IPO heralds competition between Ather and Ola Electric

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A month after Ola Electric went public, its larger but smaller rival Ather Energies also filed its draft prospectus (DRHP) for its initial public offering (IPO). Ather Energies was founded in 2013, and in the past few years, Ola Electric, which is four years younger, has surpassed it in sales. Before its IPO, Ola Electric raised $1 billion in 14 rounds, while Ather raised $502 million in 19 rounds, according to Tracxn data. This reflects their very different paths. But Ather’s decision to IPO and its momentum strongly suggest that it is changing direction.

Ola Electric is aggressively pursuing scale, which is reflected in the revenues of both companies. According to DRHP data, while Ather leads in revenue in 2021-22, Ola’s revenue grows to three times that of Ather in 2023-24. While Ather’s revenue has shrunk, Ola Electric’s revenue has grown by more than 90%.

The latest vehicle registration data from the Centre’s Vahan database also reflects the gap. Ola sold 297,789 vehicles from April to August, while Ather sold 73,497. Between Ola and Ather in an increasingly competitive market are TVS Motor and Bajaj, both traditional players that are betting on electric vehicles.

Ather’s relationship with legacy players is further complicated by investment from two-wheeler major Hero MotoCorp, which holds a 30% stake in the company and is its largest shareholder. Even on the operational front, the two companies entered into a partnership last year to share an interoperable fast-charging network across the country.

Also read: Why China’s electric vehicle industry is not a ‘footnote’

Scale and Engineering

The gap between Ola Electric and Ather Energies can be partly attributed to the strategic direction of the two competitors. Ola positioned itself as a scale player, using its acquisition of Amsterdam-based Etergo BV as a springboard to launch its first product. Scale and speed have had negative consequences, as customers have complained about defective products and inadequate service. Just last week, an incident occurred in Karnataka where a disgruntled customer set fire to an Ola showroom (he was arrested).

Ather has been growing more slowly, which has helped it build a better reputation for quality. Its products are all made in-house. It has been increasing its R&D spending, while Ola’s R&D spending fell 24% in 2023-24 compared with the same period last year. Even so, Ola has a larger R&D budget and is willing to pay high fees to attract talent. Ather plans to use part of the IPO funds for R&D.

Distribution Model

It is widely believed that Ola Electric has an edge in marketing, thanks to its dominant position in the market. However, Ather has been spending far more than Ola Electric in this regard over the past three fiscals as it tries to gain market share. Ola’s higher market share is mainly due to its manufacturing capabilities and distribution model. It launches its products across the country through a pure online, direct-to-home delivery model.

Also read: Is growth in the automotive sector slowing down?

Ather has adopted a traditional showroom model, resulting in relatively slow growth and is concentrated in South India. South accounted for 68% of its total sales in 2023-24, followed by West at 16%. North, East and Central India accounted for 9%, 5% and 2% respectively. State-level regulations may have an impact on the business. Karnataka has its own policy for e-bike taxis. Delhi has pledged to switch ride-hailing and delivery companies to e-bikes by 2030.

Inevitable growth

Regulations will continue to play a major role in the adoption of electric vehicles (EVs). When the government removed the FAME-II subsidies, sales for all players were impacted. In China, EV adoption has continued to expand even after the government removed the subsidies, thanks to other factors such as lower total cost of ownership, better performance, and easier access to battery charging points compared to cars running on conventional fuels.

These factors are also expected to drive adoption of electric vehicles in India, which have already risen from 1.8% of new two-wheeler sales in 2021-22 to 5.1% in 2023-24. McKinsey expects this share to reach 60-70% by 2030. Companies that invest in capacity now have a better chance of capturing the market. This is Ola’s bet. Ather’s existing plant in Hosur is operating at only 30% of capacity. However, the company plans to use the IPO funds to build another plant in Maharashtra. This shows that Ather is also betting on scale.

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