It is a great feeling for any entrepreneur to see their company go public.
Bhavish Aggarwal: Thank you so much for your wishes. You are right, it is a great feeling for any entrepreneur. I think this is what entrepreneurs live for, to achieve this milestone and then go forward from here. So, it is a big day for all of us at Ola Electric and the team has worked hard to make this day possible.Ola Electric is one of the youngest startups in the history of India. It has gone public in less than five years.
Bhavish Aggarwal: Absolutely, I was also surprised by this data when somebody told me that we are such a young company to go public at this scale of revenue or market cap. It is quite an achievement for which I would like to thank the team. We at Ola have mentioned on your show before that we are on a mission to create the EV future, the energy future of India and we want to make that future happen as fast as we can. We are on that mission and now the public is with us. We feel very excited about the future.
The stock is up 13%. You have left money on the table at a time when global volatility is back. We had a carnage on Monday and the issue sailed through and it is a good listing.You have indeed left a lot of money on the table.
Bhavish Aggarwal: Our goal is not about short-term optimisation. We want to make sure we price the issue well for all investors to get attracted and hopefully make some money. This journey of Ola Electric is an India manufacturing story, India’s future story and this journey is just getting started. It is a multi-decadal journey and we want to have the support and partnership of the public markets in India. We are very excited that people have reposed their faith in us and prices will go up and down, Prices will go up and down, but fundamentally our effort will be on value creation for the country.
Now that you are publicly listed, we can talk about perhaps some forward-looking numbers. When a company turns profitable, it turns from red to black. When will Ola Electric turn green?
Bhavish Aggarwal: We are in the middle of the quarter and Q1 results will be out very soon. We have not published a date, but it will be out in a week or two. Investors will be quite interested to see how our results look. We are also excited about sharing how we have done over the last quarter. Our focus is on profitable growth. We are looking to continue to improve our profitability, in a pun intended way, a sustainable business built sustainably. That is our focus and we want to continue on that. So, you will hear more from that. Another thing I want to share is that we have this big product launch event coming up on 15th August. It is our annual event and we do it on India’s Independence Day because we want to share the vision and the products and all the technology that we work on. So, hopefully, people will be watching. We have some very exciting news in store for everybody.
I will talk about specifics here and I am coming to that big launch day, which is August 15, just about a week away now. What to your mind is the estimated size of the two-wheeler industry in India? What could be the size of the EV two-wheeler? And the fact that right now, if you have 25% market share, how would you be able to maintain that leadership?
Bhavish Aggarwal: The EV journey in India is in absolute infancy. Three years ago, when we started building our first product, EV penetration in two-wheelers in India was 1% or 2%. Today, just in scooters, EV penetration is 15 plus percent. And we are still scratching the surface. About a couple of months back, we launched our sub-one lakh rupee scooter, and that has done well. We have seen sales across the country in small towns, rural areas, and upmarket centres.
We feel there is a lot of potential for electrification of all automotives in India and scooters to start with. We have been clear that we are going to build bikes. I am very excited to share soon enough with people what kind of bikes we have lined up given that two-thirds of the Indian two-wheeler market is motorbikes. So, we are very excited to share our products in that space very soon with everybody.
The electrification journey has started and this story ends one way with 100% electrification of automotives. ICE vehicles are inflationary. The vehicle cost keeps going up because of regulatory emissions compliances and the fuel cost keeps going up. Whereas EVs are different. EV, the vehicle cost keeps coming down every generation because the battery keeps reducing in cost. Prime Minister has this vision of making power free for everybody with rooftop solar. Imagine in the future, your EV will be charged at home from your rooftop solar and so the running cost will be zero. That is the future. I think there is no debate about that. ET Now: If one is using an EV four-wheeler and an ICE four-wheeler or a passenger car, the cost saving is significant in terms of an electric vehicle. For two-wheelers and motorcycles, what are the numbers like? If somebody is using the traditional ICE engine, that old ad of Hero Honda, one litre 80 kilometres versus EV, where are the comparisons?
Bhavish Aggarwal: If I understand your question correctly about the price that the consumer has to pay, for two-wheelers the ICE price for the same category of vehicle and the EV for the same category of vehicle is now the same.
Our S1 X scooters are priced at or below the median ICE scooter and in bikes also it is going to be the same because the supply chain is all the same. In four-wheelers today in India, there is a delta, but as we are working on the supply chain, especially the lithium cell which we have built our gigafactory, we have commenced trial production, and commercial production starts early next year, once that comes in, the cell and the entire supply chain is going to be used across all products. Hopefully, across different product categories, the price of EVs will come at or below ICE prices soon
When you say battery prices are coming down, it is evident both locally and globally, but wouldn’t that cannibalise your battery business because we have historically seen that when prices correct in an innovative technology, they tend to correct between 20% and 30% on a CAGR basis. Is that a real threat for your battery business? What are you assuming right now in terms of your realisations that could change completely?
