And then only the company reacted…
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If numbers are true the monthly issue rate is more than 10% (680,000 units lifetime sales, 80,000 pm complaints), seems pretty high. Is this normal, anyway to benchmark against competitors global or local.
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It would be interesting to see if Bhavish’s behaviour on twitter will have an impact on the share price tomorrow. Every second post on my feed is yet another person calling him out.
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What is the reason for this show cause notice?
Good reports, covers both negative and positive.
Disc: Baised and invested as indicated in past post.
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Let me start with a disclosure: I am invested in OLA, and my views are biased, so take them with a pinch of salt. This is for educational purposes.
For investors, it’s important to see through the noise. There is a lot of noise in the market—so heavy that it seems OLA will be out of business soon. However, on the other hand, most brokerage reports are very positive.
There is a scarcity of data, and it’s difficult for investors to find reliable data. Hence, it’s important to view opinions/data holistically and read between the lines.
A YouTuber did a small but reliable survey. His 257 subscribers who owned OLA responded. It is reliable because he asked his subscribers to post pictures of their OLA vehicles along with their responses.
The enclosed screen is taken from the video.
According to it, 63% of complaints are tech-related. The YouTuber rightly pointed this out as well. And if you add suspension complaints (25%) and reverse mode (12%), other complaints are literally 1 or 2. Reverse mode also seems to be tech-related glitches, so you could say 75% of complaints are software-related, and the remaining 25% are suspension-related. If you look at it this way, it seems easily manageable.
The book, Innovator’s Dilemma, is a must-read. According to it, tech revolutions often start with inferior products and eventually improve in quality, replacing incumbents who ignore the tech revolution, thinking it won’t match their quality.
Disc: As indicated above.
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I’d offer a different perspective.
1- EV scooters are not really a tech innovation in strict sense of the word. Plus tech on scooters, bikes, cars are nothing new. It’s a mature space and has been around for years.
2- The fact that other players (Bajaj or TVS) are not facing these complaints means that it’s a company specific issue.
3- I have heard from many investors who bought Ola stock hoping to get similar returns as in Zomato. I believe that hope is partly driven from the perception that Ola is a tech stock. But it’s a wrong perception. Ola end of the day makes scooters and their unit economics will be the same as any other 2-wheeler maker which makes me question whether premium valuation 8 x sales (even at stock price of 90) is sustainable when players like Bajaj or TVS are going at 4-5 x.
4- On purely brand level Ola still doesn’t have the same strength as a Bajaj or TVS. And since there is really no difference between product features, one needs to question why customers will pick an Ola scooter over a Bajaj or TVS unless there is a big difference in prices.
5- Speaking of #4, can Ola play a price game? This is anybody’s guess. What I think is unlike big players Ola doesn’t have deep pockets to engage in a prolonged price war and will be at the mercy of capital of their investors with an already burgeoning debt on their books. Big players on the other hand will have no problem playing a price war taking a temporary and small hit on their strong balance sheet.
A case in point here is Tesla. Company and stock did very well when it was the only player producing a high quality EV car. But as soon as new entrants came and BYD started nipping at their heels Tesla ended up losing market share and investor confidence. Stock got severely punished too.
In Ola’s case they don’t even have the luxury of Tesla to build critical mass without worrying about competitors. And steep loss in their market share since entry of big players is a worrying sign. So even if they could fix all the product issues, going for Ola will keep getting tougher.
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https://www.youtube.com/watch?v=2UDUFMFqkAo
Sucheta Dalal reviews Ola in her weekly video update
Another incident/accident - 24th Oct, ola scooter catches fire in front of showroom.
Ola had an earning call today. Below is a briefing note generated using NotebookLM:
Briefing Doc: Ola Electric Q2 FY25 Earnings Call and Shareholder Letter
Date: 8 November 2024
Sources:
- Ola Electric Q2 FY25 Shareholder Letter (ola.pdf)
- Ola Electric Q2 FY25 Earnings Conference Call Transcript (olaq2.mp3)
Key Highlights:
- Strong Revenue Growth: Ola Electric’s revenue grew 38.5% year-over-year to ₹1,240 crore, driven by increased deliveries (98,619 units) which were up 73.6% YoY.
- Market Leadership Maintained: Ola holds a 33% market share, solidifying its position as the market leader despite aggressive competitive actions in the quarter.
- EV Penetration at Inflection Point: EV scooter penetration surged from 16.1% in June 2024 to 21.4% in September 2024, signaling a significant acceleration in EV adoption.
- Mass Market Portfolio Success: The mass market portfolio (S1X) grew 15% quarter-on-quarter, contributing to broader EV penetration, while the premium portfolio continues to generate the majority of revenue.
- Gross Margin Improvement: Gross margin in the auto segment remained flat QoQ at 20.6% (a 12.5 pp YoY increase) despite increased competition, attributable to BOM cost reductions from the Gen 2 platform.
- Focus on Distribution Expansion: Ola is aggressively expanding its distribution network, targeting 2,000 company-owned stores by March 2025 (up from 782 currently) and 10,000 network partner stores by the end of 2025.
- Gen 3 Platform Accelerated: The launch of the Gen 3 platform, initially planned for August 2025, has been brought forward to January 2025. It is projected to deliver a 20% BOM cost reduction over the next 12 months.
- Cell Production on Track: Ola remains on schedule to integrate in-house cells into its EV products by Q1 FY26, with trial production showing promising results.
- Operating Leverage Focus: Ola aims to keep operating expenses flat or slightly lower while scaling revenue, improving operating leverage.
- Profitability Path: Ola’s roadmap to profitability relies on:
- Steady-state gross margin above 30% even after incentives expire, driven by Gen 3 and in-house cell production.
- Cost-efficient D2C model and controlled operating expenses leading to strong operating leverage.
