Ola Electric stock jumps 3% on Bernstein's Bullish Outlook

Shares of Ola Electric Mobility surged over 3% to ₹107.5 early on September 25, after international brokerage firm Bernstein’s report asserted that the company is gaining market space in electric two-wheelers on profitability rise.

Ola Electric’s shares edged up 2.2% to ₹106.5 on the NSE, nearly an hour after trading began, around 9:30 AM IST on Wednesday, 25th September. Over the past month, however, Ola Electric shares have declined by 16%.

According to Bernstein in its report, Ola Electric has the strongest gross margins among its peers and is moving close to EBITDA-level profitability. This means the company is on a sound growth trajectory.

Despite some concerns over the profit sustainability and issues Ola might face in the EV space, Bernstein sees room for greater optimism. The firm said Ola is actually widening its lead in the electric two-wheeler space as well as on the profitability front. At the same time, Ola is getting closer to positive EBITDA, hence greater growth momentum.

Ola has fared well so far in terms of a move towards profitability, reporting an EBITDA margin of -2%, outperforming peers like TVS (-7.9%), Bajaj (-10.4%), and Ather (-37%). Bernstein credits the competitive advantage to high localization, vertical integration, and a D2C model. The government incentives such as PLI and FAME schemes also have buttressed its financials.

Ola Electric, therefore has a gross margin of 18.4% for Q1 FY25, significantly higher than that of its rivals, 14% at TVS, 12.3% at Bajaj and 7% at Ather. The margin is better for Ola, incorporating after having a very low consumer price for the brand: 10-25% lower than its competition.

In addition to its dominance in the EV market, the technological advancement and strategic investment at the company further justify its positions. The company has so far invested approximately $1 billion dollars into building out an electric vehicle ecosystem, leaving most of its competition still struggling on how to scale their business models.

On August 15th, Ola unveiled Gen 3, the third iteration of its electric vehicle platform set to further boost the gross margins and moves the company closer to sustained profitability.

The Bernstein report further presents that Ola targets the urban commuter and tech-savvy, cost-conscious customers-a strategy that has seen the company ride on the high sales volumes. The company seeks to increase its presence in the market through diversity in its vehicle formats.

Several factors explain why Ola Electric might be performing better than TVS on the EBITDA front. Its access to PLI as well as FAME subsidization, better localization, in-house component manufacturing, and a direct-to-consumer model could mitigate all revenue leakages. In the recent past, growing scale in the EV market improved bargaining power, for gross margins.

TVS revealed in its latest earnings call that its EV products qualify for the PLI benefits. The EBITDA loss of its EV segment is 7.5% as of now, and the company is hopeful of breaking into profitability on witnessing these subsidies.

Meanwhile, for instance, Bajaj is relatively at a cost disadvantage in both cases: it outsources some of the most critical components like motor and battery packs, aside from using an entire metal body for its Chetak scooter, for which the closest contenders retain fiber bodies.

Apart from Bernstein, many of the major firms – Goldman Sachs and Bank of America (BofA) – have recently adopted bullish views on Ola Electric. Goldman Sachs expects the company to break even on EBITDA by FY27 with above 40% CAGR in revenue growth between FY24 and FY30 with free cash flow break-even by FY30.

BofA also remains optimistic and states that Ola will do well in the future, given its lead in terms of technology and cost management. Though concerns exist regarding battery technology, BofA says that Ola remains a good long-term investment.