Ola Electric Mobility Limited (OLAELEC) Earnings Call Transcript & Summary

Hi. Good day, and welcome to the Ola Electric Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Before we begin, a few quick announcements for the attendees. Anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement, may involve risks and uncertainties. Such statements or comments are not a guarantee of future performance, and actual results may differ from those statements. To begin with, I would like to request Bhavish Aggarwal, Chairman and Managing Director of Ola Electric; Harish Abichandani; CFO; and Ankush Aggarwal, VP, Business Finance of the company, to take you through the results.

Thank you, Abhishek. Hi, everybody. This is Bhavish. Well, this time, we have shared a fairly detailed shareholders' letter. So I hope all of you have had time to read through it, look at it. One of the things we realized over the last couple of earnings calls was that we had to share a little bit more depth of our business details with all of you so that you can understand our business better and obviously, those who are modeling it can model it better. So a few highlights that I will just talk you through in the report, and then I'll try and leave more time for Q&A because this time, I'm assuming there will be a lot of questions from all of you. I hope there are a lot of good questions from the audience. So this has been, in many ways, a transformative quarter for us. As we write in the note, we have, over the last couple of quarters, transitioned our strategy from aggressive penetration to a more balanced profitable growth strategy. And given where the industry also is after the initial hyper-growth phase, industry is steady and consolidating, and there will be another growth phase in the next near future, but till then it's time for players to actually consolidate their operations. And we believe we have a very strong competitive advantage in consolidating our approach on profitable growth. And as you can see, our gross margins this quarter have been quite good. And as you can read in the note, this quarter's gross margins are largely without any incentive. So very strong performance from the team on delivering these gross margins. Our auto segment was actually EBITDA positive for the month of June. I think this is the first time we ever hit this milestone. And this was delivered by a bunch of factors, all of which we've actually been highlighting in the last couple of calls, improved gross margin, which was as a result of our Gen 3 platform and also the Project Lakshya, which helped us reduce our OpEx significantly. Now in addition to this EBITDA performance for the whole quarter and specifically in June when we turned positive, our -- this time, we've also broken out our cash flows for all of you by the segment and consolidated because we felt it was important for you to understand how, because the auto business and the cell business are in different phases of investment. And the auto business, as you can now see is actually getting to a reasonable level of maturity on both profitability as well as cash. And in the near term, we expect the auto business to be operationally cash positive and also by the end of FY '26 to be free cash positive. So that's an important highlight. In fact, in this quarter, we were almost neutral on operational cash flows. So that -- and this is because of structural improvements that we've made, which we've called out in the report. Things like working capital, inventory management, warranty claims management, all of that detail is there in the report. Another highlight I want to point out is -- this was the first quarter -- first full quarter of our Gen 3 product in the market. And even the Gen 3 product is still ramping up in terms of presence across all our distribution stores, but it still accounts for almost 80% of our overall sales. It is a much better product in performance in gross margins as well as in quality and hence, warranty claims. Consumers have absolutely loved the product, and we're getting very good traction. Gen 2 still exists in the market, and we are using it as a dual strategy between Gen 2 and Gen 3 for penetration and for funds. Our bikes have been generating a lot of interest on the ground, a lot of social media interest and visibility. We are -- as we've guided before, we've been more calibrated about our bike scale up. The bike is now almost in 200-odd stores. And through the course of this quarter by the time Navaratri comes, we will have our bike in almost all of the stores across the country. And we're getting very good feedback. A couple of other important strategic points I want to highlight for all of you. There have been a couple of macro risks in the industry, specifically on rare earth magnets and the ABS mandate. Now on both, we have our own unique solution because the company is vertically integrated and does all of its technology development in-house. So on rare earths, we actually have a dual strategy of managing through alternate suppliers for magnets and also coming out with a rare earth free motor, which is in the next quarter. It will be delivered to customers in the next quarter. And we've been working on these technologies for the last year or 2. Some of you who visited our factories would have even remembered seeing this on display at the time of our road shows. And finally, the highlight, which is, I'm sure, highly anticipated is this quarter, we will deliver our 4680 cell vehicles to customers by Navaratri, and we'll share more details on 15th August event, which is our annual product event. But our cell giga factory is ramping up now. We are ramping up. We are producing cells to be used in our vehicles already. It's not just test cells anymore. And through this quarter, we will see a ramp-up of that. So those are some highlights. A few more things that I will just talk you through is in this report, we have spoken about how our free cash flows in our automotive business are also stabilizing. Operating cash flows are already getting to neutral and our CapEx plans for this year, FY '26 are not very large in the automotive business. In fact, later in the graphs, you will see a lot of our CapEx is actually R&D, which is capitalized. We don't expect any major manufacturing CapEx in this year for the automotive business. There will be some for, let's say, our rare earth free magnet, et cetera. But beyond that, we don't expect any major manufacturing or growth CapEx for the automotive business. So the automotive business to get to free cash positive by the end of this year, which is what we are giving the outlook. We do expect it to consume only about INR 400 crores, INR 500 crores of incremental cash from here. Even at a consol level, you can see our cash flows improving significantly and profitability also improving significantly. And this trajectory will continue through the course of this year by -- for the whole year of FY '26, we are targeting to get to around 3.25 lakh to 3.75 lakh vehicle sales driven by the festive season coming up and our plans on our Gen 3 and our bike products through the course of this year. For our cell business, there will be CapEx. We already have done the CapEx of 1.4 gigawatt hour. And we will be completing the 5 gigawatt hour capacity that we have planned for, for which capital is already lined up through a term loan facility with the SPI consortium. Now after that, most of the payments of that will also happen in this year and some will flow