2 days ago
Ola Electric puts cell PLI timeline on backburner amid profitability push
Ola Electric Mobility Ltd has said that it will not meet the timelines set by the government to get incentives under the production-linked incentive scheme as it doesn't believe it needs to build beyond 5GWh capacity for its cell manufacturing plant until financial year 2029.
The delay in expanding beyond 5GWh capacity comes as the firm pivots to a more profitability-centric approach than looking at aggressive penetration after reporting a 50% year-on-year drop in revenue to ₹ 828 crore and a surge in losses to ₹ 428 crore in the April-June period. However, the company achieved operational profitability in June for its automobile business, which led to an 18% jump in its stock price.
During Ola Electric's quarterly earnings call on Monday, managing director and chief executive officer (CEO) Bhavish Aggarwal said that the company will incur a maximum ₹ 100 crore penalty for not meeting PLI targets and doesn't believe that PLI incentives are needed to have a profitable business case for the cell plant.
After 5GWh capacity is operationalized and the cell business becomes stable, the company will look to enter the battery storage business and sell the in-house 4680 cells to other companies. Moreover, the company will also look at relevant export markets for its product.
'We are in touch with the government to relook the timelines,' Aggarwal said in the post-results earnings call.
In 2022, Ola signed an MoU with the government to build 20GWh capacity, with ₹ 225 crore investment per gigawatt hour in the first two years itself.
Moreover, the company will also look to redeploy ₹ 1,227 crore raised as part of its initial public offering in August 2024, which was initially meant to expand 5GWh capacity to 6.4 GWh by April 2025.
However, Aggarwal insisted that the cell remains an important pillar in the long-term strategy of the company. 'We should be seen as a vertically integrated cell company with a large anchor client…The rare earth situation shows how important it is to have this capacity,' he said.
This comes four months after Ola Cell Technologies, Reliance New Energy Battery Storage and Rajesh Exports received a government notice for missing the deadlines for operationalizing their battery plants within the agreed time frame.
In response, the companies are said to have requested for a relaxation in timeline for the scheme, but there is no clarity from the government yet whether the firms will receive any relaxation.
In an interview with Mint, Union heavy industries minister H.D. Kumaraswamy had earlier said battery makers in the country faced challenges in meeting timelines under the production-linked incentive scheme for advanced chemical cells (PLI-ACC) due to unavailability of technology, skilled manpower and upstream components, besides challenges in importing essential equipment and machinery.
The company suggests that its focus in the upcoming quarters will be on profitable growth, led by improvement in margins. In the first quarter of this fiscal year, the Ebitda margin of the company's auto business improved to -11.6% from -90.6% in the previous quarter. However, in the same quarter last year, its margins were higher at -6.8%.
The company managed to cross its guidance of 65,000 sales in the first quarter as it recorded 68,192 scooter and bike sales during the quarter.
For the full financial year, the company expects 3,25,000-3,75,000 vehicle sales and ₹ 4,200-4,700 crore revenue. In FY25, it recorded 344,000 sales and ₹ 4,514 crore revenue.
'In sync with this industry dynamic, we've made a pivot to our strategy over the last two quarters from aggressive penetration to balanced profitable growth,' Ola Electric said in a letter to shareholders.
'Our goal in this phase is to consolidate and institutionalize our operations, improve our margins and get ready for the next phase of growth driven by our expanding product portfolio, improving distribution and engaging the next set of customers entering the industry.'
The company is not going to undertake any major growth capital expenditures for its automotive business in the current financial year.
The company has also given an estimate of how much cell capacity will be needed to meet captive demand of vehicles going forward.
'For reference, if the battery capacity per vehicle is 4kWh, then 1.4 GWh is 3,00,000 annual vehicles and 5 GWh is 12,00,000 annual vehicles,' the company said in the letter.
'Given that the EV market has evolved slower in recent quarters, we don't foresee the need to expand beyond 5 GWh till FY29.'
Aggarwal told investors that for the cell business, the capacity at which it will achieve breakeven point will be 3.5-4 GWh.
