India’s first pure-play EV company has the momentum to drive it through. 2- and 3-wheelers are far more amenable to electrification than ever before. Which is why India has leapfrogged to become the 2nd-largest 2-wheeler market globally. The sector in FY24 cumulatively saw a near-30% spurt in sales compared to the previous fiscal, outpacing what all battery-powered cars and 3-wheeler rickshaws managed to sell through the year.
Being the first of a new bunch of unicorns, waiting in the wings to cruise into the capital markets, Ola would give investors a chance to buy into the EV adoption story that is expected to follow a similar growth trajectory like China’s. The company has cornered a third of the e2W market in the year through March — a 6× jump in two years. Its income catapulting 88% between FY23 and FY24, Aggarwal is confident sales volumes will spur margin gains.
But that is where the battery may start spluttering.
Legacy players like Bajaj and TVS have cranked up the heat. Ola’s sales halved during Q1 FY25, as per Vahan data. Rajiv Bajaj saw 14% of his topline from variants of e2Ws and e3Ws in the same June quarter. TVS iQube e-scooter sales have grown 8× in 12 months, ended March 2023.
Even after six years of sarkari subsidies, India’s e2Ws have managed to corner just 5% of the scooter market. Ola’s disruption and dominance, thus, need to be contextualised.
World over, clean tech doesn’t guarantee green premium. In June, financial institutions eschewed the $12.5 bn valuation sought by Kumar Mangalam Birla for an NYSE IPO of Novelis, the world’s largest aluminium recycling company. Novelis is a mature operation, contributing 56% of its parent Hindalco’s consolidated FY24 Ebitda. Yet, it had no takers at that price, forcing Birla to pull the plug last minute, a first in their group’s corporate history.
Expect an even tougher sell, then, for the loss-making Ola, which is twice as much in red as it was two years ago. Unit economics has become the paramount marker of efficiency for investors scorched after the first round of startup listings and bust-ups.
Aggarwal is on a bumpy road. Ola’s valuation has been marked down by a quarter at the upper band of pricing in less than a year after marquee private investors like Temasek zipped in at a tantalising $5.4 bn valuation.
It’s important to ask what has materially changed in the company or business plan that has forced Aggarwal to temper his expectations. More so when some of his late-stage backers are taking money off the table, some within two years of joining the cap table, and even at a loss. Are they seeing something in the company we aren’t privy to?
Ola claims its R&D chops and vertically integrated technology and manufacturing capabilities — which include indigenous battery cell manufacturing — help it stand out and cut costs by a third. Battery tech, though, is still evolving worldwide. Lithium-ion, the best chemistry that exists today, is expensive, import-dependent and unstable. (Remember the scooter fires and government penalties.) Unless tech shifts a few gears, the flux will continue.
An impressive R&D budget alone is also not enough since investors want to see what’s coming from it. The portfolio we see today is primarily the fruits of a European acquisition. Ola will need robust quality standards, a seasoned supply chain, a well-oiled governance framework, depth of distribution and a churn rate over four times industry norms to accelerate and vroom away.
And accelerate it will, once it jumps on to the post-listing treadmill that will seek profitable growth, Q-on-Q. Aggarwal hasn’t come through with several of his claims, including a svelte car and sleek motorbikes. He’s missed forecasts on production, revenues and other key timelines, while simultaneously pivoting from one experiment to the other — ride hailing, financial services, food, now AI — with mixed successes. For any public company, such leaps of faith and imprudent guidance can be punishable offences.
Finally, the strategy to cut prices for scale is fraught with risks. Regaining pricing power in a tapering subsidy regime could become an uphill climb.
Ola Electric’s IPO is taking place at a delicate time. Homegrown manufacturing has become a headache for policymakers as it’s not growing fast enough. But a disappointing listing will be a huge setback for all those fledgling ventures bravely pursuing ‘Make in India’. Let’s see if Ola walks the torque.
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