into next year. We don't foresee the need to expand cell giga factory capacity beyond 5 gigawatt hour for the next 3 to 4 years. And there's a rule of thumb calculation also here, that 5 gigawatt hour means almost 1 million to 1.2 million units. So we'll make that installation of capacity this year, FY '26 and grow into it over the next couple of years. That said, there is some more detail on warranty here because warranty has been one of the talking points in the last quarter, we took a onetime provision of INR 250 crores. What I would like to highlight to all of you is every generation has kept on getting better for us in terms of quality and fault rates. Gen 3 is, in fact, the best ever for us and by our own estimates, the best in the industry. And this benefit obviously flows into the EBITDA by lower provisioning for Gen 3. On claims also, Gen 1 claims have been higher than Gen 2 claims, and that is higher than Gen 3 at a similar aging. So Gen 3 claims are actually looking fairly good. And in Gen 3, over Gen 2 itself, one of the major areas, we have improved the product design and hence quality is the hub motor, the motor controller, which were in Gen 2 supplier procured and in Gen 3 are all in-house. And our in-house motor, which was in Gen 2 in the S1 Pro had a 90% lower failure rate than the hub model. So all of this is adding up to a very good profile on warranty. And a final point I want to highlight there is, our genuine products are only 70% out of the warranty life. So that's also reducing the claims on a monthly level as more and more of the claims -- the warranty outstanding is on Gen 2 and Gen 3. So we don't expect any more major onetime warranty provisions. So there's still -- there might be some minor learnings as we go along, but nothing major expected over the next year or 2 on warranty provisions. Then in the note, we highlight some -- beyond just operational commentary, we give you progress on key strategic priorities. And as we've always communicated to you, we -- our strategic -- our strategy in this business has been to build more manufacturing vertical integration, do more in-house technology development and build a direct-to-customer channel for customer engagement with the brand directly. And on all these 3, we believe we keep compounding our competitive advantage as incumbents only continue building traditional auto business models. And that competitive advantage can be seen in the balance of volumes and profitability that we are now able to deliver. And then we talk about the rare earth magnet, which I commented on, so I'll skip that. On ABS also, we are ready. We're the only EV company which has an ABS product on sale in the market. And by the mandated time line, we will be ready with our own in-house ABS solution, further saving margins as well as giving consumers a product differential. On the Gigafactory, like I said, more details on 15th August, but our first products will be in customers' hands by the festive season. The full budget for our 5 gigawatt hour plant is INR 2,800 crores, including both the CapEx as well as some preoperative costs. Now out of this, we have already invested about INR 1,500 crores. And the remaining INR 1,200-odd crores will go in over the course of this year and some into next year, but that will complete the 5 gigawatt. And like I said for this, we already have the SBI facility -- SBI consortium facility, which we are drawing down on. In terms of unit economics, the cell business and a free cash flow level breaks even for us at 5 gigawatt hour. And at a consolidated level, it is cheaper for us to manufacture our own cells than procure from outside at the 5 gigawatt hour level. So that's a very important milestone as we scale our cells business. Through this year now, starting this quarter, we are going to ramp -- keep ramping up gradually the cell production to grow into the 1.4 first and then go to the 5 gigawatt hour after that. There is some commentary on for those of you who don't fully understand the cell technology and the cell cost structures. There is some commentary here for you to appreciate how the cell cost leadership works, and it's very directly linked to technology, not just supply scale. On product road map, again, we highlight here our competitive advantage with a very broad product portfolio, which is ready, very mature stage of development for the product portfolio. But that said, we are not allocating manufacturing CapEx to all these products. We are going to be sequential in capital allocation. We are letting our current products scale and mature in the market and then one by one, allocating manufacturing capital for new products. But from an R&D basis, we have many of these products under advanced stages of development. So in that sense, as our distribution network stabilizes as the new products step-by-step scale up in the market and as the EV industry again inflects with the next level of customers coming in, we will again accelerate our product launch road map. Finally, in strategic priorities on our D2C network, we have expanded our presence, but there's a lot more work to be done to institutionalize operations, consolidate operations and deliver a good customer experience and a high productivity. We are already seeing gains from inventory reduction in the network, and you see that in the working capital movement in Q1 over Q4. And we will continue to see incremental gains on this going forward. But there's more work to be done to institutionalize the operations in the front end, and that's a core management focus for the remainder of this year, too. And finally, we have a little bit of a note on financial planning. There have been some questions to us in the past on how are we -- what is our cash allocation, capital allocation for different aspects of the business. So for the auto business, like we said, nothing major on CapEx plan. We expect about INR 400 crores, INR 500 crores of free cash flow requirement for the remainder course of this year, at which point, free cash flow should turn positive. For our cell business, there will be a CapEx of about INR 1,000-odd crores in this year and some more in next year. And 70% of that or roughly 2/3, 70% of that is funded through the existing term loan that we have and the remainder through equity. The cell business will have some operational cash flow requirements until we achieve a certain steady production rate, but in the hundreds of crores. So for the business on a consolidated level, we don't foresee the need for any more cash than we have. We have about INR 3,200 crores on the balance sheet as of end of quarter. We do have some debt obligations. Again, we have shown that in a graph in the note. We will be refinancing some of that debt, not the term loans, but some of the corporate debt that we have taken before our IPO. And we have already taken a Board approval for issuing fresh entities to refinance that debt. I guess that's it. There are some very interesting graphs in the note also. A couple of things if I highlight on graph 3 and 4. If you see our ASPs are flat, but our gross profit per vehicle is continuing to grow this quarter, got to INR 31,000, which means in graph 5, you see our gross margins, auto gross margins with all incentives and without incentives. And you can see this quarter, actually, we had very minimal incentives. So the business, the product, the gross margin profile, all looking strong. And I will pause here and leave enough time for questions from all of you.

