Ola Electric - Full Stack EV play?

Stock Analysis & Valuation
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Ola Electric, founded in 2017 by Bhavish Aggarwal, has rapidly emerged as a leading player in India’s electric vehicle (EV) market. The company primarily focuses on electric two-wheelers but has ambitious plans to expand into electric cars and motorcycles.

Positives:

  • Market Leadership: Ola Electric holds a commanding 38% share of the electric two-wheeler (E2W) market in India (as of July’24), making it the top player in this rapidly growing sector.
  • Integrated Manufacturing Capabilities: Ola’s Futurefactory in Krishnagiri, Tamil Nadu, is one of the world’s largest and most advanced two-wheeler manufacturing facilities. Coupled with the upcoming Gigafactory for lithium-ion cell production, Ola is poised to gain significant advantages in terms of cost control and supply chain efficiency. Aim to make India a core part of the global energy revolution: Ola Electric | Company News - Business Standard (business-standard.com)
  • Product Diversification: Ola is expanding beyond scooters into electric motorcycles and cars, aiming to capture a broader share of the EV market. The strategic interplay with Krutrim, a potential partner in AI and automation, could enhance product innovation.
  • Economies of Scale: With its vast manufacturing capabilities and government-backed incentives, Ola is well-positioned to achieve price parity with internal combustion engine (ICE) vehicles, making its offerings more attractive to the mass market.

Negatives:

  • High Valuations: The company’s recent IPO valued it at approximately $4.5 billion, a steep valuation given its current financials, including widened losses of ₹1,584.4 crore in FY24.
  • Dependence on Subsidies: The EV sector in India still heavily relies on government subsidies under schemes like FAME. Any reduction or withdrawal could adversely affect demand and pricing.

Risks:

  • Intensifying Competition: Established players like Hero MotoCorp, TVS and Bajaj Auto are increasingly entering the EV space. Ola may face stiff competition as these companies leverage their extensive dealer networks and customer loyalty.
  • Execution Risks: The success of Ola’s ambitious projects, like the Gigafactory, hinges on timely execution and market acceptance of its new product lines. Any delays could impact investor confidence. Slowdown in growth could trigger price correction of the stock.

Overall, the company seems to have the potential to become a major player in Indian Automotive industry in the coming 5-10 years. It’s success depends on how it navigates through it’s challenges.

Disclosure: Invested through a small position.

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Updates from OLA Sankalp event on 15/8 2024:

EVs

  • EV Platform Gen 3 launched: To cut cost per unit by around 15% compared to Gen 2 (estimate from their live event), integrates modern computing to enable next-gen AI related features in EVs when they get launched in future.
  • Roadster launched: Roadster is launched across 3 variants, starting from 75K, going up to 200K for the pro version with highest kWh.
  • New models revealed: Arrowhead and Sportster announced, along with previously unveiled Diamondhead and Cruiser.

With these, Ola electric looks set to capture some Motorcycle market from legacy players. But still too early to guess the market acceptance of these new models.
Ola Electric launches electric motorcycles | YourStory

Battery Cell

This not only opens up another huge sunrise sector for them, but gives them some cost advantage on their EVs.

Apart from these, many products announced under OLA Consumer and OLA Krutrim, which could provide some synergies to OLA Electric in the long term.

Disclosure: Invested through a small position.

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I wish to put few concerns which need to be seen

  1. Just see any social media handle comments section of ola event, there is a server outcry from existing customers to improve post sales support, if ola scooter has to become the Activa of electrical 2w segment, post sales service and support are crucial, which neither the event nor any news handle emphasized

  2. Too much diverse interest of founder to enter to quick commerce delivery ( painted differently by saying as non compiteter), AI chips- not much sure if he is serious, maps which already is said as having issues of copyright with mapmyindia.

  3. no bike released is family friendly, I can’t drive my wife and kid, which any middle class father would expect.

