M&M gets global investor for its EV business

The auto sector has been on a roll in the last few weeks and one stock that has represented this frenetic rally has been Mahindra & Mahindra. The company has now made a big bet on the electrical vehicles (EV) business and the EV unit of Mahindra & Mahindra is already drawing top-notch valuations from global P/E funds. In its latest development, British International Investment (BII) has agreed to invest a sum of Rs1,925 crore ($250 million) into a new electric vehicle (EV) arm to be set up by the company, under the PV banner.

As per the details filed with the stock exchange, British International Investment (BII) will invest a sum of Rs1,925 crore in the form of compulsory convertible instruments. This deal values the EV business of Mahindra & Mahindra at an enterprise value of approximately Rs70,070 crore. What is interesting is that M&M EV business has got top dollar valuations for its EV business that is almost at par with the valuation that the EV business of Tata Motors. This is notwithstanding the fact that the latter is the largest player in EV business.

According to a statement by Mahindra & Mahindra, it has envisaged a total capital infusion of Rs8,000 crore (or approximately $1 billion) for the new EV company between FY24 and FY27. The entire EV portfolio is planned to be rolled out during this period and M&M plans to make a big splash in this space. It will also use the EV bet to substantially de-risk its core dependence on tractors and a volatile auto model that is based on the traditional internal combustion engine. That model is increasingly getting outdated in the global context.
Mahindra has already made some rapid strides in the EV business. Its existing EV business, Mahindra Electric Mobility Ltd, sold 17,006 electric vehicles in FY22 as compared to just about 5,418 EVs sold in the fiscal year FY21. That is a growth of nearly 213% on a yoy basis. M&M is a market leader in the electric three-wheelers space and occupies a market share of 73.4% as of FY22. It now plans to expand that franchise to grow the electric four wheeler business. Between now and 2027, M&M plans to launch 8 new EVs in the SUV.

Of course, the entry of BII is just the first step in attracting investment into the EV business of M&M. To that extent, BII will act more as an anchor to attract big ticket investors to commit their monies to the EV franchise of M&M. Going ahead, M&M and BII also plan to work jointly to bring other like-minded investors into the new EV company. The fund requirements are huge and the more the merrier, as far as investors are concerned. The broad intent is still to accelerate the growth of EVs in India in a big way.

For M&M, the EV foray will be more of a lateral expansion towards a greener future. In fact, the new EV company plans to significantly leverage the manufacturing capabilities, product development, design and the current ecosystem of Mahindra & Mahindra. This includes the networking with suppliers, dealers and financiers of M&M. Through this venture, M&M aims to primarily create and sell a world-class electric SUV portfolio with top-class technology. After all, the Mahindra Group itself aims to be Planet Positive by 2040. 

The new four-wheel passenger electric vehicle company is proposed to be incorporated as a wholly-owned subsidiary of M&M in India. The acceleration of EV development in India will be the key to enable India to achieve its emission targets as well as improving air quality in urban pockets. As a matter of principle, Mahindra plans to play a central role in decarbonisation of automotive industry in India. This move would position M&M as a leader in the electric SUV space. 

The complete product line and the launch strategy will be laid out in detail at the UK event on 15th August 2022. This will also be followed by a outline rollout of the electric XUV 400 in September 2022. The target for Mahindra & Mahindra group is that anywhere between 20% and 30% of the total sales of Mahindra SUVs (sports utility vehicles) would be electric by the year 2027.