OLA Electric Mobility Limited

The rising number of customer complaints and a rapid loss of market share have pushed Ola Electric against the wall and investors would do well to wait and watch how the company emerges from this difficult spot[EasyDNNnews:PaidContentStart]

Ola Electric Mobility Limited (Ola Electric), established in February 2017, is an Indian electric vehicle manufacturer headquartered in Bangalore. As a wholly-owned subsidiary of ANI Technologies, the parent company of Ola Cabs, Ola Electric was founded with the mission to reduce emissions and fossil fuel dependency through mass electric mobility.

Market Presence
Ola Electric has developed an extensive omnichannel distribution network across India, featuring 935 experience centres and 414 service centres. This network is recognised as the largest company-owned experience centre network in the country.

Revenue Segments
In FY24, Ola Electric Mobility Limited achieved total operating revenue of approximately ₹5,009.8 crore, marking a significant increase of over 90 per cent from the previous fiscal year. Ola Electric’s revenue primarily comes from electric scooter sales, supplemented by income from related services and products. Below is a detailed breakdown of their revenue sources based on the latest available information:

1.Electric Scooter Sales

• Primary Revenue Source: The majority of Ola Electric’s revenue is generated from electric scooter sales. In FY24, the company sold 3,29,618 scooters, significantly contributing to its overall revenue.
• Revenue Figures: For FY24, the revenue from scooter sales reached approximately ₹4,604 crore, accounting for around 92 per cent of the total operating revenue.
• Model Contributions: a) Ola S1 Pro: Contributed nearly 60 per cent of the total revenue, b) Ola S1 Air: Generated about 18.93 per cent of the income, and c) Ola S1: Contributed only 2.68 per cent in FY24.

2. Other Operating Revenues Ola Electric also earns income from various ancillary services and products

• Vehicle Accessories and Traded Goods: Revenue from accessories such as spare parts and chargers amounted to approximately ₹85 crore.
• Services: Maintenance and after-sales support services contributed around ₹88 crore.
• Vendor Handling Charges: Fees charged to suppliers added approximately ₹88 crore.
• Sale of Scrap Materials: Generated around ₹13 crore.
• Subscription Income: Earned about ₹12 crore from subscription-based services.
• Government Incentives: Received approximately ₹97 crore in incentives related to electric vehicle programmes.

Key Developments
• Initial Focus - The company initiated a pilot programme in Nagpur in May 2017, which included establishing charging stations and procuring electric cabs, e-buses, and e-rickshaws from various OEM partners.
• Acquisitions - In May 2020, Ola Electric acquired Etergo, a Dutch electric scooter manufacturer, enhancing its product portfolio significantly.
• Manufacturing Facility - The company established the Ola Future Factory in Tamil Nadu, touted as the world’s largest two-wheeler factory with a planned investment of ₹2,400 crore. Construction commenced in early 2021.
• Product Launches - Ola Electric launched its first electric scooter, the S1 Pro, in December 2021. Since then, it has expanded its offerings to include multiple models like the Ola S1 and S1 Air. In August 2023, new models were announced, including a range of motorcycles.

IPO Information
Ola Electric successfully launched its IPO from August 2 to August 6, 2024, with a total issue size of ₹6,145.56 crore. The shares were listed on the BSE and NSE on August 9, 2024, at an initial price of ₹76.00 per share.

Subscription and Performance
The IPO was well-received, being subscribed 4.27 times. Following its debut, the stock closed at ₹91 on the first trading day, indicating strong market interest.

Use of Proceeds
Ola Electric plans to allocate funds from the IPO as follows:
• ₹1,227.64 crore for expanding cell manufacturing capacity.
• ₹800 crore for debt repayment.
• ₹1,600 crore for research and product development.
• ₹350 crore for general corporate purposes.