Thank you so much Bhavish. We'll now begin with the question-and-answer session. [Operator Instructions] We'll take the first question from Mr. Chandramouli Muthiah of Goldman Sachs.

My first question is just on the volumes for the quarter, the 68,000 volume. Could you help us understand what the split is between the electric scooters and electric motorcycles as well as also the INR 121,000 ASP, where would the motorcycle ASP compare versus the scooter ASP?

Chandru, the split is still largely scooters because motorcycle deliveries only started happening early June. So almost all of it is still scooters. The motorcycle deliveries are ramping up in June and now going forward. Also in terms of ASP, the Roadster x and X+ ASP are broadly in the range of the S1 X and X+ ASPs, maybe 5% higher, 5% to 10% higher. So it'll be one level lower than the S1 Pro and Pro+, but in that S1X and X+ range. So in terms of how it looks like against the 1.2 lakh, it might be 1.15 lakh as an ASP.

Got it. That's helpful. My second question is just around the ABS norms, which have been proposed by the Government of India. So I understand you have ABS on some of your premium electric scooters as things stand. But if you could just give us some color on what the negotiations seem to be with the government and what the industry representations are? Is this something that's a done deal for January 2026? Or is it still sort of fluid, if you could give us some color on that?

Chandru, our stance is that sooner the better. We should not compromise with the customer safety.

Got it. And just the additional cost here, what is your estimate of additional cost? You did mention that you are looking to do an ABS kit in-house. So if you could just give us some color on what your estimates are on additional cost.

See, for us, let's say, for industry, when they do ABS anywhere between INR 3,000 to INR 5,000, they incur in terms of BOM cost, depending on what kind of ABS, et cetera. For us, it will be a small fraction. It will be a fraction of that because these ABS products, as you can imagine, are high-margin products for whoever is selling them, Bosch or Conti, whichever supplier is selling them. And we have our own engineering capability. In fact, the way we've built the ABS is that our electronics are all combined into the same central electronics. So a lot of software-defined functionality. So in that sense, the content itself is lower in our ABS and obviously, we saved all the gross margins. This is actually, Chandru -- I would want to use this moment to highlight an important theme about our company, which while we've been executing on it, maybe it might not have been fully appreciated by all the people observing us that as we keep doing each of these critical components in-house, be it the motor, be it the ABS, electronics, software, cell one by one, each of these things add a lot of gross margin benefit, which is what you see in the end today, our gross margin is about 26% and without any incentive also 22-plus percent, despite not charging 20% higher than market, right? So -- and this is a journey it's only going to keep improving for us. For example, I was one of my finance team members pointed out to me that the largest motor supplier in India actually has a gross margin of 60%. Now we make our own motors. That's a clear saving of a large high single-digit INR 1,000 over there for us. Same will happen in ABS. Same happens for us in electronics. And it's not just saving from off-the-shelf parts. We are able to combine parts better and then actually reduce content itself. For example, in ABS, the electronics will actually be combined with our central electronics.

Got it. Got it. That's helpful. And lastly, if I can squeeze in, just wanted to state the union of update on net debt. So you did mention that you've got cash of about INR 3,200 crores. I can see that the graphs talk about debt repayment obligations. But if you could just give us what the gross debt number also is just in the context of what your quarterly cash investments are.

Sure. I think excluding short-term debt, which is largely working capital, Ankur to about INR 2,000 crores. Yes, INR 2,000 crores, and it's getting paid down over the next 2 years. All the corporate debt is getting paid down. Term loans will continue along.

We'll take the next question from Mr. Arvind Sharma of Citibank.

Thanks for sharing the guidance for FY '26. In the overall guidance for FY '26, what would be the exit rate because 1Q, we already know the numbers, but it's a pretty steep jump from here on. So sir, what would be the drivers for these volumes going forward?

Okay. Arvind, thank you for your question. And I'll start with a small nuance, it's more an outlook than a hard guidance. What we want to start doing is also giving all of you a little bit of an outlook into what we see ahead for us and also call out the risk that exists to achieve that outlook because there is a macro environment, which is sort of moving parts, supply chains, et cetera. So -- there are enough things we need to navigate still through the year, but we'll keep updating every quarter. Now the key levers to deliver these volumes, actually, if you see in this quarter, we delivered 68,000. Now the next -- this quarter is actually probably one of the lowest quarters in the year on festive and just volumes. We expect industry bump up on festive, about 50% -- 40%, 50%, whatever the industry anomaly is for those couple of months. Industry itself is growing at about -- yes. So hold on, I don't know what happened here. I hope Arvind, you can still hear me? Arvind, can you hear me? Is the meeting still on? Can anybody hear me?

Yes, we can hear you, Bhavish.

Okay, okay, okay. So I guess the meeting, I hope, is still on. So I'll complete Arvind's answer. I don't know why Arvind dropped off. Till then why don't you check some other people can hear me beyond Harish also. So just to complete the point, we expect seasonal uplift in general. Industry is going to grow at 20%. And now given that a lot of the competitive intensity has already been played out, we do expect us to grow at or above industry rates. We also expect our bike volumes to increase through the year and a few more initiatives we are doing on the productivity of our front end. All these added up should get us to those volumes. And -- but there are some macro risks, which we will navigate and keep sharing updates.

Thank you. Now we'll take the next question from Gunjan Prithyani of Bank of America.

Can you hear me now?

Yes, Gunjan, we can hear you.

Really good to see the significant improvement in the gross margins. A couple of questions from my side. I think firstly on the gross margin, I just wanted to understand on the Gen 3, are all the cost savings fully realized on the 80% transition that you saw in this quarter? I'm just trying to understand the road map of this 25% to 35% to 40% that you've called out in your update.

