Ola Electric Bleeds Profusely

Gross Margin is a metric that we love to hate. It makes loss-making companies look good in the second line of the financial results. In common man speak, it is the difference between the Bill of Materials (BoM) cost of the goods and the sales price. It tells the world, "We are not selling things below the material input costs."

It is a good window dressing for loss-making companies. For profitable companies, Gross Margin has no place in the balance sheet, as you can see in the Bajaj Auto financials.

A lot of numbers get added in the form of operating expenses after the gross margins. These are the numbers that matter the most, as you need to spend money beyond the BoM sheet to actually make vehicles and sell them.

So when we look at Ola Electric's latest financials, we don't pay much attention to the Gross Margin levels. Just for clerical purposes, let us mention that it improved from 18% to 19.2% on a year-on-year basis and deteriorated from 20.8% to 19.2% on a quarter-on-quarter basis.