Tata Motors to raise $1 bn from TPG Rise Climate for new EV unit

Tata Motors Ltd (TML) on Tuesday said it has entered into a binding greement with US-based equity financing group TPG, whereby the latter, through its climate-focused subsidiary TPG Rise Climate along with its co-investor ADQ will invest Rs7,500 crore in a newly-incorporated subsidiary of Tata Motors. 

Abu Dhabi sovereign fund ADQ is one of the region’s largest holding companies with direct and indirect investments in more than 90 companies locally and internationally. Both an asset owner and investor, ADQ’s broad portfolio of major enterprises span key sectors of a diversified economy, including energy and utilities, food and agriculture, healthcare and pharma, and mobility and logistics, amongst others. 
TPG Rise Climate and its partner will invest Rs7,500-crore through compulsorily convertible instruments to secure between 11 and 15 per cent stake in the new company, which will have an equity valuation of up to $9.1 billion.
“We intend to move into an investment phase (for the EV company) in the next 3-4 years and the business should go cash-positive thereafter,” Balaji added.
Tata Motors has offered TPG flexible exit routes from its new electric vehicle unit. The options include a stake buyout by Tata Motors and even an initial public offering (IPO).
“All options are available to the investors. Right from Tata Motors buying them out to bringing in a third-party investor. Or we swap (the stake) into Tata Motors or merge it into Tata Motors or an IPO. It is a pretty flexible option structure. We can work together with them and make it happen.” PB Balaji, chief financial officer, Tata Motors, said.
The new company will 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. Over the next 5 years, this company will create a portfolio of 10 EVs and in association with Tata Power Ltd, catalyse the creation of a widespread charging infrastructure to facilitate rapid EV adoption in India.
“I am delighted to have TPG Rise Climate join us in our journey to create a market-shaping electric passenger mobility business in India. 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 per cent electric vehicles penetration rate by 2030,” N Chandrasekaran, chairman, Tata Motors Ltd, commented.
“We are excited to partner with Tata Motors on their mission to lead the electrification of passenger mobility in India. 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 decarbonised transport and builds on TPG’s long history in India.” Jim Coulter, managing partner of TPG Rise Climate and founding partner of TPG, commented.
Tata Motors is considering ‘born electric’ platforms for the next seven products it has planned. Born electric models are those that are built as EVs from scratch. The EVs that Tata Motors has on sale today were originally built to be powered by internal combustion engines.
With just two EV models, Nexon and Tigor (two variants), Tata Motors is the leader in the passenger EV segment with a market share of 71 per cent. The company is clocking more than 1,000 units in EV sales every month. During FY21, the EV business clocked revenues of Rs500-600 crore.
Over the next five years, the new company will create a portfolio of 10 EVs and in association with Tata Power Ltd, catalyse the creation of widespread charging infrastructure to facilitate rapid EV adoption in India.
It is expected that the first round of capital infusion will be completed by 22 March and the entire funds will be infused by end of 2022. 
Morgan Stanley and JP Morgan are the joint financial advisors to TML, while BofA Securities India Ltd are representing TPG Rise Climate for this transaction.
Khaitan & Co are legal advisors to TML, Shardul Amarchand Mangaldas & Co and Cleary Gottlieb are legal advisors to TPG Rise for the transaction.
The transaction is subject to conditions precedent and customary approvals, Tata Motors stated in a release.