“Electric vehicles are becoming more acceptable because of improvements in battery technology among other reasons,” says Jay Ritter, a professor at the University of Florida’s Warrington College of Business, known as “Mr. IPO” for his work on initial public offerings.
“So all these companies (from Uber in the US to Ola in India) are being financed by investors who are willing to accept the losses now because they see the potential for big future profits in a winner-take-all market. And the technology is certainly improving in a direction were the costs disadvantage relative to internal combustion cars is falling.”
End of the tunnel
For Ola specifically, the Didi model may be the light at the end of the tunnel. The Chinese company has tied up with a range of manufacturers, including state-owned automaker BAIC and its EV-battery subsidiary BJEV. Likewise, some of the investments from Hyundai and Kia will help Ola build out infrastructure using the technology that the carmakers have and deploy them in India to kickstart a potential EV movement.
For Hyundai, the deal gives them a platform to help develop India-specific electric vehicles (the only major manufacturer of EVs in the country is Mahindra, Ola’s erstwhile partner).
“This is a long-term play by Ola, don’t expect any quick results,” says an industry insider, who asked not to be identified. “It’s done as a way to get closer to the government as well. Mahindra has put their foot forward, Ola is joining them.”
Of course, this person adds, whether Ola’s gamble pays off depends largely on if the government will cooperate on setting up a charging network. Much, he says, like what happened with Didi and the Chinese government, one of the biggest proponents of an electric future.
Ultimately for cab aggregators, the EV lure lies in reduced costs. A January paper by the International Council of Clean Transportation points out that the total cost of operating an EV becomes comparable to that of a petrol-powered car as EV range goes up. Excluding subsidies. Add in government sops, and as the price of batteries and EV tech, in general, goes down, and operational costs will only decrease.
(In a slightly more specific example, Business Insider quotes Lyft COO Jon McNeill as saying that the company’s drivers who switched to EVs save “thousands of dollars a year”.)
Solely different path
Additionally, Ola’s EV push—if successful—can mean an entirely new line of business. Solve for a viable charging setup, either through networks of charging points or experimental battery swapping stations and the world is your oyster.
“That is what I think they are targeting with the new subsidiary (Ola Electric Mobility),” says the analyst. “Once they are able to crack the infra issues and scale the business, I think they will cut across industry and the state authorities.”
“There will be enough government sops to power the EV sector, and if the infrastructure is available, people will look to buy more electric vehicles,” says the analyst.
What is the cost?
Lower operating costs plus a new potential revenue stream equal another step towards profitability. Ola’s revenue for the year ended March 2018 stood at Rs 1,861 crore ($269 million, up 44% year-on-year) and its losses fell almost 45% to Rs 2,676 crore ($387 million), according to data from company research platform Tofler. And the closer it gets to profitability, the rosier the outlook for an eventual public listing—and as Lyft’s $24 billion IPO shows, there’s no dearth of demand.
“Most of these ride-sharing companies are losing money. So they’ve either got to get money from private sources or from public markets,” says Ritter. “And public markets are very willing to finance these companies because of the widespread belief, which I share, that there is a very profitable future market for transportation as a service.”
That market is just what Ola the mobility company is betting on.