Ola Electric versus Ather: How their strategies are starkly different

Bhavish Aggarwal of Ola and Tarun Mehta of Ather appear to have a lot in common, until you see the sharp strategic differences

Over the years, Indian Institutes of Tech­nology (IITs) have churned out startup founders and billionaires. Two of them, Bhavish Aggarwal and Tarun Mehta, have more in common than the stamp of IIT.

Aggarwal, born 1985, is the founder of Ola Electric, India’s largest electric two-wheeler company with a market share of 31 per cent. He studied computer science at IIT Bombay and, while he was there, picked up some patents.
 

Mehta, four years younger, earned a dual degree in design engineering at IIT Madras, all the while dabbling in electric battery packs with his friend Swapnil Jain. The duo gave wing to their dreams by setting up Ather Energy just after college in 2013.

The two electric two-wheeler companies are among the top three with a collective market share of 44 per cent, and both have marquee investors.
 

For Aggarwal, Ola Electric was his second big venture. It followed Ola Cabs, which locked horns with Uber in a David-versus-Goliath battle in the shared mobility arena in India. It ended up grabbing an equal share, and then some.
 

Seven years after flagging off Ola, Aggarwal wooed Masayoshi Son’s SoftBank, which bet on his mobility business with a cheque of $200 million. It shot up the valuation of his fledgling electric vehicle (EV) company to $1 billion, even without any product to show for it.
 

Mehta, meanwhile, had dared to dream up an electric future much before Aggarwal when he was experimenting at the innovation lab in IIT Madras. After setting up Ather, he convinced a patient investor in Hero MotoCorp, the county’s largest two-wheeler company, to sign up as a consistent funder from the beginning. The relationship has sustained even after Hero MotoCorp entered the same turf, competing with Ather with its own VIDA e-scooters.
 

What also unites the two entrepreneurs is a similar vision to end what they call the “primitive” ICE age — ICE stands for internal combustion engines that run on fossil fuels — of scooters dominated by legacy players. Where they vastly differ is strategy.

Aggarwal wants to hit top gear right away. On August 15, Ola announced four new electric scooters, promising consumers an electric alternative at a range of price points — from Rs 80,000 to Rs 1.5 lakh — with two models at an affordable sub-Rs 1 lakh range for the first time. Aggarwal wants to push the pedal by ramping up volumes and has already expanded Ola Electric’s capacity to 1 million per annum — with a declared intent to double it soon — in anticipation of a surge in demand.
 

“After this, anyone buying an ICE scooter will be making a huge mistake and losing a lot of money. We have ensured the end of the ICE age,” Aggarwal told Business Standard in a recent interview.
 

He is willing to take a punt based on the fact that higher volumes combined with re-engineering will cut down costs and improve margins, regardless of FAME subsidy. (India launched the Faster Adoption and Manufacturing of Electric Vehicles, or FAME, scheme in 2015 to encourage purchase of electric and hybrid vehicles.) Also, Aggarwal is making investments in key areas such as manufacturing cells in India, which will be available mid-2024 and, he reckons, could eventually reduce prices of cells by 30 to 40 per cent.
 

Mehta, on the other hand, is focused on the premium end of the market in every segment Ather forays into. With a focus on R&D to build high-quality scooters, it is spending a mammoth Rs 400 crore this financial year alone.
 

Ather is preparing to enter the large volume (2.3 million to 2.4 million units per annum) family scooter segment and is working from the ground up. This includes both the 100cc and 125cc equivalent EVs.
 

Mehta says Ather will not compete in the sub-Rs 1 lakh segment. It has low or no margins, but, he reasons, is more of a tactical play to generate volumes, which Ather won’t do at a loss.
 

Also, Ather views the premiumisation of the scooter market moving from the entry level 90-110cc (dominated by ICE models such as Activa from Honda) to 125cc now. It is just the same as in passenger cars, where growth is stagnant in the affordable sub-Rs 6 lakh segment, although the slabs above it, especially sports utility vehicles, are growing fast.
 

Mehta points out that even the ICE version of Activa’s average price exceeds Rs 1 lakh. With battery cells costing $2.5 to $3 apiece, overall battery costs for each e-scooter could touch Rs 25,000-30,000, since each battery requires around 100 to 200 cells. That will make sub-Rs 1 lakh pricing unviable.
 

His approach on capacity is to occupy the middle ground for now. But he also wants to build enough capacity for the key vendors to find it an attractive scale to invest in, and shift manufacturing next to the plant, which leads to better inventory, lower freight, and cost reduction.
 

Ather is raising funds to double its capacity to 1 million, which would require Rs 1,000 crore, by sometime next year. That would bring Ather on a par with Ola Electric’s current capacity, though the latter intends to double it with mobike production in the next six months.
 

The divergence in strategies emanates from the cash the two companies have to invest and their varying plans for initial public offerings (IPOs).
 

Ola has already raised $1.1 billion, which includes $300 million raised recently. In contrast, Ather has accumulated $341 million in nine rounds of funding, the last of them in October 2022. It now plans to raise another one or two tranches, but has limited scope to burn cash to build volumes. To that end, its focus on the premium end is understandable.
 

The premium play was evident with Ather 450X, in the 150cc equivalent e-scooter market, where it has a lion’s share of 70 per cent. Earlier this month, it also announced the launch of 450S, positioned as an equivalent 125cc mobike — a segment that records annual sales of 500,000 to 600,000 per annum (ICE and electric). Ather hopes that sales in this segment would help double its e-scooter market share from 12-15 per cent to 30 per cent. But it has priced the 450X at a premium of Rs 10,000 over Ola S1’s Rs 1.20 lakh.
 

Mehta is in no hurry for an IPO. His immediate goal is for Ather to become a net profit company in 24 months and then mull over an IPO. Ather already sells each scooter with a gross margin and does not burn cash.
 

On the other hand, Ola Electric plans to go public next year. It needed the latest round of funding to push its valuation by another $1 billion to hit the $6-billion mark.
 

Ola could surely do with larger volumes and a bigger market share to brighten its IPO prospects. According to Reuters, the company reported operating losses of more than $136 million in FY23, which could be a damp squib.
 

The two companies also differ in their bets on electric motorcycles.
 

Ola Electric has already showcased a varied range that will be on the road by the end of next year. And though Aggarwal discerns a shift from the commuter mobike to electric scooter, he believes the overall two-wheeler market will double in a few years to 40 million per annum.
 

Mehta hedges his bets. The consensus within Ather is to watch how the market pans out in the next 18 months and then take a call. He feels the shift to electric scooters from mobikes could be sharper than a hairpin bend.
 

Should that be the case, it could throw up an interesting battle between the two startups helmed by IITians.

Strategic play
 

- On Aug 15, Ola announced 4 new e-scooters priced between ~80,000 and ~1.5 lakh; Ather is focused on the premium 

end of the market and R&D to build high-quality scooters

- Ola Electric’s capacity is 1 mn per annum, with a declared intent to double it soon; Ather is raising funds to double capacity to 1 mn, which would require ~1,000 cr by next year

- Ola has raised $1.1 bn, including $300 mn recently; in contrast, Ather has accumulated $341 mn in 9 rounds of funding, the last in Oct 2022

- Ather’s immediate goal is to become a net profit company in 24 months and then mull over an IPO; Ola Electric plans to  go public next year