Ahead of its much-touted initial public offering, Bhavish Aggarwal-led Ola Electric seems to have had a reality check. The company has cut its sales goals for 2023-2025 by over half. Not just that, it has also pushed its profitability target by a year as reduced government incentives pushed up prices of its e-scooters, Reuters reported on Wednesday citing a document and unnamed individuals in the know.

The e-scooter maker had previously expected revenue to quadruple to $1.5 billion in the 2023-24 fiscal and to double that in two years, Reuters had reported in July citing company documents with corporate projections. The document, prepared ahead of meetings with investors on Ola Electric’s $700 million market listing, also said that the company was targeting an operating profit of $220 million for the year ending 31 March 2024.

However, these projections were before the government’s subsidy cuts.

In May, the government decided to reduce its Faster Adoption and Manufacturing of Hybrid and Electric Vehicles, or FAME-II, subsidies effective June.

It cut the subsidy for electric two-wheelers to Rs 10,000 per kilowatt hour against the earlier Rs 15,000. The maximum subsidy cap of 40% of the ex-factory price of the vehicle was also brought down to 15%.

The announcement had two-wheeler electric scooter companies worried and several had said that they would have to raise prices 10-20% even if they absorbed part of the cost. However, at the time, Ola Electric’s chief marketing and revenue officer was confident that the changes were short-term challenges and that the price increases would not significantly impact consumer demand. But in a month’s time, Ola hiked its e-scooter prices by about Rs 15,000.

“We have marginally increased our product prices starting June, despite a significant reduction in government subsidies, making Ola S1 the best EV proposition in India… Month after month, our sales have experienced exponential growth,” CEO Bhavish Aggarwal had said at the time.

Now, Ola expects to record its e-scooter sales to hit 300,000 for the ongoing fiscal, 66% lower than its earlier target of 882,000. The revenue target for the current fiscal is now $591 million, nearly a third of its earlier $1.55 billion.

The Bengaluru-based company’s net loss for the year ended 31 March 2023 has almost doubled year on year to Rs 1,472 crore ($176.6 million), Moneycontrol reported on Tuesday. While its consolidated revenue was up 510% to Rs 2,782 crore ($334 million), it remains to be seen if it will be able to meet its FY24 target of over Rs 4,900 crore. In a note to investors and bankers, Ola Electric said it is targeting an EBITDA profitability of Rs 803 crore in FY25 and believes its EBITDA loss will come down to Rs 950 crore in FY24.

Only, the math doesn’t add up. The projected revenue of $591 million from the sale of around 300,000 scooters would mean the scooters will have to sell at $1,970, or Rs 163,000 apiece. The most expensive scooter in Ola Electric’s stable is retailing at Rs 147,000 or around $1,777, according to the company’s website. Unless it significantly raises prices, there is no way Ola Electric can realistically achieve its revenue targets.

The truth is that the EV enterprise is still losing a lot of money for each scooter that hits the market. “Their BOM [bill of materials] cost is still out of whack and the company has been trying to do everything possible to cut costs, which has forced them to experiment with materials, resulting in a lot of issues with the scooter,” a person in the know tells The Morning Context, requesting anonymity.

“There is no chance the company can turn in a net profit by 2024-25,” reveals a second person aware of the developments, on condition of anonymity. “OEMs never make money on the sale of vehicles. It’s the aftermarket that helps them become profitable. In the case of EVs, it’s the energy sale that does it. Hence Tesla is an energy company. That happens to make cars so that they can sell energy. Bhavish doesn’t have anything of that sort in the pipeline yet.”

We wrote in September that the second-generation Ola Electric scooters are facing the same old problems at an alarming frequency. Nearly two years after their rollout, the e-scooters continue to break and catch fire. Largely, the issue seems to be that the company hasn’t spent enough time testing and taking into account every permutation and combination of a customer’s actions and the vehicle’s response to them.

Aggarwal has been a man of hype and swoosh, and sometimes without the rigour. Its parked electric car, which was announced without a clear plan in place, is one example. But despite the hiccups, Ola Electric’s scooters seem to be capturing a huge market share. Why? Read this edition of our newsletter Things Change to find out.

Read our exclusive coverage on Ola Electric.

(With inputs from Pradip K. Saha)