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NEW DELHI   - MG Motor India, which is owned by China's SAIC Motor, plans to raise funds to develop its Indian electric mobility business, three sources told Reuters, as Chinese investments face increased scrutiny by the government in New Delhi.

MG Motor India may try to sell a stake of between 10% and 30% and is looking at options including issuing new shares or diluting SAIC's holding, one of the sources familiar with the plans said, adding that it may even create a separate unit for its electric vehicle (EV) business in India.

The company is talking to private equity funds which are increasingly interested in investing in the fast-growing electric vehicle market, two of the sources said, as countries shift their economies away from fossil fuels.

"Everyone is buying into the EV story because it gives investors an ESG bet, and MG is trying to pitch itself as an EV play," the first source told Reuters.

MG Motor India has yet to finalise how much money it plans to raise, which will depend on the valuation of the Indian business and its growth plans, the sources, who asked to remain anonymous because the talks are private.

It plans to use the funds to ramp up production, introduce new EVs and expand its charging network, the first source said.

MG Motor India declined to comment on the plans.

SAIC also declined to comment, but said it is confident that MG Motor India will break even next year.

It also said it already has a wide portfolio of new energy vehicles (NEVs), which include electric, hybrid and fuel cell cars, which MG can choose from to sell in India.

"The local government is concerned about the environment and wants to promote NEVs so our Indian company's goal is also in that direction, even to go 100% on NEVs," a representative from SAIC's public relations department told Reuters.

Despite government subsidies, sales of electric cars in India make up less than 1% of the total mainly due to the high cost of EVs and insufficient charging infrastructure.

India's EV market is dominated by domestic carmaker Tata Motors, which raised $1 billion from TPG last year for its EV business.

Meanwhile, Tesla Inc wants New Delhi to reduce import tariffs on EVs, which are as high as 100%, so it can bring in cars for sale at an affordable level.

TRAFFIC JAM

MG Motor India's fund raising plans come as New Delhi has sought to limit investments from Beijing after a 2020 clash between soldiers from the two countries on their disputed Himalayan border.

Investment proposals worth more than $2 billion from China, including from SAIC, are awaiting Indian government approval.

SAIC said its business has not been impacted and that its investment proposal "is being processed".

MG entered India in 2019 with plans to invest about $650 million. It currently sells four models including the ZS EV, and has partnered with companies including Tata Power and Fortum, a European energy company, to set up charging stations.

It has hired an Indian law firm and a transaction adviser for the fund raising, the second source said.

Delays in raising capital from SAIC, supply chain disruptions and semiconductor shortages have prevented MG Motor India's from ramping up production, a fourth source said.

The Chinese automaker sold about 3,500 cars a month on average in India in 2021, giving it a market share of around 1%, industry data showed.