After consolidating its position as a key electric two-wheeler manufacturer in India over the last year or so, Bhavish Aggarwal-led electric mobility startup Ola Electric
took a step towards public listing by filing its draft red herring prospectus (DRHP) last month. The startup is looking to raise over INR 7,000 Cr through a combination of fresh issue of shares and offer for sale (OFS).
However, a closer look at its DRHP filed with SEBI shows that any significant changes in government policies may deal a major blow to its business.
Ola Electric is currently heavily dependent on government subsidies received under the FAME-II scheme and the automobile PLI scheme, which incentivises its domestic manufacturing and sales. For instance, the official website of the Ministry of Heavy Industries (MHI) shows that currently all of Ola Electric’s vehicle models are subsidised under the FAME-II scheme, with the incentive amount varying between INR 18,305 and INR 59,550.
The incentives enable a reduction in the cost of customer acquisition to a great extent while boosting the sales of eligible OEMs.
In its DRHP, the startup highlighted the dependence on subsidies as a key risk.
“Any reduction, elimination, or discriminatory application of government subsidies and economic incentives because of policy changes, or the reduced need for such subsidies and incentives due to the perceived success of the EV or other reasons, may result in the diminished competitiveness of the alternative fuel and EV industry generally or our EVs in particular,” the DRHP said.
It must be noted that a number of speculations are being made around the FAME-II policy. While the demand incentive is expected to end on March 31, 2024, there are expectations that the policy could be extended till FY25.
On the other hand, there are also speculations that the government may come out with a revamped FAME-III scheme.
The FAME-II scheme has witnessed a number of controversies over the last couple of years. The MHI also put an embargo on some of the manufacturers from listing their sales on the official National Automotive Board (NAB) portal, following the controversies around the misappropriation of the subsidies. Many original equipment manufacturers have also been penalised by the ministry.
The MHI also cut incentives under the FAME-II scheme to 15% of the ex-factory price of a two-wheeler EV from 40% earlier and slashed the demand incentive to INR 10,000/kWh from INR 15,000/kWh previously. This led to many two-wheeler OEMs, including Ola Electric, raising their vehicle prices.
As per a Reuters report last month, Ola Electric slashed its sales goals for 2023-2025 by more than half and delayed its target of achieving profits by a year following the government’s decision to reduce incentives that led to a hike in its e-scooter prices.
“If current tax incentives are not available in the future, our business, prospects, financial condition, results of operations, and cash flows could be harmed. Our EV sales are also impacted by any future changes in government policies pertaining to tariffs on imported passenger EVs and cells,” Ola Electric’s DRHP said.