Yes. Some of the gross margins are still to be realized, Gunjan. There is an incremental goodness on some of the Gen 3 margins that will come through this financial year. And on top of that, 25% gross margin this quarter didn't have any PLI. So PLI, whatever you guys model will also come on top.

Okay. And this doesn't capture any of the savings from the captive, which of course, is more going to be a F '27...

The cell you mean?

Yes.

No, this doesn't capture the cell. The cell will ramp up through this year. They will have a small component of cell in gross margin, but the real cell savings at scale will be in FY '27.

Okay. And the other expenses should more or less sustain at these levels. Now we've gotten to a level of stabilization with the cuts that we took over the last couple of quarters.

Yes, OpEx is now stable. In fact, incrementally, there will be some more opportunities for efficiency and productivity through the year, but INR 100-odd crores of auto OpEx and INR 150-odd crores of total consolidated OpEx right now. Over the next quarter or 2 quarters, we should be further able to reduce another 10% to 15% of OpEx at a similar volume levels as volume grows, some of the OpEx will grow with volume.

Okay. Got it. And the second question, a little bit on the pivot that you called out that we're moving from aggressive penetration to a balanced profitable growth. It just sounds to me that there has been a reset in the EV penetration expectation itself, right? I mean if you can like sort of share your thoughts on how do we then think of EV adoption at an industry level? And why do you think that there has been this reset of expectations because prices, if at all, have only come down, and it's gotten a lot more competitive in terms of value proposition to the customer when you compare with ICE as well. So why the reset in industry adoption levels?

See, firstly, Gunjan, if you see EV 2-wheeler industry growth versus ICE 2-wheeler industry growth, EV is still 3x of ICE, right? So in that sense, ICE is growing at 6%, 7%, EV is growing at 20-odd percent, give or take a few here and there. So EV is still growing very much faster than ICE. It has definitely come down from the absolute aggressive growth in FY '23, FY '24 and early part of FY '25. A couple of reasons for that. Firstly, government incentives have also come down. So that definitely has made manufacturers as well as some customers think about their choices in terms of pricing as well as in terms of purchase for the customer. Second, also, the early adopters have now largely adopted EVs. The S curve of the penetration will go through the S curves. So there will be an aggressive growth, then there'll be a consolidation phase, and then there'll be an aggressive growth again. So the middle customer is now considering EVs actively in our own surveys, brand service that we do. Consideration for EVs is very, very high, but they're probably waiting for their friends and all to live with one generation of their draft EV products or waiting for some of the anxieties around range, et cetera, resale value. All of these are anecdotal things, but -- and actually, many of them are not true. It's not like 2-wheeler EVs have range anxiety. It's not true that there is a true on resale value if you see resale values are reasonable in the market. But it's more just an overall feeling that the cautious customer has now that let me just wait it out another 6 months, 1 year until my friends who were the early adopters have been through their full cycle experience. And we see that now slowly also turning in bigger cities. There are some pockets of increasing growth again, but it's early. So we do expect the S curve to play out first high, then consolidating around 20%, 25% a year and then maybe next year onwards, another aggressive growth.

Okay. Got it. Just last question, if I can just get your thoughts on the battery plans as well. We are now sort of limiting to 5 gigawatt. If you can just sort of share what does it mean in terms of the government PLI scheme? What does it do to the captive cost benefit that we were thinking about because a lot of those captive cost savings were also premised on yields and scale that you get on that battery plant, right, cell plant. So if you can share what does it mean for the overall cost improvement and PLI scheme?

So Gunjan, at 5 gigawatt hour, we will already be saving money versus procuring from outside. At 1.4 gigawatt hour, we will be saving money at a gross margin level, but the OpEx of the cell plant will not be fully leveraged for the scale that it is built to. And the unit that we had designed was the 5 gigawatt hour unit for ourselves. 5 gigawatt hour is 1 unit. So at 5 gigawatt hour unit, we will be saving money versus procuring cell from outside. So we don't need to go to 20 gigawatt hour for that. In terms of PLI, yes, definitely, this will mean an implication on PLI. The government PLIs are our time lines on 20 were what they were, and we will not meet those time lines. But in our profitability case, we have not built any benefit from PLI. If there is any, it will be goodness on top. That said, Gunjan, we're also the only company that has really put up a cell plant and made it productive. So we will -- we are and we will engage with the government to probably relook at some of these time lines and in the broader interest and encouragement to industry, probably relook at those time lines.

And there's no penalty we need to be really worried about in that context, right? If there's a change in the time line?

There is a maximum of about INR 100-odd crores of penalty, and we are actually accruing that every quarter in our P&L already.

We'll take the next question from Rishi Vora of Kotak.

Yes. I hope you can hear me. Bhavish, congratulations on sharp improvement in profitability.

I'm waiting to read your report.

Yes. Just a follow-up on Gigafactory, right? One of the premises for us to set up a Gigafactory was also PLI incentives, if I remember it correctly, our expectation was through the course of going till FY '29, the capital employed will become half because 50% of us -- of it we were expecting it to come from PLI. So if -- let's say, if you're not able to get a PLI, then does it make a sense for us to set up our own gigafactory given that tomorrow, the technology might evolve, we might be a little slow versus the global giants. So does it merit to have a Gigafactory of our own given that a PLI is...

