Is Ola Electric a Smart Investment? Evaluating the Pros and Cons

Ola Electric has remained a focal point in the stock market since its much-anticipated listing in August. The excitement surrounding its initial public offering (IPO) had been growing even before it was publicly traded, driven by significant pre-listing attention and hype.

The stock’s initial performance lived up to expectations. After a successful IPO, the stock surged over 50% in the early days and eventually doubled in value compared to its issue price. Investors who were fortunate enough to receive allotments were pleased with the rapid appreciation.

However, the stock’s journey has been tumultuous since then. Within a mere six weeks, the stock price plummeted by about 30% from its peak, leaving early investors, especially those who entered post-IPO, concerned about the stock becoming more of a financial burden than a benefit.

On the flip side, some investors are contemplating whether the stock’s recent decline could present a buying opportunity. Below, we’ll examine the potential upsides and downsides of investing in Ola Electric at this stage.

Benefits of Investing in Ola Electric

1. Promising Long-Term Prospects

Ola Electric has rapidly gained a significant market share in India’s electric two-wheeler market, holding around 39%. At one point earlier in the year, it captured almost half of the market share. Despite facing strong competition from established automakers such as Bajaj Auto, TVS Motor, and Hero Motors, Ola Electric is well-positioned to maintain its footing once the competitive landscape stabilizes.

The company’s revenue trajectory over the last few years has been nothing short of impressive. From generating Rs 0.5 billion in FY22, it reached Rs 52.4 billion in FY24, largely driven by approximately 330,000 deliveries in FY24. Furthermore, its revenue continues to show growth, with a 32% increase reported in the first quarter of FY25, signaling that demand remains strong despite the rise in competition.

In addition to its strong position in the electric scooter segment, Ola Electric is also gearing up to enter the electric motorcycle market aggressively. With the launch of its Roadster series, followed by upcoming models like the Sportster and Arrowhead, the company aims to capture both premium and mass-market segments.

2. Strategic Growth Initiatives

Ola Electric has been making targeted efforts to ensure sustainable growth and profitability. Prior to its IPO, the company undertook internal restructuring, laying off around 600-800 employees to streamline operations and enhance profitability.

A portion of the funds raised through its IPO will be used to expand Ola’s battery cell manufacturing capabilities. The company plans to allocate Rs 12.3 billion to increase the capacity of its Ola Gigafactory from 5 GWh to 6.4 GWh by April 2025. Additionally, Rs 8 billion will be utilized to repay loans incurred by its subsidiary, Ola Electric Technologies. A further Rs 16 billion will be invested in research and product development, ensuring that the company stays ahead in the technology race.

Ola Electric’s growth ambitions are also buoyed by its approval for India’s Production Linked Incentive (PLI) schemes, which cover advanced automotive technologies and battery cell chemistry. This financial support from the government will provide the company with a boost to continue innovating and expanding its product lines.

3. Expanding Industry Opportunities

The electric two-wheeler market in India is growing rapidly, offering ample room for Ola Electric to expand. The broader global electric vehicle (EV) sector is also gaining momentum, driven by increasing demand for sustainable transportation options and government incentives.

India, as one of the largest two-wheeler markets globally, is projected to witness significant penetration of electric two-wheelers in the coming years. Electric two-wheelers are expected to account for 41-56% of domestic sales volumes by 2028, providing an optimistic outlook for Ola Electric.

Moreover, favorable government policies such as the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme are pushing the country toward electric mobility. If Ola Electric can successfully execute its growth plans while maintaining profitability, it has the potential to thrive in this expanding market.

Challenges of Investing in Ola Electric

1. Financial Losses Persist

Despite the impressive growth in revenue, Ola Electric remains a loss-making entity. In FY24, the company reported a widening of its net losses from Rs 7.8 billion to Rs 15.8 billion, largely due to rising operational expenses.

In its IPO prospectus, the company had disclosed the risk of continued losses in the near future due to its ongoing investments and expansion initiatives. This has indeed materialized, with a 30% year-on-year increase in net losses for the first quarter of FY25, reaching Rs 3.5 billion.

While the company’s consolidated revenue from operations grew by 32% year-on-year, rising from Rs 12.4 billion in the previous year to Rs 16.4 billion in Q1 FY25, this increase has not been sufficient to offset investor concerns about its financial health. The company will need to rein in its cash burn and achieve profitability to restore investor confidence.

2. Increasing Competitive Pressure

Ola Electric faces mounting competition from major players like TVS Motor and Bajaj Auto, who are making rapid strides in the electric two-wheeler market with affordable models that cater to a broader audience.

As a result, Ola’s market share has dipped from its earlier highs to 31%, while TVS and Bajaj Auto have captured 20% and 19%, respectively. Despite its early lead, Ola Electric is grappling with the challenge of sustaining its market dominance as competitors intensify their efforts.

To regain momentum, Ola Electric is relying on its technological innovation and expansion into new product categories. However, the success of these strategies will be critical for the company to recover from its recent setbacks and maintain long-term growth.

In conclusion, While Ola Electric continues to present a compelling growth story, potential investors must weigh both the opportunities and risks carefully. The company has shown substantial revenue growth and market share dominance, with promising expansion plans and government support. However, the widening financial losses and increasing competition in the electric two-wheeler market pose significant challenges.

Investors should assess whether the company’s strategic initiatives will be sufficient to turn the tide and whether they are willing to weather short-term volatility for potential long-term gains.