Can Ather’s quality beat Ola’s scale?

Initially, however, Ather was the last thing on their minds. Jain had spent the better part of his IIT course studying solar powered stirling engines, which are more efficient than standard solar panels. When he realized it wasn’t practical to scale up the technology, Jain turned his attention elsewhere. “From food to electricity, mobility to hospitality, healthcare to even services, energy is at the heart," he told Mint, sitting in his office in Bengaluru, attired in a T-shirt and sneakers.

Meanwhile, Mehta, who was at Ashok Leyland, had taken an interest in batteries. India back then was teeming with archaic lead-acid batteries, which were heavy, offered limited power and range, and took forever to recharge. Mehta realized the potential lithium-ion batteries had to disrupt the market. After a bit of convincing, Jain was on board.

“It was clear that EV was the future and lithium-ion batteries would pave the way for it. We wanted to make batteries, management systems and chargers. But no automaker was ready to make the vehicle, so we decided to make the vehicle itself," said Mehta.

Tortoise and hare

Ather’s journey has been gradual, from establishing the company in 2013, to showcasing the product in 2016, to getting the factory ready, sorting out the supply chain and raising funds through 2017. It was only in 2018 that the scooter finally hit the market. By then, a rival was beginning to harbour thoughts of disrupting the two-wheeler space in a much larger way.

In the shadow of the first wave of the pandemic, ride-hailing service Ola Cabs’ founder Bhavish Aggarwal took the market by storm, announcing a 10-million-unit per annum factory for electric two-wheelers. As the pandemic subsided and demand for electric scooters grew, Ola and Ather found themselves in each other’s cross hairs. And they’re likely to remain so at least for the foreseeable future.

The two companies have a lot in common although they are fundamentally very different. Both originated in Bengaluru (their head offices are barely 2km apart), were started by IITians who are first-generation entrepreneurs, and sought to disrupt the well-established multi-tiered global automotive industry. But the similarities end here.

While Ather banked on in-house engineering and built its scooter from scratch, Ola jumpstarted its electric journey by buying out Etergo, a Netherlands-based startup, which had a near-production-ready scooter.

Having established Ola Cabs, Aggarwal also had a pedigree with investors, which helped him raise funds for the electric journey—Softbank, Tiger Global and Matrix Partners are common investors in Ola Cabs (ANI Technology) and Ola Electric. This, in turn, meant he could invest and scale up much faster. Even their retail models are different. While Ola started with an online-only direct-to-home delivery model in all cities, Ather took the traditional, slow-burn dealership route. Ola’s quick sales rev-up is a result of this approach—its market share in the second quarter of this fiscal year stood at 31.3%, well ahead of Ather, with 11.5%.

“Ola has already made substantial investments in its manufacturing capabilities to increase production and introduce new products, such as electric motorcycles and cars. On the other hand, Ather still needs to make strides in this area to demonstrate its ability to scale manufacturing and the supply chain in fiscal year 2024 and beyond," said Saurav Kumar, managing director, Protiviti, a global business consulting firm.

Ather also struck gold with investors, raising a total of ₹3,300 crore over 15 rounds. In the latest round last month, it raised ₹900 crore, with two of its existing shareholders, Hero MotoCorp and Singaporean sovereign wealth fund GIC, participating. The company was valued at $739 million last year and is yet to become a unicorn—something it was targeting earlier this year with a bumper $250 million funding round. That had to be whittled down after the government slashed subsidies on electric scooters in June—from ₹15,000 per kilowatt hour (Kwh) to ₹10,000 per Kwh—leading to a temporary slowdown in sales.

Ola Electric has so far raised more than ₹9,700 crore over nine rounds. The last round in September, led by Singapore’s sovereign fund Temasek, saw over ₹1,100 crore raised, and valued Ola Electric at $5.4 billion. The startup became a unicorn in 2019 itself even though it was yet to launch its scooter. This has rankled Ather in the past.

“It’s a stupid market. Will fix valuations in the coming months," Mehta said on social media platform X (earlier Twitter) in December 2021, responding to a user who wondered why Ather was valued at a fraction of Ola even though it has better manufacturing and engineering cred.

Engineering credibility and perception of quality appears to be in short supply for Ola. Instances of fire and issues reported with the safety of the front fork arm of its S1 and S1 Pro scooter models led the company to undertake product recalls. It also had run-ins with customers on delivery schedules and service quality, and has been pilloried for over-promising and under-delivering.

“Ola has garnered attention due to a series of unfavourable occurrences, including issues related to fires, frequent breakdowns, and a lack of satisfactory post-sales service. These have undoubtedly shaken the confidence of prospective buyers," said Kumar of Protiviti. “It has (also) faced internal challenges, with several key members of its leadership team departing. In contrast, Ather has enjoyed relative stability in this regard."

“While Ola has scaled up its offline presence in quick time, it has not quite been able to fix lingering service issues," said Vinkesh Gulati, industry veteran and a prominent dealer, who was earlier the president of the Federation of Automotive Dealers Associations. “Ather has been too focused on product quality and chasing engineering perfection. They should be doing much higher numbers."

Ather has established its presence in the market but hasn’t really taken the industry by storm like Ola. In the pre-pandemic fiscal year 2020, it sold nearly 3,000 units. This went up to 4,401 units in 2020-21 and rose five-fold to 20,000 units in 2021-22. In 2022-23, sales nearly quadrupled to around 77,000 units. On the other hand, Ola, in its first full year in 2022-23, sold 152,000 scooters.

