Ola rides down the value chain, accelerates into the mass market

By establishing his company as the largest electric scooter player, accounting for over a fifth of domestic sales, Ola Electric founder and Chief Executive Bhavish Aggarwal fired his big salvo to end the ICE (internal combustion engine) age by 2025 in the two-wheeler market. On Wednesday, he took the electric scooter battle to the next level — entering the mass scooter market (Rs 70,000-under Rs 1 lakh) which accounts for over 80 per cent of overall scooter sales (ICE and electric combined) where petrol-driven Honda Activa holds sway selling 180,000 vehicles a month.  
 

On Thursday, Ola announced three electric scooter variants under its mass brand Ola S1 Air, two of them under Rs 1 lakh. As in the smartphone market, where pricing is linked to different levels of storage for the same model, Ola is offering scooters depending on battery range.
 

The first model with a 2 kilowatt hour (kWh) battery will be available at an aggressive ex-show room price of Rs 84,999, its most affordable offering with a range of 85 km in one charge. There is another variant for Rs 99,000 powered by a 3 kWh battery with a range of 125 km. The third product is at Rs 1.09 lakh with a 4 kWh battery.
 

Ola is also pushing the pedal in the premium electric scooter market ( Rs 1 lakh to Rs 1.5 lakh) where it has a 50 per cent share. This segment accounts for a third of electric scooter sales. To rev up sales here, it has opted to provide customers a choice with a 2 kWh battery-powered scooter in the premium end that provides high performance but lower range (91 km) compared to a similar priced bike in the mass end.
 

Explaining his ambitions, Aggarwal said: “On the one hand, with our offerings in the mass segment for the first time we will be disrupting the electric scooter market again. On the other hand, we see the continuing ‘premiumisation’ of the market — so we are offering anther model in this segment too.”
 

Aggarwal says he sees volumes rising three to four times in FY24 as a result of this strategy. In CY22, the company hit sales of 1,50,000. To meet this massive push in anticipated sales, it is also doubling its annual capacity in its Sriperumbudur, Tamil Nadu, factory to one million — or 100,000 vehicles a day.  
 

Ola’s target is to wean away Honda Activa users. But Honda Motorcycle and Scooter India has announced the launch of its first electric scooter based on the Activa platform by March 2024 followed by another based on a new platform with a swappable battery option.
 

Honda President, MD and CEO Atsushi Ogata said recently that it will manufacture the motors in-house and build battery-swapping stations across its 6,000 consumer touch points before the second scooter is rolled out. Unlike Aggarwal, Honda believes ICE scooters will continue to sell in large volumes.
 

Ola will also face competition from entrenched initial entrants in the electric business — Hero Electric, Okinawa and Greaves Mobility’s Ampere — which already have a range of offerings in the Rs 70,000 to Rs 1 lakh range.
 

Ampere, for instance, recently added a scooter with a 2 kWh battery for Rs 70,000. And it is also taking Ola head-on in the Rs 1 lakh-plus market with new launches. Plus, incumbent players such as Bajaj, Hero MotoCorp and TVS, which, like Ola, started from the premium market, will also tap this volume market.
 

Could this crowding of the mass segment impact profitability? As Harshvardhan Sharma, head of auto retail practice at Nomura, pointed out, “The high-speed electric scooter market is getting increasingly concentrated in the Rs 1 lakh range, which might lead to profit erosion as players might try to buy market share.”
 

Ola, for instance, has said that the mass range is based on the same design and technology as its premium scooters. “While that is good for consumers, discounting higher-end products over Rs 1 lakh with some tweaks might not be good for profitability. We prefer to go for profitable growth,” a top executive of a leading electric scooter competitor said.
 

Much would depend on whether subsidies under the second edition of the Faster Adoption and Manufacturing of Electric Vehicle scheme (FAME II) would continue. Subsidies have been temporarily suspended for some electric scooter makers following a government audit on whether manufacturers met prescribed localisation norms (Hero Electric and Okinawa are among those under scrutiny). Without FAME support, e-scooter prices could rise between Rs 30,000 and Rs 40,000, experts say. This will benefit Ola and others who are not under scrutiny on this issue.
 

At the same time, companies eligible for the production-linked manufacturing (PLI) scheme in e-scooters — Ola, Bajaj, TVS, Hero MotoCorp — will be able to cash in on the attractive incentives they will get on sales under the scheme from FY23, provided they meet the investment and sales conditions. That will provide them a big cushion even if the FAME subsidy is not extended. That is why Aggarwal says he is agnostic about the subsidy being extended and is focusing on re-engineering to reduce costs.  

Yet the impending battle in the mass market does not mean Ola sees no growth at the top end of the market from where it started business and which accounts for the bulk of its sales currently. But the ratio between premium and mass market sales in ICE scooters is skewed heavily towards the latter, which accounted for 95 per cent of sales. Aggarwal said the low operating costs, easy financing and subsidies (partly) will result in the mass market share falling to 75 per cent for the industry. Ola hopes for a 50-50 split.
 

Significantly, Ola is not thinking only in terms of e-scooters. It recently offered a peek into its upcoming electric motorbike, which is expected to hit the roads in the second half of this year. Motorbikes account for 60 per cent of overall two-wheeler sales and have entrenched incumbents such as Hero MotoCorp, Bajaj and TVS. Clearly, Ola plans to ride hard against the competition.

THE E-SCOOTER sweepstakes

• Two thirds of electric scooters are sold in the Rs 70,000-99,000 range. The big players include Okinawa, Hero Electric and Ampere
• Ola, TVS, Bajaj operate in the above Rs 1 lakh category
• 80 per cent of the sales of scooters across ICE and electric are in the Rs 70,000 and Rs 99,000 range. ICE-powered Honda Activa is a big seller
• 95 % of sales of ICE scooters were in the sub- Rs 1 lakh price range before electric vehicles came in.
• That ratio will change and stabilise to 75% in electric scooters due to ‘premiumisation’
• Scooters are only 40 per cent of the total two wheeler market , which ranges from 18 million to 20 million a year