In this newsletter, we will talk about the meteoric rise of Ola and how it went on to dominate the Indian E2W market.
Buckle Up, this is going to be a joyride. But before we get going, first things first!
Now let’s move on to the main topic
Early Adopters of EV in India
Electric vehicles aren’t new to India. It began in 1894 with the electric tramway in Madras. By the 1980s, the Komal electric two-wheeler was launched, followed by India’s first electric car, Lovebird, in 1993. Despite early attempts by companies like REVA and Yo Bikes, these pioneers struggled due to low range, slow speeds, and lack of infrastructure.
The game changed with the advent of lithium-ion batteries, commercialized by Sony and introduced in India by Panasonic. These batteries are lighter, more compact, and store more energy. As their costs decreased, electric two-wheelers, especially scooters, surged in popularity.
(Madras Electric Tram)
A major part of this growth was fueled by a groundbreaking government initiative!
Govt. Support – Introduction of FAME I
The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) India Scheme Phase I, launched in April 2015 with a budget of ₹895 crore, aimed to boost the adoption of electric and hybrid vehicles, including electric two-wheelers (E2Ws). By March 2019, FAME I had incentivized 2.78 lakh electric vehicles, significantly increasing E2W adoption in India.
Major Milestone: Ather Energy
A major milestone in India’s electric two-wheeler (E2W) scene was the rise of Ather Energy. Founded in 2013 by Tarun Mehta and Swapnil Jain, Ather quickly became a standout EV company. With funding from Flipkart founders, Tiger Global, and a crucial $27 million investment from Hero MotoCorp, Ather was set for success. In 2018, they launched the Ather S340, India’s first scooter with a digital touchscreen and advanced software features like cloud-based data integration and onboard navigation, making it the most innovative E2W at the time
(Ather Co-founders at S340 launch)
However, the landscape changed dramatically with the entry of an unexpected player from an unlikely industry.
Ola Electric: The Founding
Ola Electric was established in 2017 as a wholly-owned subsidiary of ANI Technologies, the parent entity of Ola Cabs. However, between 2018 and 2019, Ola Cabs faced significant financial strain due to heavy discounts and offers, leading to a substantial reduction in its fleet size. The number of cabs dropped to around 40,000-45,000, and many drivers struggled with EMI payments, resulting in the loss of approximately 30,000 vehicles from both Ola and Uber fleets. The ride-hailing market itself witnessed a slowdown and reached market saturation.
Interestingly, between December 2018 and January 2019, Bhavish Aggarwal, co-founder and CEO of ANI Technologies, bought out a 92.5% stake in Ola Electric at a valuation of ₹1 lakh, spinning it off as a separate entity.
The Establishment: Things Money Can Buy
It’s often said that experienced founders can raise huge funds more easily.
This was true for Ola Electric after its separation from its parent company, Ola Cabs. In February 2019, Ola Electric led by Bhavish Aggarwal raised $56 million from Tiger Global, Matrix Partners, and Ratan Tata. The major boost came in July 2019 when SoftBank invested $250 million (~₹1,860 crore), making Ola Electric a unicorn within six months of its spin-off. This was followed by additional funds from Hyundai and Kia.
How the Funds Were Utilized:
1. Design & Technology – In May 2020, Ola Electric acquired Amsterdam-based Etergo BV, which designed the AppScooter. This acquisition provided Ola with the design and technology for its scooters.
2. Manufacturing – In December 2020, Ola Electric announced the Ola Future Factory in Tamil Nadu. Completed in just eight months, this highly automated facility has an annual production capacity of 10 million units, making it the largest two-wheeler manufacturing facility in the world.
3. Marketing – By mid-2021, Ola Electric ramped up its promotional efforts, focusing on digital marketing, social media promotions, and traditional advertising to build a strong brand presence and generate excitement for the launch of the Ola S1 and S1 Pro scooters.