Ola loves to talk about scale and the speed at which it operates. Ather prides itself on the many firsts in technology it has introduced in the market. “We brought so much technology into the market—the first touchscreen display with connected features like navigation, a non-hub motor, public fast charging, a lithium-ion battery pack produced in-house, the first mobile app for a two-wheeler... Others are just copying us," said Jain. “In 2015, we had 100 engineers working for us when the biggest EV player had 20, at best. Today we have 1,000, which is by far the most in the world," said Jain, pride lit large on his face.

On a collision course

With the scale that it has, Ola has established a healthy lead in the market over Ather and the latter has its task cut out to catch up. With its new factory in Hosur, Tamil Nadu, and an expanded capacity of 420,000 units per annum, Ather is now looking to finally shed its inhibitions and press the accelerator. So far, it has relied on just one scooter—450X, to which it recently added another version—450S. Both are premium sports scooters, and realizing the limited market this segment has, Ather now wants to bring in more staid, family-oriented scooters.

“There’s a fantastic market in the family segment, in the comfort and convenience segments," Mehta said. Also in the offing are motorcycles. Immediately, Ather’s target is to have 30% market share by March 2024.

The new products will be facilitated by an expansion of its retail footprint. By March 2024, the number of retail touchpoints will go up to 225 in 150 cities from 157 in 120 cities today. The bulk of them will be in north India, which the company admitted it has under-penetrated.

The script the two companies are following is eerily similar. Like Ather, Ola, too, has a whole range of motorcycles in the works. In fact, it is working on an electric car as well. Both also have ambitions of exporting to the world—in large numbers, starting with neighbouring markets Nepal, Bangladesh and Sri Lanka and eventually to South-East Asia, Africa and Latin America.

Ola’s Aggarwal has been more vocal, belting out catchy phrases like “Tesla for the West, Ola for the rest" to embellish his company’s export ambitions. But, for once, it is Ather that has stolen Ola’s thunder—the 450X will start selling in Kathmandu next month. Ola’s entry is still awaited.

In terms of financial performance, too, both are in the same boat. The growth in sales has resulted in a sharp uptick in revenue but neither is profitable. Ather saw its revenue rise 4.3 times to ₹1,784 crore in 2022-23 while its losses more than doubled to ₹864.5 crore from ₹344.1 crore in 2021-22. Ola is yet to file its financial results for 2022-23 but news agency Reuters reported that the company saw its operating revenue surge to ₹2,700 crore in 2022-23 from ₹373 crore in 2021-22, while its losses ballooned to ₹1,100 crore from ₹784 crore in the same period.

Both are also eyeing an IPO to provide existing investors with an option to cash out. Ola has already identified bankers and could hit the market early next year. Ather, however, wants to turn profitable before going public.

“An IPO depends on a lot of factors, including market conditions, but we are not being pushed (by investors) and capital is not a big constraint. It will probably happen in the next fiscal year, but I would like to be profitable or close to profitability before as it just makes life easier," said Mehta.

Hero’s giant shadow

There is one more potential pitfall that Ather will have to manage. A fortnight before the demonetization exercise rocked the domestic market in 2016, Ather received a big shot in the arm when India’s largest two-wheeler maker, Hero MotoCorp, decided to invest ₹205 crore in the company. The company had merely showcased its scooters six months earlier and was yet to sell any, but Hero’s big-bang investment—it straightaway got a stake of over 26% in the startup as a result—came as a big validation.

“It did change our standing and perception in the market. Even though we do not have too many common suppliers, the component industry started taking us more seriously," said Jain.

Over the last seven years, Hero has participated in multiple funding rounds in Ather, reiterating its faith in Jain and Mehta and bolstering Ather’s valuation. In the latest round last month, Hero MotoCorp put in another ₹550 crore, which inflated its stake to 37.5%. Hero is by far the biggest shareholder at Ather—the promoters are second, with a 12% stake, and Flipkart’s Sachin Bansal is third, with a 10% stake. Hero also has two members on the company’s board.

“There’s an enormous amount of respect and stuff that we can learn by being close. But we are completely distinct companies—DNA-wise, culturally, business model-wise or even in targeted customer profiles. So, the companies will always be completely independent," Mehta said.

Hero’s standing as the largest two-wheeler maker in the country and its own ambitions in electric mobility raise questions about whether this is a comfortable position for Mehta and Jain. “Can Hero buy others out and take over the firm? Absolutely. Can the promoters do anything about it? Not very much, I’m afraid," said a corporate lawyer, who did not wish to be identified.

“It’s not something we worry about based on the understanding we have built over the last seven years," said Mehta. “If a hostile takeover were to happen, the pandemic was an opportune moment. Our relationship really got tested then and became stronger."

It may not be a bad thing after all. The fight between Ather and Ola is essentially one of quality versus scale. On the latter front, Ather can learn a thing or two from its backer. “Hero possesses robust manufacturing capabilities, a well-structured supply chain, and effective sales strategies that enhance Ather’s operational efficiency," said Kumar of Protiviti.

Gulati agrees: “Hero realizes Ather’s strengths. It is the company’s best investment decision by far. They won’t spoil it by trying to take it over when things are going well."