Ola Electric's new breakeven targets appear more like wishful thinking

Ever since Ola scaled down its ambition of manufacturing electric cars, it has lost strategic relevance for the Hyundai group. Thus, the latter’s exit is not surprising, especially given Ola’s poor financial performance till now. The group acquired a stake in Ola in 2019.

Moreover, the fall in share price might have more to do with investors’ assessment that Ola would find it challenging to meet even its revised targets after dismal March quarter (Q4FY25) results. Ola now targets auto segment Ebitda profitability in FY26 versus the earlier guidance of Q1FY26. The commercial roll-out of battery cell manufacturing Bharat Cell, too, has been pushed back to FY26 from Q1FY26.

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Roadblocks ahead

To be sure, Ola has its task cut out for the auto segment. The management expects Ebitda break even at 25,000 units per month or 75,000 units per quarter. In FY25, Ola sold about 360,000 vehicles or 30,000 units per month, yielding adjusted net revenue (excluding interest income and incentives from the Tamil Nadu state government) of ₹4,664 crore. Ebitda is short for earnings before interest, taxes, depreciation, and amortisation.

Even if Ola sells 35,000 units per month or 420,000 vehicles at an average sales realization (ASR) of ₹127,000, the gross profit would be ₹1,500 crore at a 28% margin, which is significantly short of FY25 annual opex (staff costs plus other expenses) of ₹1,800 crore. While some benefit from production-linked incentives is likely in FY26, it is not quantified yet.

As per Vahan, Ola’s sales volume in April and May was 19,784 and 18,500 units, respectively, below the 25,000 units per month target. Ola claims that its motorbikes should complement its scooter sales to uplift overall volume. It has stated that the response for its electric motorbikes has been overwhelming, but has not shared the order booking data.

The management expects to achieve faster penetration of electric motorbikes at about half the time it took for electric scooters.

For every vehicle, Q4FY25 gross margin slipped 9% quarter-on-quarter to ₹24,331 as material cost rose to ₹1.03 lakh even as ASR remained under pressure. Going ahead, the material cost is likely to move up in tandem with the higher price of steel, a key raw material. The cost increase is driven by the safeguard duty imposed on imports of steel for 200 days from April.

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There is another challenge for all electric vehicle (EV) manufacturers. In its Q4FY25 earnings call, Bajaj Auto Ltd’s management expressed significant concern over China’s recent export restrictions on rare earth magnets, which are essential components in EV motors.

These restrictions, implemented in April, have introduced substantial uncertainty into the supply chain, potentially disrupting EV production schedules. If the supply disruption continues, it might affect Ola as well in the short term, at least till an alternative supply source is found or the magnet-free motor technology evolves.

For now, despite the drop in stock price, it still trades at a similar valuation as that of pure-play EV rival in two-wheelers, Ather Energy Ltd, based on market capitalization-to-sales at 5x for FY25. Though Ola had higher sales volume than Ather in FY25, its losses, too, were higher at ₹2,250 crore versus ₹812 crore for the latter. Investors have no choice but to wait for Ola’s financials to improve.

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