It’s been two weeks since Ola Electric Mobility went public, and the response has been overwhelming. However, beneath the initial stock market euphoria lies a more complex reality. The company’s increasing losses, dependency on Chinese suppliers, and ongoing operational and leadership challenges indicate that founder Bhavish Aggarwal faces an uphill battle to make this electric vehicle (EV) company profitable in the near future – or perhaps ever!
The operating revenue of Ola Electric increased an impressive 32.3% YoY, amounting to ₹1,644 crore during the first quarter of fiscal 2025, ending June 30, 2024. However, during the same period, Ola Electric losses also surged 30% YoY to ₹347 crore.
The yearly increase in net loss of Ola Electric can be attributed to the notable 26.6% YoY jump in operating expenses, reaching ₹1,849 crore in Q1 FY25.
Despite reporting losses, Ola Electric’s shares (NSE: OLAELEC) surged 18.62% to a new high of ₹131.56 on August 16, 2024. This is mainly due to the launch of the highly anticipated electric motorcycle, the Roadster, on August 15. Adding to the excitement, the company teased two more models, Sportster and Arrowhead.
At its annual Sankalp 2024 event at the Futurefactory in Krishnagiri, Tamil Nadu, Ola also showcased cutting-edge innovations, including the indigenously developed Bharat 4680 cell, advanced battery pack, new Gen-3 platform, and the latest MoveOS 5.
With all recent developments, Ola Electric’s stock price has impressively surged 92.61% year-to-date from its listing price of ₹76. This surge shows an overwhelming public response within two weeks of its debut on the Indian stock market.
Ola Electric’s total valuation jumped to ₹645.67 billion as of August 19, 2024.
Other Key Highlights: Ola Electric Q1 FY25 Results
- Ola Electric has solidified its position as the market leader in India’s electric two-wheeler (E2W) segment, capturing a staggering 49% market share in Q1 FY25. This is up from 31% in Q1 FY24 and 39% in Q4 FY24.
- Ola Electric delivered over 1.25 lakh units in Q1 FY25, with an increase of 77.4% YoY. Notably, over 60.7% of these deliveries were from Ola’s premium portfolio, including the S1 Pro (priced at ₹1,33,999) and S1 Air (priced at ₹1,06,499) models.
- Ola Electric premium deliveries surged 7.7% YoY and 15.7% QoQ to 75,977 units in Q1 FY25. However, deliveries from the mass portfolio, which includes the S1X scooters (starting from ₹74,999), saw a slight decline of 1% QoQ, totalling 49,221 units.
It is worth noting that the double-digit sales growth of Ola Electric scooters in the recent quarter was largely fueled by the premium segment, where two-wheelers are priced above ₹1 lakh. The subdued demand for Ola’s lower-priced electric two-wheelers in the mass-market segment raises concerns about the future of the more affordable models.
The Indian government’s role in promoting EV adoption, especially among price-sensitive consumers, remains critical.
Looking at the broader picture, India is the world’s second-largest two-wheeler market, with sales of nearly 18 million units in FY24. Interestingly, electric two-wheeler sales grew an impressive 29.7% YoY, totalling 944,126 units during the same period. Despite this growth, the overall penetration of electric 2W remains low, at just 5.25% of total two-wheeler sales. This highlights the vast untapped potential within India’s EV sector.
All the above figures paint quite a rosy picture for an electric vehicle company in India. But every company has its own set of future-defining challenges and obstables and Ola Electric is no exception.
Let’s delve deeper into some prominent challenges Ola Electric has currently been facing and how these have become significant obstacles to the company’s path to profitability.
Ola Electric Failing to Tap The Biggest Segment
One might argue that Ola Electric is doing well in terms of revenue growth and a 16.6% quarterly decline in net losses during Q1 FY25. However, the reality is more complex.
Ola Electric’s net loss jumped 30% YoY in Q1 FY25, largely due to a 27% YoY increase in operating expenses. This can be partially explained by the company’s nascent presence in the two-wheeler EV segment, where it is still scaling its operations. As a new player, Ola Electric is heavily spending on R&D and other areas to expand its presence in this growing sector.
However, Ola’s biggest problem is that the demand for its electric scooters and motorcycles in India is currently concentrated in the premium segment, leaving the mass market largely untapped.
India’s two-wheeler market is predominantly driven by middle- and lower-income consumers, who form a significant portion of the population. If electric two-wheelers are mostly sought after by higher-end consumers, it indicates that the adoption of these vehicles is limited to a niche market. This skew towards premium consumers suggests that the overall growth of the electric two-wheeler segment will be slow, as it does not yet cater to the broader, more price-sensitive consumer base.