PS: Founder presents like Steve jobs, portfolio as wide as Elon musk, will he end up like ceo of Paytm with driverse interest ??( Apologies if the analogy is wrong)

Disc : customer and investor

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Thanks @SA24 Sukrit for starting the thread, I was thinking to do so…

Am invested and it’s 5% of my PF and my investment price is from 78 to 102 (Avg: 91.5). Obviously am biased. Am also invested other new age businesses like Zomato (Avg: 96), PAYTM (Avg: 418).

My theses of OLA investment:

  1. Bhavesh A – as said am biased and may put him top 5 new age entrepreneur in India. He may be the only one who founded 3 unicorns.

Staring with cab he defeated giant like uber – highly commendable.

He is the catalyst of growth of EV in India. Ola E is the only co who develops own products. Am invested in endurance and in con call they said except ola all EV’s are their client (Ola has own manufacturing).

On soft side – his twitter followers are similar of DP of Z, VSS, Nitin k etc. Why this is important? Such founder doesn’t need much paid advertisement (like tesla).

  1. Second is automobile 2 W business. As per Motilal oswal study 2 w business is great with 4 points out of 5. This means it’s great business where all player fairly plays in line (High ROCE) of paints and cigarette. Good business to own.

2 W legacy player are so good and dominant, falls among few rare industries where they beat Chinese players handsomely. Bajaj and TVS are No 1 and 2 in most Latin A and African market.

  1. EV as theme which will surely disrupts ICE.

Debt: I was not able to find exact position of debt before IPO. As am refrain of putting money in highly debt company. Am much comfortable with Zomato and paytm due to their excess cash even they were loss making. This gives assurance that they won’t be bankrupt in nr future.

As per con call ola has 2700-2800 cr gross debt and 1300 cr gross cash in hand that is june 30 end data Pre IPO, post IPO looks ok on debt front.

Negative comments:
I also went RHP and lots of videos of users. Yes many comments are negative however this is somewhat obvious with your sudden growth etc and am sure they will be working on proper resolution. On other side actual users also share positive comment and they are, mainly, heavy users are satisfied.

Specs: The specs OLA is offering is amazing, particularly 8 yrs of battery warranty whereas others are stuck in 3 years. 30-35% cost of EV are of battery, this will be most important aspect of choosing OLA. Others specs are range, torque etc.

2 W penetration: EV provides smooth ride and due to torque and power able to give good pickup. I believe tesla’s acceleration can beat any ICE car, same may happens, if so EV bike can beat both low segment (Hero) and high end like RE.

Risks:
A. High attrition: However as per me this is good at starting phase of co. You are having such high bar where only high performer survives (Must read books by Netflix founder – rules no rules).
B. Divert businesses – this is real risk if he fails put CEO like people for most businesses.
C. Cell: Failure of cell technology is the most important and visible risk as per me.

Successful Entrepreneur can create magics. Like Zomato vs swiggy – swiggy was more innovative and powerful with higher market share (45-55) than Z before IPO, Now mkt share reverse (55-45) Z to S. This is as DP got good management bandwidth hence now he may able to do small innovation etc and able to continue his new product journey.

Same may happen with BA, if he finds success in cell and OLA – seems sky is the limit – first he penetrates OLA to outside India and may enter 4 W and other cell technology etc.

Disc: Invested and my views are biased, also proved wrong many times in past, not Sebi registered and not buy sell advice. I am sell / buy without prior updates.

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Ola’s fresh issue of Rs 5,500 crore is nearly as much as the free cash flows generated by the likes of Hero Moto and Bajaj Auto. These companies have a much greater appetite than Ola to keep stomaching their losses in the electric two-wheeler segments without worrying about running out of cash.

The scars of PayTM ain’t over.

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Also as per some reports there are management issues inside the company as well the employee retention is just 40-45%, which means there are serious management problems. In case of Zomato the culture of the company as so great that led to it’s success. I hope they work for company’s culture. This much diversification in a business at an early stage with high debt and high losses it a dangerous business.