Yes. So Rishi, the reason to set up a Gigafactory is strategic and long term. Our reason to set it up was never PLI. In fact, we actually started our Gigafactory before the PLI scheme came in. And that's the reason we came into the scheme because we are the only ones who started before the scheme even was conceptualized. Now the reason is threefold, Rishi. And you actually see a version of that playing out with rare earths thing and supply chain risk. So first reason is long-term strategic business continuity and control of your supply chains. That's not just an opportunity for us at Ola Electric, but also an opportunity for us to play into in the broader India context as India's cell, lithium cell needs scale up. So in that sense, it's a long-term strategic bet. Second, cell is not a commodity, Rishi. Cell is a technology component, and I write about that in the note also, you can see that the paragraph. A lot of the cost benefit is driven through technology, not through just supply glut coming from another country, unlike solar cells or other components where manufacturing conversion costs are a majority of the cost of the overall component itself. Cell is not like that. And our technology leadership is actually now well established. The first product is 4680 cells, and we also write about our cell technology road map, where we are leading already beyond the version 1 of the cell. We already have version 2 and LFP versions already under development. All of that will come in step by step. And we now Rishi have already proven this business model in our auto EV business. Look at our gross margins versus look at all other company's gross margins, and that's a function of technology and manufacturing vertical integration. So those are the 3 reasons it makes long-term strategic sense to do the cell in-house. In terms of capital returns, purely, also at 5 gigawatt hour itself, it will be a reasonably -- a reasonable return. But as we scale higher, the return will only keep getting better. And the scale can be from our own internal requirements, the scale can be potentially from export opportunities that our 4680 cell opens up. The scale can be from PSS opportunities in the future that we might get into in different business strategies. And in none of those cases do you need PLI to make the business worthwhile. All of this is worthwhile if you have a strong technology leadership in the cell and if you are building a long-term Indian supply chain because the Indian market long term is only going to grow. So we take a very long-term lens on the strategic benefit and optionality of our cell business.

Yes. Just on the provisions, right? Can you just give us the absolute amount of provisions which we took in 4Q? And what would be that in the first quarter?

Provision for warranty?

Yes.

So in 4Q, we had called that out INR 250 crores of onetime provisions. We won't be -- we can't share with you exactly how much we do quarter-on-quarter on warranty provisions, but as a onetime thing last quarter, it was INR 250 crores.

Understood. And just lastly, on the motorcycle launch, right? Can you just give us how has been the feedback? And I think somewhere I read that we have just started with around 200 touch points. So is there a thought process of when we'll be scaling it up to all the touch points, which we have at this point in time?

Yes. So Rishi, the feedback has been overwhelmingly positive. You can yourself go on social media and just search for Roadster feedback. You will get all the views, all the kind of feedback, very, very positive. Customers are loving the bike. I, myself, by the way, I ride around Bangalore on the Roadster X+. That's become -- instead of a car that's become my major commute vehicle. Almost always on the signal, I get stopped and asked [Foreign Language] and have done some sales also by the way on the road side. But that said, see, the reason we are scaling up a little more in a calibrated ways because it's a new category. We want to make sure manufacturing, quality, warranties, all of those are in check as we scale. And hence, our production ramp has been more calibrated and gradual. We expect by Navaratri to hit the majority of our stores, and that's when the bike volumes will also be starting to spike.

And just one last question. On a sequential basis, ASPs have gone up by 2%. And this is despite the mass market scooter mix going up. So is there a portion of non-vehicle mix that has gone up, which is driving the ASP increase?

It's a mix of 2 things, Rishi. Gen 3 mix has gone up. If you remember last quarter, Gen 3 was very small. Gen 3 is priced slightly higher, Gen 2 is priced slightly lower. And second, obviously, MoveOS+, which also we comment on, has been increasing in penetration. In fact, I actually want to use this opportunity to underline and highlight MoveOS+. So a bunch of our software features are, especially the premium software features, which frankly, we have the best in the industry given that we do our electronics, hardware and software together in sync. A bunch of those we productized into MoveOS+ and that became a subscription for customers. And the penetration rates of that is now actually on a run rate basis, almost 70%. And we expect through this quarter for that to rise to 80%, 85%. So almost everybody is buying the MoveOS+ subscription, be it for premium or from our scooters, and that also brings in a certain advantage on ASPs.

We'll take the next question from Mr. Arun Kejriwal of Kejriwal Consultancy.

At the outset...

You've went mute in the middle, sir, can you just repeat...

Yes, I'll repeat it. At the outset, let me congratulate you on a set of numbers, which has got quite a few of us by surprise. The turnaround witnessed has been phenomenal to say at the least. My question is, sir, one of the objects of the issue was to increase the Gigafactory capacity from 5 gigawatt to 6.4. Now that we are scaling down the expectation of the Gigafactory to around, which would take care of about 1.2 million scooters, what would be the change in our fund raise that we have done? Would the objects of the issue we sort of tweaked, rechanged and the funds deployed additionally or what?

Sure, Mr. Kejriwal. Thank you for your comments and for your recognition of the numbers. It's been definitely an important quarter for us. And sir, like you say, it's -- like we've given our commentary 5 gigawatt hour is what we feel will be enough through FY '29. That covers roughly 1.2 million vehicles, and that should be enough for us or even if we have some non-Ola customers eventually that we are selling our sell to. So we don't foresee the need to expand beyond 5 gigawatt hour over the next 3 years at least. And you're right, we had raised some money to -- in anticipation of this expansion from 5 -- beyond 5 gigawatt hour in our IPO. As we go along, we might look to redeploy that capital into other productive uses.

Sir, just a related question to this. Considering the fact that we are now sort of scaling our target for sales of vehicles, I'm not saying you've said that in as many words, but 1.2 million is what you believe is where we could be say till FY '29. Is there a change in the company or your thinking of EV penetration going forward? Is there some rethink on the way penetration is happening? Somebody earlier had also asked that prices are softening. Are customers a bit reluctant to buy EV or what?

