Tata Motors, which has already got shareholders’ approval to separate its passenger vehicle business in March, will now create a separate EV only arm in which the proposed investment will come into over the next 18 months, the company said in a statement. The new EV co, will be asset light and house only the technology and future IPs while the manufacturing will be housed under the passenger vehicle division that will be paid a fee.
The new investors will be issued compulsorily convertible preference shares (CCPS) which upon conversion over an 18-month period will give them 11-15% stake in the EV arm while parent Tata Motors will own the rest. The conversion will also be linked to certain pre-agreed revenue thresholds. It is expected that the first round of 50% capital infusion will be completed by March 22 and the entire funds will be infused by end of 2022.
The board of Tata Motors met earlier in the day to approve the transaction.
Tata Motors is already the leader in the domestic market in the EV segment with 70% share and 3 models.
The Tata Motors shares have jumped XXX in the last 1 month and ended Tuesday at Rs 420.80 with a market capitalisation of Rs 1,39,718.55 crore.
GREEN MISSION
Tata Group chairman, N Chandrasekaran has been vocal about pivoting Tata Motors business towards sustainability and green mobility options. The company has already announced plans to roll out 10 new battery electric vehicles in its domestic product portfolio by 2025. The company is also evaluating the creation of an automotive software and engineering vertical within Tata group that will help it lead in the sphere of connected and autonomous vehicles. Tata Motors CFO P Balaji said, the company is looking at a Rs 15,000 crore capex in the next XXX years purely to fuel its EV aspirations.
“We will continue to proactively invest in exciting products that delights customers while meticulously creating a synergistic ecosystem. We are excited and committed to play a leading role in the Government’s vision to have 30% electric vehicles penetration rate by 2030,” said Chandrasekaran.
RISE & SHINE
TPG’s investment is through the recently raised $7 billion climate fund – Rise Impact. Former US treasury secretary Hank Paulson serves as its executive chair along with the fund’s cofounder James Coulter. Like several money managers, TPG too has been actively focussing on environmental, social and corporate governance (ESG) investment themes.
The Rise climate fund had earlier backed a Hyderabad-based Fourth Partner Energy (4PEL), which focuses on the commercial and industrial (C&I) segment and has an operational portfolio of 550 megawatts (MW). Late last year, TPG Pace Beneficial Finance Corp., a special purpose acquisition company (SPAC), agreed to acquire EV Charged BV, a unit of French utility Engie SA that specialises in electric-vehicle charging technology to create a combined entity, EVBox Group, with a valuation of about $1.4 billion.
TPG is already an investor in Reliance Jio Infocom and Reliance Retail.
“There is significant momentum around India’s EV movement, supported by the Government’s vision and policies, as well as growing consumer demand for greener solutions. The investment aligns with TPG Rise Climate’s focus on decarbonized transport and builds on TPG’s long history in India,” said Coulter, Managing Partner TPG Rise Climate and Founding partner of TPG. Earlier TPG had teamed up with former Tata Group official Mukund Rajan to buy the ailing Tata Teleservices but that never fructified.
Morgan Stanley, JP Morgan advised Tata Motors and Bank of America were the advisors to TPG. Khaitan & Co and Shardul Amarchand Mangaldas were the legal advisors.
“The company believes FY2024E could be the tipping point for the EV business. As a result, it has improved its market share to 10.1% in 1QFY22 from 6-7% in FY2019. Also, in terms of profitability, the company has improved PV segment EBITDA margin to 4-5% in 1QFY22 from flattish levels in FY2019. Over the last two quarters, PV segment EBITDA per vehicle was at par with Maruti Suzuki, which is commendable,” said Rishi Vora, analyst with Kotak Institutional Equities
ECO-SYSTEM
As a group Tatas are leveraging various group companies to create an eco-system. While Tata Power is engaged in charging infrastructure; Tata Chemicals is evaluating lithium-ion cell manufacturing; Tata Autocomp is charting out battery manufacturing; and Tata Motors’ eponymous finance arm is providing financing solutions for EV adoption. An internal task force comprising officials from all these companies are also understood to be working together. The mandate is to move quickly and scale up and offer the entire ecosystem to consumers.
Energy Efficiency Services, the EV arm has already completed production of over 200 cars and the plan is to be an early mover and capture opportunities arising out of new mobility trends as stated by Chandrasekaran. Tata Capital will be the support arm for financing and Tata Power for the charging infrastructure network. Investors were earlier hesitant given the huge valuation sought by Tata Motors but do realise the immense growth opportunities here, a senior group official said.
The new company shall leverage all existing investments and capabilities of Tata Motors Ltd and will channelise the future investments into electric vehicles, dedicated BEV platforms, advanced automotive technologies and catalyse investments in charging infrastructure and battery technologies, the company said in a statement.
