Ladies and gentlemen, good day and welcome to Ola Electric Q2 FY2026 earnings conference call. As a reminder, all participants will be on listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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 guarantees 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, and Harish Abichandani, CFO of the company, to take you through the results.
Thank you, Abhishek, and good to meet everybody again after three months. Again, I'm going to largely keep time for Q&A. My comments are going to be very, very brief. We published the shareholder letter in good time this time, and I'm assuming most of you have gone through it. A couple of highlights: it's been an important quarter for us. Our auto business has continued its progress towards strong profitability. Specifically, I want to highlight our gross margin: 30.7% gross margin, much better than many ICE companies also. This has been consistent with our strategic focus over the last two, three quarters. Auto business also turned cash generative, with underlying cash flow from operations of INR 15 crore. This quarter, we also commissioned our Gigafactory, 2.5 GWh capacity, and by March, we will be scaling up to 5.9 GWh.
In October, we launched and expanded into the energy segment with Ola Shakti. It is India's first residential BESS product, and this is built with our own in-house 4680 cells. This should drive new revenue streams and grow the Gigafactory utilization. I am going to pause here. I am going to open up for questions, and through questions, answer many of your queries.
Thank you, Bhavish. We will now begin with the question -and -answer session. Anyone who wishes to ask a question may use the raise hand option. If you wish to remove yourself from the question queue, you may press the raise hand option once again. Participants are requested to unmute themselves before asking the questions. Before asking the questions, we request you to introduce yourself with your full name and your organization. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Thank you, everyone. We will take the first question from Mr. Chandranmoli from Goldman Sachs. Sir, you may unmute yourself and ask a question.
Hi, can you hear me?
Yes, we can.
Hi, Chandru.
Hi, hi, hi. Thank you for taking my questions. The first question is just on the BESS business. I just want to understand what the building blocks of the assumptions are on your guidance for FY 2027 full year revenue.
This meeting is being archived.
Chandru, firstly, an important point to highlight in the BESS business is that a lot of the manufacturing and R&D is all shared between our automotive and BESS business. It's the same battery pack that goes into our Roadster. The same 4680 cells go into our BESS, the Shakti product, as go into our automotive. Now, if you look at the opportunity, and we launched it in October, we've gotten a very good response, a lot of reservations. The product goes into the market in around mid-January and goes into market across all our 2,500 stores-3,000 stores. In that sense, we have very strong distribution also. The current market that it addresses, it's a first-of-its-kind product which is built in India, but the market it addresses is the current inverter market, which is largely lead acid or even the diesel generator used in homes, used in small.
SMEs or small commercial establishments. It also complements the rooftop solar market growth because rooftop solar, as it is growing with the government push behind it, most of those installations will have some version of home battery storage installed with it. Those are the market assumptions, the market directional inputs that are important for all of us to understand. In terms of numbers, the average selling price for this product is at the upper end, a INR 200,000 product, at the lower end, a INR 50,000 product. An average selling price of about, sawala or deer lakh rupee average blended selling price is going to be. If you just add that, next quarter, we have said Q4, which is when it launches, we should do about INR 100 crore revenue, which means about 7,000-8,000 products sold through the quarter, which we feel fairly confident in doing.
Through FY2027, a INR 1,000 crore number to us seems to be a median guidance on what we can achieve. That is about INR 250-INR 300 crore a quarter. The demand for this is fairly high. Our distribution, our pricing, all is industry-leading here. Also, despite the pricing that we have in this category, also started with a competitive pricing, despite that, our gross margins are going to be fairly healthy. Just like in our auto business, as you have seen, our gross margins have continued to improve. Even here, our gross margins will start off in a very healthy way.
Got it. That's helpful. Second bit is just around the ASP reported this quarter. It looks like the two-wheeler business ASP has increased from INR 121,000 to INR 131,000. Is most of that because of slightly better PLI realization, or is there any other insight you can share with us on the mix of products, maybe what the quarterly average on motorcycle mix was? Any additional color you can share there?
