Ola Electric IPO: Risks and Challenges

Ola Electric, a key player in India’s electric two-wheeler market, recently submitted its DRHP, revealing insights into its operations, risks, and future plans. This article dissects key aspects of Ola Electric’s DRHP, shedding light on potential risks and challenges for the company.

Ethical Business Practices and Sustainability 

Ola Electric’s disclaimer on suppliers’ compliance with ethical business practices, including environmental responsibilities, sustainability standards, fair wage practices, and adherence to child labour laws, has raised eyebrows. Given its role in the clean-tech space, stakeholders expect Ola Electric to take a stronger stance on sustainability. Scope-3 emissions reporting is crucial for assessing the environmental impact of the supply chain, and Ola could leverage its position to encourage suppliers to adopt sustainable practices.

Limited Operating History and Customer Complaints 

Founded in 2019, Ola Electric’s short operating history is a potential red flag, especially when it comes to the risk factor of designing and manufacturing electric vehicles (EVs) without defects. The mention of 189 consumer disputes and numerous complaints on social media indicates challenges in customer satisfaction and product quality. This poses a real concern for investors, emphasizing the need for Ola Electric to address these issues promptly.

Changing Business Models and Customer Charging 

The transition from offering free charging to introducing charges for EV charging services reflects a maturing business strategy. While some critics may view this change as a risk, it aligns with industry norms and sustainable growth. Comparisons to Tesla’s approach highlight that Ola Electric’s decision is not unprecedented, and it may indeed contribute to better resource management and customer behaviour.

Related Party Transactions and Business Structure 

The revelation of 10 subsidiaries and 15 entities within the promoter group raises questions about transparency and potential conflicts of interest. The separation of the navigation system, powered by Ola Maps, into a separate promoter-group company, Geospatial Services Pvt Ltd, raises eyebrows. Transparency and clear communication about related party transactions will be crucial for building investor confidence.

Independent Audit Committee and Equity Allocation 

The recent appointment of Manoj Kumar Kohli as an independent director, who also chairs the audit committee, raises concerns about independence. The allocation of nearly 300,000 shares to Kohli adds complexity to the situation, demanding scrutiny of the independence of the audit committee and potential conflicts of interest.

High Attrition Rates and Talent Challenges 

Ola Electric’s consistently high attrition rates, especially at 47% in the financial year ended March 2023, signal challenges in talent retention. While the company attributes this to poaching, industry experts suggest that specific domains face difficulty in hiring due to a lack of expertise in certain areas. Ola Electric needs a robust talent strategy to address these concerns.

Ola Electric’s DRHP provides a comprehensive overview of the company’s journey, risks, and future plans. Investors should approach the IPO with a discerning eye, considering the challenges highlighted in the document. Ola Electric’s success hinges on its ability to address customer concerns, enhance transparency in related party transactions, and strategically navigate the evolving landscape of the electric vehicle market. As the company gears up for its IPO, stakeholders eagerly await how it will navigate these challenges and capitalize on the opportunities ahead.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.