Ola Electric’s financial performance has also been significantly enhanced by its access to government subsidies such as PLI and FAME.
The scenario painted by international broking Bernstein is significantly more intriguing, notwithstanding scepticism regarding Ola Electric’s profitability and worries about a possible downturn in EV sales. It implies that Ola Electric is outperforming rivals in profitability and expanding its lead in the electric two-wheeler (EV 2W) market. The analysis highlights Ola Electric’s robust growth trajectory by demonstrating that it not only has the highest gross margins compared to its rivals but is also getting closer to EBITDA-level profitability.
Indeed, Ola Electric’s gross margin in Q1FY25 was 18.4%, a far greater percentage than that of competitors TVS (14%), Bajaj (12.3%), and Ather (7%). The problem is that, at the time of the good surprise in margins, the average unit consumer price of the company was between 10 and 25 per cent less than that of its competitors.
Ola Electric’s EBITDA margin of -2 per cent, which is a notable increase above TVS (-7.9 per cent), Bajaj (10.4 per cent), and Ather 37 per cent, further demonstrates the company’s route to profitability. Bernstein attributes Ola’s competitive advantage to its direct-to-consumer (D2C) business model, aggressive localisation, and vertical integration approach. The company’s ability to get government subsidies like FAME and PLI has also significantly improved its financial results.
Technology developments and investments made by Ola Electric also play a big role in the company’s dominance in the EV market. The business has invested close to $1 billion in developing its EV ecosystem, offering it a considerable competitive advantage over rivals who now find it difficult to match its size.
“Ola’s leading industry volumes thus far are a result of its primary target market, which is urban commuters and cost-conscious but tech-savvy consumers. It offers a variety of form factors to increase scalability, according to Bernstein.
Ola’s investment case vs. TVS Motor, Bajaj Auto.
Ola Electric’s superior EBITDA profitability over TVS can be attributed to several important factors, including 1) eligibility for both PLI and FAME subsidies; 2) higher production localisation; 3) a higher percentage of in-house component manufacturing; 4) avoiding revenue leakages through its direct-to-consumer model; and 5) better scale in the EV market, which boosts gross margins and increases its bargaining power. TVS recently disclosed that its EV products are now certified for PLI benefits. The broking suggests that although its EV division reports an EBITDA loss of 7.5%, there is hope that TVS can achieve EBITDA profitability once these subsidies are realised.
Conversely, Bajaj Auto outsources important parts like the battery pack, motor, and tech networking elements. Additionally, because its Chetak has a metal body rather than a fibreglass body like other models, the corporation must pay more for it. Bullish on the recently listed Ola Electric Mobility is not just Bernstein. With a “buy” recommendation, Goldman Sachs and Bank of America (BofA) both just started covering the company. According to Goldman Sachs, Ola Electric would reach free cash flow breakeven by FY30 and EBITDA breakeven by FY27, with revenue growth of more than 40% CAGR from FY24 to FY30.
BofA restates the optimistic assessment, emphasising Ola’s cost and technological leadership as the main factors contributing to its success. Even though there are still issues with battery technology, BofA believes Ola Electric is a wise long-term investment.