Exclusive: Tata Motors mulls merger of EV subsidiary with passenger vehicles business after demerger

Tata Motors mulls merger of EV subsidiary with passenger vehicles business after demerger

Tata Motors Ltd, which is separating its commercial vehicle (CV) and passenger vehicle (PV) businesses, is also considering an eventual merger of its electric vehicles business—a step-down subsidiary—with the PV unit after the demerger exercise concludes, people aware of the development said.

On March 4, Tata Motors announced a value-unlocking exercise to demerge its businesses into two separate listed entities. One would be the CV business and its related investments, and the other would be the PV businesses, including the EV unit, JLR (Jaguar Land Rover), and related investments.

The proposed merger of the EV business—Tata Passenger Electric Mobility Ltd—with the PV business (Tata Motors Passenger Vehicles Ltd, set up as a separate subsidiary of Tata Motors in 2021 to focus on the internal combustion engine business) is being looked at as creating liquidity for existing investors in the EV business such as TPG, as well as future investors, the people said.

The passenger vehicle business, to be created post-demerger, will include the two subsidiaries—Tata Motors Passenger Vehicles and Tata Passenger Electric Mobility —and the JLR business.

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“Given the fact that Tata Motors intends to turn its PV division fully electric not so far in the future, there will be no need to maintain separate EV entity,” said a person cited above. As of May 9, Tata Motors had a market capitalisation of Rs 3.4 lakh crore.

In October 2021, Tata Motors announced that TPG Rise and its co-investor ADQ would invest Rs 7,500 crore (approx $1 billion) in the EV subsidiary for an 11-15 per cent stake at a valuation of $9.1 billion. Tata Motors received the second and final tranche of Rs 3,750 crore from the two investors in January 2023.

Responding to a query from Moneycontrol in a post earnings call on Friday, PB Balaji, Group Chief Financial Officer, Tata Motors said that there are no such plans. Reacting to a report by Economic Times on the spin-off of Tata Motors NBFC arms and their merger with Tata Capital, Balaji termed it as market speculation.

“The demerger is a logical progression of the subsidiarisation of PV and EV businesses done earlier in 2022 and shall further empower the respective businesses to pursue their respective strategies to deliver higher growths with greater agility while reinforcing accountability,” the carmaker had said while announcing the demerger plan on March 4.

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Over recent years, Tata Motors’ CV, Passenger Vehicles (PV+EV), and Jaguar Land Rover (JLR) businesses have implemented distinct growth strategies, and since 2021, these businesses have been functioning independently under their respective CEOs, Tata Motors said.

While there are limited synergies between commercial vehicles and passenger vehicles businesses, there are considerable synergies to be harnessed across PVs using petrol and diesel, EVs, and JLR, particularly in the areas of autonomous vehicles, and vehicle software which the demerger will help secure, the company said.

The demerger will be implemented through an NCLT scheme of arrangement and all shareholders of Tata Motors shall continue to have identical shareholding in both the listed entities. Regulatory approvals could take a further 12-15 months to complete the demerger.