Ola Electric’s Journey to Redefine India’s Automotive Industry

From kettles in the kitchen and wearable devices on our hands to vehicles in our lands… Everything is going electric. Electric Vehicle (EV) sales, in particular, are gathering momentum all across the world and governments and societies alike are on a path of extending wholehearted acceptance to electric mobility as the elite future of transportation.

Companies like Tesla, which had the foresight to venture into this business well ahead of time, are savoring the charms of their early bird entries. However, seeing as the industry is still in its nascence in India, companies are jumping too quickly on the EV bandwagon to cement their alliances with a sustainable future.

Such Tesla-esque pursuits of some, especially in India, have propelled them to early bird specials in the domestic market as well. Let’s focus on one such pursuer — Ola Electric — which seems to be leading the charge in conquering India’s two-wheeler EV market. What lies behind the scenes as the company starts to script its success in the industry?

From Hailing Cabs to Scaling EV Mountains

Bhavish Aggarwal, the founder of Ola, launched his entrepreneurial journey by building a reputation as the frontrunner in India’s online cab-aggregator business. After rivaling Uber for almost a decade in the largely duopolistic market, Ola’s founder steered it towards a diversified and sustainable future.

Let’s establish some facts. Electric vehicles are great but building an EV manufacturing company is an arduous task. Several challenges stand in the way. First, their batteries cost a fortune and make up for nearly half of their cost. Second, one needs rare-earth metals like Lithium and valuable components like Nickel to build them. Third, a massive R&D investment and infrastructure is needed to keep the machinery up and running, and fourth, one needs to Adam Smithize the economics out of it to build the vehicles at a scalable capacity while keeping prices low at the same time.

So, how did Ola manage to accomplish this heavy task? How did the company manage to set up the world’s largest two-wheeler factory in only nine months since announcement?

Number One: Building a Roadmap

The first thing Ola did was establish its mandate and ensure that it remains broad enough to accommodate the constantly evolving contours of the electric mobility industry. For instance, even if the company aims to build electric two-wheelers and three-wheelers, it also dabbles a great deal in the allied spheres of the industry, such as, building charging infrastructure, and developing battery-swapping technology.

Interestingly, the company adopted a somewhat similar strategy at the time of its inception as well. Initially conceived as a wholly-owned subsidiary of ANI technologies (Ola’s parent company), it was eventually spun out as an independent entity with Ola CEO Bhavish Aggarwal buying almost all of the parent company’s stake in the EV entity.

This was advantageous in two ways, 1) it facilitated the company’s organizational autonomy, and 2) Due to its dissociation from Ola and the overall car aggregator business, it brought in a flurry of private investments. Which brings us to…

Number Two: Capital Inflows

A spate of investments from the likes of venture funds like Matrix Partners and Tiger Global, automakers like Kia and Hyundai and marquee investors like SoftBank is just what the company needed to take flight. In fact, the list of investors also includes Ratan Tata whose company is also on the course to rival Ola in the EV industry.

The funds have augmented the engineering program of Ola Electric in a big way. In order to build a quickly-developing portfolio of electric and smart urban mobility solutions for its customers, the company has invested heavily in design and innovation. Funding has also enabled necessary acquisitions like that of Etergo, famously called “ The Dutch Tesla on Two Wheels”. At the core of such a massive enterprise lies a great degree of capacity-building. Ola’s capacity has cemented rapidly through large scale employment generation (over 10,000 jobs). Needless to say that upscale funding and a unicorn valuation has immensely catapulted this venture into the right trajectory.

Number Three: Incentivized Framework

As the consensus and support for climate protection gains momentum at the international level, so does India’s commitment towards achieving its climate goals. To that effect, the country’s regulatory ecosystem is witnessing a rising interest in incentivization of manufacturing of electric vehicles and development of the EV industry.

Ola is among the four companies (including Reliance, Hyundai and Rajesh Exports) which have been selected under the Government’s ₹18,000cr ($2.3bn) Production Linked Incentive (PLI) scheme for domestic electric cell production. Despite its short history and relatively new entry into the auto-making space, Ola has left behind M&M, Exide, L&T and Indian Power Corporation to enter the coveted list of PLI recipients which is expected to give an additional boost to its production capabilities.

Competition in the EV industry is rising every day, especially in the two-wheeler category where existing players like Aether, Okinawa, Ampere, Revolt, etc., growing wary that Ola will eat into their market share soon. Ola Electric’s launch of the S1 and S1 Pro line of scooters caused a massive disruption in the segment. Both the products, although not extremely cost-effective, have managed to establish greater standards of user experience in the electric scooter segment by virtue of their superior and exhaustive features. Ola’s remarkable brand presence and customer engagement channels (through promotional campaigns, social media, etc.) also enabled it to do something that very few automakers in India have managed to do thus far — bypass traditional dealerships and deliver vehicles directly to customers.

But What’s Under the Hood?

For starters, there’s fire. There has been a string of battery fires in EVs in the country, most recently in the models of Ola and Okinawa. This has shaken the spirit of many potential buyers who, despite being enthused with the prospect of electrifying their vehicles, are now uncertain about the safety standards employed by Indian companies like Ola.

Automobiles, by nature and construct, are prone to fire hazards. However, EVs, due to their Li-ion battery packs, are more vulnerable to incidents of “thermal runaway” or extreme overheating. Now, this happens due to construction faults, which is basically another way of saying that manufacturers fit low-grade batteries and chargers in the vehicles, despite regulations against doing so.

And, while isolated incidents aren’t uncommon, recurring fire hazards on account of technical mishaps has the ability to upend the safety reputation of brands and their entire product lines. If in doubt, ask the designers of Tata Nano or Samsung Galaxy Note 7. Perhaps the makers of Ola scooter should have taken India’s hot climate into account during the anti-combustion brainstorming sessions.

And this is just the tip of the iceberg when it comes to what lies in the path of Ola Electric’s success. Despite the euphoria and marketing hype around its products, its success will depend on a range of issues, many of which are incidentally out of the company’s control.

For starters, for a company which is fairly new in the sector, Ola Electric’s products are priced at a premium. Yes, there has been an explosive interest in the product judging by the advance booking numbers but how long such sales volumes continue will depend on the changing market and regulatory landscape in the EV segment. And the segment, for that matter, is readily-evolving (with the entry of new players like Tesla) and the spurt of fire hazards in Ola scooters will not help them capitalise on this evolution.

Then comes the limitations with being occupied in the two-wheeler space, at least for now. Scooter ownership is a highly urban phenomenon and it’s not widely prevalent in tier III cities or rural areas given the charging handicaps and relatively higher costs of operation (compared to motorcycles). So, Ola’s distorted preoccupation with the two-wheeler market may be inhibited in the long run while other automakers like Tata, M&M and Maruti Suzuki gradually take over the four-wheeler market with their early forays.

Ola is at a critical juncture after undergoing an unfamiliar transition from the ride-hailing services to auto manufacturing. Building factories at breakneck speed, breaking conventional wisdoms in the EV-making segment and stepping into fintech partnerships with related parties (Bhavish Aggarwal’s brother) may seem like sensible steps on the path to creating an EV juggernaut. But perhaps the company ought to take a step back and reassess certain critical aspects of its blueprint before it decides to go full-throttle in the journey to irreversibly transform the Indian automotive industry.

(Originally published March 31st 2022 in the TRANSFIN E-O-D Newsletter)