TPG Rise and Abu Dhabi’s ADQ will be investing Rs 7,500 crore (close to $1 billion) in Tata Motor’s EV subsidiary. This is a very big endorsement by a private equity player on the capabilities of the EV business of Tata Motors. How big could this business be?
PB Balaji: Electrical vehicles (EVs) account for 1% to 2% of the passenger vehicle (PV) business in the market today. For Tata Motors, this number is starting to trend towards 3% and by the end of this year, we expect this to be close to 5%. What I am talking about are just sales. If I start looking at the booking rates, the order books that we are currently running, it is almost three times the current supplies that we have. We sell about 10,000 Nexons today, of which 1,000 are EVs. This is not the entire market. We are doing specific cities and in those cities, these numbers are already starting to outshine the diesel numbers for Nexon.
If we are able to take those and extrapolate forward and get the full charging infra in place, ensure that we are getting the range of these cars and ensure a full choice of products and portfolios, start looking at affordability, look the price laddering of the cars from Rs 8 lakh car all the way up to cars costing Rs 15-20 lakh, then the opportunity opens up multi-fold.
Today the consumer is ready to convert; the TCO economics are playing in your favour. The running cost is one-sixth to one-eighth of the running cost of a diesel or a petrol car. That means the economics are also starting to work in EVs’ favour and incentives, subsidies, state subsidies are there and PLI benefits are coming in. Tell me one reason why you will want to buy ICE rather than why you want to buy EVs. That is the way one has to look at the opportunity.
When one looks at that opportunity, start focussing on what all we need to do to ensure that this potential gets realised. The EV company will not waste time trying to do stuff which somebody has already done. There is no time available. This has to be looked at as everything that needs to be done to make this entire story come to life.
This gives full freedom to look at the full range of interventions we need to make in order to realise this potential that is how we are looking at the deal.
You got PE money into the EV business. Being a Tata Group company, you do not need that capital. Do you think this exercise of getting a private equity player is just an endorsement to tell your shareholders what the capability of this business is?
PB Balaji: As you rightly said, we are not desperate for capital. We were keen on a few things. One is we wanted a partner with whom we are able to align on the purpose from day one. TPG Rise Climate fund is focussed on climate change means that the way you think and the way you operate this is long-term-ish in nature.
Second, it is also about access to ecosystems because it is not just about us doing everything in India. They have seen the world. They have invested in different parts of the world. They see so many assets coming their way which they have evaluated, which for us is invaluable. So, we are very happy to have them on the board. They are going to add tremendous value to the board in terms of the conversations and the risk.
The biggest thing in the EV journey is risk. It is not about what you do, it is about making sure you do not do things that have gone wrong elsewhere and what better way to learn it than through somebody who has already put his money and then understood it from that perspective and that is the second reason we have them.
Lastly, I am a firm believer that if you have an external person coming in and scrutinising why we did not do our PV business, why did we do segmentals of PV, CV, the better it is. It is all about saying that the more transparent you are, the more open you are, the more right you will be and therefore getting external investors also means we are committing to it, we are serious about it, we are having external scrutiny to it.
It is not just numbers, it is money backing and that means we are very clear and we love the purpose of TPG Rise saying that there is money to be made in climate change and therefore there is as much a social issue as there is a capital opportunity here and we want to create sustainable models. so that returns there are in this space and that is how we see this coming together.
We want to do the right thing for the environment as well as for our shareholders. The purpose fitted in very well and that is the reason we could close this deal so fast.
Apart from committing capital, what else would this investment bring on table from TPG side? I am asking you to talk about the exit on the day the deal has been announced but what is the long-term plan in this partnership apart from bringing capital?
Ankur Thadani: As Balaji said, this is a long-term investment that we have made. TPG Rise Climate really wants to be a partner of choice for groups and companies like Tata Motors which are pivoting in this direction and are seeking to get market leadership. We want to be a force multiplier there.
As Balaji said, it is not just about the capital, but it is about what we can bring to the table, be a good partner and actually help Tata Motors achieving its ambition and vision in kind of in this space. On your question on exit, I think it is too soon and it will be very premature for us to think about when and how. I think at the right time the board will take its decision but suffice to say that both for the Tata Motors team and for us it is a very large ambition to really win the EV space in this country.
How will the EV business be structured? Will it be an asset light subsidiary? Have you got enough equity funding now after the TPG deal so that you do not need to raise capital?
PB Balaji: Firstly this is a brand new company. It has not yet been incorporated and Tata Motors will incorporate this with the infusion of a paid up capital of about Rs 700 crore that will happen in this quarter. Once that is done, we have to complete all the CPs which we have aligned with and once that is done, the first tranche of Rs 3,750 crore on the closure of the deal will come through.
We are expecting it to be there by the end of March and thereafter we need to go live on this business in terms of ensuring revenues getting booked. We have to put in place a series of IT system changes and once that is done, we are expecting somewhere in Q3 of the next financial year towards the end of the year we should be able to convert to get the next tranche of Rs 3,750 crore. With this Rs 7,500 crore we would be pretty comfortable in terms of investment for the next two-three years.
That gives us a degree of freedom to operate whatever we want to. As far as fresh capital raise etc. is concerned, the board of EV company will decide at that point in time, but currently our job is to ensure that we go live and get the first two tranch