Chandru, PLI in this quarter was also minimal only. We have a chart, we have a graph towards the end in the annexures, which shows you a gross margin without PLI, gross margin with PLI. PLI in the 30.7% gross margin was only two percentage points. Gross margin on our Gen 3, PLI on our Gen 3 came in only towards the end of the quarter. In Q3, which is this quarter, we will see a further uptick in gross margin due to PLI. Now, the ASP is improving because we are able to increase the attachments of our add-ons like MoveOS Plus, which is the software subscription, as well as to some extent accessories, etc. Our Gen 3 products give us a broader range of pricing. The 4680 products are priced on the higher end, higher range.
Even the Pro Plus products came into market in Q2. Due to a broader range, our ASP also got a certain benefit due to that. Our motorcycles also have a slightly higher average pricing than the scooter, given the higher battery pack sizes on average. Those are the reasons why ASPs went up. Important point to note also is our pricing in the market is still competitive. We are compared to like to like to our competitors, still slightly lower on pricing index versus what they are. Despite that, our gross margins are very healthy. Another point I want to make on this, as we are on this topic, is the auto two-wheeler EV industry has been largely flat over the last few months, last two, three quarters especially, through this calendar year.
Our strategy has been to use this time to consolidate our operations, focus on cost efficiencies, improve our gross margins, get the new product, which is our Gen 3 product, into the market, launch the motorcycles in a credible way, and also fix some of the front-end operational challenges that we have been focusing on for the last couple of quarters. This strategy, we believe, is setting us up very well for the next phase of growth that will start once the mass sort of more value-conscious customers start buying into EVs. In that sense, the company, the products, the gross margin, the product differentiation, the business model, cost structure, all is now primed for the next wave of growth coming up.
Got it. That's helpful. Just lastly, if you could just help us with, I think there's a comment in the shareholders' letter that the exit run rate for motorcycles was about 15% of total volume. Just the quarterly run rate for the entire quarter, if you could just give us some more clarity on what the electric motorcycle mix was for the September quarter.
The quarterly run rate would be around 12%-15% in the Q2 quarter. Overall volume. Obviously, over Q1, we have increased. We are seeing increased interest and traction in our motorcycle business. Like we said earlier, we're taking it in a more gradual sense, rolling it out across the country in a more gradual step-by-step way.
Got it. Thank you very much and all the best.
Thank you. We'll take the next question from Mr. Arvind Sharma. You may unmute yourself and ask a question.
Just go to the next comes around.
We'll take the next question. We'll take the next question from Ms. Nishita Sankalesha, if you can just unmute yourself and ask the question.
Hello.
Hi, Nishita.
Yes, am I audible?
Yes.
Yes. I just need a clarification. Did you mention that in FY2027, we will do INR 250 crore-INR 400 crore per quarter from our BESS unit?
We have set an outlook of INR 1,000-INR 1,200 crore for the full year. We have not really given any specific number for a quarterly number. I just divided that by four for the conversation. Obviously, it will not be the same across the quarter, scale up through the years.
Right. This is just from the BESS unit, right?
Yes, this is just from the BESS products.
The price per unit for BESS would be INR 115,000-INR 150,000, if I heard it correctly.
The upper end is INR 200,000. You can find this on our website, Nishita.
Okay, okay. Understood. Thank you so much.
Thank you. We'll take the next question from Ms. Gunjan Prithyani of Bank of America. Please unmute yourself and ask a question.
Yeah, hi. Can you hear me?
Yeah. Gunjan, you'll have to be a little louder or closer.
Okay.
Yeah, clear.
Okay, a couple of questions from my side. Firstly, follow up on the results. Could you also talk about what was the progress on Gen 3 transition? Are we, what part of the portfolio is already transitioned fully? Any reason for PLI still being lower? I mean, what stage of PLI certification we are for the current portfolio?
