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Ola Electric’s Physical Expansion Faces Regulatory Scrutiny

Ola Electric Mobility Ltd., known for its rapid growth in the electric scooter sector, is encountering significant regulatory challenges as it diversifies from a digital-only sales model to physical retail locations. The Bengaluru-based company has dramatically expanded its network of showrooms, reaching approximately 4,000 since 2022. However, a recent investigation by Bloomberg News has revealed that a staggering 95% of these showrooms lack the essential trade certificates mandated by India’s Motor Vehicles Act.

Of the nearly 3,400 showrooms analyzed in the investigation, only around 100 were found to be compliant with the trade certificate requirements. This certification is crucial as it allows the establishments to display, sell, and conduct test rides of unregistered two-wheelers. Consequently, transport authorities across various Indian states have initiated inspections, leading to showroom closures, vehicle seizures, and formal notices sent to the company.

According to Hans Kumar, a former assistant transport commissioner in Rajasthan, the Motor Vehicles Act clearly stipulates that all auto showrooms must prominently display a trade certificate if they house unregistered vehicles. This regulation aims to ensure compliance and safeguard consumer interests. Interviews with several local transport officials revealed a pattern of investigation into Ola’s operations, highlighting the risks associated with the company’s aggressive expansion approach.

In response to the allegations of non-compliance, an Ola spokesperson claimed that the company manages unregistered vehicles at its distribution centers and that these locations adhere to regulatory guidelines. However, this response did not provide clarity regarding the certification status of their public-facing stores or address the recent raids conducted by local transportation regulators.

Compounding Challenges for Ola

In addition to regulatory hurdles, Ola Electric is facing a multitude of internal difficulties. The company’s stock price has plummeted more than 60% since its peak following its IPO in August. Buyers have also expressed dissatisfaction with product quality and after-sales service, further fueling negative sentiment toward the company. Bhavish Aggarwal, the CEO, acknowledged these customer complaints and outlined plans to expand their network in an attempt to resolve these issues.

As Ola navigates these challenges, it has also embarked on significant layoffs, impacting over a thousand employees and contractors. Reports indicate that the company is restructuring to automate certain operational aspects to enhance efficiency. Simultaneously, it is under pressure to launch its new e-motorcycles, with delays reported since an intended rollout announced by Aggarwal last January.

Regulatory Investigations Reveal Non-Compliance

The scrutiny from transport officials has intensified as nearly two dozen notices have been issued across different states, often pinpointing the absence of trade certificates at Ola’s showrooms. Specific examples include:

• In Madhya Pradesh, authorities flagged missing certificates and issued warnings before conducting showroom raids.
• Goa’s regulators cited expired lease agreements and customer complaints, leading to the cancellation of a trade certificate for one showroom.
• Maharashtra’s transport department shut down several Ola locations and confiscated vehicles due to compliance issues.
• In Jammu and Kashmir, officials raised concerns about unreported relocations of showrooms.
• Bihar initiated a task force to review trade compliance for 20 stores in the region.

Despite sporadic attempts to secure trade certificates in certain locations following regulatory notices, the overarching non-compliance persists. Ola has recently characterized its experience centers as merely avenues for customer engagement rather than direct sales points. This claim has not quelled ongoing regulatory inquiries.

Concerns Over Sales Reporting

In February, Ola reported over 25,000 vehicle sales, but data from the government’s VAHAN portal indicated that only about 8,600 vehicles were registered. This discrepancy raises concerns, as consumers in India cannot legally possess unregistered vehicles. Notably, Indian automotive manufacturers typically only report registered vehicle sales, which means that failing to register sold vehicles could contravene state laws.

Ola’s spokesperson mentioned that the registration figures would be updated on the VAHAN portal shortly, acknowledging that the delay in reporting was communicated previously. As the electric scooter market gains competitive pressures, with established players like Bajaj Auto and TVS Motor gaining market share, Ola’s challenges become increasingly pronounced.

Despite the ongoing turmoil, Aggarwal remains optimistic about the company’s potential for a turnaround. He mentioned plans for achieving profitability in the auto segment and targeted reaching a monthly sales figure of 50,000 units, which he believes could translate to improved financial health in the coming quarters.

Source
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