Daybreak - Why Ola Electric went from leader to laggard in record time

Episode Date: January 19, 2025

Last week, Ola Electric’s shares saw a three-day slump after the Central Consumer Protection Authority asked the company for more documents for its investigation against it post receiving thousands of consumer complaints. But shares going up and down is regular stuff right? Not for Ola Electric. The company went public in August 2024 at a debut price of Rs 76 becoming the only startup that went public at a lower price. In his newsletter The Nutgraf, my colleague Praveen said it was a bold decision which paid off for Ola Electric. You see, when startups go for an IPO, it becomes clear that most of the value has already been extracted when it was private, leaving little for public investors. If it were shown to you as a graph, you’d see a sharp fall in growth post going public. That is the usual trend.But Ola Electric dodged it thanks to its lower debut price. This is exactly what makes its falling share prices a matter of concern. And somewhere in the middle of all this is CEO Bhavish Aggarwal's public perception. Tune in. Daybreak is now on WhatsApp at [phone]. Text us and tell us what you thought of the episode!Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Last week, Ola Electric's shares saw a three-day slump

after the Consumer Protection Authority asked the company for more documents for its investigation against it. This came after the authority received thousands of, thousands of complaints by consumers. Now, you may think this is regular. I mean about the shares, they go up and they go down. But for Ola Electric, this is a matter of extra concern. Now, for context, the company went public in August last year at a debut price of 76 rupees. And while we've heard of many startups that went public last year, Ola Electric's story is a bit different. It is the only startup that went public at a lower price.

In his newsletter, The Nutgraph, my colleague Praveen Gopal-Krishnan said that it was a bold decision that actually paid off for OLA Electric. You see, when startups go for an IPO, it becomes clear that most of the value has actually already been extracted when it was private. And this leaves little for public investors. If I showed it to you as a graph, you would see a sharp fall in growth after a company goes public. And this is a usual trend.

But Ola Electric managed to do. dodge it. And it can be largely attributed to its decision to list at a lower valuation, essentially a downround from the last time that it raised money from investors. At the time, Bhawe Shahgurval, the CEO of Ola Electric, suggested that a company wanted the stock to be attractive to new investors. But not everybody bought this argument. In fact, my colleague Anand Kalyana Raman was not convinced at all and he even wrote about how there are more opportunistic reasons why OLA Electric did this. Anyway, despite its motivations, there is one thing that most investors and analysts agree with.

Ola Electric got the IPO pricing right. The stock price shot up after the IPO and everybody was pleasantly surprised. Ola Electric showed everyone that it was possible for startups to list at a lower price and then provide a pop for everyone. And this is exactly why Ola Electric's falling shed. prices below its listing price is a matter of concern. Welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Da Sharma and I don't chase the new cycle.

Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 20th of January. Falling below the listing price has messed up the one thing that Ola Electric got right. and this has some challenging consequences for the company. It is now going to be much harder for it to raise capital, either through equity or through debt. Raising capital is going to face resistance from existing investors and equity is going to be more expensive. And let's not forget, we are talking about a company that is quite far from profitability.

It will need to raise capital for a while. Until around the end of last year, Ula Electric's way of doing this, was to always make optimistic proclamations about its future, profit, sales and new products. All of this drove up excitement and interest, which again drove up its stock price. But one really silly incident actually changed this. You remember the online war of words between comedian Kunal Kamra and Bhavisha Giroal? It was on X. It was honestly quite petty and you would not give it much thought, but it actually changed

something fundamental. You see, the focus shifted away from Ola Electric's products, profits and sales to its service. Now, no company wants to talk about its service because companies can almost never win the service narrative. Because sales is based on the company's past performance. Service, meanwhile, depends on a flawless, ideal performance that is when the company makes all its customers happy. Even one dissatisfied customer keeps this narrative going. So, Ola Electric's pitch to new customers basically is, listen, forget about internal combustion bikes that you have been buying for the last five decades and switch to our all new cool electric bikes

instead. But now, this is not going to work anymore. It has to say something less catchy. Like, you know, we fixed 99.1% of the problems that the consumer body reported to us. or we brought in Ernst and Young to fix our service problems. There are also other implications that are actually already playing out. Like, there is going to be way more scrutiny on OLA Electric. Not just from business media, consumer protection bodies,

but from government entities who actually wield real power and are important for OLA Electric's future. It's received a warning from the market regulator Sebi already and then there is the ongoing consumer protection body's investigation. When the consumer protection body asked Ola Electric for more documents on the company for its probe last week, it had a direct impact on OLA Electric's share prices. They fell. See, it's not like we're saying there is going to be some massive action against the company.

We are talking more about scrutiny, which as we are seeing, it is proving to be detrimental to Ola Electric. But like Praveen wrote, So what? How does any of this matter? The fortunes of companies go up and down all the time. Ula Electric's stock price was up for a few months, now it is down. It had great sales, in a few months it will get its service sorted, and then Agarwal will be back online shouting victory. He may even do an interview with a sympathetic media outlet, explaining how hard the ordeal was and how little he slept. But, Praveen says there are two specific reasons why this current situation will cost OLA Electric dearly.

And he believes neither of them are cyclical or easily reversible. Stay tuned. The first reason why all of this may cost OLA is that this has wasted OLA electric's huge advantage, which was its market share. For many quarters, Ola Electric was the market leader. Between April and September last year, though, the company's market share almost halved. Again, this is not an existential threat for Ola Electric and it's not like the company will disappear, but it has given away a big advantage. Now it is forced to overinvest in service

and underinvest in new products and sales. And this is going to cost the company dearly and will set it back. Finding new customers is going to be much harder and the damage is incalculable and it'll take much longer for Ola Electric to come back to where it was earlier. And the second reason is actually Bhavish Agarwal, the CEO himself. The company's fortunes, you see, are intricately tied to him and his perception in the public. And in the long run, that cannot be a good thing for investors. Until now, all that he has declared in public about his company came across as studied, orchestrated, whether it was launching products like Crotrim or fighting imaginary battles

with Google Maps. Investors understood all of this. This personality made sense to them. But ever since the camera incident, there is a marked change. Like on Christmas, when Bhawishagrual launched a gold-plated version of Ola Electric Scooter and posted it on Twitter, people immediately started making digs and raising questions about the company's shabby customer service. Like Praveen said in his newsletter, if Bawi Sugarwall's veneer has cracked, well, maybe one interpretation is that things are worse than they appear at Ola Electric. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the ken.com and click on the red subscribe button on top of the Ken website. Today's episode was hosted by Snickda Sharma and edited by Rajir Siyah.