Since its much-anticipated IPO in August, Ola Electric has seen a steady decline in both stock price and market sentiment as the EV manufacturer, which once held a dominant share in India’s electric two-wheeler market, now finds itself under mounting scrutiny.
On October 7, the Central Consumer Protection Authority (CCPA) issued a show-cause notice to Ola Electric, citing alleged violations of consumer rights, misleading advertisements, and unfair trade practices.
This comes as consumer complaints about the company’s after-sales service and scooter quality continue to pile up.
The notice has given Ola Electric 15 days to respond, as confirmed in a stock exchange filing by the company’s CFO, Harish Abichandani.
Following the news, the company’s shares tumbled, with the stock falling by more than 6% on Tuesday since its previous close, reflecting growing investor anxiety.
However, the stock pared some losses and was trading at more than Rs 95 apiece at 2:30 pm, IST.
The day prior, shares had already plummeted 9.1%, dropping to ₹89.14, a sharp contrast to its August highs, due to a similar worry emerging when company founder Bhavish Aggarwal indulged in a heated exchange with Indian comedian Kunal Kamra on X around service issues of Ola Electric’s scooters.
The company’s stock has lost 40% of its value from its peak of ₹157.5, though it remains 26% above its IPO price of ₹76.
The volatility in the share price has caused analysts to express concerns.
Market experts believe the show-cause notice and public controversies are likely to impact customer confidence and eventually sales, and the share price could remain under pressure for as long as the company takes to address these backend issues.
During the time, it could also further cede its market leader position to competitors.
“There is a lot of work that needs to be done on the backend. Because Ola was number one in the electric two-wheeler space, they might lose that position to competitors until they address their issues,” remarked Prakash Diwan, a market expert, in a CNBC TV-18 interview.
He also noted that the stock, which had risen on high expectations, is now reverting to more fundamental levels and also said since the challenges have emerged early in the company’s life as a publicly listed entity, it allows them time to address and correct course.
Customer dissatisfaction and service issues come to a head
Ola Electric’s recent stock market performance has been marred by negative publicity surrounding its customer service issues.
A heated public spat on X (formerly Twitter) between Ola Electric’s CEO Bhavish Aggarwal and Indian comedian Kunal Kamra further fuelled concerns.
Kamra shared a photo showing discarded Ola Electric scooters, sparking widespread discussions about the brand’s service quality. Aggarwal’s defensive response only added fuel to the fire.
According to a report by Mint, Ola Electric receives over 80,000 customer complaints per month, many of which pertain to delayed responses, faulty batteries, and software glitches.
These issues have led to product recalls and frequent apologies from the company on social media.
Ola Electric’s CEO Bhavish Aggarwal has been at the center of these controversies, often engaging directly with customers on X.
However, his interactions have occasionally backfired. For instance, when Kamra shared a photo of discarded scooters, Aggarwal’s dismissive reply led to a backlash.
Thousands of users flooded the comments, criticizing Ola for its poor service.
Some users shared personal stories about saving for months to buy an Ola scooter, only to face immediate issues that led to lengthy repairs.
In fact, this pattern of consumer dissatisfaction is not new.
Since 2022, customers have reported issues like overheating batteries, scooters catching fire, and unreliable software updates.
One of the reasons behind these issues is that Ola Electric operates using a direct-to-consumer (B2C) model, rather than the traditional dealership approach.
This model lacks the feedback loop that dealerships typically provide, acting as a sounding board to monitor performance and relay customer feedback to business owners.
Analysts have flagged Ola Electric’s service woes
Major brokerage firms have also flagged concerns about Ola Electric’s service capabilities.
Last month, HSBC released a report after visiting several Ola service centers and found that most were overwhelmed with requests and lacked skilled manpower and adequate testing equipment.
There is an acute shortage of skilled manpower and testing equipment in most centres, HSBC wrote, adding that there is also a clear lack of experience in the development and maintenance of service centres visible in many locations
“The company could benefit by investing more in service staff, spare parts, and service space,” the report stated.
However, despite these issues, HSBC maintained a ‘Buy’ recommendation on the stock, setting a target price of ₹140.
Declining market share raises further concerns
Ola Electric’s dominance in the Indian electric two-wheeler market has been on a steady decline.
In September 2024, the company reported its lowest monthly sales of the year, selling only 23,965 vehicles.
This marks a second consecutive month of declining sales.
More alarmingly, its market share has dropped from over 50% in April to just 27% by September.
During this period, competitors like TVS Motor and Bajaj Auto have capitalized on Ola’s struggles, gaining market share.
TVS Motor’s share price was up by 3.5% on Tuesday, while Bajaj Auto was up by almost 1.9%.
TVS Motor, with its iQube model, and Bajaj Auto, with its Chetak, have posted sales increases for several consecutive months.
In contrast, Ola Electric’s slowing sales are particularly concerning, as the company has yet to achieve profitability.
Ambit Capital last month initiated coverage on Ola Electric, issuing a ‘Sell’ recommendation with a target price of ₹99.60.
The brokerage highlighted the increasing competition from new entrants like Honda and Suzuki, which could further erode Ola Electric’s market share, reducing it from 42.4% in FY25 to just 25% by FY31.
Should you bet on Ola Electric?
Analysts believe the show cause notice and negative publicity is likely to impact sales in the short to mid term but the long term story of the company is still optimistic and the current patch could be a transitory phase for the company.
The management has already been pressed into corrective action.
According to Mint, Ola Electric has revamped its service team to accelerate a service-related overhaul at the company.
It is also adding more service touchpoints, including certified service partners, to lessen the service load at its service centers.
Analysts however believe despite the correction in the share value, the valuation may still not be very comfortable for investors to bet on the stock, and they may want to wait for a further correction.
Brokerages have remained cautiously optimistic. Despite flagging its service woes last month, HSBC maintained a ‘Buy’ rating on Ola Electric, citing the company’s potential for recovery.
The brokerage believes that Ola’s expansion plans and its efforts to improve service quality could help the company regain its market position.
Goldman Sachs and BofA Securities too initiated buy calls on the company last month predicting an almost 50% upside.
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