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Why Tata Motors accelerated over 20% on Wednesday

Company’s stock surged more than 20 per cent to close at Rs 506.75

Tata motors Representational image | Reuters

The automobile industry may have hit the slow lane due to the semiconductor crisis, but Tata Motors continues to accelerate. On Wednesday, the stock surged more than 20 per cent to close at Rs 506.75 as investors were charged up on the announcement that private equity firm TPG and Abu Dhabi’s ADQ will invest close to a $1 billion (Rs 7,500 crore)  in a new electric vehicle subsidiary being created by the company.

Tata Motors has been in the fast lane over the last one month, skyrocketing over 68 per cent. Multiple reasons are behind this stellar run. Its domestic passenger vehicle business has been clocking good numbers, commercial vehicle sales are looking up over the next few years and Jaguar Land Rover’s order book is also at a high.

Now, the Electric Vehicles business is expected to give it a further lift. Tata Nexon is already the largest selling EV in the country and it has also recently followed that up with the Tigor EV targeted at the personal segment. It also sells the Xpress-T targeting the fleet segment.

It’s now creating a pure play EV subsidiary TML EVCo. This company, which will house dedicated EV talent and design capabilities of Tata Motors, aims to invest over $2 billion (Rs 16,000 crore plus) over the next five years in products, platforms, drive trains, dedicated EV manufacturing, charging infra and advanced technologies. From the current three models, it aims to have 10 models by the financial year 2026.

TPG has committed $1 billion of equity funding in TML EVCo; 50 per cent by March 2022 post set-up of the company and balance 50 per cent by the third quarter of 2022, on achieving go live actions. The transaction values Tata Motors’ battery EV business between $6.7-$9.1 billion.

“We believe Tata Group has the most credible plans to promote and develop EV ecosystem in India. Tata Motors’ PV business, including BEVs, has been undervalued by the market. Hence, the investment by TPG in Tata’s BEV business can potentially unlock significant value,” said Amit Mishra, analyst at Antique Stock Broking.

Electric passenger vehicle sales have seen a 7 times growth in the last five years, from 850 units in 2016-17 to 5,910 units in 2020-21. This year the number has already crossed 4,700 units. Over the next five years, Tata Motors is expected to aggressively launch new products in the EV space, according to Arun Agarwal, deputy vice-president, fundamental research at Kotak Securities.

“Tata Motors would be looking at leveraging its group companies to accelerate EV adoption. Favourable government policies and further decline in battery prices can rapidly accelerate electrification in the passenger vehicle industry. Tata Motors can establish itself as a formidable player in the EV space in India,” said Agarwal.

The TPG investment in TML EVCo could well be India’s Tesla movement, feel analysts at Emkay Global Financial Services.

“The TPG-Tata Motors deal may redefine India’s auto landscape – investments of such magnitude indicate confidence about India’s future EV potential. Large investments, more product options and favourable government policies will accelerate the pace of EV adoption,” the analysts said.

In the current financial year, Tata Motors’ passenger vehicle volumes have grown 112 per cent, compared with a 57 per cent industry volume growth, subsequently driving its market share up by 270 basis points to 10.7 per cent according to Antique’s Mishra. With the upcoming launch of the Punch micro-SUV, which was recently unveiled, he expects the market share could rise further to 13 per cent.

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