Ola Electric faces a bumpy road ahead

Ola Electric had a market share of over 35% in the electric two-wheeler segment in the December-ended quarter, up from 22% in the same quarter of the previous year. (REUTERS)
Ola Electric had a market share of over 35% in the electric two-wheeler segment in the December-ended quarter, up from 22% in the same quarter of the previous year. (REUTERS)

Summary

  • Ola Electric dominates the electric two-wheeler market now, but competition is heating up and its operational challenges persist.

As Ola Electric, the electric vehicle (EV) maker backed by SoftBank and Tiger Global, prepares to hit the public market in the coming months, it is also generating a flurry of news. Recently, Reuters reported that the company was looking to bid for lithium blocks being auctioned by the government, which could help it secure a key raw material for batteries and strengthen its vertical integration.

In December, Bhavish Aggarwal, its founder and chief executive officer with a 37% stake, unveiled his artificial intelligence (AI) company Krutrim. It is a separate entity, but could still benefit the EV maker, as AI promises to impact several industries. Ola Electric already benefits from its parent ANI Technologies, which runs Ola, a top cab aggregator app. Last month, Mint reported that Ola Electric sold at least 12,000 scooters to group companies between April 2022 and December 2023.

However, there are questions on Ola Electric's road ahead. Ola Electric's supporters are betting on surging demand for EVs in India. The number of EVs registered in India more than doubled in 2022-23, on top of a three-fold growth in the previous year, driven primarily by the two-wheeler segment. Two-wheelers accounted for 62% of all EVs sold in India in 2022-23 and 57% in 2023-24.

 

This growth prompted Ola Electric, which leads the market in the segment, to advance its initial public offer (IPO) plans by a few years. It also gave Ola Electric increasingly higher valuations from $1 billion in 2019 to $5.4 billion last September. It's looking at a $7-8 billion valuation at its IPO.

 

Narrowing gap

Ola Electric had a market share of over 35% in the electric two-wheeler segment in the December-ended quarter, up from 22% in the same quarter of the previous year. Its dominance came from leveraging on the brand established by its cabs business, and its big bet on the market. However, competition from traditional two-wheeler companies and startups is increasing. Incumbents TVS Motor and Bajaj Auto are narrowing the gap. TVS Motor's market share doubled to 20% in that quarter from a year ago, while Bajaj Auto's tripled to 13% during the period.

Amidst this competition, Ather, a startup, has managed to maintain its market share at about 10%. Hero MotoCorp, which has its own lineup of products, has a 39.7% stake in Ather. Earlier this month, River, another electric two-wheeler startup, raised $40 million in Series B funding, led by Yamaha Motor. As competition intensifies, Ola’s leadership position will be challenged.

 

Uncertain terrain

One way out for Ola is to expand its product portfolio within and beyond two-wheelers. Ola already has an electric car in its pipeline, which it could launch by the end of 2024. However, cracking the four-wheeler market is likely to be harder, as it demands time and huge investments. Even globally, competition between traditional carmakers such as Volkswagen and GM and challengers such as Tesla is heating up. According to the International Energy Agency, Volkswagen committed over $17 billion in annual capital expenditure and research and development spending on EVs and digital technologies.

 

In India, the electric four-wheeler market is dominated by incumbents, led by Tata Motors with a 70% market share, according to Canalys. It is followed by MG Motors and Mahindra & Mahindra. Global players are set to enter. Tesla is looking to invest $30 billion in India over the next five years to build a manufacturing plant and battery ecosystem.

Operational challenges

Aggarwal's aggressive approach to building scale has helped Ola Electric capture the market, but it has also dented the brand's reputation. In 2022, after instances of its scooters catching fire, it had to recall over 1,400 vehicles. Ola’s work culture also came under scrutiny as workers struggled to keep up with deadlines. Its attrition rate was 47% in 2022-23. Although revenues shot up six-fold in 2022-23, its net losses doubled. It hasn't given any clear road to profitability.

 

With internal and external challenges, the road ahead for Ola Electric is likely to be bumpy. Aggarwal's supporters, who see him as India's answer to Elon Musk, expect Ola Electric to be the leader in its space. However, there are two other possibilities. Constrained by these pressures, it could turn into a humbler tier-II player defending a decent market share, or get acquired.

www.howindialives.com is a database and search engine for public data.

 

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