Ola Electric's Bhavish Aggarwal declares a price war in e-scooters

But he faces questions over sustainability and a new challenge from Honda

On Tuesday, Ola Electric’s founder Bhavish Aggarwal announced two electric scooters — Ola S1Z and Gig — starting at an ex-showroom price of Rs 39,999. This is the cheapest Ola e-scooter since it entered the market.

 

Currently, its cheapest offering is the S1X, priced at Rs 69, 999. 

While the S1X runs on a 2KWH battery,  the new entry level model has a 1.5 KWH battery and is low-speed scooters with a top speed of 25 kmph and a range of 112 km. These do not require to be registered. Their primary users are intended to be gig workers, who typically undertake short trips for delivering packages and other services. It can also be used as personal transport. 

Ola has offered a higher model with dual batteries of 1.5 KWH, which offers a longer range of 81 km and higher top speed of 45 kmph for Rs 49,999. It will require registration. 

With this, Aggarwal has brought down the entry price for electric scooters in the hope of attracting more buyers of petrol scooters. He has announced a new model S1Z (with two batteries of 1.5 KWH) priced at Rs 59,999, which will be the cheapest vehicle in the S1 series which accounts for a substantial volume for Ola. 

 

The S1 Z of course could also be used for small business owners for commercial purposes. It also has higher models with more range and power, at Rs 64,999, for more discerning customers. 

“Indian gig economy will be 2X in the next few years with 10 million workers. They have to ride poor quality products at a much higher price. Ola Gig will change this,” Aggarwal said in a post on X. He also said the S1 series now offered a more affordable package which will make electric vehicles accessible to every Indian.

 

The stock market seems to be listening. Ola shares surged for the fifth consecutive day on Thursday, closing at Rs 93 and marking a 38.2 per cent rally over the past five trading sessions. 

Ola, after a successful initial public offering, faced tough times. Incumbent two-wheeler market leaders such as Bajaj Auto and TVS have ramped up volumes and expanded their distribution of electric models, closing the market share gap with Ola. There has been a backlash on Ola’s alleged poor service, bringing it under government scrutiny. Then there was a spat on social media Aggarwal got into which did not help matters. 

The result is that after sitting pretty with a market share of more than 47 per cent in June this year, Ola went down to below 30 per cent in September and it was only the deep discounts of the festival season that increased its market share marginally to 31 per cent in October. The company is now looking at stabilising its market share between 30 and 35 per cent of electric scooters, but to do so it will need to push volumes.   

 

After a plunge, Ola’s stock price has been in full throttle the last few days, buoyed by “buy” recommendations from brokerage houses. 

Delivery of the new models will start only in April and May next year, but bookings have already begun, which helps in gauging interest and plan production. By delivery time, it is expected that Ola will be churning out its own battery cells from its factory.     

According to Nomura Research, in 2023 around 78,000 low-speed electric scooters were sold in the country – this is the segment where Ola’s cheapest model is positioned. There are, according to industry estimates, already more than 1 million scooters being used by gig workers, out of which only 20 per cent are electric. But pressure from state governments is making them change to electric in a few years. 

Not only that, Ola Cabs, which is a cab aggregator, would have a captive requirement for electric scooters to power its two-wheeler services for delivery as well as rideshare.  

There are just a handful of big brands with a play in this segment. Most do not want the mother brand getting diluted by their entry into the lower end. And two, due to cheap Chinese imports of these vehicles as kits, margins are wafer thin. Most of the scooters sold are from small players. The bigger electric scooter makers want punitive duties to discourage low-cost imports of unreliable quality. 

“A significant portion of the electric slow-speed scooters are in the unorganised sector offering products at lower price points but with varying quality standards. Ola, by offering a branded, reliable product, could disrupt the unorganised sector by providing a standardised and trustworthy product,” says Harshvardhan Sharma, head of auto retail consulting practice at Nomura.      

In China, in contrast, the bulk of electric two-wheeler sales are in this category and volumes have gone up because more than 20 cities only allow two wheelers in this category. And big brands play a key role. 

One of the serious players in the game is Yulu, which has relatively large volumes. It is a company in which Bajaj Auto has a stake and manufactures low-speed electric scooters for them, selling sells 4,000 to 5,000 of those a month. 

But Ola is going ahead with its own brand of electric low-speed scooters and offering them at a price far lower. Yulu’s scooters, for instance, cost the equivalent of Rs 60,000, Kinetic Green’s Zing Big B at Rs 75,990, and the Lectrix at Rs 67,999. Ola will, like many of its competitors, offer a rental option, which brings down the upfront investment for a gig worker dramatically.     

Ola’s rivals say it cannot make money at this price, and that this is an introductory price. But industry experts argue that Ola has cost advantages over its rivals. “One, because of the large volumes of cells it buys, it gets a better price. Also, because of scale, its cost of production is lower. Our estimate is its cost would be at least Rs 10,000 lower than its key rivals,” says the senior executive of an EV component maker. 

Is a low price enough to win the game? 

Pritesh Talwar, President, EV business of Lectrix EV and Mooving, which sells electric scooters under the Latrix brand, says: “We believe price play alone is not sustainable. Gig workers are looking at the quality of service and maintenance, which is very important as one day’s breakdown means a huge loss for them. They are looking at robust infrastructure, like easy availability of swapping stations, and whether you are offering them the right mobility solution for their needs.”    

Things are set to change further, with Honda Motorcycle and Scooter India announcing its entry into the market next year with an electric version of its highly successful scooter, Activa.  “With the electric Activa expected to take on S1X and other higher models, the S1Z seems to be positioned to protect its entry-level market turf. We don’t see how it will break even at this price,” says the senior executive of a competing electric scooter maker.          

Yet, those close to Ola say its new products with their attractive price tags will generate huge volumes and build scale, and a bit of reengineering can trim costs sharply at a larger scale. 

More importantly, it will be the only auto player currently which can leverage financial incentives through two production linked incentive schemes: One for autos and the other for advanced chemistry battery cells, for which it has already built a factory and plans to place the products in the market next year. With an attractive financial incentive of 13 to 16 per cent in the first year of the PLI auto scheme, this could help Ola substantially.