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Indian EV Startup Ola Grapples with Mounting Challenges
Once hailed as a rising star in the Indian start-up landscape, Ola Electric, the electric vehicle arm of the ride-hailing giant, is currently navigating a series of significant hurdles. From plummeting electric scooter sales and mounting financial losses to increasing customer complaints and regulatory scrutiny, the company faces immense pressure to regain its footing in the competitive Indian electric vehicle market. This report delves into the various factors contributing to Ola’s current predicament following its blockbuster IPO and ambitious expansion plans.
Rapid Ascent and Subsequent Setbacks
Established in 2010, Ola swiftly rose to prominence, initially as a ride-hailing service before diversifying into the electric vehicle sector, including scooters and battery cell manufacturing, positioning itself as a challenger to established players like Uber. In 2023, the company further expanded its portfolio by venturing into artificial intelligence with Krutrim, India’s first AI entity to achieve a valuation exceeding $1 billion.
This rapid expansion was fueled by substantial investments from prominent global investors, including SoftBank, Tiger Global, and Temasek. Ola’s electric vehicle division achieved a significant milestone last year by raising nearly $734 million through an initial public offering (IPO), marking India’s largest IPO in 2024.
Mounting Troubles for Ola Electric
However, this ambitious growth trajectory has been shadowed by a wave of controversies, particularly within its electric vehicle operations. Ola Electric has witnessed a sharp decline in value, losing approximately 70% of its market capitalization in the seven months following its IPO launch. The company is now contending with intensifying competition from well-established two-wheeler manufacturers and heightened regulatory oversight.
Electric scooter sales have plummeted to less than half of their volume compared to April of the previous year, and the company’s financial losses have expanded. Numerous customers have shared online videos documenting incidents of Ola scooters catching fire or malfunctioning mid-journey, raising concerns about product reliability and safety.
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Furthermore, a government inquiry is currently underway, examining licensing and registration procedures at hundreds of recently inaugurated Ola showrooms. A vendor has also initiated insolvency proceedings against the company, which Ola has stated to stock exchanges has been resolved.
Supply Chain Disruptions and Workforce Reductions
Information obtained by news sources from former employees and industry insiders indicates that delayed payments have resulted in numerous key suppliers and logistics partners severing ties with Ola, further straining operations.
In efforts to curtail expenditures and mitigate losses, Ola has implemented measures including workforce reductions, operational restructuring, and automation of certain functions. Media reports suggest that the company has conducted a second round of layoffs since November, eliminating over 1,000 positions.
News agencies sought responses from Ola regarding these concerns, but the company primarily provided links to previously released press statements, without directly addressing all specific inquiries.
Factors Contributing to Ola’s Difficulties
Aggressive Market Entry Strategy
Ola CEO Bhavish Aggarwal had positioned the company as the electric two-wheeler equivalent of Tesla, aiming to address emissions issues for the price-conscious Indian market. The company invested heavily in marketing and established a widespread network of showrooms across India, even offering doorstep delivery for online scooter purchases.
However, according to Rohit Paradkar, an analyst at Overdrive auto magazine, Ola may have misjudged market dynamics. The design of its scooter is based on the AppScooter from Etergo, a Dutch start-up acquired by Ola Electric in 2020.
Product Development and Safety Concerns
Multiple former employees informed news sources that Ola’s initial electric scooter model was launched with minimal modifications from Etergo’s original design. A former compliance department employee stated that necessary approvals were expedited to meet unrealistic launch deadlines.
In response to inquiries, Ola referred to a blog post from October 2023, refuting claims that the vehicle had not been engineered and tested for Indian conditions. The company asserted that it had “fully re-engineered” Etergo’s scooter and subjected it to rigorous testing for “Indian conditions,” encompassing digital simulations, component tests, lab tests, and field tests.
Despite these assurances, numerous safety incidents reported by customers have raised significant questions. Instances of scooters spontaneously combusting are believed by auto experts to stem from short-circuits or malfunctions in the battery management system.