So Mr. Kejriwal, like I had mentioned in the opening commentary also that industry is entering a different phase now. Prices are softening a bit. But if you see our ASPs, for example, it is flat over the last 4 quarters. So industry is also recalibrating a little. Customers are also recalibrating. The early adopters have already adopted EV in full confidence. And now the middle mass, what we call of customers, which are a little more cautious about new technology, they are starting to consider EVs. Their consideration cycles are a little longer. They are looking at their friends who have already bought EVs. And increasingly so, they're also getting converted. That's why the EV industry is still growing at 3x the growth rate of the ICE industry. But we do expect this next few quarters to be a little bit more steady in EV penetration growth. And then maybe another acceleration will happen as new products come in as some of these next set of customers finally take decisions at scale to buy EVs as our own distribution network becomes more productive in the smaller towns of India specifically on the bike as that unlocks a new category. So all of these levers will be playing a part in the next phase of growth. And for now, the industry is in a steady growth phase. It's still growing 3x of the ICE industry. But hence, we've also taken a sort of a maneuvering to consolidate our product, our business, our operations to be -- to get ready for the next phase of growth.

Wish you all the best, and hope we have some more promising news when we meet next quarter.

Thank you, Mr. Kejriwal.

Thank you. We'll take the next question from Mr. Vipul Agrawal of HSBC.

So first of all, congratulations, like you delivered what you said about 68,000 units in the first quarter and save cost saving. That's pretty commendable. So my first question is on the COGS side. On the -- like the cost per vehicle is down from almost INR 1 lakh to INR 90,000. The difference is around INR 10,000. Can you pinpoint certain parts and related cost saving?

So Vipul, I can give you a general direction on that. So Gen 3 as a platform has definitely helped Gen 3, and we had shared, even in August when we had launched Gen 3, that it will be a major change in the cost structure, and that is what has happened. This was the first fuel quarter of full Gen 3, and that has led to improvements in the BOM cost. Then item by item also, our motor, for example, is now in-house. The motor controller is within the motor itself. All of these things save money. In the bike, for example, the wiring harness is the flat wiring harness, which is a unique innovation by us. Our electronics are more centralized, saving some number of ECUs. So all the regular things, which I keep saying every time I meet you guys. And all of those things have kept on incrementally adding benefits to us in the gross margin.

Sure. Sir, one related question would be like on the wiring side, like, how are you saying, like, is the tech which is globally not available? Or is it something new which you have developed on that front? How does it work? Can you...

So Vipul, it is our own in-house IP, and we actually had shared it in our bike launch event in February. You can see the video references there, but it's a much lighter, much more lower cost to manufacture wiring harness technology, which we have developed in-house. And normally, again, I will reiterate this to everybody. Sometimes we can assume that suppliers will have better technology, but almost always, suppliers never have the leading technology, especially in cutting-edge areas like EVs. It is OEMs which have the leading-edge technologies, which over time, suppliers build slowly, slowly because the incentive to build technology is always with the OEM, not with the supplier. For the supplier, it's the incentive to continue old processes because they are not customer-facing, the OEM is customer facing. Now that said, as a result, we keep doing our own R&D, be it wiring, be it motors, for example, or rare earth free motor is something we've started developing more than a year or 2 back. And some of you who visited our factory a year ago would have seen this factory. We were quite transparent about it. [Foreign Language] -- and I think all these things which we keep doing on R&D and step by step, they keep coming into our products. So actually internally in terms of process, we have a very rigorous process of 2 parallel road maps, 1 one is a product road map and 1 is a technology road map. And as technologies go above the technology maturity ladder, we keep bringing them into our product road map. So it's a very rigorous process that we run within the company of 2 parallel road maps.

Understood. So like you mentioned, like OEMs have a cutting-edge technology. I agree to that point. So like coming to the cell business on the same front, like you will be increasing from 1.4 gigawatt to 5 gigawatt now. And globally, on the cell manufacture, they are -- it's tough for them to cross 15% EBITDA margin level. Even for the small players, it is less than -- it is high single digit, double digit. So how do you see profitability on your business, like maybe when you go from 1.4 to 5 over next 2 to 3 years. So how will cash burn will go down? Or maybe if you can touch a bit on technical part of it, how are you different from the Chinese cell manufacturers or Korean manufacturers, if you can touch a bit on that.

See, Vipul, firstly, small correction there, it's gigawatt hour, not gigawatt [Foreign Language]. I just want us to be technically correct. So on the cell -- see, firstly, I would like all of you to look at us as a vertically integrated cell manufacturer, not stand-alone cell manufacturer. That makes a world of difference in business model and cost structures. Firstly, I have to only build 1 or 2 cell platforms. If you think of a stand-alone cell company, they build multiple cell platforms or multiple customers, whereas I am only building the 4680 platform. Hence, my manufacturing is linked to that, my R&D is linked to that. Now I'm building a platform which can be used in my products and global products also because it's a fairly standard -- industry standard platform. But I'm not building pouch cells. I'm not building prismatic cells. I'm not building 2170. I'm not building 1865. I'm not building some other concept. I'm only building a future industry standard cell platform. And hence, that limits my manufacturing and R&D requirements. Second, since I'm vertically integrated, I have a large anchor customer. I have less SG&A costs as well as immediate benefit on bringing up my production basis my internal customer. And the same cell will go into other nonautomotive products also, like home energy storage, et cetera, in the future. So there are other verticals where we can get, I would say, revenue without having to build new cell platforms. So that is the essence, Vipul, what differentiates us versus a stand-alone cell company. And good sell companies have mid-teens EBITDA margins. Our cost structure will actually, over time, get better than them on OpEx. On gross margins and BOM cost, large sale companies will have an advantage over us till we become large enough. But there's also an arbitrage on duties, et cetera, and bringing these cells into India. So all of that balances out into a balanced business model opportunity for us.

