Ola Electric Stock Rallies Over 50% In Three Days — Six Upside And Three Downside Factors

Ola Electric Mobility Ltd.'s shares gave more than 50% returns in just three days after the company's listing on the exchanges. The stock hit a 20% upper circuit on Monday for the second consecutive day, cooling off to an intraday high of 19% on Tuesday.

But what works for the company, and does it still make a case to buy into the Ola story?

Key discussions on the IPO were around the elevated valuation of the loss-making entity. To address and alleviate some concerns, the company had reduced the targeted valuation to $4 billion from $5.4 billion. This round had earlier raised capital and issued shares at Rs 118 per share, versus the issue price of the IPO of Rs 76 per share.

While the listing was issued at a meagre 2% premium to the issue price, the day ended with a 20% upper circuit on Aug. 9. The valuation was reduced from the previous round to make it more accessible for a wider retail base, Founder and Chief Executive Officer Bhavish Aggarwal told NDTV Profit before the IPO.

There are certain factors that investor might be bullish on.

Ola Electric is the first pure-play listed electric vehicle player in India. Other companies, like TVS Motor Co. and Bajaj Auto Ltd., are still investing in internal combustion engines or petrol and diesel variants of vehicles. This pure play focus puts Ola Electric at an advantage, with focused output on cleaner technology, according to Aggarwal.

Ola Electric has a staggering 35% market share in the two-wheeler electric vehicle segment, according to VAHAN data. The company has increased its sales by almost 30 times, from 10,000 units sold in fiscal 2022 to roughly 3.2 lakh vehicles sold in fiscal 2024. The current EV two-wheeler penetration is at 5.4%. While the same has doubled over the past couple of years, brokerages like HDFC Securities Ltd. estimate this to increase to 41% and see Ola Electric as a key beneficiary.

Another piece of the puzzle that Ola Electric is looking to add is the battery venture. Currently, batteries for electric vehicles are imported from India and the company’s venture to create cells for their batteries in-house will not only help in faster supplies but also reduce the cost of the vehicle itself, Aggarwal said. The electric battery forms 35% of the total price of the vehicle and of that, 80–85% is the cell cost of the battery. 

Ola Electric has also attracted strong talent, especially for its battery venture. The Giga Factory is headed by Hyun Shik Park, who is an industry veteran in the battery space. He is currently the chief operating officer of Ola Cell Technologies and had a previous stint with the battery venture of LG Electronics. He held various roles at LG for about two decades. 

The company has three research and development tech centres in India, UK and the USA. With a focus on strong products, the company has been able to develop tech-enabled products. Currently, 86% of the components used in three of its EV scooter models are common across models. This helps in investing in platforms and developing different products at a faster pace as well, a strategy seen in other competitor companies like TVS Motor and Royal Enfield.

Ola Electric is a beneficiary of two Government of India production-linked incentive schemes. This includes the automobile PLI scheme and the cell PLI scheme. While the Automobile PLI Scheme subsidises the manufacturing of vehicles, the Cell PLI Scheme makes companies eligible for receiving benefits for five years from commissioning as well. These EV-related government incentives lead to cost advantages.

Here is a look at what doesn't work.

Even before the IPO, the company was trading at expensive valuations of roughly five times its EV/Sales. This is despite being a loss-making entity. The valuation means it was on par with the likes of Bajaj Auto, which generated profits of about Rs 8,000 crore in FY24.

Ola Electric’s valuation is also above that of TVS Motor, despite the latter's strong financials. 

The FAME 2 scheme ended on March 31, 2024. After that, the new EMPS scheme has replaced the former, but the benefits or incentives to purchase an electric two-wheeler have been reduced by 50%. This has affected demand for EV two-wheelers in the first quarter of fiscal 2025 for all industry players, including Ola Electric.

Ola Electric is looking to enter the electric vehicle bike segment and is expected to launch its first motorbike on Aug. 15. This is a much more niche segment compared to the EV scooter segment and Ola Electric will have to create the category, especially since currently most EV bikes are in the mid- to premium segment.

The company is also liable to release its first quarter results as well as outlook for the year.