In 2022, Ola initiated a recall of over 1,400 first-generation scooters to investigate fire incidents, although the findings of this investigation were not publicly disclosed. The company stated that battery systems met Indian and European standards but did not clarify the underlying causes of the fires.
Reports also emerged of front suspension failures during rides, leading to rider injuries. Following such incidents in early 2023, Ola characterized them as isolated occurrences, citing a low number of cases among 150,000 scooters. The company maintained that the front fork arm was designed with a substantial safety margin.
Competitive Pressure and Market Share Erosion
Meanwhile, Ola’s competitors, largely consisting of established automotive manufacturers, have introduced their electric scooter models with greater market acceptance, intensifying pressure on Ola.
This increased competition significantly impacted Ola’s market share, which decreased from 52% to 19% by December before partially recovering to 25% in January.
Ola’s objective is to achieve monthly sales of 50,000 units to attain profitability. However, analysts express skepticism about this target, despite the company’s claims that recent restructuring efforts have resulted in $10 million in monthly savings and faster deliveries.
Government data indicates that fewer than 10,000 scooters were sold in February, while Ola reported 25,000, attributing the discrepancy to registration delays stemming from vendor contract modifications. The federal transport ministry has issued notices regarding this discrepancy. Ola subsequently stated that it had registered over 23,000 scooters sold in March and held a 30% market share for the fiscal year.
According to Jay Kale, an auto analyst at Elara Capital, competing scooters from established brands are outselling Ola due to greater consumer trust and brand recognition, even if they offer fewer features.
To stimulate sales, Ola has implemented substantial discounts and introduced newer, more affordable models. However, this strategy has contributed to widening losses, reaching $65 million in the October-December quarter, compared to $43.6 million in the same period the previous year.
Customer Service Deficiencies
Beyond product-related challenges, customer service reliability has emerged as a significant concern, according to Kale. When customers voiced widespread complaints about fires and suspension failures through social media and consumer helplines, service requests reportedly went unanswered for extended periods.
A former Ola employee indicated that complaint volumes reached thousands per month. India’s Central Consumer Protection Authority (CCPA) also issued a notice to Ola after receiving 10,000 complaints within a year.
Ola’s direct-to-consumer sales model, bypassing established dealerships and maintaining a limited number of service centers, restricted avenues for dissatisfied customers to seek redress.
Later in the previous year, Ola communicated to the CCPA that it possessed a “robust mechanism to address complaints” and that the majority of complaints brought to the regulator’s attention had been resolved satisfactorily.
Initially dismissive of social media criticism, CEO Aggarwal subsequently announced plans to establish nearly 4,000 stores with service facilities, following public pressure from consumers and online criticism.
However, a significant proportion of these newly established centers have come under government scrutiny for lacking necessary licenses for vehicle storage and sales.
On March 21st, Ola confirmed ongoing investigations in four states and stated its cooperation with authorities.
Investor Concerns and Long-Term Outlook
The rapid reversal in Ola’s fortunes is causing apprehension among investors, particularly those who invested at high IPO valuations.
Ola has been a central player in India’s initiatives to reduce carbon emissions and expand domestic manufacturing. It receives state subsidies for both scooter manufacturing and the establishment of a 20-gigawatt EV battery plant. However, reports indicate that the large-scale battery factory project faces delays, potentially incurring penalties.
Startup Culture and Operational Challenges
Critics attribute Ola’s difficulties to common issues within start-up cultures, including top-down decision-making, frequent strategic shifts, and overly ambitious deadlines.
“Software-oriented mindsets are not conducive to hardware products, which require adequate development time,” commented Deepesh Rathore, former head of product strategy at Ola Electric and current head of consultancy firm Insight EV.
Recent departures of senior executives, including a former Ola Cabs CEO, along with key leaders in technology, marketing, sales, and business, are also perceived to have hindered Ola’s efforts to address product and service shortcomings.
Experts suggest that these executive departures have further complicated Ola’s ability to rectify product and service related issues and navigate its current challenges.