light

• M&M's ED  (farm & auto biz) will dual-hat by leading the EV Co and shall report to Board  

• M&M to provide design, product development, technology & sourcing services 

• M&M and BII will work jointly to bring other investors in the EV Co 

• EV Co will house all the EV brands, IP for 4-wheeler e-PVs 

• ICE specific brands like ‘XUV’ to be licensed

• By F27 SUV portfolio likely to have volumes of 200,000 units/annum