Tata looks to raise $1 billion for EV unit at $7 billion valuation

Tata Motors, which got shareholders’ approval to separate its passenger vehicle business in March, is in the process of transferring the EV portfolio into a step-down subsidiary in which the proposed investment will be raised.

“The talks are at an early stage, and several global PE firms, including Blackstone Group, TPG Capital and KKR & Co., have been approached," one of the two people said seeking anonymity. “The company is also in the process of hiring an adviser and is in talks with several global investment banks," the first person added.

EVs are becoming popular, with the government offering consumers sops to switch over and imposing ever stricter emission curbs on automakers to tackle air pollution in India, home to some of the world’s most polluted cities. Tata Motors’ focus on EVs also comes amid growing pressure from investors to back environmentally sustainable businesses.

Tata Motors is the largest EV maker in India, with the Nexon EV sport utility vehicle (SUV) and Tigor EV sedan in the market. It plans to launch the electric version of the Altroz hatchback in the next few quarters. The Nexon EV is the best-selling electric passenger vehicle in India. As many as 5,734 units of the SUV were sold till June.

Tata Motors chairman N. Chandrasekaran announced the funding plan for the EV unit in June at the company’s 76th annual general meeting, where he also announced plans to launch 10 EV models by 2025.

Tata Motors is in the process of hiving off the passenger vehicle business, including the EV division, to a new entity, valuing the business at ₹9,417 crore. According to ratings firm Crisil, the domestic passenger vehicle business, with its marginal presence and high capex needs, has been a drag on the firm. However, the business has been turning around with models such as Tiago, Nexon and Harrier gaining traction. PV sales rose 33% in the nine months through December 2020 from a year ago, helping the company lift its market share to 7.8%. Tata Motors is also exploring the possibility of inducting a strategic partner for new product development.

“The valuation being sought for the EV unit is relatively high, but the firm plans to add a new line of business and products in the division, which it feels, justifies the valuation," said the second person.

A spokesperson for Tata Motors declined to comment, and so did spokespeople for Blackstone, TPG and KKR.

Tata is India’s largest automotive firm. In June 2008, it acquired Jaguar Land Rover (JLR), which specializes in manufacturing premium cars. The carmaker has said JLR’s Jaguar brand will be all-electric by 2025.

“All three PEs have shown interest, but there is no certainty of a transaction as the talks are at an early stage," said the first person. “The PEs have a big clean energy focus as part of their environmental, social, and governance mandate, and the deal will be a good fit if valuation expectations match," said the second person.