Ola Electric Made History
Ola Electric launched its first scooters, the Ola S1 and S1 Pro, in August 2021, priced at ₹79,999 and ₹1,09,999 respectively. These scooters featured long-range, touchscreen, and multiple drive modes, making them highly appealing. The response was phenomenal, with 500,000 pre-bookings in the first month. Deliveries began in December 2021, and within nine months, Ola became the best-selling electric two-wheeler brand in India. Over the years, Ola introduced new models like the S1 Air, S1X, and S1X+, and upgraded existing models.
Growth Levers Of Ola Electric
In-House R&D: Ola Electric invests heavily in research and development, leading to groundbreaking technologies like the MoveOS software, a centralized electronic architecture, and advanced battery pack manufacturing techniques. In July 2022, Ola established the Battery Innovation Center (BIC) with a $500 million investment. This state-of-the-art facility focuses on developing advanced battery technologies, including the 4,680-form factor cell, which will be used in upcoming products.
Ola conducts R&D in India, the UK, and the US, focusing on software, electronics, motors, drivetrains, battery packs, and manufacturing technology.
Manufacturing at Scale: The Ola Futurefactory, with a capacity of 10 million units per year, is highly automated and efficient.
Scalable Design: Ola’s platform-based approach uses 86.6% common components across three scooter models, reducing costs and enhancing efficiency.
Ola Electric’s D2C Model: Distribution model allows them to engage directly with customers, maintain low vehicle inventories at experience centers, and centrally manage inventory at distribution centers. This setup ensures efficient distribution to experience centers or directly to customers.
Ola’s D2C model includes 870 experience centers and 431 service centers across India, ensuring direct customer engagement and efficient inventory management.
These factors helped Ola Electric capture ~35% of the E2W market within three years and propelled its sales.
Despite its success, Ola Electric has several fundamental risks that can destroy it.
Risks to Ola Electric
Raw Material Dependency
Battery Cells – Battery packs make up 35-40% of an E2W’s cost, with 80-85% of that being the cells. About 60% of cell costs come from raw materials like lithium, nickel, and cobalt, which India has to import.
Motors – Electric motors require rare earth magnets, which are not available in India.
Power Electronics – Semiconductors, crucial for EVs, are not yet produced in India.
Government Incentives
Reduced Subsidies – The government reduced incentives from ₹15,000 per kWh to ₹10,000 per kWh, increasing the upfront cost of E2Ws and potentially slowing adoption among price-sensitive consumers. Ather Energy already experienced flat sales in FY24.
– Ola relies on support from two PLI schemes. Any changes could impact its business.
Intense Competition
While Ola is the biggest E2W player, it faces competition from new and existing OEMs like Bajaj Chetak, TVS, Vida by Hero, Okinawa, and Ather Energy. Bajaj Chetak’s market share rose to 11% by mid-2024.
Source: ET
Alternative Technologies
CNG Bikes – Bajaj launched a CNG bike, offering affordability and flexibility. While not as popular as EVs, it could be a potential competitor.
Future Plan
Gigafactory – Ola Electric is building a cell manufacturing factory in Tamil Nadu, one of only three beneficiaries of the Cell PLI Scheme as of March 31, 2024. Eligible for incentives over five years, this Gigafactory will reduce import dependency and strengthen Ola’s position as a leading EV company in India.
Bikes – Bikes account for 65% of the two-wheeler market in India, but the EV segment lacks major players. Ola Electric plans to launch four bikes by H1 FY26 to capture this market. While scooters have been the default choice for E2Ws, it remains to be seen if Ola’s bike strategy will succeed.
Ola has transformed from a startup into a leader in mobility, marked by innovation and global expansion. However, the risk it faces are not something that can be ignored. Going forward it will interesting to see how Indian E2W shapes up as it matures.
Please note, blog is only for informational purpose. This is not an investment recommendation. Kindly do you due diligence while investing.
✍🏻Author of this newsletter – Adnan (Twitter)
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