Shares of TVS Motor went up as much as 11% in Tuesday’s trading session after reports surfaced that the company is in talks to raise funds for an electric vehicle (EV) subsidiary. This proves the fact that the automakers are in-line with the government's intention to have EV penetration by 2030. Despite the semiconductor shortage and input cost inflation, the automakers are still making significant capex to achieve the EV sales target.
Another homegrown automaker Tata Motors recently raised $1 billion from TPG Capital along with ADQ of Abu Dhabi. Now, it seems to be TVS’ turn. The company is said to be in talks with a clutch of private equity investors to raise $300-500 million for its EV.
According to The Economic Times report, the company may value its EV subsidiary at $3.5-4 billion. It’s said that they have roped in an investment banker for advice. Mostly, the funds will primarily be used to develop a product pipeline. The fundraising will be done to become a global player.
TVS Motor is India’s third-largest two-wheeler maker, which in its quarterly financial result said that it has already set up an EV-dedicated team with more than 500 engineers. Currently, iQube is the only all-electric product from TVS. Moving on, the company has said that it will invest Rs 1,000 crore to develop an EV portfolio.
TVS has already lined up a capital expenditure of Rs 750 crore for FY22. Till now, the company has already invested Rs 500 crore. Another Rs 250 crore and more will be spent in the second half of FY22.
Flex Vehicles Theory
The government is now fully gunning to promote EVs. The biggest hurdle currently is not having enough infrastructure. EVs work on electricity and to have charging grids instead of petrol stations is hard to achieve in a country with a 138 crore population. It will take several years for India to achieve 50% of EV penetration, and the government is well-versed with these issues, and that’s why it is stressing on flex vehicles that can run on an alternative fuel made up with gasoline and ethanol.
Union Minister Nitin Gadkari believes the Indian automobile industry will be worth Rs 15 lakh crore in the next 15 years.
It’s not shocking anymore that the entire automobile industry is reeling due to the shortage of electrical parts, rising commodity prices and scarcity of containers. This will definitely affect the production and sales of TVS. According to Nirmal Bang’s report, the company is planning to have a monthly capacity of 10,000 units of EVs by Q4FY22. Meanwhile, the aggressive capacity expansion plans can only be done in FY23 when external conditions ease the pain in the auto sector.