Shares of Ola Electric Mobility have gained significant momentum, rising over 12% following a “buy” rating from brokerage firm Citi. After Wednesday’s rally, the stock price has climbed back above its initial public offering (IPO) price of ₹76, reflecting renewed investor confidence. Citi’s analysis suggests further potential for growth, offering a price target of ₹90, which translates to an upside of approximately 22% from Tuesday’s closing price.
Key Drivers Behind Citi’s Optimism
Citi’s bullish outlook is underpinned by Ola Electric’s commanding 38% market share in the electric two-wheeler segment, its diverse product portfolio, and its strong focus on research and development (R&D). Additionally, the company’s emphasis on vertical integration and large-scale production sets it apart from its peers. The soon-to-be-launched electric motorcycles and three-wheelers are expected to act as significant growth drivers, expanding its market penetration and boosting sales volumes.
Despite recent concerns over the quality of service and customer perception, Citi anticipates these challenges will diminish over the medium term. The brokerage believes that Ola Electric’s back-end supply chain improvements will keep pace with its growing volumes, thereby addressing service-related concerns and enhancing customer satisfaction.
Profitability on the Horizon?
Ola Electric is yet to achieve profitability at the Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) level. However, Citi points to the company’s new Gen 3 platform as a potential game-changer. This platform is expected to streamline production costs and improve overall profitability. Additionally, Citi foresees industry consolidation favoring established Original Equipment Manufacturers (OEMs), like Ola Electric, as they leverage scale and operational efficiencies to dominate the market profitably.
Risks on the Road Ahead
While the outlook is optimistic, Citi has flagged five key risks that could hinder Ola Electric’s growth trajectory:
- Low Electric Vehicle (EV) Penetration: The adoption of electric two-wheelers in India remains in its nascent stages, with traditional internal combustion engine vehicles still dominating the market.
- Intense Competition: Ola Electric faces stiff competition from established players like Hero MotoCorp, Bajaj Auto, and TVS Motor, as well as emerging EV startups.
- Negative Perception of Product and Service Quality: Recent concerns over service issues have dented consumer confidence, which may take time to recover.
- Technological Obsolescence: In the rapidly evolving EV sector, staying ahead of technological advancements is critical to maintaining a competitive edge.
- Sustained Losses: Continued financial losses could weigh on investor sentiment and delay the company’s path to profitability.
Industry Standing and Peer Comparison
Citi’s note places Ola Electric among its top preferences in the two-wheeler segment, alongside Eicher Motors, Hero MotoCorp, Bajaj Auto, and TVS Motor. Ola Electric ranks fourth in Citi’s preference list, reflecting its strong potential but also the challenges it faces in a competitive landscape.
Among analysts covering Ola Electric, the sentiment is largely positive, with five out of seven analysts recommending a “buy” rating. However, two analysts have issued a “sell” rating, underscoring the uncertainties associated with the stock.
Stock Performance and Market Dynamics
Ola Electric Mobility’s stock, which debuted in August 2023, has experienced a roller-coaster journey. The stock soared to a post-listing high of ₹157.4 shortly after its IPO, significantly outperforming its IPO price of ₹76. However, this bullish trend was short-lived, as the stock corrected over 50%, hitting a low of ₹66.6 on November 22. The recent rebound to ₹82.48 signals renewed investor interest and confidence, driven partly by Citi’s positive coverage.
The correction and subsequent recovery reflect the market’s mixed sentiments about Ola Electric. While its ambitious growth plans and market leadership position have attracted investor interest, concerns over profitability, competition, and service quality have led to volatility in its stock price.
The Road Ahead for Ola Electric
Ola Electric’s journey in the stock market mirrors its ambitions in the EV industry—marked by bold aspirations and significant challenges. The company’s focus on innovation, vertical integration, and expansion into new product categories positions it well for long-term growth. However, achieving profitability and addressing service-related concerns will be critical to maintaining investor trust and market leadership.
As the EV ecosystem in India evolves, Ola Electric’s ability to adapt to market dynamics, overcome challenges, and deliver consistent performance will determine its success. With the upcoming launch of electric motorcycles and three-wheelers, the company is poised to capture new growth opportunities, making it a stock to watch in the rapidly growing EV space.