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They are not able to build a basic scooter well nor service it and they are making launches every other day. EVs are supposed to be so much simpler to fix and need almost no maintenance despite which this is the scene -

I have witnessed 2 big fights recently at Ola’s experience centers in person where one guy loaded his s1 in his car’s boot and dumped it right in front of the showroom followed by a ruckus, I own an Ola S1 pro which I have ridden less than 2000 km in more than a year despite which there are so many tiny issues that I have lost faith in it and won’t give it to any younger member of my family.

A company is built on satisfied customers who bring in more customers by word of mouth reducing marketing costs and eventually making the company highly profitable, here the scene is completely opposite, maybe that is why Mr.Agarwal doesn’t know when will the company turn profitable.

I am also amused by how the bikes are being launched right after the IPO to keep the heat on and push the stock prices further up.

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It’s true customer satisfaction doesn’t look so great if one goes by these incidents. The question is, is there any data to gauge the percentage of dissatisfied customers? If the percentage is high, sales may dip in medium term and stock can correct to IPO levels.
If these are isolated incidents, and the company has already improved the product based on these reports, then there may be improvement in public outlook in a few years time.

HSBC seems to be optimistic on it’s outlook:

For me as an investor, I am only betting on company’s Cell business, and it’s application in various sectors (especially Battery energy storage systems [BESS] and swappable battery packs). It needs to become a supplier to other Auto companies as well, which can become a big business in itself.

It’s 2W business is riddled with challenges, and not a safe bet at all given current valuations.

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This statement of Bhavish, is largely accurate. What do you think?

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No doubt the overall market share of EV vs ICE will keep shifting towards the former.
India EV penetration to be 15% by 2030: BNP Paribas - The Hindu BusinessLine

In case of 2W, it could be even higher as per different reports. Ola should be given credit for waking up legacy players out of their slumber who were refusing to innovate (Just like Jio did to Airtel and Idea).
The only concern is if it can utilise it’s head-start and vertical integration to create products with superior quality, instead of cutting corners at the wrong places and facing consumer wrath later on.

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Beyond the customer niggles (which are huge since I’ve seen around 4 cases in my society where people have become fed up and just dumped their Ola EVs), my other major issue with Bhavish is he over promises and underperforms. Look at the history of announcements vs actual launch dates, recent controversy with MMI. Heck, even the Roadster promos seems to be copied as per a LinkedIn post (Abrar Bin Ayub on LinkedIn: How sad! Folks at Ola Electric completely ripped off work of Zero… | 12 comments), which raises very basic fundamental questions about his leadership.
Krutrim AI seems to be a miss, his comments about bringing higher working hours per week, high attrition, none of these bode well for stability.

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This is humorous and reminds me of Nikola Motors.

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Ola is diversifying into battery packs, which is logical. But why quick commerce?? Do they have any competitive advantage there? Isnt it already an overcrowded space

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The only “advantage” they seem to have is the tech to fully automate the dark store, with better efficiency and quicker order processing time. They have also integrated with ONDC, which can help boost volumes. Quick commerce wars to intensify as Ola enters Blinkit, Swiggy Instamart, Zepto and Flipkart Minute’s turf (moneycontrol.com)

Note: The quick commerce part doesn’t come under OLA Electric, but under OLA Consumer

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It’s matter of time this company too will go PYTM way.

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IMO founder is the biggest positive as well as the biggest risk for the company. It takes extreme believe and courage to build a 2-wheeler company from scratch, and then go on to capture 38% of the growing market within couple of years is just unbelievable! Kuddos to Bhavish Aggarwal(BA). :clap:t4::clap:t4:

Risks:

  • How BA treated investors and employees at his previous company - Although Ola Cabs fought well with Uber in India, company is still struggling to make profits and losing market share to its newer competitor(I don’t have enough data on it, just intuition). Ola cabs raised billions of $ and BA moved on to build another company without existing investors/employees getting any significant returns of their investments/ESOPs. I don’t think BA has any regards for investors.

