It's simplistic to say that ‘Ola is the Tesla of India’ or ‘the Uber of India’. But we’re not. We are the Ola of the world.” Bhavish Aggarwal, the 35-year-old founder of ride-hailing unicorn Ola, minces no words when outlining the scale of ambition he has for Ola Electric. The past two months have been awash with news about the startup’s planned ₹2,400-crore mega factory in Krishnagiri, Tamil Nadu. At its full capacity of 10 million units by next year, Ola’s Future Factory will roll out one electric scooter (e-scooter) every two seconds. Once completed, the 500-acre factory—the world’s largest two-wheeler plant— will account for 15% of the world’s two-wheeler production. Clearly, Aggarwal wants nothing less than an electric vehicle (EV) revolution.
“When we started off with electric mobility, we had two choices: do we play incremental and small, or do we play disruptive and big? We chose the latter,” says Aggarwal, chairman and group CEO, Ola. “We have to play a technology game to compete with global leaders on a global stage. Our ambition is to be one of the world’s leading EV companies.” Ola Electric was carved out of Bengaluru-based Ola in 2017 and became a unicorn two years later, backed by Tiger Global, Matrix Partners, and SoftBank.
Ola’s game plan is simple: build economies of scale to get the “most aggressively priced” two-wheeler into the market in the next few months, and a four-wheeler by 2023. “You can’t produce EVs at low cost unless you play at scale,” says Aggarwal. Varun Dubey, Ola Electric’s head of marketing, concurs. “If you want to break the market, it’s not going to happen if you sell 2,000-4,000 units,” he says.
Around 30%-40% of the factory’s produce, says Aggarwal, will be earmarked for exports to Europe, Asia, and Latin America. It also plans to start production in key foreign markets down the road.
But before it takes on the world, Ola has to do battle on its home turf, the largest two-wheeler market in the world. In a highly fragmented EV industry, Ola will be competing with legacy players like Bajaj Auto, TVS Motor, and Hero Electric, as well as new-age startups like Ather Energy, Okinawa Autotech, and Ampere Vehicles. But given Ola’s planned production capacity is half the size of India’s entire ICE (internal combustion engine) two-wheeler market, it is clearly gunning for everyone. “Already 20 million people are buying two-wheelers. Our intent is not to start creating demand for electric. There is a huge demand for a better scooter. This is not the best e-scooter, but the best scooter you can buy,” Dubey explains.
From Kinetic Honda to Bajaj Chetak, the quintessential Indian middle class has always embraced the scooter as their preferred mode of transport. But despite that ubiquity, India sells only around 150,000 electric two-wheelers a firm McKinsey forecasts sales of 4.5 million to 5 million units, or 25%-30% of the market, in FY25.
Though Ola plans to produce double that number next year itself, the industry is welcoming of another rival. “I don’t think it will create any hurdles for us. If anything, the announcement by Ola will only help build awareness about the industry and position it as the future of how India commutes,” says Jeetender Sharma, founder and managing director, Okinawa Autotech. “At the end of the day, it is about a vision backed by a high performance, cost-competitive product portfolio, and a customer-centric approach,” he says.
However, setting up an EV ecosystem is very different from Ola’s main domain of ride-hailing, where it runs a duopoly along with Uber. Uber plans to switch to a fully zero-emission platform globally by 2040 and put 3,000 EVs (two-, three- and four-wheelers) on Indian roads by the end of 2021. While Uber is collaborating with vehicle manufacturers now, Ola, too, started in a similar fashion in 2017, when it experimented with electrifying its 10,000-strong fleet.
“After our pilot, we realised that the technology and the products were not ready for India. Then we took a call to make our own products,” says Aggarwal. Ola’s e-scooter, which will launch in June, is based on the design of Etergo, a Dutch EV company it acquired last year. Ola will also design, engineer, and manufacture its own batteries, motors, motor controllers, and the software to power its e-scooters. “We want to make the best product in the world, and for that, we have to build our own supply chain,” says Dubey.
Besides being able to control one’s fortunes, there is another incentive for EV makers to build out local supply chains. The government’s FAME-II scheme necessitated the creation of local manufacturing, mandated new battery chemistries, and specified speed limits for an EV to qualify for subsidies. That had massive repercussions. “It killed a lot of low-performance products. In the last 12 months, the market has really started changing,” says Tarun Mehta, co-founder and CEO, Ather.
It’s not just Ola that is pumping money into building capacity. Ather, which has achieved 90% localisation, has set aside an investment of ₹635 crore to scale up production at its factory in Hosur, Tamil Nadu. With an annual capacity of 110,000 units and 120,000 battery packs, the factory will roll out one e-scooter every four minutes. The Bengaluru-based startup raised $35 million last November in a funding round led by Hero MotoCorp, and Flipkart co-founder Sachin Bansal. It plans to expand to 40 cities by the end of 2021.
But, while Ola’s e-scooter is expected to be priced below ₹1 lakh, Ather targets the premium end of the market. Ola’s closest rivals, in terms of price, are likely to be Okinawa and Hero Electric (a separate entity from Hero MotoCorp). Gurugram-based Okinawa’s portfolio of six e-scooters costs between ₹50,000 and ₹1.14 lakh. It is the second-largest player, with a 20% market share, according to consultancy firm JMK Research and Analytics. With sales of 50,000 units last year, the market leader is Hero Electric. The cost of its flagship Photon e-scooter tops out at about ₹73,000, less than the price of Honda’s fuel-powered Activa, India’s top-selling twowheeler. At the other end of the spectrum is Ather, whose latest e-scooter costs nearly ₹1.5 lakh.
“It is untrue that India is a cost-conscious market and will buy the cheapest product. When Activa was [available at] ₹75,000, we launched a product at ₹1.25 lakh,” says Mehta. “People fundamentally want a product that they can be proud of. They expect electric to be an upgrade and not a compromise.”
