Can Ola Electric ride over the multiple challenges and emerge stronger?

Registrations are down, and ranking too. But the player insists it is ready for the many challenges staring it in the face

Has Ola Electric’s dream run aimed at disrupting the two-wheeler market hit a rough patch? After the hype around its launch in January, which led to large pent-up demand through bookings, the company has seen registrations of its electric scooters plummet along with its market share in the last two months.

In June, Ola registrations fell by 36 per cent (to 5,884 e-scooters) over May, and the company slipped to number four in the pecking order, behind rivals Okinawa, Ampere and Hero Electric. This wasn’t a one-month aberration. From its April peak, when it hit the top slot with over 12,702 registrations (after a healthy March), it fell to number two in May and dropped further in June. Between April and June, registrations plummeted by half.

So what really happened? Ola claims in terms of revenue, it still holds 50 per cent share of the EV market because its scooter’s average MRP of Rs 1.5 lakh (not including state subsidy) is far higher than that of its competitors, which have many scooters in the sub Rs 1 lakh range and going as low as Rs 60,000-plus.

Ola blames the fall in sales to battery cell shortage. Those in the know say that with cell production concentrated in China, which is now hoarding to raise prices, there is a supply issue.

But insiders also acknowledge that the spate of fires in e-scooters and safety concerns, too, have hit consumer sentiment. The government has sent a notice to Ola and others, asking them to explain by month-end why they failed on safety.

Auto experts, meanwhile, say with the pent-up demand (due to advance bookings) already met and with Ola scooters now available within 48 hours, the numbers would stabilise at the lower level.

The signs of a slowdown are, however, clear. According to VAHAN data, in May, overall e-scooter registrations (of the top eight players that form bulk of the sales) fell by 24 per cent over April (this does not include Bajaj and TVS numbers). And in June, they were only marginally up over May. E-scooter-makers, who were hoping to hit 0.75 million in 2022, admit the scene looks difficult. In the last six months, only 212,000 e-scooters were registered in the country. So, Ola Founder Bhavish Aggarwal’s ambition that all two-wheelers will be electric by 2025 seems a distant dream, says competitors.

But Ola insiders maintain the last two months were just a minor blip. They say they have preferential agreements with global cell suppliers and the problem would be resolved this month.

The reason for this optimist? One, they believe that penetration of incremental sales of e-two-wheelers (E2Ws), currently in single digits (3-4 per cent), will zoom to 40-50 per cent by the end of 2023. In many markets, such as Gujarat, it has already hit 17-18 per cent and in cities like Bengaluru it is pegged at 15-16 per cent, they say. And that the growth in tier 2 cities has been faster — as high as 30-40 per cent annually.

It’s this optimism that led Aggarwal to build a “Future Factory” within a year, with an initial capacity of 2 million and a promise to hit 10 million. He has said that by December, the company would have an annual revenue run rate of $1 billion — about Rs 700 crore every month, up from Rs 500 crore in April-May. He has also showcased his electric car.

Others call this wishful thinking. Says a senior executive of a leading two-wheeler company, “Electric is a disruptive technology and it will be expensive in the beginning due to high developmental cost. Also, battery technology is complex and cannot be rushed through; we know the consequences of doing so.” The executive says that initially it will be a niche market, but as technology becomes more reliable and affordable, it will become mass. “You cannot force the pace by selling vehicles by cutting corners,” he adds.  

Most analysts project conversion to be far slower: Nomura puts E2W penetration at 30 per cent by 2030; HDFC Securities estimates it will not exceed 25 per cent by FY25; and Goldman Sachs says it will be 38-50 per cent by 2030.

Some point out that though Ola’s current plant capacity is 1,000 vehicles a day, it was using only a fifth of it in June (if registrations are taken as sales).

For Ola, clearly large volumes can only come if it has a wider product range, especially in the affordable category since the Rs 1 lakh-plus market is limited. Also, motorbikes make for 70 per cent of the 18-20 million two-wheeler market, and there are no visible e-bikes still, despite Bajaj and TVS announcing they are working on it. Plus, as a tech start-up, Ola needs to bring in quick-charging stations — a key impediment to customers making a decision to shift to electric.

Sources in Ola say they have a range of products ready, including scooters in the affordable segment, but cannot give a timeline for those. They say the current sales should be seen in the context that they have just one model, unlike their competitors.

Two, they are also looking to build entry-level motorbikes by tweaking the scooter platform. The expectation, they insist, is that the share of e-scooters in the two-wheeler market will go up to 50 per cent, leading to a fundamental change.

Thirdly, Ola has made strategic investment in Israeli fast-charging company, StoreDot, for technology to charge batteries from 0 to 100 per cent in 5 minutes flat. Its rollout — at charging stations or at homes — could dramatically eliminate customer hesitancy.

Ola also needs to bring down the cost of production of its e-scooters. After all, with subsidies of Rs 60,000-90,000 on the product, the cost can be pretty close to an internal combustion engine (ICE)-entry-level passenger car. But what happens when subsidies are reduced or withdrawn? China saw many EV players collapse when its government did this.

Ola insiders say they are aggressively working on this. For one, economies of scale will bring costs down. Two, the company is eligible under the production-linked incentive scheme for e-vehicles made by non-automotive firms, and will get incentives, based on production value, which will again cut costs. While its e-scooter competitors don’t have this advantage (Ather Energy tried, but didn’t make the cut), incumbent ICE players like Bajaj Auto, Hero MotoCorp and TVS are also eligible.

The big differentiator could be that Ola is working on advanced chemistry cells to power the lithium battery, which will be made in India and it is the only e-two-wheeler player eligible for incentives under the PLI scheme.

The company has committed to build a 20 Gigawatt hours (GWh) plant that will meet its entire requirement. It is also ranked number two in terms of committing the highest value-addition in battery — just behind Rajesh Exports and ahead of Mahindra & Mahindra and Hyundai Global Motors. “Battery accounts for 40 per cent of the cost; we estimate that it will go down by half once it is manufactured in India,” says an insider. The manufacturing facility could be up and running in a year.

Meanwhile, the jury is still out on Ola’s decision to sell directly to the consumer by bypassing dealers. Incumbent operators, who are building a dealership network for e-products, say it is a recipe for disaster, especially in reaching small towns and rural India.

Ola insiders agree there are teething problems. The company plans to set up experience centres, where customers can have a look and feel of the product. That said, the next few months will be critical in deciding Ola’s destiny. It might just have a plan to get past the temporary hump.

Power points

Sources say Ola   

have a range of products ready, including scooters in the affordable segment

plans to build entry-level motorbikes by tweaking the scooter platform

has strategic investment in Israeli fast-charging company, StoreDot, for tech to charge batteries from 0 to 100 per cent in 5 minutes flat; this will address customer hesitancy

is eligible under PLI-scheme for e-vehicles made by non-automotive firms