'We can live without FAME regime', says Ola CEO Bhavish Aggarwal

With the launch of the S1 Air this month and the announcement of a few more electric two-wheeler models in July, Ola Electric is on a roll. Founder and CEO Bhavish Aggarwal talks to Surajeet Das Gupta in New Delhi on the impact of the partial withdrawal of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME II) subsidy, the pace of conversion from internal combustion engine (ICE) to electric, and the importance of controlling cell technology. Edited excerpts:

The sudden reduction in the FAME 2 subsidy has seriously impacted

sales in June and electric two-wheeler (E2W) companies say that in FY24 they will at most sell half of Niti Aayog’s target of 2.4 million units. What is your take on this?

 It will be a short-term blip. In June sales was around 30 per cent lower and I believe the trend will continue for two or three months. We are already seeing customers coming back as they have decided that electric vehicle (EV) scooters are better than ICE scooters as the total cost of ownership will continue to be lower. The government’s move will impel companies like ours to invest in technology and bring down costs by engineering. We have been doing it for the last one year. This month we are launching the S1 Air and next month we will have a series of announcements of more models. Our portfolio of products will drive penetration at a range of price points.

Do you feel that the reduction of FAME II has been too steep?

The current subsidy after reduction is the right amount as it forces original equipment manufacturers (OEMs) to innovate and invest in technology. This made us stand out in June — our fall in sales was much lower than what it was in the overall market and we gained market share too in June. 

Are you ready for a no-subsidy regime?

We are working towards it. The industry should be prepared to reduce its cost structure through strong engineering and to have good margins even without FAME. If the subsidy is extended, good — if not, the industry has to step up. We can live without FAME.

That said, the government should also give us a consistent roadmap on incentives so that companies can prepare themselves across those timelines. Last-minute changes hurt everyone.  

Setting up a lithium cell factory is key to your plan. When will you be able to start using them in your vehicles?  

The factory will be completed by the end of the year. There will be a few months of trials and we expect that by the middle of next year, we will have our own cells on Ola two-wheelers. It’s an important milestone for the country as it will be the first commercial lithium cell manufactured at scale in India.

Your initial capacity of the lithium cell plant is pegged at 5 Gigawatt hours (GWh). Is that enough for you?  

In the short run, yes. We have permission under the production-linked incentives (PLI) scheme for a capacity of up to 20 GWh, which will be enough for 5 million vehicles. But to go to 10 million, which is our stated aim, we will expand capacity. Our aim is to be 100 per cent self-sufficient in cells in a few years.  

Will cell production in India help you reduce overall costs?

It’s more than that. In electric vehicles, there are two key technologies, which you need to control. The first is software, which is our DNA, and the second is the cell, which we have made our new DNA, as that determines product quality.

What kind of penetration do you think the E2W industry will reach in FY24?

If you take scooters as a separate category, it is already 20 per cent. Motorbikes are still not that exciting — the price-value equation is not right, and the products are not good. But we have the supply chain strength to bring in quality products at the right price.  And we will be announcing our electric motorbike product later this year, which will be up for sale next year. The penetration curve of motorbikes will be faster than scooters as customers are already educated on electric scooters. If you take the total electric two-wheeler market, we expect penetration to be between 15 per cent and 20 per cent by the end of FY24.

How do the volumes of your S1 Pro electric scooter compare in the overall scooter market (ICE and electric)? Are you looking for large volumes from S1 Air?  

S1 Pro currently has volumes of 20,000 to 30,000 a month. So we are already amongst the top five scooters in the country in terms of volumes, across ICE and electric. After the new launches in FY24 and with the entry into the mid-market segment through S1 Air, we are aiming to be in the top two in scooter volumes across ICE and electric.

Do you think that the substantial PLI, ranging from 12-16 per cent, may neutralise the impact of the FAME 2 subsidy even if it is not extended?

Given the nature of PLI, you can never plan for your cash flows with it. The way we think about PLI is that while it is good to incentivise the industry, our planning around cost structures is to achieve a good margin without the incentives. Of course, when the cash inflow through incentives comes through, it can be used for further expansion of capacity and products.

It seems that after the initial phase, incumbent players are building volumes while many startups are in trouble. How do you see the future growth of the industry?

The next phase of market growth will come from those who can show growth with good margins. And that is the phase that will distinguish the men from the boys. We are ready for it. It will happen if you are technology driven.

So do you see incumbents playing a key role in developing the E2V market?

I feel incumbents in the ICE era did a disservice to consumers by not doing enough to innovate and reduce the price of their products, as scooters are considered to be for the “aam janta”. Even now they are falling over themselves to contract manufacture ageing western ICE motorbike brands. Why can’t they do it on their own?

The fact is, EV scooter penetration will go up sharply as the total cost of operation reduces and technological innovation brings down prices even further. The government has done enough to support EVs. Now it is up to the entrepreneurs to lean in and make the EV revolution happen.