Q2 was almost all Gen 3. And now, since the beginning of festive, we've stopped Gen 2 completely. Now all our sales are completely Gen 3. Q2 was almost like a high 90% Gen 3. PLI, the Gen 3 scooter portfolio already has PLI now. That PLI came through towards the early part of September. That's why only a part of our quarterly revenue has PLI. Q3 onwards, all of our scooters have PLI. Bikes, PLI will come in January or February. That's our expectation.
This 2% PLI contribution will essentially go up more closer to like 10% on a blended basis by next quarter. Is that correct?
See, if all our revenue gets PLI in gross margin, it'll reflect at about 7-8 points extra. Because our revenue is not just product revenue, right? There is other revenue also. Like the add-on revenue doesn't get PLI, the service revenue doesn't get PLI, parts revenue doesn't get PLI, it's only the product revenue. 7-8 points is what it'll add up. Over in total PLI revenue once all our products have PLI. If I help you draw a bit of a margin walk, gross margin walk between 30.7 and this quarter too. We are actually, our outlook is on the gross margin higher than what we thought in Q1. We do expect from a full portfolio PLI Q4 onwards, we should be having a gross margin of 36%-37%, which is that extra 5-6 points that will come.
Some of it will come in Q3, some of it will come in Q4. On top of that, there are some further incremental improvements in attachments of our software subscriptions, other accessories which are going to increase. The whole parts business, which we talk about in our—the whole parts business so far was only restricted through my own network. As you know, most OEMs make about 10%-12% revenue and 50%-60% gross margin on that from parts. That is a revenue. We just set up a business unit around that to grow our parts revenue. We have a very large deployed vehicle base, more than a million now, still almost 40%-50% higher than our nearest competitor in EVs. We do expect the parts business to scale up significantly.
In a couple of quarters, if it gets to 5%-6% of revenue, that's another 2 percentage points-3 percentage points of gross margin. That's the rough ladder up to, let's say, high 30s or even up to 40%. Some of this we might invest back into growth as the industry gets back into a growth phase over the next couple of quarters. I want to comment on industry growth also. See, our read of the market is that the market grew a lot over the last couple of years. For the last one year, it has stabilized because the early adopters have already adopted EVs. Now it's the mass market customer who needs to get convinced about the EV proposition. The commercial proposition, they're convinced with, but the general reliability of a new technology, charging network, service network, etc., still needs some work.
We also still need to do some work in that direction, which is what we are focused on. With our hyperservice initiative, where we are expanding network beyond company-owned service centers, as well as opening up parts for open purchase. As the next set of customer base comes into the EV purchase industry, we will actually be well poised to scale that up, including having the gross margin to invest into surgical growth opportunities.
Okay, got it. My second question is on the warranty cost that was dragging for the last couple of quarters now. Now that we've transitioned to Gen 3 more or less for the entire portfolio, can you share a little bit more on where we are on the warranty cost and what are the initial feedback on Gen 3 in terms of how should we think as a sustainable warranty cost? And Bhavish, maybe because you covered industry growth, I mean, it'll be good to have your comments on the market share as well because that's clearly something which has been underwhelming. Some thoughts, what is the reason for it? How should we think about a more stable market share for Ola?
[Foreign language], our brand proposition to the customer is. A great product, competitive product in terms of performance, range, technology, superior value, [Foreign language] customer [Foreign language] product [Foreign language] two-wheeler [Foreign language] important [Foreign language] , and ownership experience. Now, two out of these three has been very good for us. We are working on the ownership experience, which is the service network. It has been. Slightly more challenging. Some of the challenges, by the way, are not just company-linked. Some of the challenges are because we are the largest EV company, the largest deployed vehicles in the market. We actually face the largest challenge of trained technicians also. The industry does have a shortage of EV-trained technicians. It is in some way incumbent upon us to grow the pool of EV-trained technicians, which is what the hyperservice initiative is looking to do.
