Ola Needs A Lesson Or Two

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Good morning. In today’s edition: Ola Electric’s unending woes, unsecured loans by NBFCs are catching up with them and car inventory pile-ups are back in the news.

THE TAKE

The Fork On The Road For Ola

The problems that cab hailing company turned electric vehicle maker Ola Electrics faces began with a fork. This wasn’t the kind of fork you eat with but the piece of metal that joins the handlebar of a two-wheeler to the front wheel. 

Ola Electric, India’s largest electric scooter manufacturer, acquired its technology from a Dutch e-scooter company Etergo. The technology and components were rolled out in the Indian market in August 2021. A major exception seemed to be the battery pack which was now fixed as opposed to the removable in the original. Automotive reviewers called the Ola S1Pro a better scooter than the original and India’s best-performing, fastest and even best-looking electric scooter. This was till the forks started to collapse and complaints gathered steam in January 2023. Users shared pictures and even initiated a Change.org petition against the company.

Some users pointed out, and automotive journalists concurred, that it was quite obvious that this design was never meant for Indian roads. The right thing for Ola to have done is a proper recall and fix the forks. Instead, in March it offered an optional upgrade to strengthen the fork further while insisting the concerns were unfounded and its components were engineered under extreme conditions and built for greater loads. Ola’s response was denial, obfuscation, and attack as is evident from their note released in March. A trait that continues to the present day. Ola CEO Bhavish Aggarwal found himself in the thick of a social media battle with stand-up comedian Kunal Kamra who posted pictures of scooters awaiting repair.

Is Ola Learning Its Lessons?

There are several lessons for Ola to learn from this incident. First, there is a reason why products that can cause harm to their users when they malfunction — like cars and scooters — have to undergo severe testing. Back in the day, Tata Motors faced criticism over the Tata Indica and the Tata Nano. Ratan Tata, then chairperson of the Tata Group, did not launch personal attacks on competitors or social media trolls for his misery.  

The problem, be it a battery or a fork, gets compounded when the service centres of the manufacturer aren’t equipped enough to solve it. This reflects inexperience and arrogance on the part of the maker of the product. Traditional automakers understand the cycle better — that setting up a dealership network to sell vehicles should go hand in hand with servicing capability as new vehicles are launched. Ola instead went for a direct-to-consumer approach which has evidently backfired. Two weeks ago it announced a shift in strategy with a turn towards multi-brand retail showrooms.

The bottom line is that the automotive industry is a tough one for serious players and even the best make mistakes. There is a shortage of electric vehicle (EV) technicians today, for all classes of EVs. In such a scenario, companies should not be dumping products in the market without a proportionate capacity of trained service staff to respond when things go wrong. Unless, they didn’t really budget for it in the first place.

The Problem Of Price

The starting price point for the S1 Ola scooter was Rs 80,000, which they are now selling for  Rs 49,000. The older prices are still showing on several auto websites. This is irrational and detrimental to the company and the industry. Low prices mean compromises along the way, including the cost of setting up a spares and service network. The company could of course argue that investors are paying for these market entry or penetration strategies. And discounting is a cost they can bear. That is technically correct but practically improbable as eventually, the mistakes of the past will catch up with them. Because unlike in other digital industries, your job does not end with customer acquisition. It begins there..

CO:RELATION

Non-Banking Worries

Non-banking finance companies (NBFCs) in India have played a significant role in expanding the scope of loans. They have quickly adapted to digital transformation and won over customers. The rise of fintech companies (also categorised as NBFCs) contributed significantly to this growth. The Reserve Bank of India (RBI), India’s central bank, had to intervene to slow the rapid growth by changing the exposure norms for banks and lending to NBFCs. 

The unsecured business loan book of NBFCs is estimated at close to Rs 2 lakh crore, according to India Ratings, an affiliate of global ratings agency FITCH. Analysts have found early signs of stress in asset quality due to intense competition among lenders, stress on borrowers, higher write-offs, and high borrowing costs for NBFCs. Investors are quick to see the stress. While the financial services sector has underperformed the broader market, share prices of non-banks like Bajaj Finance, L&T Finance, Mahindra and Mahindra Financial Services are witnessing a sharper sell-off than other firms over the past few days.

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CORE NUMBER

$37 Billion

This is how much money cybercrime syndicates made in Southeast Asia in 2023, according to the United Nations (UN). They’re using malware, generative artificial intelligence and deep fakes to carry out these crimes and Myanmar, Cambodia and Laos are considered to be the hotbeds. The UN report comes days after the Indian Cybercrime Coordination Centre issued an advisory on a new “digital arrests” scam.

FROM THE PERIPHERY

—🚘 The buildup of passenger vehicle inventory is back in the news as September sales slid 9% even as we are in the middle of India’s festive season. The festive season usually sees higher sales in all sectors including auto. Federation of Automobile Dealers Associations (FADA) urged manufacturers to take corrective steps. There has been much back and forth between car makers and dealers over inventory pile-ups in the last few months.  

—₹ As the Indian rupee hit record lows, the RBI has allegedly asked state-run and private banks to not bet heavily against it. Reuters reported that the central bank made phone calls to send these instructions to banks as the rupee hit 83.9850 against the US dollar. This hasn’t been publicly communicated by the RBI yet. 

—✈️ In light of recent safety concerns raised by a US NTSB Aviation Investigation Report, the Directorate General of Civil Aviation (DGCA) has issued an advisory for Boeing 737 operators. The advisory addresses the risk of jammed or restricted rudder control systems linked to Collins Aerospace SVO-730 actuators. Aware of the potential danger, the DGCA has introduced interim safety guidelines to ensure flight crews are adequately prepared to manage rudder control issues until Boeing and the FAA provide further operational guidance.

—🛍 Mall spaces in India’s tier 2 and 3 cities are expected to expand further with the retail sector betting big in these regions. A report by real estate services company JLL said that these cities could see 25 million square feet of new retail spaces by 2029. North India leads this trend, accounting for 44% of the upcoming supply, with Ludhiana, Jaipur, and Lucknow at the forefront. Meanwhile, southern cities like Coimbatore and Trivandrum are catching up fast. 

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Correction: In yesterday’s edition the Core Number mentioned was Rs 27,142. It should have been Rs 27,142 crore. The error is regretted.

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