Financial Performance
FY24 Performance
• Revenue Growth - Ola Electric achieved significant revenue growth in FY24 with operating revenue surging by over 90 per cent, reaching ₹5,009.8 crore compared to ₹2,630.9 crore in FY23. This growth was primarily driven by strong demand for electric vehicles.
• Sales Volume - The company doubled its sales to 3,29,618 units during FY24.
• Revenue Composition - A significant portion of this revenue came from its flagship electric scooters; the Ola S1 Pro model alone contributed nearly 60 per cent of the total revenue.
• Net Loss - Despite robust revenue growth, Ola Electric reported a net loss of ₹1,584.4 crore in FY24—a 7.6 per cent increase from the loss of ₹1,472.1 crore in FY23— highlighting ongoing challenges with operational costs and profitability.
• Cash Flow - The company has reported persistent negative cash flow from operations, amounting to approximately ₹633 crore in FY24.

Q1FY25 Update
• Revenue - In Q1FY25, Ola Electric continued to show positive momentum with revenue reaching ₹1,644 crore—slightly up from ₹1,598 crore in Q4FY24.
• Reduction in Losses - The company managed to reduce its net loss by 16.6 per cent, reporting a loss of ₹347 crore compared to ₹416 crore in the previous quarter— indicating improved cost management and operational efficiency.

Market Share Decline
• Growth Phase - Ola Electric’s market share previously rose from 21 per cent in FY23 to 35 per cent in FY24, peaking at 49 per cent in Q1FY25, driven by aggressive pricing strategies and an expanded product portfolio.
• Decline in Market Share - As of August 2024, Ola Electric’s market share fell to 33 per cent, down from 49 per cent at the end of June 2024. This decline continued into September when it dropped further to 27.9 per cent, indicating a substantial loss of market presence over a short period.
• Competitive Landscape - The decrease coincided with gains made by competitors like TVS Motor and Bajaj Auto. TVS increased its share to 19 per cent while Bajaj Auto reached 18 per cent, suggesting that established players are regaining ground by launching more affordable electric models.

Customer Service Complaints
Ola Electric is facing significant challenges with around 80,000 monthly complaints, primarily about service delays, faulty scooters, and misleading advertisements. Customers report extended repair times, delayed deliveries, and even receiving defective or second-hand vehicles. Regulatory pressure has intensified with a show-cause notice from the Central Consumer Protection Authority (CCPA), citing over 9,948 complaints in a year. While Ola Electric has pledged to address these concerns, the issues are negatively impacting its brand perception and customer trust in the competitive EV market.

Capital Expenditure
Ola Electric is making substantial investments to enhance its battery manufacturing capabilities with approximately ₹1,226 crore allocated for expanding operations:

1. Ola Gigafactory (Cell Manufacturing)
• Phase 1(a)- Completed with a capacity of 1.4 GWh as of May 31, 2024.

Expansion Plans:
• Phase 1(b)- Increase capacity to 5 GWh (Target completion: February 28, 2025).
• Phase 2 - Expand to 6.5 GWh (Target completion: April 30, 2025).
• Future Goal - Reach a capacity of 20 GWh.

2. Ola Future Factory
• The factory is expanding manufacturing capabilities with new paint shops and flexible production lines alongside motor production lines and battery assembly lines.

Valuation
The current valuation metrics reflect a concerning financial position characterised by negative returns and significant operational inefficiencies:

Market Penetration
The electric two-wheeler (e2W) industry has experienced significant growth:

• Overall Industry Penetration - As of July 2024, the e2W industry achieved an overall penetration rate of 7.4 per cent.
• Scooter Segment Penetration - Within this segment, penetration stands at 21 per cent, reflecting strong demand for electric scooters.
• Key States Performance - The industry has nearly achieved a penetration rate close to 30 per cent in nine important states including Maharashtra and Karnataka.
• Growth in Smaller Markets - Rapid growth is occurring in Tier 3 and Tier 4 markets encompassing smaller cities and towns.

Conclusion
Despite increasing penetration rates for electric two-wheelers in the market, Ola Electric faces significant challenges that warrant caution among investors. The company is grappling with negative cash flow from operations alongside declining market share and numerous customer service complaints. Operational inefficiencies coupled with diminishing consumer confidence raise serious concerns regarding Ola Electric’s prospects. Given these factors, we recommend investors to avoid further investment into the stock until there are clear indicators of improvement in financial health and service quality.

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