Bhavish Aggarwal: Ten years ago, battery cost was $1,000 a kilowatt hour; today it is $100 a kilowatt hour, and maybe by 2030 it will be $50 a kilowatt hour. So, because the battery is not a commodity, it is a technology-driven component. The cost curve only moves down with time and with technology improvement.
Now we are not in the commodity part of the battery value chain. For example, we are not refining lithium or we are not mining, refining lithium or making the midstream processes and selling them to upstream or downstream players. We are in the business of making electric vehicles, backward integrating into the core cell manufacturing, and if the input costs reduce, it benefits us both at the vehicle level and the cell level. The penetration for both the electric vehicles as well as batteries and storage will go up as prices come down.
In terms of that, the whole pie will increase and we are not a technology taker as a company. We are a technology maker. So, our philosophy from day one has been that for those core technologies that matter to our future, we will build them in-house and we have very significant IP across the stack from EVs to lithium cells, and hence we are controlling our destiny in the technology world, not reacting to what somebody else is selling us.
Based on your understanding of which way the trend in the EV market is going to move, do you think the EV customer will be happy to pay more because they are getting an EV vehicle that is long-term and sustainable?
Bhavish Aggarwal: The reality even today is different from your statement. The reality is that even today, in two-wheelers, our vehicles are now priced at or below their equivalent ICE products, and in that price, they give a lot more technology, software, electronics and very low driving cost because of the lower total cost of ownership, the fuel cost, and a driving experience which has high torque, no vibrations, much less feeling of fatigue in driving the vehicle.
It is a no-brainer in my view. EVs are the future and we are seeing this globally, it is not just in India. With our investments in vertically integrated manufacturing and supply chains, we have been able to bring the costs to parity with ICE vehicles already. Going forward, as we strengthen our supply chains, our focus will be to drive both profitability and growth by making sure our products are priced attractively for customers.
For any shareholder, there are two factors that they always watch out for. Number one is operating leverage and the second is financial leverage. Because of this IPO, you will be able to reduce your debt. And because your cash flows are increasing, operating leverage would be at play. How do you see both operating leverage and financial leverage moving? Can I say that in the next 12 to 18 months, the benefit will be visible in your profits and income statement?
Bhavish Aggarwal: You are very right operating leverage is important, especially in a manufacturing business and in our financials, we have reported till FY24. FY24 over FY23 EBITDA margins went from negative 43% to negative 19%, a 24-point improvement, that is operating leverage at play, as our revenue grew 90%.
In manufacturing, as we increase volumes, fixed costs do not increase and hence you get more and more margin down to the bottom line. Now, we will see more of this as we go ahead. Our volumes are looking upwards. Our Q1 volumes are on the Vahan portal. When you compare them, you will see quarter on quarter, they are higher. So, we can expect significant operating leverage soon. On the other point in your question on the debt, part of this IPO proceeds is going to go towards retiring debt and that also will reduce the interest costs for the company.
Is Ola Electric a manufacturing company with a presence in EVs or is it a technology company that understands the entire ecosystem of EVs and will keep on building on it? It started with electric two-wheelers, then electric motorcycles, and then battery and it will keep on adding up. So, what is Ola Electric – a manufacturing company or a technology company?
Bhavish Aggarwal: I am a technologist at heart. I spend most of my time with our technology folks. I am a co-author on many of our patents. So, we are at our heart a technology company with a very strong focus on building a vertically integrated supply chain and manufacturing for this future space of EVs and energy. We build our technologies, we manufacture core components, and differentiated components ourselves and we endeavor to create products that consumers will love using or experiencing. We look forward to creating a very strong IP, Make in India, and Research in India are the themes with which we drive ourselves.
Ola Electric stock has gone from Rs 83 to Rs 89. For those who missed, those who thought that the stock was expensive and losses are there and those who want to it buy now, what will be Bhavish Aggarwal’s promise for the next three years?
Bhavish Aggarwal: My only promise to whoever has bought and whoever will buy is that we as a company and me, myself as a promoter are fully committed to building this future in India, making India a global EV hub with whatever we have we are committed to creating this future.
There will be all kinds of challenges. We will give our best at it always. We will always be transparent with everybody and we look forward to the support and the wishes of all investors, and we look forward to doing our bit to help them create wealth.
We would speak earlier twice a year, now that you are public, with four quarterly numbers, so hopefully at least four interactions a year.
Bhavish Aggarwal: As much as needed, we will be talking.