Ola Electric shares plunge 9% due to service quality concerns

Ola Electric, India's leading electric scooter manufacturer, experienced a significant market downturn on Monday as shares plummeted 9% following a heated social media exchange between the company's founder and a popular comedian. The controversy has reignited widespread concerns about the SoftBank-backed company's service quality amid declining sales figures.

The dispute erupted when well-known Indian comedian Kunal Kamra shared an undated photograph with his 2.4 million followers on X (formerly Twitter), depicting numerous e-scooters covered in dust outside an Ola showroom. This post quickly catalysed an outpouring of similar complaints from other users, prompting a defensive response from Ola's founder, Bhavish Aggarwal, who advised Kamra to "sit quiet and let us focus on fixing the issues" while asserting that the company is rapidly expanding its service network.

The incident has dealt another blow to Ola Electric, which has already seen its market share in India's competitive e-scooter sector decline for five consecutive months. Despite holding a 27% market share, the company has faced mounting criticism over its after-sales service quality. The controversy has contributed to a broader downturn in investor confidence, with Ola's stock price now down 43% from its peak following its August stock market debut.

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Financial analysts have taken note of these developments. Kranthi Bathini, director of equity strategy at Wealthmills Securities, commented on the situation, stating, "Consumer complaints on social media do have an impact on the company... The current social media spat is going to have a medium to short-term impact."

Adding to the company's challenges, a recent HSBC analysis painted a concerning picture of Ola's service infrastructure. After visiting multiple Ola service stations, HSBC analysts reported finding most locations "overwhelmed by service requests and struggling to provide adequate service quality," noting significant backlogs. In response to these findings, Aggarwal announced plans to double the company's service centre network to 1,000 locations by December from the current 500.

These service-related issues are not new for Ola Electric. As per investigation last year, which covered 35 Ola centres across 10 Indian states, revealed widespread problems including significant backlogs, workforce shortages, and insufficient spare parts supply. In one particularly striking instance, over 100 scooters were found parked at a single centre, many covered in bird droppings.

The situation has occasionally escalated beyond social media complaints. In a recent incident, a 26-year-old customer was arrested for allegedly setting fire to an Ola showroom in southern India, reportedly protesting unsatisfactory servicing.

Ola Electric has yet to officially respond to requests for comment on Monday's stock price drop and the ongoing controversy. However, the incident highlights the growing challenges faced by the company as it attempts to maintain its market leadership position while addressing persistent service quality issues.

The recent events underscore the delicate balance electric vehicle manufacturers must strike between rapid growth and maintaining service quality, particularly in a market as competitive and fast-growing as India's e-scooter sector. As Ola Electric works to address these challenges, investors and customers alike will be closely watching the company's next moves in resolving its service-related concerns.