Ola Electric Share Price Target Cut: HSBC Flags Service Issues, Tight Competition, Slowing Sales

Ola Electric Mobility Ltd. has received a target price cut on its stock from prominent investment bank HSBC, which has flagged slower than expected electric two-wheeler penetration, tight competition and ongoing service issues.

The analysts revisited Ola service stations recently to review service quality. It found the service centres "less chaotic" and vehicle outflow "slightly better than inflow" compared to last time.

HSBC said the backlog was down by 20-30% on a monthly basis but is still 5-7 times higher than it should be. "The number of technicians increased in both large and small service stations, but hiring is slower than expected due to shortage of labour with relevant capabilities," said a note dated Oct. 25.

Ola Electric, India's largest electric two-wheeler maker, has seen its monthly sales slump and market share erode amid a broken after-sales experience.

A report by NDTV Profit highlighted ongoing issues with the Ola S1 scooters, as interviews with over a dozen customers in major markets like Mumbai and Bengaluru revealed malfunctioning hardware and glitching software. These problems have led to a backlog of service requests, with estimates indicating that nearly 100,000 complaints are logged nationwide each month.

Ola recently roped in EY India for a "service transformation" amid woes. HSBC said E&Y personnel were on the ground for the last three weeks helping to optimise the service process. Moreover, the company is expanding its service network and scouting for space for large new service stations.

HSBC said competition has been a lot more aggressive in the past three months, highlighting the launch of a series of low-cost variants like Bajaj Auto's Chetak 2903 and TVS Motor's iQube 2.2kWh. These have impacted Ola's market share.

"We cut our terminal growth rate target to 7% (earlier 7.5%) to account for slower than expected e2W penetration," the note said.

The firm also flagged stagnation in penetration of electric two-wheelers which continues to hover around 6%. Penetration in October is running low, especially as states like Tamil Nadu and Kerala are showing slow EV sales. "A large share of OLA’s growth forecasts is contingent on continued rise in penetration," HSBC said.

Battery plant issues including failure to expand capacity, change in battery technology and inability to attain significant yield are also key concerns for Ola.

HSBC reduced its target for Ola Electric share price to Rs 110, from Rs 140 earlier, implying a potential 38% upside over the previous close. It retained its 'buy' rating on the stock.

Shares closed 3.3% lower at Rs 77.5 apiece on Friday, compared to a decline of 0.9% in the benchmark Nifty 50.