OLA Electric IPO is all set to kickstart on August 02. The company set the IPO price band at Rs 72-76 per share. However, investors should be aware of the risks involved in an IPO before applying for it. Here are key risks outlined by OLA Electric in the papers filed with SEBI:

1. Supply chain disruptions

According to the papers, the company can experience disruptions in the supply chain or face price increases in components and raw materials, which may further raise the prices of its EV products. This can also hamper the company’s manufacturing and delivery time.

“We could experience supply constraints, increased prices and quality issues in the supply of raw materials used in cell manufacturing, which could adversely affect cell manufacturing at our Ola Gigafactory and the quality of the cells produced therefrom,” said OLA Electric in its RHP. “We import cells from two foreign cell manufacturing companies, and plastic parts, electronic child parts and metal parts from other domestic and foreign suppliers.”

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2. OLA Electric incurred losses and negative cash flow

The company has incurred losses in the past and negative cash flow, not just the company but its material subsidiaries as well. In FY23 the company reported a loss of Rs 14,72.08 crore, an increase of 87.7% against a loss of Rs 784.15 crore. “We, including our Material Subsidiaries, Ola Electric Technologies Private Limited (“OET”) and Ola Cell Technologies Private Limited (“OCT”), have incurred losses and negative cash flows from operations since inception,” read the papers.  “We may continue to incur operating losses in the near term as we invest in our business and expand our product portfolio, build capacity and scale our operations.”

3. Limited experience in manufacturing EVs

According to the company, it has a limited operating history in manufacturing EVs. It is not confident whether it’ll be profitable in the future. “There is no assurance that we will be cost-effective in our operations or profitable in the future, whether at the holding company level or at the subsidiary level.”

4. Heavy investing in R&D may not give returns in future

The company has heavily invested in research and development and technology and plans to do so in future as well. However, it thinks that R&D investment may not generate returns in the immediate future. “If we are unable to realise returns on such investments in R&D and technology, our future business, ability to achieve profitability and financial condition may be adversely affected,” it said in its RHP. 

5. Government incentives a major play

The company benefits a lot from the incentives provided by the government. These incentives include such as FAME Phase II subsidies, some subsidies from the government of Tamil Nadu, and GST reimbursement. If in any case, the company becomes ineligible for these incentives then the price of its products will rise making it less attractive to conventional ICE vehicles. 

“If our vehicles become ineligible for the EMPS 2024 subsidy we may become less competitive due to higher product pricing (without the subsidies), potentially impacting our business and financial performance,” said OLA Electric in its papers. 

6. Raw material comes from China

The company could experience supply constraints, increased prices, and quality issues in the supply of raw materials used in cell manufacturing, which could adversely affect cell manufacturing at the Ola Gigafactory and the quality of the cells produced. Furthermore, “As such, we may be exposed to the possibility of product supply disruption and increased costs in the event of changes in the policies, rules and regulations of the Indian or Chinese government, including as a result of any political tensions, which could result in trade tariffs, increased freight charges or prices of CAM and AAM, or a complete halt on imports from China.”

7. Anyone can use name “OLA” 

The company does not own the trade mark for the brand name “OLA”. So, it might not be able to prevent the unauthorised use of it, which could harm the company’s business and competitive position. “We cannot assure you that all our pending patent applications will result in issued patents. Even if our patent applications succeed and we are issued patents accordingly, it is still uncertain whether these or our existing patents will contested, circumvented, or invalidated in the future. In addition, the rights granted under any issued patent may not provide us with meaningful protection or competitive advantages,” said OLA Electric.