Just last one question on the yield part. So how have your yield improved over the last 6 months? And second would be, what would be the -- so like you are already importing cells from the suppliers? So what would -- and when you are producing by yourself, so what sort of breakeven you would have at the cost, like what kind of yield you would need at Ola's plant? And what kind of production you would need at Ola's plant to break even with the cost of import at this point in time? Any math you have done around that?

Yes, absolutely. Vipul, good question. Our yields right now are in the 60-odd percent range, which is what I have shared about 1.5 months ago. We are ramping up with a balance of 2 KPIs. One is yield and one is output, the scale of our because both have to go up in hand and we are in that ramp-up phase. Through this year, we are going to be in that ramp-up phase. The breakeven on consolidated operational costs of building our own cell, putting it in our vehicle versus buying the cell from outside. The breakeven point is around 3.5 to 4 gigawatt hour at about low 80s of yield. That's the breakeven point. So at 5, we'll actually be slightly more than just breakeven.

Thank you. We'll take the next question from of Amyn Pirani of JPMorgan & Chase.

Congrats on the strong sequential improvement in line with what you highlighted in the last quarter, I had a question on the ABS. Interesting comments from you. So I just want to understand. So right now, are you saying that you will be assembling the ABS? Are you making some of the subcomponents? And a related question would be that even right now for the CBS that goes into most of the scooters, are you also doing it a lot of it in-house? Some color on that will be helpful.

So I mean, the CBS is a simple component. We probably do a portion of the engineering of that in-house and some of it must be bought out by suppliers. But for the ABS, what we're doing is we are engineering the whole thing in-house. And we will work with some suppliers to build some components of it and some we will build in-house, right? Because we are -- as you know, we don't manufacture everything in-house. Some of the more traditional processes like fabrication, castings or others, machining, et cetera, we don't do those things in-house. But we'll definitely design the whole thing, electronics, software, these are the most critical components over there, which is what we will be integrating largely in-house.

Okay. Okay. Understood. Understood. And secondly, just slightly on the numbers thing. I think last quarter, obviously, there was this challenge of VAHAN registration not reflecting entirely with what your numbers were. This quarter also, and please correct me if I'm wrong, it seems that there is some difference. So if you can explain the difference in your deliveries number between -- and between what we can see on VAHAN. And the related question is, if we actually take your deliveries number and the industry number that you have on your shareholders' letter, your market share actually should be much higher. So just trying to understand if there's any still any lead lag into the deliveries and the registration number.

Yes. So Amyn, good question. I'll take a minute and explain this into 3 levels. See, firstly, last quarter, we had a lag on deliveries and higher VAHAN. Hence, our revenue was lower, VAHAN was higher. That delta is almost the same delta in the opposite direction this quarter. So we have a slightly higher delivery number and a slightly lower VAHAN number than delivery number. So that's because of the covering up of last quarter in this quarter, right? So Feb, March, April were the impacted months. April onwards, we have started covering up that delivery gap. Market share, you can say, is it a function of registrations or is it a function of deliveries, both are different definitions. So I will leave the market share question out of this. In the end, roughly, our market share is in the high teens or 20 percentage thereabouts right now. So let's leave it there. Specifically, on our delivery backlogs, see, our business model [indiscernible] traditionally, in the last 2, 3 years, run a backlog on deliveries, whereas a business model automotive dealership will not run a very large backlog. They will finish off all the deliveries in 3 to 4 days. Whenever the customer places the order, the order to delivery cycle is 3 to 5 days. For us, even now, it is higher than that, and that is actually a room for improvement to drive more volumes itself because some of the customers we lose because they say [Foreign Language]. So we are focused on improving that through this quarter and next. And as we improve, we do expect some incremental demand. By the way, since this time, there is -- it seems to be there are more questions. So we would be happy to stretch another 15 minutes if anybody would have any questions. So up to the audience, if you want to ask me questions, we are here.

Thank you, Bhavish. We'll take the next question from Mr. Raghvendra Goyal of AMBIT.

Congrats for the great set of numbers...

Could you be a little louder, please, Raghvendra.

Yes, is it better now?

Better.

Yes. So I just wanted some sense for cell business, we'll be commercializing it fully next year. So at least for next 1 or 2-odd year, we can assume we won't be selling it to any third-party or any third OEMs in that sense. We won't be looking at that direction, right?

Raghvendra, we are not right now focusing on selling our cell to other OEMs. But what we are exploring on a little bit of R&D stage is definitely using our cell to build battery storage for homes and for grid. So not that we are doing any capital allocation to that as a business opportunity. But as of R&D, we are definitely exploring that. Over the next few quarters, as our cell operations scale up and stabilize, we will definitely look to enter into those dimensions before we actually go to other OEMs.

Okay. Sure, sure. And second thing, just if you can give a quick brief about who all would be our customers for bike? I mean, if we have gotten any interest. So are these the ones who were preferring a pure 100-cc motorcycles or they were evaluating EV scooters and then shifted to bike. So any sense on cannibalization of our existing products or any qualitative...

So Raghvendra, cannibalization of our scooters, we are not seeing because as you can imagine, 2 very different audiences. In fact, we are seeing a lot of interest from semi-urban or smaller towns also for this bike. So what that would mean is we would be starting to get consideration in the customer cohort, which is the 100 cc to 125 cc range, 100 cc, 110 cc more so. So -- but still early. Over the course of this quarter, we will actually see how it plays out.

Thank you. We'll take the next question from Mr. Pramod Amthe of InCred.

Two questions on gross margin. If I had to look at your gross margins versus the other 2-wheeler conventional makers or ICE OEMs and it looks very near to them. And if I add on to the PLI benefit as and when you claim, you seems to be much nearing to the same. In that context, I want to understand your thought process, how do you see the PLI, do you see it retaining with yourself or to drive your ambitious volume guidance you think you need to pass it on to the consumer first? Second...

