“Ola” or Adios - The Electric Scooter Blow-up 🔋

1,441 - this isn’t just a palindrome, but the number of scooters Ola Electric Mobility had to recall back in 2022 after a series of fires and malfunctions in the company’s S1 model. What once was the snazziest kid on the block, Ola Electric Mobility, has lost its charm - and a huge chunk of its valuation! For a stock that, from its listing, grew 2x within 2 weeks to all-time highs back in August 2024, it is now down 66% from those levels, striking fear into the hearts of its IPO investors. This fear led us to take a brief look into why there are more recalls then rewards, and whether there remains a case to invest in this “discharged” stock. Ola? More like Oh No!

For a company that built its entire IPO narrative around the fact that it possessed a dominating market share of 52%, that story has quickly fizzled out, with Ola Electric now standing at 30%! With this in mind, a true comparison of the top 3 companies in this space is vital to understand why Ola Electric has faltered along the way:

Furthermore, Bajaj Auto and TVS, both with a legacy that spans more than 80 years each, have seldom faced consumer complaints with regards to their electric two-wheeler variants, yet Ola has astonishingly registered over 10,000 complaints within a few months in 2024, 60% of which were registered with the Department of Consumer Affairs!

A plethora of issues follow this company’s business prospects, coupled with the false promise of “free of cost upgrades” which eventually cost customers an additional Rs. 2,000 anyway.

For any of this to change for the better, it is contingent on the company’s leadership taking charge - a sentiment that the public may not be all too convinced about.

Swerving Off Track

In what looks like a lack-of-faith power move, the last quarter of 2024 saw a mass exodus of high-ranking officials:

• Anshul Khandelwal, Chief Marketing Officer

• Suvonil Chatterjee, Chief Technology & Product Officer

• N Balachandar, Group Chief People Officer

• Sidharth Shakdher, Chief Business Officer

• Mahesh Alanthat, Head of Sales
  

At a cursory glance, 2 reasons seem to emerge as to why such disbelief in the future of the company prevails:

1. Corporate Governance: The company has been accused of multiple discrepancies with regards to regulatory lapses:

   • out of 3,400 showrooms with data, only 100 locations had trade certificates

   • out of 25,000 electric scooters reported as sold by Ola Electric in Feb’25, only 8,600 registrations showed up on VAHAN (the government portal for vehicular data)

   • 36 scooters seized in the last 2 months for lack of proper document from Ola Electric’s end
     

2. Eccentric Leader:  Apart from being called out for various false , Bhavesh Aggarwal has been known to be an outlandish personality, especially with the online tiffs he has undertaken with trolls and even the famous Kunal Kamra fiasco.

   • Furthermore, to stay relevant, he even began Krutrim AI (Indian-made LLM) which will be integrated with Ola Scooters, and has been a humungous task, both financially and operationally to run (Bhavesh has even pledged 8% of his personal stake to acquire debt funding for Krutrim AI, yet another financial blunder in the making).
     

Like clockwork, the immediate impact of all of this would be on the financials of the firm - an aspect that might shock you even more!

Financial Flat Tire

With promises to turn EBITDA positive in the next 4 months, Ola Electric’s financials look bleak to say the least.

As seen with the ever-so-widening losses that the company incurs, the company still burns an average of Rs. 180 crore every month on operating expenses!

To limit the fallout of its dire straits, the company even laid off over a 1,000 employees across functions to stay afloat (currently 2,824 employees) in a matter of months. In fact, out of the Rs. 6,000 crore IPO funds that the company amassed:

• Rs. 1,600 crore for Research and Development

• Rs. 1,250 crore utilised for capacity expansion in cell manufacturing

• Rs. 800 crore to repay a small chunk of debt (the company continually raises funds, the largest being from Temasek of around Rs. 1,500 crore, bringing the Debt to Equity ratio from 1.3x to 0.7x, safeguarding the company momentarily)

• The balance Rs. 2,350 crore to facilitate organic expansion of the business
  

The financial mismanagement doesn’t stop here! From that Rs. 2,350 crore, the company has invested Rs. 1,200 crore into India’s first and largest cell manufacturing Gigafactory (given permission by the Government under the PLI scheme), one that has been delayed repeatedly and will require more funding to be completed - both being red flags.

With plans to ramp up Gen 3 (an improved platform on which the Ola’s scooters will be produced), which will increase range by 20% and reduce manufacturing costs by 31%, the company hopes to see its dream to be EBITDA positive to be realised soon.

But, what does any of these mean for the stock of the company?

Final Take 💡

In a no-contest show of force, the incumbents have already started to surpass Ola Electric at its own game. Furthermore, on a Price-To-Sales basis, Ola Electric stands at 4.3x, while Bajaj Auto and TVS are at a sub-2x mark for their respective EV businesses, clearly showcasing a better opportunity outside of Ola Electric Mobility.

With no concrete line of sight towards profitability, and the valuation of the company already having plummeted by a third of its IPO valuation, placing informed and researched bets on players like Bajaj Auto or TVS would result in a safer play on the EV scooter market, rather than it “blowing up” in our faces - much like the Ola Scooters!