Ola Electric leads E-2W market with superior margins, closes in on profitability: Bernstein Report

introduced its Gen 3 platform, which is expected to further enhance its gross margin profile and push it closer to sustained profitability.

Despite scepticism around Ola Electric’s profitability and concerns over a potential EV slowdown, global brokerage Bernstein paints a far more electrifying picture. It suggests that Ola Electric is accelerating its lead in the electric two-wheeler (EV 2W) segment, outpacing competitors in profitability. The report reveals that Ola Electric not only boasts the highest gross margins among its peers but is also closing in on EBITDA-level profitability, underscoring the company’s strong growth trajectory.

To be sure, in the first quarter of FY25, Ola Electric achieved a gross margin of 18.4 percent, significantly higher than rivals TVS (14 percent), Bajaj (12.3 percent), and Ather (7 percent). But here's the catch: The positive surprise in margins comes despite having an average unit consumer price of 10-25 percent lower than its competitors.

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Further highlighting its path to profitability, Ola Electric recorded an EBITDA margin of -2 percent, a marked improvement over TVS (-7.9 percent), Bajaj (-10.4 percent), and Ather (-37 percent). Bernstein attributes Ola’s competitive edge to its aggressive localization and vertical integration strategy, as well as its direct-to-consumer (D2C) business model. The company’s access to government subsidies such as PLI and FAME has also played a crucial role in bolstering its financial performance.

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Ola Electric’s technological advancements and investments are also key contributors to its leadership in the EV space. The company has poured around $1 billion into building its EV ecosystem, giving it a significant head start over competitors who now face the challenge of matching its scale.

On August 15, the company introduced its Gen 3 platform, which is expected to further enhance its gross margin profile and push it closer to sustained profitability.

"Ola primarily targets urban commuters and tech-savvy- cost-conscious customers, which has driven its leading industry volumes till now. It aims to build scale by offering multiple form factors," the Bernstein note added.

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Ola's investment case vs TVS Motor, Bajaj Auto

Ola Electric’s stronger EBITDA profitability compared to TVS can be attributed to several key factors: 1) eligibility for both PLI and FAME subsidies, 2) higher localization of production, 3) a greater proportion of in-house component manufacturing, 4) avoiding revenue leakage through its direct-to-consumer model, and 5) better scale in the EV market, which enhances its bargaining power and boosts gross margins.

During a recent earnings call, TVS revealed that its EV products have now been certified for PLI benefits. The brokerage suggests that while its EV division currently reports an EBITDA loss of 7.5 percent, there is optimism that TVS may achieve EBITDA profitability once these subsidies are realized.

On the other hand, Bajaj Auto outsources key components such as motors, battery packs, and tech connectivity features. Additionally, the company incurs higher costs for its Chetak
incorporates a full metal body, unlike the fibre body for others.

It isn't just Bernstein that's bullish on the newly-listed Ola Electric Mobility. Both Goldman Sachs and Bank of America (BofA) recently initiated coverage on the company with a 'buy' rating. Goldman Sachs projects that Ola Electric will achieve EBITDA breakeven by FY27, with revenue growth exceeding 40 percent CAGR from FY24 to FY30, leading to free cash flow breakeven by FY30.

BofA echoed a positive outlook, highlighting Ola’s technological and cost leadership as the primary drivers of its success. While concerns remain around battery technology, BofA maintains that Ola Electric represents a strong long-term investment.

Ola Electric shares closed almost 4 percent lower at Rs 104.

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