Pramod, yes, sorry, let me answer your first question, and then I'll go to the next. No, that's a good question, Pramod. Firstly, good that you recognized how our gross margins have improved. And like we said, we are going to actually further see improvement even before PLI improvement on top of that PLI will come in. So our gross margins for EVs will actually get very competitive with the ICE over the next year or 2. And we've been saying this for the last year that as our vertical integration strategy scales, as our subsequent generations of products keep coming in, we will keep getting benefit on gross margins. So that story will keep playing out for us. Secondly, on PLI, see, the way we look at our margins is we will maneuver around industry dynamics as and how they evolve and use our margins accordingly. So there's nothing that I want to share today in terms of pricing strategy. But as industry maneuvers around it, we will definitely maneuver around it, too.

Because the reason to ask that is also, Bhavish, is if you have seen in case of some of the electronic products, the PLI is already passed on in the highly competitive environment. So you once the leader and there is a possibility to come back to a leadership considering your advantage. So that's the reason to ask you. Second one is with regard to the motorcycles versus scooters. How do you see the gross margin profile emerging as we progress a couple of quarters down the line as the EV penetration in motorcycles may also start to improve?

Pramod, the gross margin profile for scooters and bikes for us will be very similar. And the reason is the bikes are also built on the Gen 3 platform. So in that sense, the components, the engineering and the supply chain is all the same. And in fact, the manufacturing lines are also the same. So we don't feel any major difference in the gross margin profiles. On motorcycles, the area we are focused on a lot as a management team is making sure the product quality in the ramp-up phase remains high quality, so that potential warranty risks don't happen because it's the first -- it's the first product in motorbikes. We want to make sure that's why the reason we are being a little more calibrated in the ramp-up. And that calibration strategy seems to be paying off for us in terms of product quality of the bike.

But -- and you see the end product pricing situation is different in case of motorcycles versus the scooter what it brought into the table as a value proposition?

The pricing is largely similar, Pramod. The motor bikes for us start at INR 99,999 for 2.5 kilowatt hour product. I think the S1 starts at 2 kilowatt hour. So each motorbike variant has a little bit higher battery for us versus the equivalent scooter variant. So that is the real price differential. INR 5,000, INR 10,000 over the scooter variant.

I appreciate the pricing points, which are well discovered. I was looking at more from a competitive dynamics -- and hence, your capability to get the pricing. Yes.

Yes. No. So Pramod, our ability to lead with pricing is a function of our margin profile. And the margin profile in bikes will be the same as scooters. So in that sense, as the market evolves for EV bikes, we will definitely be competitive and aggressive. Even vis-a-vis ICE bikes, our EV pricing is already reasonably close. It's not exactly the same, but reasonably close. And with maybe another generation of bikes, next year onward, we'll actually be equal to or lower than ICE bikes also in pricing for the equivalent product.

Sure. And second one is -- or the third one is with regard to the cell as you are almost about to commercially productionize the cell. And I hope you're already testing it on your vehicle. What to look forward as a customer benefit other than as we are looking from an investor to change the product positioning much better in the marketplace?

Pramod, the great point again. You've asked some very relevant questions. So the customer benefit of the cell is 2, 3 things. Firstly, it will have a very different charging performance because it is a bigger cell, more capable cell. Second, it will allow you to pack more energy. So for example, the first product in which the cell is coming is the 9.1 kilowatt hour Roadster X and the 5.3 kilowatt hour S1 Pro, and these are really high range of vehicles, which for some customers makes a lot of difference. And thirdly, for us, the benefit, obviously, is that the cost of using these cells keeps coming down. And now once this 4680 platform is established, then every year, as our cell technology improves, we keep improving the energy density and hence cost without making any changes to our manufacturing process. So that's a very meaningful point for us and for the customer. So imagine today, the 4680 gives you 5-kilowatt hour range. One year from now, the same pack will give you 5.5 kilowatt hour of range without anything changed from our manufacturing because it's just the technology recipe in the cell that we will change. The speed at which we can bring these iterations in the market is much better than competition relying on vendor cells.

We'll now take the last question from Mr. Ajox Frederick.

Sir, my question is from a near-term perspective. Of the 325,000 vehicles, which we aspire to sell for the year, how much are we penciling in for the bikes or in that range? Just a broader stroke could give us some clarity.

Sorry, Ajox, could you repeat? We lost you in the middle.

So I wanted to understand how much of this aspired 325,000 or 350,000 vehicles for the year, are we penciling in for the bikes?

So Ajox, today, we're not sharing that specific guidance, but we do expect 15%, 20% should be a reasonable target of this for bikes.

Okay. Okay. Got it, sir. So 30,000 per month is more driven by the industry itself picking up and the festive also helping us. So got it. Yes. And secondly, sir, on the revenue front, INR 4,200 crores, how much of that is battery in that? Or do we not add battery in that guidance?

That's consolidated revenue, Ajox. So battery since we're only selling it to ourselves, there's an arm's length transaction, but consolidated all of that...

We'll take the next question from Mr. Udit Jaswal.

Congratulations, Bhavish, on a great result. I just wanted to...

Are you the same you guy who messaged me on social media?

I think so.

Okay. Go ahead. Ask your question.

I just have a quick question about battery as a service, which your competitions have started to offer. Is there any plan for Ola Electric on that front?

No, Udit. We have a product on the removable battery, which is the Gig and the Gig+. But as of now, we have not kicked off the manufacturing of that. We will do that as the market matures.

Okay. That was my question. I think all the questions already covered.

Thank you so much. With this, we will have to end our session here. We really appreciate your time and all of your questions during the call today. Thank you so much for joining us, and we look forward to meeting you all during our next earnings conference. Have a good day.