Adding to the problem, the Indian government has made policy changes that have negatively impacted the adoption of electric two-wheelers. Specifically, the government reduced subsidies for electric two-wheelers registered on or after June 1, 2023. This reduction led to an increase in the retail price of ₹22,784 for the Ola S1 and ₹37,106 for the Ola S1 Pro, according to its Red Herring Prospectus (RHP).
Consequently, the sales of Ola S1 models dropped 15.8%, from 70,417 units between March 2023 and May 2023 to 59,316 units between June 2023 and August 2023.
Ola Electric, along with other leading players in the EV industry, has been criticising the Modi government’s recent policies.
Although the government’s changing policies are beyond anyone’s control, Ola Electric’s vehicle quality also contributes to the company’s mounting challenges. Customers have reported issues such as battery drain, software glitches, damaged wires, and even fire incidents. These problems have raised concerns about the reliability of Ola Electric’s EVs, though they haven’t significantly affected its market dominance.
Limited charging stations and a shortage of skilled local mechanics are the most common issues voiced by Indian electric vehicle owners.
Ola Electric’s aggressive pricing and extensive distribution network have helped it to maintain a strong market share, but ensuring customer satisfaction will be crucial for long-term success.
On the brighter side, HSBC sees significant potential for Ola, especially as EV manufacturing costs are expected to drop sharply by FY27/28, making them more competitive with ICE scooters.
Ola Electric’s Increasing Reliance on China
Bhavish Aggarwal, founder of Ola Electric, remains steadfast in his vision for the company’s future and is actively working to strengthen its foothold in India’s two-wheeler electric vehicle market.
Ola, in the past, imported various components, such as lithium-ion cells, magnets, amplifiers, and electronic integrated circuits, from China, Singapore, South Korea, Thailand, and Malaysia.
Therefore, to reduce the overdependence on foreign suppliers, Ola Electric plans to invest $100 million (approximately ₹834 crore) in building its gigafactory. This gigafactory aims to localize the production of lithium-ion battery cells, which are crucial for EV vehicles.
Ola Electric’s increasing reliance on Chinese imports is clearly reflected in the increasing share of material costs sourced from China over the years. In FY22, China accounted for a mere 7.90% share of the total cost of materials for Ola’s EV scooters. Surprisingly, this share has dramatically increased to 19.29% in FY23 and 36.86% in FY24, underscoring a significant and growing dependency on Chinese suppliers.
In contrast, Ola Electric has reduced its reliance on imports from South Korea, Malaysia, and Thailand. For instance, the cost of materials imported from South Korea plummeted dramatically, from 18.61% in FY22 to a negligible 0.01% in FY24. The import cost from Malaysia also dropped from 0.08% in FY23 to 0.02% in FY24.
Despite these reductions, Ola Electric has continued to import limited quantities of cathode active material (CAM) and anode active material (AAM) from Chinese suppliers for cell research and testing. Even after the launch of in-house cell manufacturing at its Ola Gigafactory, the company has indicated that it will continue sourcing these critical raw materials from China.
This ongoing dependence poses risks, especially considering the geo-political challenges that India has with China and the past moves made by the Indian government, which clearly had an adverse impact on local companies.
Changes in policies, trade tariffs or increased freight charges by the Indian or Chinese governments could impact the availability and cost of CAM and AAM. In such scenarios, Ola Electric might face supply disruptions, delays, or increased expenses. The company could be forced to seek alternative suppliers, but there is no guarantee that it will find alternatives that meet its specifications, quality standards, or price expectations in a timely manner.
Moreover, any quality issues with CAM and AAM imports could affect the quality of the cells produced in-house, potentially leading to production delays and impacting the company’s ability to meet EV delivery timelines. Global shortages in these materials could further slow down or halt cell production, compounding the challenges faced by Ola Electric. Increased prices for CAM and AAM would also raise manufacturing costs and negatively affect the company’s operational results.
In summary, Ola Electric might have a long way to go before reaching breakeven. The issues facing the company are too significant to resolve without a strategic overhaul, which the leadership team currently lacks.
The success of Ola Electric in India’s EV market is crucial for other budding and aspiring entrepreneurs and innovators who dream big to transform the future of the country. However, the question remains: Will Ola Electric achieve success similar to Elon Musk’s Tesla, or will it face significant obstacles that could threaten its future?