Now, in terms of our market share, Gunjan, fundamentally our product, our product feedback, especially the Gen 3 product, the quality of that product is much superior to our previous generations and even in our own benchmarks to the market. So customer is loving the product. Bikes [Foreign language] response [Foreign language] . 4680 products [Foreign language] the higher range products are also, customers are quite excited about that. We have an order backlog we need to fulfill on that. We feel we have all the fundamentals lined up. As of now, we are focused on a lot more of our energy is being spent on just getting operational costs into shape, getting our operational excellence and execution excellence on our front end in shape. Our back end and manufacturing supply chain works really smoothly.
Our front end, which is where a lot of my personal time is also going. A little bit of market share up and down. I know we are also focused on growth, but in this interim period, we do not mind a little bit of market share loss to other guys who are actually buying market share. It is not that their structural business model delivers them higher market share. Whereas our structural, our business model now, our product leadership is all structural. The gross margin reflects that and our operating margin also now reflects that. Looking ahead, we do expect market share to increase as the Gen 3 product stabilizes. We do expect market share to increase as our service network further improves and scales up, especially as our parts ecosystem becomes more broad, customer confidence on buying our vehicle because there is a very broad-based service ecosystem also improves.
That will remain a focus over the next couple of quarters going ahead. At some point also, we do feel the competitive dynamic of people kind of playing for the same market share amongst each other will plateau. The industry will have to focus on getting the next set of customers into the industry. That is where we feel our fundamentals are well positioned to get the next set of customers into the industry. Did I answer all your questions, Gunjan? Or do you have one or two? I think I answered your market share question, but if you have, if I skipped anything, I am happy to answer. You can repeat.
No, this is quite useful. Maybe if I have, I can just add one more and then I'll join back the queue. I also wanted to get your thoughts on the captive usage of the battery cells. When do we expect that? Do you think in terms of cost, we are at parity now? What is the yield on the cell business? Some of those metrics which you shared last time in terms of when do we get the parity for captive usage?
See, the parity on cell cost will be around 3 GWh-5 GWh . That target remains the same. On the cell bomb cost, our cell business will actually make a good gross margin from the beginning because the bomb cost is better than our procurement cost from outside, but definitely there will be some yield improvements we'll have to go through. Hence, there will be a journey. That's the 3 GWh-5 GWh threshold. The rollout of our own cell into our vehicles has started already. The first products were delivered to customers last few days ago. Now we are in the ramp period. If you see our number of cells produced every quarter is also going up. It's still very low, but the factory is in a ramp period. This Q3 quarter, you'll see a much more aggressive ramp in the Gigafactory. All the cells right now produced will go into our own vehicles or on the Shakti product.
All right. Thank you so much. I'll join back the queue.
Thank you. We'll take the next question from Mr. Arvind Sharma of Citibank. Please unmute yourself and ask a question.
Hi. Can you hear me now?
Hi, Arvind.
Hi, sir. How are you doing? Thank you so much for taking my questions. I will start with the delivery part. You've given guidance for the second half, but if we go to FY 2027, the next year, it's too early for that. Still, what would be your underlying assumptions for the industry as well as Ola's market share, beyond just FY 2026?
Arvind, the guidance we have given for the second half is 100,000 units. We are also learning how to give some kind of an outlook. Also, the industry is still, there are enough moving parts in the industry. I think what definitely is an important dynamic that we have considered now is the industry growth has slowed down. This is also a global phenomenon. If you look at the global EV industry, except for China, generally there is a consolidation phase in the global EV industry. The strategy leading companies which we look up to are following also is largely that. In this phase, try and consolidate your operations and improve gross margins. Improve product quality, bring stability to the product portfolio. That is what we have also focused on, Arvind. In FY2027, we do expect the industry to have an uptick on growth.