  • Too many companies - BA has founded too many companies(Ola Cabs, Ola Electric, Food delivery, Grocery Delivery, Ola Maps, Krutrim AI, Krutrim Cloud, Ola financial, etc), and most of these needs extreme R&D / operational excellence. It’s baffling to even think how someone will focus on so many diverse areas where there are already established players.

  • Attrition rate - For high R&D companies, employees staying at the company for a long-term becomes instrumental to the company’s success. I have heard from a source (someone related to an Ola Electric’s employee) that company is spending a lot on employees and their trainings. But with ~50% attrition rate, it won’t be a moat. Attrition rate was very high even in Ola Cabs - and that doesn’t give me any comfort on why it will improve in the future. This seems like a culture issue to me.

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Yadea is world’s largest 2-Wheeler EV co from China, it has 28% market share globally and sells 60 million units in 80 countries. Globally top 5 2-W EV’s, all are from China. (Blame Bajaj, TVS for being too conservative).

Anyway, if we compare it with Indian EV
Y’s top model E8S 200 has max speed 65 km/h vs 116 km/h of ola
Driving range 150 km of Y vs 170 ola
Y started in 2001.

It’s difficult to find more info on tech spec of Yadea’s various mode, request @SA24 and others interested to colloborate to find some more data. Thx

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Am trying to value OLA Electric, as Prof Aswath Damodaran says you can value any company by developing story.

1. The Story of OLA Electric

  • Current Position : OLA Electric is currently a leader in the electric scooter (EV) market in India.
  • Future Growth : It aims to expand leadership into the electric bike segment.
  • Global Ambitions : Eventually, OLA plans to sell electric vehicles (EVs) globally.
  • Battery Cell Advantage : While the revenue from battery cells is not directly considered, having an in-house battery cell supply could help OLA achieve higher margins due to cost savings.

2. Market Assumptions

  • Two-Wheeler Market Size in India (2024) : 1.8 crore (18 million) units.
  • Growth Rate of the Market : Expected to grow at 8% annually.
  • Market Size in 2030 : With 8% annual growth, the total market is projected to be around 2.8 crore (28 million) units.

3. Electric Vehicle (EV) Penetration

  • EV Market Share by 2030 : Projected at 40% of the total market, which is approximately 1.10 crore (11 million) EV units. Some industry reports predict an even higher market share.

4. OLA Electric’s Market Share Projections

  • Domestic Market : Assuming OLA captures 33% of the EV market in India, this would equate to 36 lakh (3.6 million) units by 2030.
  • Export Market : Assuming OLA captures 25% of the export market, this would be an additional 9 lakh (0.9 million) units.
  • Total Sales Volume : Combining both, OLA’s total sales volume in 2030 would be 45 lakh (4.5 million) units.

5. Revenue Projections

  • Average Selling Price : If the average price per unit is ₹1 lakh, the total revenue would be: 45 lakh units×₹1 lakh=₹45,000 crore

6. Profit Margin and Earnings

  • Profit Margin Assumption : Assuming a profit margin of 10%, the profit would be: ₹45,000 crore×10%=₹4,500 crore
  • Shares Outstanding : With 441 crore shares of OLA, the Earnings Per Share (EPS) would be: ₹10

7. Valuation and Price Prediction

  • Price-to-Earnings (PE) Ratio : Assuming a PE ratio of 40 in 2030, the projected stock price would be: ₹10 EPS×40=₹400 vs CMP of ₹120.

Disc: Invested (as indicated in earlier post) and views are biased

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Thanks Deven for this analysis. The case does look bullish, given here only 2W business is considered. Even taking conservative estimate of Ola’s market share at 20%, company can still do decently well.

Major triggers could be other businesses apart from 2W, like 4W (depends on management and it’s ability to fix consumer trust, it has the ingredients to become India’s Tesla).

Going into other business models with swappable battery packs (like Gogoro), setting up it’s own EV charging stations etc could be other revenue streams.

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Could you explain why considered 40 PE . Is it kind of sector PE or you estimated it based on some other factors.
Thanks