Comment | Ola’s Rs400crore EV investment is putting the cart before the horse

Sounak Mitra

Last week, cab-hailing company Ola raised Rs 400 core for its electric vehicle venture Ola Electric Mobility that leads Ola’s Mission: Electric -- a venture where Ola is working on developing solutions in partnership with vehicle makers, battery companies and its own drivers to make electric mobility viable at a commercial scale.

This is the first exclusive round of funding for Ola Electric from external sources, although investors such as Tiger Global and Matrix Partners were early backers of Ola.

Ola’s announcement on March 5, came just a few hours before the government revealed details of the second phase of the Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME) scheme stating that the government will pump in Rs 10,000 crore over three years from April 1, 2019 which is aimed at infrastructure development and encouraging faster adoption of electric vehicles.

Under FAME-II, the government will give upfront incentives on purchase of electric vehicles, infrastructure development, including charging stations. In the first phase of FAME, the government had allocated Rs 895 crore in April 2015. As part of the FAME-II, the government stated that it will set up 2,700 charging stations in metro cities and some of the one million-plus towns, offer EV purchase incentive to 10 lakh two wheelers, five lakh three wheelers, 55,000 four wheelers and 7,000 buses.

Ola’s EV plans have got outside finding, almost two years after Ola kicked off its electric vehicle venture in Nagpur in line with the Modi government’s plan to turn India into an 100 percent electric vehicle nation by 2030. Ola started its EV pilot with an initial investment of $8 million. The target reportedly was to deploy more than 10,000 electric vehicles in a year from April 2018.

Ola started the electric vehicle pilot in 2017 to find effective ways to develop solutions to make electric mobility viable at scale. Ola’s Nagpur project included electric cabs, auto rickshaws, and buses, setting up rooftop solar installations and changing stations, among others.

Ola’s plan to go big in electric mobility was also known. Ola’s largest investor Softbank’s founder Masayoshi Son had said in December 2016 that he hoped to give away one million electric cars to Ola drivers free of cost as part of his dream to turn Ola into an electric vehicle makers in collaboration with Toyota.

The reality has been different. Ola scaled back its EV plans, according to a March 2018 report by Factor Daily. Also, according to a March-2018 report by Reuters, Ola’s Nagpur EV pilot has not been successful. Reuters found out that most of the drivers it had spoken to have either switched to diesel, or returned their cars.

The main stumbling block is the required infrastructure for electric mobility. According to a report by EY (May 2018), there are only 222 charging stations with 353 charging points in whole of India. To add to that, there is no policy for electric mobility in India, and the ruling government believes there’s no need for a comprehensive EV policy and has instead opted for having an action plan.

Any plan to invest in vehicles has to take into account the creation of infrastructure, such as setting up charging stations, battery swapping stations, besides investments in vehicles.

The cost of setting up a charging station is quite high. As the Economic Times reported, it costs about Rs 1 lakh to set up a slow-charging station that takes around 6-8 hours to fully charge a car, and about Rs 25 lakh to establish a fast-charging station that charges a car in 45 minutes. In addition, there’s the cost of buying or renting land.

Now, Ola’s Rs400crore will not be enough to create this infrastructure. But Ola has said that this investment is part of its first round of funding. So, more could follow. Perhaps, a combination of events could work. The government’s intention is to provide incentives and schemes for EVs. Companies such as Ola will avail of these, to further their business plans.

In Ola’s case, the infrastructure is an enabler to run a successful EV-led cab-hailing business.

And, it is not just Ola that is investing in infrastructure. As the Economic Times reported in October 2017, power companies, battery makers and some of the vehicle manufacturers have announced investments in infrastructure development. Globally, EV infrastructure is being developed jointly by the government and private companies.

Ola can position itself as the last mile in this chain, as the cab-hailing company that can provide consumers who hire its EV cabs, to make the whole proposition a success.

But that’s just the thinking. There are a number of pieces that have to fall into place before the EV plan can work. This then is the biggest risk as well. The EV plan may not work if even one or two of the critical ingredients are not in place.

The experience so far has not been very encouraging. But the investors who have handed out Rs400crore would be well aware of these risks. The gestation period in these projects is likely to be high and it will be years before these projects become a commercial reality. Ola and its investors are betting it will.