It is rare to attend an interview dressed as if entering a laboratory or hospital ward, clad in PPE kits, protective footwear and caps. Yet this was the case at Ola Electric’s Gigafactory in Krishnagiri district in Tamil Nadu, where Moneycontrol spent hours last Friday observing the production of lithium-ion cells destined to power the company’s scooters.
Founder and CEO Bhavish Aggarwal is convinced that success in the electric vehicle (EV) sector hinges on a technology-driven, vertically integrated approach, much like Elon Musk’s Tesla and China’s BYD. In response to the increasing complexities of global supply chains exacerbated by geopolitics, Ola Electric is manufacturing everything in-house—from battery cells and rare earth-free motors to scooters themselves.
The factory boasts a production capacity of 5GWh, capable of producing between 1 lakh and 2 lakh cells daily, with around 40 cells needed for each scooter.
During the visit, Aggarwal guided Moneycontrol’s Chandra R Srikanth through the intricate cell manufacturing process, while candidly addressing questions on market share, user feedback, competitive dynamics and lessons drawn from the public markets.
EDITED EXCERPTS:
Bhavish, why are we wearing the PPE uniform and where are we standing?
Giga means big and this big factory produces a small cell. The smaller the thing being manufactured, be it a chip or a cell, the bigger the factory is. It’s quite ironic and also a very complex process. We need extremely clean rooms, which is why we are wearing these clothes. Even the moisture from our hands, sweat, that can't go into the atmosphere. Hair can't go in, dirt can't go in. So outside of semiconductor, this is one of the most complex manufacturing processes in the world. This is India’s first Gigafactory. It's taken a lot of effort for the whole Ola team to get this up and running. We've made our own cell technology.
This is the 4680 lithium-ion battery, which is the heart of electric vehicles?
Absolutely, the cell is the heart of EVs. More importantly, it is also the energy platform of the future. It can power drones, humanoids, and even energy storage devices at home. So, as India looks to the future of its energy strategy, coming from oil and gas, with the whole world telling us, don't buy this, don't buy that. Now, in the future, we can build our own technology platform for energy, which is built on this small cell.
When can we see this cell powering the Ola scooters?
This quarter (Q2). Navratri is when the first products with this cell will be delivered to customers. So, this factory is now in full production. It has been a very important milestone for us internally in the company. Products with the 4680 cells will reach customers by Navratri.
What will this mean for you in terms of financials, in terms of margins?
Ola Electric's margins in Q1 had a very significant improvement because of our Gen 3 platform. So, a lot more vertical integration, a lot more of our own components, not the cell yet, it was the motors, the software, the electronics and all of that. The next phase for us is the cell. So, as the cell comes into our own products over the course of the next 12 odd months, increasingly our margins on those products will increase because we manufacture this in-house.
How will this impact the pricing of your scooter?
Pricing is a tactical decision we make based on market conditions. But it also helps improve our margins, giving us more headroom to play with.
So, the raw material for the electrode roll, where do you source it from? Are you finding any challenges there because of the geopolitical situation?
The raw material comes from multiple sources. China is one main source, but increasingly, Japan and Korea. India has an FTA with Australia, which is the largest producer of materials like lithium and manganese that go into the cell. India’s strategy must be to broaden its supply chain. While we must continue to engage with China, we should also diversify and source from other countries.
Apart from the cell, the other area where you're looking to become self-reliant is in the motors that go into electric scooters. You're working on a rare earth free ferrite motor. And this is coming at a time when one of your rivals said that the EV production for them will come to zero if there are no rare earth magnets that they're able to source from China. How are you managing?
China has almost a monopoly on rare earths. Rare earth is like the current technology of motors. Like in telecom, there's 3G, 4G, 5G. Similarly, in motor technology, there's rare earth, then ferrite, then without magnet, electromagnet. So, the direction is to reduce rare earths to the magnet itself. And some of the leading car companies in the world are already on this path. We started the journey in this about 2 years back with our ferrite magnet motor. And we are ready for production, so we are bringing that in next quarter onwards into our products. And that will help us de-risk from the rare earth supply chain. And that must be India's way. We must, in the short term, engage with non-China sources also.
But this hasn't impacted your production yet?
Absolutely. All other OEMs, especially the ones which say that production will stop, don't make the motor themselves. We make the motor in-house. And hence, we have multiple sources of magnets already. Multiple countries, dual source of origin for the magnet. So, we have de-risked ourselves in the short term. And then in the next quarter, we are bringing our ferrite motor.
What will this do for your scooter capacity, the fact that you're able to produce these cells?
It will mean we will have our technology in our control. Because the cell defines the performance of the product. Charging speeds, range, thermal performance, all depends on the cell. And since we have engineered the cell ourselves, it will allow us to have a better product out there. Second, it will allow us to have supply chain resilience. Because now we are not dependent on a country arbitrarily reducing or throttling supplies, now we can make our own. It allows us to build the next generation of cell technology also faster. We can customise cells to the kind of product we make. Different in a motorcycle, different in a scooter, different in a performance bike.
And when you announced the Gigafactory, I remember you had said that you will invest over $100 million?