Now, whether that'll be 20% a year or 30% a year or 15% a year, I think hard for me to pinpoint a specific number, but in that zone, we do expect the industry to grow again. We are also focused on both in the scooter EV segment, consolidating our market share with high gross margins. Our focus has been on margin accretive growth and margin accretive share improvement also. Motorcycle is a completely new domain, and the motorcycle domain will take its own time to grow, but we are the leaders there from the start itself. Hard for me to, summary is hard for me to hazard a guess on market share, but we are absolutely targeting a market share which is being the number one company. If you look right now, everybody's market share has broadly become the same at the top.
Our market share is moving a little up and down. As the industry shakes out with more people stabilizing their volumes, having a higher vehicle park, which they then have to manage servicing of, I think market share will eventually be one or two leading players and a bunch of tier two players. Now, our expectation is to be in that one or two leading players with a market share of 25% as a target.
Got it. Thank you, sir. On BESS, now, the commentary on revenue for FY 2027, that makes it almost a third of your revenue that you would end up FY 2026 with, which is a very strong number. Because this is an incremental thing way beyond just the vehicles. Is it a strategy that going just beyond two wheelers? Could we see Ola launching even more non-vehicle products? Because BESS would be a big contributor to revenue if things are to go.
Absolutely. If you look at a revenue of INR 100 crore, that is about 6,000 units-7,000 units next quarter, which is not hard to do at all. 6,000 units-7,000 units is a very minimal number. In FY2027, INR 1,000 crore revenue means about 60,000 units-70,000 units through the year. Again, all these are, the inverter market is itself much bigger. The diesel generator market for residents is much bigger than this. The solar growth itself is accelerating. Rooftop, home rooftop, residential rooftop solar growth is itself accelerating. By the way, this product is not just for homes. Even telecom towers will be using the same capacity of battery storage as the current Shakti products have. Small nursing homes, hospitals, small commercial establishments. The potential time is very high. We are pretty much by far the first company to bring a fully Indian product.
Also, our pricing is very competitive because of our vertical integration. We are very confident of this product and meeting those volumes, those revenues. If you remember, even our EV volume and revenue also grew with a similar hockey stick in the beginning. There is always, in any new category, an early adopter journey, which we expect in FY2027 our Shakti product to have. Whether it contributes 1/3 of revenue, half of revenue, 25, that's just a mathematical number. Our target as a company is to have INR 1,000 crore revenue minimum next year from our Shakti product.
Got it. Thank you, sir. If I may just squeeze in a very quarter-specific question. We see the employee cost has gone down significantly. Is it a sustainable rate? Similarly, on the other expenses side, it has not really gone down versus the volume. There would be lots of contributors to it. If you could throw a quick light on these two aspects of the quarter.
See, employee cost [Foreign language] ? Jokes apart, we are consolidating our, just a little bit of history reminder for everybody. This is a four-year-old company. When we grew like crazy, we did overbuild some organizations because that's the way how to manage crazy growth. You cannot have growth and profitability and consolidation, cost consolidation, all at the same time. We have used the last six months to really consolidate our costs, including in people. This is completely sustainable. In fact, in Q3 and Q4, there will be further cost optimizations both on people, but more so in the non-people linked operational costs. In Q4 and Q1, we had done a change in our distribution methodology, removed warehouses, removed external registration partners, brought all of that in-house.
That has contributed to profitability improvements, not all of which is yet fully baked into Q2. That will bring some more profitability improvements in Q3 and Q4. This is just the auto segment. Overall, also, we have given an outlook that our overall OpEx, by the way, in Q2 over Q1 has also come down from INR 450 crore to INR 416 crore. This over the next couple of quarters also will just incrementally keep coming down.
Got it, sir. Thank you so much for answering my question. That's all from my side.
Thank you. We'll take the next question from Mr. Shrenik Mehta from TPG New Quest. Please unmute yourself and ask your question.
Hi, can you hear me?
Hi, Shrenik.
