On the 2nd of April, Ola Electric issued a press release stating that it had slashed the prices of its Roadster X+ motorcycle (9.1 kWh variant) by INR 60,000. The 9.1 kWh variant of the X+ uses Ola’s own 4680 NMC cells, which the company terms the Bharat Cell.
Link to original press release.
Ola stated:
The price drop had been enabled by rapid economies of scale at its Gigafactory and the vertical integration of its indigenously developed 4680 Bharat Cell. As cell production has ramped up, cost efficiencies have improved materially, allowing Ola Electric to pass on these benefits directly to customers.
In simple language, this means that “We now make the cells in-house. Because of the local manufacturing and the vertical integration, the cell prices have fallen so low that we are now saving INR 60,000 on a 9.1 kWh battery pack and are happy to pass this to the customer.”
That’s swell.
At a 9.1 kWh pack size, this amounts to nearly INR 6600 / kWh in savings. Incredible by any standard.
Except, this is Ola, always trigger-happy with positive press releases. And like many of their earlier announcements, this did not pass our smell test.
If Not This, Then What?
The core question with every such announcement is “If not this, then what?” So if Ola had not used its 4680 NMC Bharat Cells for making this 9.1 kWh battery pack, the other choice would have been 21700 NMC cells, likely imported from China, the default supplier location for a majority of cell imports into India. The 21700 NMC is also the most popular format and chemistry of cells being used in India right now for two-wheelers. Ola’s non-Bharat cell range – all battery packs except the 5.2 kWh and 9.1 kWh – uses the same cell format.
We estimate that the cost on a cell basis for 21700 NMC now sits at around INR 6,000 per kWh. To verify, here is the import shipment data from Volza. Some importer, likely a two-wheeler manufacturer, is getting NMC cells from China. Data indicates that the cost per cell is slightly less than USD 1.2, or INR 112 in local speak.
For making the 4.0 kWh battery pack, Ola uses 224 cells in a 14S16P configuration. That’s 56 cells to a kWh of energy storage. Extrapolate that to 9.1 kWh, and the number of cells increases to about 510. On a pure cell cost basis, that’s INR 57, 120.
Congratulations! You just made a claim of saving INR 60,000 on cells sourced internally that should cost only INR 57,120 to source externally.
In other words, that’s not possible, and we wish this scrutiny were conducted by the media and analysts giving recommendations on OLA.
Did Ola Lie? If Not This, Then What…Again
This is a publicly traded company (and in an ideal world) open to all sorts of scrutiny, so we should start with the hypothesis that “they cannot lie”.
If Ola is not saving any such kind of money on the 9.1 kWh pack, where is the INR 60,000 coming from? Value Analysis and Value Engineering (VAVE) are often used by every company to scrutinize components with a fine-tooth comb and reduce costs wherever possible. On a good day, you would pass on part of that to the customer.
Except that Ola categorically states that the cost savings are due to vertical integration driven by its cell plant.
So the only other plausible explanation is that Ola has simply cut prices, surrendered gross margins to shore up sales.
That also means it did not correctly state things in its press release.
Specifically, the company wants to push sales of variants that are energised by its in-house manufactured cells. That means it is willing to take a bigger hit on its 9.1 kWh motorcycles to get customers. Recently, the company decided to move INR 5,750 million (USD 61 million) of IPO money out of its R&D basket to pay off debt and to drive organic growth. INR 1,000 million (USD 10.63 million) of that is coming towards organic growth. Ola is likely using some of that to drive its pricing as a marketing weapon strategy.
The Bigger Picture Problem
The 21700 NMC cell prices are also indicative of a larger problem…for anyone setting up a small gigafactory. As the data below from Bloomberg NEF indicates, cell prices have been continuously falling. As a result, the contribution of cell prices to the overall vehicle BoM is eroding.
Add to that, LFP has become China’s weapon of choice. While NMC is energy dense, LFP beats it on nearly every other aspect. LFP has better cycle life, is thermally more stable, and undercuts NMC by 25-30%. That undercutting is because China is sitting on massive capacity, much more than what its domestic automotive industry and energy storage requirements need. Chinese suppliers can offer rock-bottom prices just to keep their factories running.
That price gap is not lost to Indian manufacturers, and InsightEV intelligence indicates that almost all new battery and vehicle programs are being designed around LFP.
That’s a big problem for anyone who has set up a gigafactory making NMC cells in India.
The InsightEV Forecast for Ola Electric
We just released the Indian EV market forecast, and many early subscribers have come back with questions about Ola Electric. We have a rather drastic forecast for the company. It follows our ideology of making strong forecasts that better fit the market in today’s fast-changing world than doing a ho-hum kind of forecast that tries to please all.
Forecasts are also dynamic, and we update ours every three months, triangulating it closer to the actual data, the dynamics in the market, and any major pivots that any OEM has made. We cannot say that our forecast for Ola will not change in the future, but for that to happen, the company has to make a positive pivotal shift, or every competitor has to make one in the opposite direction.
As of now, we detect none.
Sales Momentum is sustained
March was a good month for Ola Electric in terms of actual sales numbers. At 10,119 units, sales numbers were up 154% month-on-month, from 3,973 units in the previous month. This was driven by two factors:
First, the industry had immense tailwinds riding on the expected end of the PM E-Drive (FAME II extension) scheme. Second, there is a war happening not too far from India, in a geographical area through which most of India’s imported oil comes through. While the Indian pump prices have remained unchanged, there is apprehension among the common man, and that has helped E2W sales. Every brand had a record sales month in March.
With that perspective, Ola’s numbers are good, not great. It also mattered that Ola pushed sales aggressively with massive discounting and buyback assurance. The company also launched an Insiders program, offering benefits of up to INR 50,000 for customers to upgrade from old Ola scooters to new ones.
Sales have gone up thanks to the schemes, the discounts, and the market momentum. What continues to worry is that the company is aggressively pushing sales, probably sacrificing margins in doing so, a strategy it has used in the past as well.
The next quarterly results would be heavily anticipated.
