Ola Electric Mobility Limited — Q2 FY25 earnings call

Call held 8 Nov 2024

Management summary

Ola Electric reported a quarter of strong top-line growth and significant YoY margin expansion, despite aggressive competitive dynamics. The company is pivoting toward massive distribution expansion and vertical integration, notably pulling forward its Gen 3 platform launch to early 2025. While one-off warranty and IPO-related costs weighed on the current quarter's EBITDA, management signaled a clear path to 30% gross margins through BOM savings and in-house cell manufacturing.

Highlights

  • Revenue grew 38.5% YoY, driven by strong deliveries of nearly 98,000 units.

  • Auto segment gross margin stood at 20.6%, up 12 percentage points YoY.

  • Maintained market leadership with approximately 33% market share in the E2W segment.

  • Accelerated Gen 3 platform launch to January 2025, seven months ahead of the original August 2025 target.

  • Distribution network to expand from 780 stores to 2,000 company-owned stores by March 2025.

  • One-off expenses of ₹36 crores (IPO/appraisal/launch) and ₹64 crores (warranty provision) impacted EBITDA.

  • Cell project (Gigafactory) remains on track for commercial production in Q1 FY26.

  • PLI certification for the S1X portfolio completed; PLI accrual expected to rise from 5% to 13%+ in Q3.

Concerns

  • Aggressive Competitive Discounting

Key financials

  1. Revenue Growth 38.5% +38.5%YoY
  2. Auto Gross Margin 20.6% 0%QoQ
  3. Deliveries 98,000 units
  4. Warranty One-off ₹64 Cr
  5. Other One-off Expenses ₹36 Cr

What they filed

Q1 FY27: revenue down 45.0%, net profit up 21.5% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,214 1,045 611 828 690 −43%470 −55%265 −57%455 −45%
EBITDA-379 -460 -695 -237 -203 +46%-271 +41%-281 +60%-165 +30%
Net profit-495 -564 -870 -428 -418 +16%-487 +14%-500 +43%-336 +21%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Auto Segment
    20.6% Gross Margin33% Market Share

Guidance & targets

Capacity

  • Company-owned stores Capacity · by March 2025 · High confidence 2,000

    From 780 today

    We are in the process of expanding the company-owned stores to about 2000 by March, which is just about four months away.

    — Bhavish Aggarwal, CMD

Margin

  • Gen 3 BOM Cost Savings Margin · over next 12 months · High confidence 20%
    Now Gen 3 over Gen 2 will be a similar saving [20%]... we expect about a 20 point improvement as Gen 3 plays out over the next 12 months step-by-step.

    — Bhavish Aggarwal, CMD

  • Cell Manufacturing Margin Benefit Margin · FY26 · Medium confidence 7-8%
    And then as our own cell comes in, that's another 7-8 points of gross margin improvement.

    — Bhavish Aggarwal, CMD

  • Steady State Gross Margin Target Margin · Medium Term · Medium confidence 30%
    Our focus is to have a gross margin of about (+/-30%), right? And that's where the ICE industry also broadly operates.

    — Bhavish Aggarwal, CMD

Volume

  • Annual Volume Growth Target Volume · Year-on-Year · Medium confidence 50%
    See my expectation would be, we would year-on-year aim to grow around (+50%). That's our aim.

    — Bhavish Aggarwal, CMD

Capex

  • Annual Capex Capex · FY25 · Medium confidence ₹800-1,000 crores
    So, first half we invested roughly about 280 crores, there should be close to 800 to 1,000 crores given that investment will also culminate in terms of the cash flow cell.

    — Harish Abichandani, Group CFO

Risks & concerns

  • Aggressive Competitive Discounting

    high

    Competitors are using heavy discounts to gain share; Ola invested 1% of margin back into discounts to maintain leadership.

    Both acknowledged

  • Service Capacity Backlog

    medium

    Management admitted to a capacity challenge in Q2 where sales outpaced service infrastructure, though they claim 90-95% of the backlog is now cleared.

    Both acknowledged

  • Warranty Estimation Stability

    medium

    Management is still waiting for their estimation model to stabilize, which could lead to further provision adjustments.

    Management acknowledged

Areas of evasion (2)

  • Specific reservation numbers for the Roadster series.
  • Detailed unit economics of the upcoming cell production.

Q&A highlights

2 direct
One-off expenses and warranty provisions Direct
The warranty was the one-off that we did was about Rs. 64 crores... we are provisioning 2.5% of revenue. Last year, like I said, the warranty was about 5.6%.

Clarifies the impact of non-recurring costs on EBITDA and sets a new baseline for warranty accruals.

Asked by Chandramouli Muthiya, Goldman Sachs

Gen 3 platform timeline and cost savings Direct
While we had said Gen 3 will come out in August next year, we are now bringing out Gen 3 products two months from now, which is January.

Reveals a significant acceleration in technology deployment which is the primary driver for future margin expansion.

Asked by Jinesh Gandhi, Ambit Capital

Premium vs Mass market mix and cannibalization Partial
We are not really worried about cost cannibalization since gross margins are broadly similar and Premium... makes just about 52% of our revenue overall.

Addresses investor fears that the shift to lower-priced mass models (S1X) would dilute overall profitability.

Asked by Gunjan Prithyani, Bank of America

2 min read 5 chapters

Detailed narrative

Aggressive Distribution Expansion Strategy

Ola Electric is shifting from an incremental growth phase to a massive densification of its retail footprint. The company plans to expand from its current 780 stores to 2,000 company-owned stores by March 2025, a nearly 3x increase in four months. Management highlighted that their stores currently achieve 130 sales per quarter, which is 2x to 3x the industry average, suggesting high capital efficiency as they scale.

Gen 3 Platform: The Margin Catalyst

The acceleration of the Gen 3 platform to January 2025 is the most significant operational update. This platform is expected to deliver a 20% reduction in Bill of Materials (BOM) costs compared to Gen 2, similar to the leap from Gen 1 to Gen 2. This saving is critical for the company to maintain its target gross margins of ~30% while competing in the price-sensitive mass market.

Vertical Integration and the Gigafactory

The cell project remains the cornerstone of Ola's long-term competitive advantage. Commercial production is slated for Q1 FY26, with management expecting a 7-8 percentage point improvement in gross margins once they reach a scale of 3-5 GWh. The company is currently testing both 'Wet' and 'Dry' electrode technologies, with the latter described as a 'moon shot' that could further reduce costs.

Service Infrastructure Recovery

Following public scrutiny regarding service quality, management addressed the 'capacity challenge' head-on. They reported that 90-95% of the service backlog has been cleared and that 80% of vehicles are now serviced within a T+1 day window. The expansion to 2,000 stores will include co-located service infrastructure to prevent future bottlenecks as the installed base nears 1 million units.

Financial Resilience Amidst One-offs

Q2 results were impacted by ₹100 crores in one-off items, including ₹64 crores for warranty provisions and ₹36 crores for IPO and appraisal costs. Despite these, the auto segment maintained a 20.6% gross margin. Management expects PLI benefits to significantly increase in the second half of the year, rising from 5% of revenue in Q2 to over 13% in Q3 as the S1X portfolio gains full certification.

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