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

In a boost to its electric vehicle (EV) push, 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 push clean mobility.

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

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

Chief Financial Officer P B Balaji said the company would invest more than Rs 16,000 crore over next five years. The investors will be issued compulsorily convertible instruments over an 18-month period. Investment will be made in tranches.

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

N Chandrasekaran, chairman of Tata Sons, said over the next five years, this company would create a portfolio of 10 EVs and, in association with Tata Power, catalyse the creation of a charging infrastructure to facilitate rapid EV adoption in India.

“We are committed to playing a leading role in the government’s vision to have 30 per cent electric vehicles penetration rate by 2030.”

“The new EV company will leverage the existing investments and capabilities of Tata Motors and will channelise future investments in electric vehicles,” he said.

The wholly-owned electric vehicle subsidiary, which the company calls EvCo, will undertake the passenger electric mobility business while the passenger business unit will own the existing assets like manufacturing plants, dealerships, and brands.

ELECTRIC EFFECT

• TPG, ADQ will hold 11 to 15%
• Funds will be used for EVs, dedicated battery electric vehicle platforms, charging infra and battery technologies
• Over the next 5 years, the company will create a portfolio of 10 EVs
• According to consulting firm AlixPartners, EV sales may jump to about a quarter of total global vehicle sales by 2030 from about 2% now

“This new subsidiary will be asset-light, and all the investment will go towards creating intellectual properties like new vehicle designs and EV platforms. The Tata Motors passenger vehicle business doesn’t have the wherewithal in the EV space. Creating that needs investments of $2 billion,” Balaji said in a conference call organised after the announcement of the deal.

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

Shailesh Chandra, head of Tata Motors’ passenger vehicle business. said the investment would be used to develop vehicles, platforms, and charging infrastructure and drive localisation.

Experts said the investment signified global investors’ interest in India’s effort to electrify transport.

“This is a welcome step. It would be interesting to see how the proposed networks of charging Infra are set up and their interplay with the cost of electricity with various state distribution companies. This could be the first step for many on this road at a large scale,” 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 aligns with TPG Rise Climate’s focus on decarbonised transport and builds on TPG’s long history in India,” said TPG founding partner Jim Coulter.