Ola Electric's BOSS sale under regulatory lens: What are ARAI's concerns?

Not updating ARAI about discount could risk subsidy claim

In a fresh regulatory action against Ola Electric, the country’s largest electric two-wheeler manufacturer, the Automotive Research Association of India (ARAI) has raised new concerns over the company’s recent pricing practices.

In an October 8 email to the Bhavish Aggarwal-led company, the association flagged Ola’s failure to inform it about a price reduction for its S1 X 2 kWh model before the launch of the ‘BOSS’ sale. This oversight could affect the model’s eligibility for a government subsidy under the PM Electric DRIVE Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme.

ARAI is an automotive testing agency under the Ministry of Heavy Industries.

ARAI provides certification to original equipment manufacturers (OEMs) in accordance with the Central Motor Vehicle Rules and certifies OEMs seeking incentives under various Central government schemes.                  

In its ‘BOSS’ sale, Ola Electric slashed the price of its vehicle from Rs 74,999 to Rs 49,999. However, the company has declared an ex-factory price of Rs 75,001 for this model to ARAI. Based on this price and a battery capacity of 2 kWh, the model is certified to receive a subsidy of Rs 10,000.

According to PM E-DRIVE guidelines, the demand incentive is proposed at Rs 5,000 per kWh for e-2Ws/e-3Ws registered in Financial Year 2024-25 (FY25) and Rs 2,500 per kWh for FY26. Incentives will be capped per vehicle or at 15 percent of the ex-factory price, whichever is lower.

Therefore, the Ola S1 X 2 kWh model with an ex-factory price of Rs 75,001 would receive a subsidy of Rs 10,000. However, if the price is reduced to Rs 49,999, the subsidy would drop to Rs 7,500, as the 15 per cent cap applies to the lower ex-factory price.

Business Standard has reviewed the email sent by ARAI to the company.

The testing agency has requested the company to provide clarification regarding this deviation and to present the factual position on this matter as soon as possible. If found in violation of these guidelines, the company could face legal action and potentially lose its subsidies.

“Clarification has been requested. If any violations are found, action will be taken in accordance with the law and the scheme guidelines,” said a senior official aware of the developments.

A query sent to Ola Electric remained unanswered until the time of going to press.

Not the first action

This marks the second action by the nodal ministry for electric vehicles and its testing agency against Ola Electric. On October 9, the Ministry of Heavy Industries directed ARAI to investigate consumer complaints related to Ola Electric.

This action followed a show-cause notice issued to the EV manufacturer by the Central Consumer Protection Authority (CCPA) on October 3. The notice was prompted by 9,948 complaints received between September 2023 and August 2024, primarily concerning delayed deliveries, defective products, and misleading advertisements related to Ola Electric.

ARAI approved Ola’s eligibility for government subsidies, asking them to verify if the company is upholding warranty obligations and maintaining service centres as required.

Ola Electric is a major beneficiary of several government incentive schemes, including the Faster Adoption & Manufacturing of Electric Vehicles II (FAME-II), Electric Mobility Promotion Scheme (EMPS), PM E-DRIVE, and the Production Linked Incentives schemes for Automobile and Auto components and Advanced Chemistry Cells.

Under the FAME, EMPS, and PM E-Drive schemes, manufacturers of electric two-wheelers receiving subsidies are required to offer consumers a warranty of three years or 20,000 km, whichever comes first, and ensure adequate facilities for after-sales service throughout the vehicle's lifespan.

Following the MHI’s order to investigate Ola Electric, a delegation from the OEM met with MHI officials on October 10 to seek clarification and request additional time to respond.

The company has also stated that the show-cause notice from the CCPA “would not impact” its activities and that the company will file a response to the notice within the 15-day deadline.

Amid regulatory challenges, Ola Electric’s market share in the e2W segment has dropped from 52 per cent in April to just 27 per cent by September, indicating a shifting competitive landscape. On October 11, 2024, Ola Electric shares closed at Rs 90.20, reflecting a decline of 43 per cent from their all-time high of Rs 157.40 on August 20. The company's valuation stood at $4.7 billion on October 11, a significant decline from its IPO valuation of over $7 billion at an issue price of Rs 76.

What are ARAI’s contentions? 

> ARAI certified Ola’s S1 X 2kWh model for a Rs 10,000 subsidy based on a declared ex-factory price of Rs 75,001

> The body found that Ola Electric was selling it for Rs 49,999

> ARAI has asked the electric two-wheeler manufacturer to explain why it didn't report the price change, as mandated by PM E-DRIVE guidelines, which could affect subsidy eligibility