TPG Rise Climate, ADQ back Tata Motors' e-mobility unit

Tata Motors (TML) has raised $1 billion from private equity investors TPG Rise Climate and ADQ (erstwhile Abu Dhabi Development Holding Co) for its electric passenger-vehicles subsidiary.

The deal will value the new entity at $9.1 billion, according to a stock exchange filing by Tata Motors on Tuesday. It will give TPG Rise Climate and ADQ between 11 percent and 15 percent in the e-mobility arm.

While Tata Motors made the announcement public after market hours, the price of its American Depositary Receipt (ADR) on NYSE jumped over 14 percent to hit the day's high of $32 an ADR, against its previous day close of $28.06 a piece.

Tata Motors said the new company will leverage existing capabilities of Tata Motors, and will use "future investments into electric vehicles (EV), dedicated battery EV platforms, and advanced automotive technologies".

“I am delighted to have TPG Rise Climate join us in our journey to create a market-shaping electric passenger mobility business in India,” said N Chandrasekaran, Chairman Tata Motors, in a press statement.

“We will continue to proactively invest in exciting products that delights customers while meticulously creating a synergistic ecosystem,” Chandrasekaran added.

The new Tata Motors subsidiary plans to create a portfolio of 10 EVs in the next five years. It will also work with Tata Power to create a widespread charging-infrastructure to facilitate EV adoption in the country.

Tata Power has scaled the charging infrastructure with 700-plus installations in 120 cities across 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," said Jim Coulter, Managing Partner TPG Rise Climate and Founding partner of TPG, in the press statement.

"The investment aligns with TPG Rise Climate’s focus on decarbonised transport, and builds on TPG’s long history in India,” he added. TPG Rise Climate is private equity investor TPG Capital’s global impact-investing platform that is focused on five climate-related sectors: clean energy, enabling solutions, decarbonised transport, greening industries, and agriculture and natural solutions.

The first round of capital is expected to be completed by March 2022, and the remaining will be infused by December 2022, according to the stock-exchange filing.

"The ability of an EV-only venture to attract investor money is significantly higher than existing businesses like automotive that have been generating fairly average results in the past two or three years," said an auto industry analyst, who requested anonymity.

"Electric-vehicles is a new business and is futuristic. There are a lot of investors who are interested in participating in the EV business, especially of a large reputed company like Tata Motors. But at the same time, they may not be keen to take on legacy issues that the parent entity's balance sheet is saddled with," the analyst explained.

"That's why it makes sense for everybody to have a separate entity for the EV business," he added, citing commercial-vehicle manufacturer Ashok Leyland's Switch Mobility, and Mahindra & Mahindra's Mahindra Electric.

Tata Motors clocked sales of 10,000 vehicles in its passengers segment in September 2021. It has used a common passenger-vehicle platform for the internal-combustion engine (ICE) and the electric versions.

It launched the Nexon EV—a sports utility vehicle—in January 2020, and an affordable sedan, the Tigor EV, in August 2021. It has also launched the XPRES T electric sedan, a product under the XPRES brand, for fleet customers like Blu-Smart Mobility.

The Tata Group's green mobility strategy brings together Tata Motors, Tata Power, Tata Chemicals, Tata Autocomp, Tata Motors Finance, and Croma – referred to as the Tata UniEVerse.