- Pricing Strategy: Ola will continue to strategically reinvest margin gains into pricing adjustments to drive market penetration and maintain its leading position.
Key Quotes:
- “We have maintained our market leadership with 33% market share during Q2 FY25 despite aggressive competitive action.” - Shareholder Letter
- “EV penetration in India continues to grow. The EV 2W penetration stood at 7.5% for September 2024 compared to 4.0% in April 2024, with EV scooter penetration at 21.4% in September 2024 as compared to 11.3% in April 2024.” - Shareholder Letter
- “Based on our internal estimates, certain states have very high EV scooter penetration such as Rajasthan at almost 47% EV Scooter penetration, and UP, Madhya Pradesh and Chhattisgarh at almost 35% penetration reflecting the potential for other states to also get to similar levels of EV penetration in the near term.” - Shareholder Letter
- “Over the next 2 years, we will be launching 20 products, with at least 1 new product launch every quarter.” - Shareholder Letter
- “Our Gen 2 platform launched in August 2023 has enabled us to improve our BOM cost by 22.5%.” - Shareholder Letter
- “Our in-house technology capability across domains like software, motors, cells and electronics, coupled with our vertically integrated manufacturing gives us significant competitive advantage on performance and cost.” - Shareholder Letter
- “We started trial production of our cells in March 2024 and we are on track to use our in-house cells in our EV products starting Q1 FY26.” - Shareholder Letter
- “We expect to see uh almost every quarter a continuous improvement on gross margins” - Bhavish Aggarwal, Earnings Call
- “Our strategy is to uh continue to gun for uh strong penetration and market leadership.” - Bhavish Aggarwal, Earnings Call
- “We are seeing good improvements in process accuracy, in yields, etc. There is still a journey to go. We’ve been we are being very rigorous in terms of uh testing and process uh quality for the cell.” - Bhavish Aggarwal, Earnings Call
Analyst Concerns and Responses:
- Concerns about the decline in premium scooter sales QoQ and YoY were addressed by emphasizing seasonality, the introduction of the mass market portfolio, and a shift in customer preferences from motorbikes to premium EV scooters.
- Concerns regarding the sustainability of deep discounts given by competitors were met with confidence in Ola’s vertically integrated manufacturing and technology capabilities, enabling cost leadership and aggressive pricing strategies.
- Queries regarding the impact of promotional schemes on margins were addressed by highlighting Ola’s commitment to balancing growth and profitability.
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Disclosure: Not invested as of now, had exited earlier position almost flat. Looking to re-enter at a price which factors in all the negatives.
When asked about customer complaints and quality issues, below was the management’s response (briefed using NotebookLM again 
):
- Ola received a high volume of service requests, with press reports suggesting figures of 80,000 to 90,000 per month. [1, 2] However, the company clarified that these requests were not solely complaints or issues with the product. [2] A large proportion of these requests were for routine checks, scheduled maintenance, and minor issues. [2]
- Ola acknowledged experiencing capacity challenges at their service centres as sales growth outpaced service network expansion. [1, 3] This resulted in a backlog of service requests. [1, 3] Ola stated that they resolved the backlog and increased service capacity. [3] 80% of service requests are now addressed within one day, bringing them in line with industry standards. [3]
- Ola’s product quality is generally in line with industry standards in India and globally, based on defects per 100 vehicles and warranty replacement rates. [4]
- Gen 2 scooters reportedly show better quality than Gen 1, leading to reduced warranty costs. [4] Ola expects further reductions in warranty costs with the Gen 3 scooters. [4] The improvements in Gen 3 include a move to a mid-mounted motor across the platform to reduce quality issues. [4] The company anticipates a tenfold improvement in motor quality alone. [4]
Overall, the sources provide limited information on specific customer complaints. They do indicate that Ola experienced service capacity issues that led to a backlog of requests. However, the company addressed the backlog and stated their product quality is in line with industry standards. They highlight improvements in each generation of their scooters and anticipate further quality enhancements with Gen 3.
(NotebookLM breif ends)
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I have been tracking OLA for long and wanted to buy it even at 100 but with all the negative market sentiment waiting to see how much can price go down.
Looks like the long-term story is still intact and Ola will be able to cross this rough patch. At this price point and all the negativity priced in this looks like a good time to buy.
Dic: Planning to enter soon.
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OLA’s market share has been declining and TVS and Bajaj are catching up fast.
Ather has a much better product and management.
I am a close observer of the EV industry and feel that OLA is only able to sell at a discounted price.
It’s quarterly loss in around 500 crores. There was no talk to on concall that from when the company will start making profits.
No one even asked this question which was even more surprising.
Valuing a loss making business as 31000 crores with no clear path to profitability makes me very nervous.
Bajaj and TVS are catching up extremely fast.
OLA’s product and service are extremely poor, have heard that from every OLA owner I know.
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At this price point Ola is still priced at 6 times sales vs 2.5xsales for hero motors and 2.5xsales for TVS both of whom are in the EV space and the latter being a strong player in ICE scooter too.
So before thinking if current price is attractive for Ola, one should ask the following:
1- Why should Ola trade at higher price multiple compared to other bigger and better players who are gaining market share at expense of Ola?
2- Are other vendors getting ICV discount or Ola is getting EV premium? Although there is nothing to suggest either, but for the sake of argument if that were the case I see better value unlocking from buying something like Hero or even TVS. If that’s not the case why would Ola not correct to Industry’s average mean multiples considering that they really don’t have any differentiators over the other player?
I cautioned people about not getting into Ola at 115 in August this year, even when it was getting upgrades from brokerages. I would still caution even when it’s corrected 50% from the top. It’s better to wait and watch and see how the company executes, even if it means giving up a few percentages points on potential up move.
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