Now over a year after receiving $1 billion from TPG's Rise Climate Fund and Abu Dhabi state holding company ADQ, Tata Motors is in discussions with international investors to raise at least $500-600 million more for its rapidly expanding electric vehicle business, according to people with knowledge of the situation. According to the sources, Tata Motors is anticipating a premium of 15% to 20% over the last round's valuation of $9.1 billion for Tata Passenger Electric Mobility Ltd. That would result in the business, which it had established as a subsidiary in late 2021, having a valuation of up to $10.9 billion.

According to top executives familiar with the matter, the action is a part of an ambitious plan by the market leader in electric passenger vehicles to raise sizeable sums of money from both internal and external sources to support its growth plans through product innovations, particularly of EV platform. The business has contacted a number of prestigious investors, impact funds, sovereign wealth funds from the Middle East, Korea, and Singapore, as well as Canadian pension funds for the money while working with its adviser, Morgan Stanley.

Some of the legacy buyout funds have dedicated pools of capital for energy transition. "Several new pedigree investors are keen to be part of the new narrative at Tata Motors. The company is actively working on the combination of external and internal funds," an executive said. “Interest for funding in the EV space has picked up significantly and the company is evaluating the options.”

The discussions with potential investors are preliminary in nature and non-disclosure agreements are getting signed, said a person in the know. The company may increase the fundraising target depending on investor appetite, another person said. However, the premium sought may prove to be expensive, warned some analysts.

As a policy and practice, Tata Motors does not comment on speculation, a company spokesperson said. Tata Motors is the first automaker in the country to sell 50,000 electric passenger vehicles a year, which it achieved in 2022 selling the Nexon and Tigor EVs and commanding a more than 80% market share.

According to an executive familiar with the company, sustainability is a key component of Tata Motors' tech-driven growth and advancements. "Funds to enable this growth will thus be made available to the management, and it is very obvious that Tata Motors should not miss the bus this time, but rather should be in the lead. Funds will always be available because the balance sheet is currently solid enough to draw reputable investors.

Tata Motors is projected to sell a portion of the unit's shares it already owns and issue new shares to investors in order to reduce its balance sheet's debt and acquire growth stock for future expansion. According to a company presentation, Tata Motors had a net automotive debt of Rs 59,900 crore in the first half of fiscal 2023. This included leases at Rs 7,800 crore, external debt around Rs 32,200 crore, and working capital debt worth Rs 19,900 crore.