More actually. This 5-gigawatt hour will take about $400 million. Some equity, some debt from the pre-IPO. And till 5-gigawatt hour we have debt which we had pre-IPO already. So, we don't need any new equity or debt.
But you are raising...
We're not raising. We are reclassifying some of the proceeds from the IPO that were there for expansion beyond 5 GWh. So, we said in our last quarterly results that we don't see expansion beyond 5 GWh in the near to mid-term. We're reclassifying that for organic purposes.
While you're doing everything to improve the supply side of the equation, what is going to give a leg up to the demand side? Because EV adoption isn't as high as one would like. What do you think is holding India back?
EV has gone from almost zero to about 20% in scooters in just four years. So, it's been a very aggressive ramp. And these new technologies have an S-curve of adoption. So, we're in the middle part of the S-curve. We've had one quick ramp. Now industry is consolidating. The consumer base is also consolidating. They're waiting for their friends to see how EV performs. So, I think there will be a one-year phase of consolidation after which there will be another steep ramp.
When you say we are in the middle of the S-curve, what will it take for it to pick up again?
Technology is progressing. Cost is coming down. Range is improving. Charging speeds are improving. More people are adopting. So, for the cautious consumer, all his core concerns are only improving every year. So, all these improvements, stabilisation of technology will get more customers into the fold.
In terms of the overall market, do you see this being a 4-player market, 5-player market? How will it play out?
See what's happening is we were the first to scale. We were not the first to enter. People sometimes don't remember but we were the last to enter. Ather was existing for almost a decade before us. TVS had their product 2 years before us. Bajaj had their product 2 years before us. We were the last to enter but the first to scale and build all the vertical integration, the factory scale, the distribution, the consumer mindshare for EV. And we got the benefit. Today we have sold a million two-wheelers. And the number two player, which is TVS, has sold only 5.5 lakh or thereabouts. This is from the Vahan data. This is not my own data. So, there is a lot of difference.
What we have done in the last two years was scale up our product portfolio, scale up our distribution, and deepen our vertical integration to grow our margins. Now for the last two quarters we have taken a shift in our strategy because industry has gone into consolidation a little bit, into steady growth.
To make money with EVs, you need all of this. You need vertical integration. You need technological development. You need the DNA of technology. That's how you will build a good product and make money from it. And that's where Ola is already. And our next phase will be, you can see already our market share is looking upwards with our Gen 3.
But when will that start reflecting in the monthly addition numbers? I think for the latest month, TVS was No. 1, Bajaj was No. 2, Ola No. 3, Ather was No. 4, but the gap has kind of narrowed.
We have also been going through a product shift from Gen 2 to Gen 3. So, Gen 2 supplies kept going down, Gen 3 supplies kept ramping up, bike supplies kept ramping up. So, it's been a transitory 6 months for us. Along with product transition, we've had a distribution scale-up. So, it's been 2 quarters of transition. You'll now see how, leading into festive etc., so the market share volumes start inching upwards. Our target market share for 2-wheeler EVs is about 25-30% with very high margins, so we believe we are on the trajectory again.
So, you’re confident that you will kind of regain that mojo?
Mojo is still there; it'll reflect in numbers also.
So as of today, you're very bullish about Ola Electric. Does the share price worry you? Do you wake up every morning and see, what happened today?
I think it's been a year since our IPO, so I've obviously learnt a few important lessons in the journey. Mostly, you know, in a public market, we must manage capital more thoughtfully, allocate capital more smartly, and we've been doing that. All of this is proper capital allocation to future R&D and future capacity. Then we must be more thoughtful about operational risk, which also in one of our recent calls we had shared that we will, as a public company, have to be much more cognizant of operational risk, which is what we're doing now.
In the beginning, it was how the stock price was going up and down, but now it's been a year, so wherever it goes, we're focused on the fundamentals of the business.
Do you ever regret taking Ola Electric public?
Never. It is the right thing. I feel the best companies in the world are always built in the public. If you see the most iconic companies, Reliance, Tata companies, Adani Group companies, Airtel, any of these traditional Indian companies, or global companies, Apple, Google, Meta, the rigor comes in from public market scrutiny. So, in that sense, it is a very necessary journey for every entrepreneur to go through. I am very happy for the learnings we've had. I'm very happy for the market to give us such an honest, clear feedback.
And customers who keep replying to your posts with why is my scooter not working, when is my scooter getting serviced?
I'm sure it happens in your business in the era of social media. Social media is a cauldron. But the beauty is our brand has been built on social media. We don't do traditional advertising. We've built on social media.
Have you booked a Tesla yet?
I have driven the Tesla outside India, not in India yet. But I think it’s very important step for India’s EV journey. Tesla is an iconic company, building iconic products. Elon Musk is an iconic founder. It will attract a lot of attention towards EVs in India. Which is great for the domestic industry.
But in terms of the next moon shots for Ola Electric, what's it going to be like? You launched the motorbike. How is it doing? What else can we expect?
Motorbike has had very strong reception across the country. We are scaling it up in a phased way, not one large bang across the country. So, we launched in 200 stores, now scaling it across the country by Navratri. We are announcing a couple of new products in the scooter, as well as a moonshot bike.
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