Saudi Arabia’s Public Investment Fund (PIF) and the Abu Dhabi Investment Authority (ADIA) have been approached to help support a US$1.0-1.5 billion investment in Tata Group’s electric vehicle subsidiary by US private equity group TPG Capital.

Tata Motors is planning to separate its passenger car business, including EVs, and create a separate subsidiary valued at up to US$9 billion, according to the Economic Times. The Indian industrial conglomerate is taking a significant step towards environmental sustainability and green tech with Tata Motors planning 10 new EV models by 2025 with associated nationwide charging infrastructure.

PIF has been a leader in investment in EV markets. It backed Lucid Motors with a US$1 billion investment in 2018. The Tesla rival went public in July via a SPAC merger with Churchill Capital Corporation IV that gave its investment a multi-billion dollar boost in value, and generated US$4.5 billion in fresh capital.

PIF’s investment decisions in the automotive sector have not all been plain-sailing, indicating the challenges facing investors seeking exposure to this new but fast-growing sector. As reported by Global SWF in February, PIF missed out on potential stock price gains of more than US$30 billion in Tesla, having dumped the stake it built in the electric carmaker in Q419.

PIF had held a stake worth US$2 billion in Elon Musk's company by end-September 2019 and if it had held onto those shares, its stake would have been worth around US$33 billion by 2021; at the close of trading this week, its share price was 11% above the start of the year. However, Lucid Motors was trading at more than 13% below the price at IPO, despite positive reviews of battery performance exceeding that of Tesla.

ADIA has yet to invest in the EV sector, but its sister SWF in Abu Dhabi, Mubadala, joined with the Qatar Investment Authority in backing Chinese EV manufacturer Xpeng Motors’ Series C funding round in August 2020. Xpeng launched its IPO in New York later that month, raising US$1.5 billion and valuing the company at US$11 billion. At the close of business this week, the EV maker’s stock was nearly two thirds above the price at IPO but down 11% from the beginning of 2021, demonstrating the volatility EV producer stocks in public markets and raising questions over valuations.

While the EV market is hotting up amid the global push for energy transition, traditional carmakers are responding to demand and are developing cross-border alliances to respond to the young upstarts. By investing in Tata’s EV unit, PIF and ADIA would be supporting the transition of an established carmaker in one of the world’s largest car markets. The move would represent a departure from the focus on startups, such as Tesla, Lucid and Xpeng.

European regulations are helping to drive demand with the EU seeking to tie post-pandemic recovery stimulus to its aim of carbon neutrality by 2050. Purchases are being incentivized by the bloc’s imposition of stringent emission standards and development of charging infrastructure with EV sales growth of nearly 170% in 2020, an expected 1.5 million EV sales in Europe in 2021 and exponential growth in the future. For all carmakers, it is a rate of growth they cannot ignore and it is only a matter of time before EV startups feel the impact of stronger competition from autos majors.

Image source: Tata Motors

Related funds ADIA PIF
Related tags Automotive