Whatever the price, there is no denying an e-scooter’s running cost dwarfs that of a regular one. A 40-km round trip on a fuel-powered scooter requires about one litre of petrol, which costs north of ₹90 in the major metros. On the other hand, an e-scooter consumes around 1.5 units of power, which costs ₹12, for the same distance. Used daily over, say, three years, an e-scooter’s running cost is just over ₹13,000, while a regular scooter’s tops ₹98,500.
Moreover, fuel prices are only rising. Couple that with an increase in the cost of regular vehicles to comply with stricter emission norms, and EVs have a strong sales pitch, says Kapil Singh, executive director, equity research-India, Nomura. “There are early adopters who are willing to try it [EVs] out since the cost of running the [ICE] vehicles has gone up. These are things which weigh on the minds of the customers. They could cut at least their running cost, but the price point right now is not where ICE products are,” he says.
Ather's Mehta, though, says premium prices are necessary to build scale in the long run. “If you can build a premium product and get enough customers to buy it, that funds enough business chain for us to build cheaper products. But if you start from a cheap product, you set yourself up for a lot of difficulties to actually make enough revenue and margins to fund your future growth,” he says.
The two-wheeler industry has seen a lot of innovation on the operations, assembly, manufacturing, and distribution sides in the last three decades. But innovation in product and technology has been limited. “With the introduction of electric and connected-vehicle technology, innovation shifts back to the product. And that is a massive change,” says Mehta. “For us, competition is going to be companies that can move quickly and are technology-driven.”
And those are chiefly the EV startups. The incumbents, on the other hand, are saddled with sizeable investments in their legacy operations, which will prevent them from shifting to make EVs at pace or scale, says Sohinder Gill, director general at industry body Society of Manufacturers of Electric Vehicles.
“For the ICE bigwigs, their bread and butter lie in making 4 million-6 million vehicles. Their volumes will be threatened by electric, but today they are not fully convinced that they should write off their investments and jump into electric. That’s why they’re dragging their feet. It’s not like they are not seeing the demand; they’re getting ready for the right time,” says Gill, who is also Hero Electric’s CEO.
Hero Electric is investing ₹600 crore to quadruple its capacity to 300,000 units, and is targeting around 500,000 units to 700,000 units in the next four years. Gill feels the legacy players have a tough choice. “Their ICE business is a very rigid system that has run for decades, but EV needs a very nimble-footed approach. The government and the industry need to, together, put 2 million-3 million [EVs] on road,” he says. “The world will not have IC engine bikes at some point. The guys who enter first will always have the first-mover advantage.”
Naveen Munjal, managing director, Hero Electric, backs that up with the example of Tesla. “The most valuable automotive company in the world is not a legacy company. It came out of nowhere, took 10-15 years, and has now become the most valuable company,” he says. “We’ve been in the market for about 14- odd years and have realised a couple of things along the way. We understood that people haven’t tried out an EV. That’s why we came up with a three-day return policy and a five-year warranty to eliminate any anxiety they might have. Then we understood that customers don’t necessarily have the charging infrastructure if they live in a block of apartments. So, we started creating portable batteries, and have got 13 models on six platforms, all with portable batteries,” he adds.
Munjal says demand is not only production-led but also sales-led. “We have been gradually increasing our sales volumes month-on-month. In the past four months, we’ve gone from 6,000-7,000 units to 8,000 units a month. We’re looking at 100,000 units by next year alone, starting in April. The demand is there but it’s not an easy demand. There’s a tremendous amount of push that we’re doing into the market. When the pricing is right, we expect the demand to explode,” he says.
Rakesh Sharma, executive director, Bajaj Auto, however, argues that legacy two-wheeler manufacturers have an advantage. “All that’s happening is that you’re replacing a gasoline-based engine with an electric-powered battery. There are many other things like design, suspension, braking system. I don’t think we have any particular disadvantage. In fact, I would say that we have an advantage because we understand this game. Our starting point is slightly ahead as compared to someone who is just entering. The most important thing for current two-wheeler makers is to be alert and opportunistic,” says Sharma. No wonder the 75-year-old company revived its one-time favourite, Chetak, in an electric avatar in January 2020.
Nonetheless, despite subsidies and marketing, sales of electric two-wheelers in India remain tepid. The FAME-II policy had targeted sales of about 1 million high-speed electric two-wheelers by March 2022, but only 25,700 units were sold in 2020.
Experts say that besides the supply-driven policy push, there should be a demand-pull from businesses and government bodies to accelerate adoption. And there is progress on that front. Flipkart plans to arm its entire delivery network with more than 25,000 EVs by 2030, besides setting up charging infrastructure. Other companies are expected to follow suit. The Delhi government has ordered all its departments, autonomous bodies, and grantee institutions to replace their fleet with EVs. It has also mandated that by 2024, 25% of all new vehicle registrations should be EVs. The Andhra Pradesh government aims to provide 100,000 electric two-wheelers to all its employees over the year.
“For the next few years, the industry would continue needing support from the government. And if more states adopt such policies, it will lead to much faster adoption,” says Nomura’s Singh. “The fray is wide open at this point. Both the incumbents and the new startups are trying. It depends on who is able to get the value proposition right for the customer. Globally, the entire automotive industry is going to see a once-in-a-hundred-years kind of change,” he adds.
That’s the kind of change Aggarwal is aiming to unleash on Ola’s ‘E-day’. “India has a very strong role to play in the future of electric and it is incumbent upon us to really push India on a global stage in this very necessary technology of the future,” he says.
Or in simpler words: be “the Ola of the world”
(This story originally appeared in Fortune India's April 2021 issue).