Hi, Bhavish. Bhavish, I just thought of asking you a question more about a long-term view of how you look at this company evolving. Say from a perspective of ROE. In how many years do you see that we will get over the threshold of the cost of capital? I know many developments are happening which are really strong and are taking us towards that path. In your thought process, when do you see this turning around?
Shrenik, return key journey, [Foreign language] . Most important metric is product differentiation and link to that growth margin, which is where the company is very, very strong. It is strong across horizontally, across all products: scooters, motor bikes, even the best products. The foundation of that is our technology, R&D, manufacturing scale. That is where a lot of investment in the past few years has gone. That is where, again, like we mention in our schedule, that for the auto business, we do not foresee any major investments in the next couple of quarters. Even beyond that, the only investment will be new products that we bring and limited R&D CapEx that will be needed for new products, since the platform is shared.
So growth margin on a shared platform, investments already behind us. Next is operating leverage. Operating leverage is a function of volumes. Volumes are a function of both market dynamics as well as our strategy on how much we are to play in that. That I have commented on. We do expect market volumes and our volumes to increase in the near future. Our focus remains on growing, but in a profitable and a margin accretive way. Now, since for the auto business, capital investments in manufacturing are going to be minimal, we have a capacity of a million units a year. The only capital investments going forward are going to be R&D. As soon as we hit a certain volume scale, we do expect returns to come.
Because the fundamentals of this business are linked to vertical integration technology, the returns will be much higher than cost of capital, whether it's equity or debt. Now, if you look at industry ROEs, we expect EV OEMs, our ROEs and in general EV industry ROEs for leading EV players, which do vertical integration, to be higher than ICE industry ROEs. Maybe in a couple of quarters, you should ask me this again and I will give you an answer with some performance on ROE.
Yeah, that's fair. I know it's a gliding path, but the way you're scaling up, and especially the 20 Gw factory, that you scale up will also help in the same direction. Thank you so much.
Thank you. We will take the next question from Mr. Arun Kejriwal of Kejriwal Consultancy. So please unmute yourself and ask a question.
Thanks, Bhavish, for the opportunity.
[Foreign language] .
Hi, hi. So we are EBITDA positive as we had guided last time, but it appears to have come at a cost of sacrificing volume. Could you help us understand what gives you comfort that this trade-off is sustainable and strategically sound going forward?
Sir, like I said in my responses, the reason this is strategically sound is that the first, our objective in this consolidating market has been to build a structurally sound business model, both on product growth margins as well as on operating cost structure. We have delivered that, and it is not an overnight affair that this quarter it happened. Now, we have two quarters of continuous improvements in this direction. In fact, those of you who are tracking us for the last six quarters of being a public company, you can see actually how every quarter generally growth margins have been going up. Operating cost also specifically in the last two quarters have been improving.
Long term, the company that will win the, or that will really dominate EV industry will be the ones which are, which have a structural business model and a sustainable business model advantage. That in EV is only driven through vertical integration on technology and manufacturing. We by far are leading the industry. In fact, you know, internally, my key focus always remains on, are we continuing to expand our lead over competition on R&D, on product differentiation, and all of that translating into growth margin. Like I said, our growth margins are not driven by price increases. In fact, our price index is still competitive and lower than market for the similar product categories. Now, we have lost some market share.
it is because we have chosen to consolidate at this point instead of spend on marketing and discounting, unlike the market seat. If I, you know, again, overall commentary do on the market, one and a half years ago there were two competitors in the market, us and TPS. Now, there are six competitors in the market, and the market has not grown. No matter what others have also done, the market has not grown. It is not, in my view, the right strategy to buy market share at this point. The right strategy is, there is a reason the market is consolidating, because the customer segment which had to buy has bought. Now, they will come for repeat purchases in a few years, but the next set of customers want a certain extra proposition from the OEMs, which is higher reliability.
That is not just from our side, but also from the others. It is not like other others' products are meaningfully better than mine, and their service network is meaningfully better. They are not growing the market. The industry has got into a phase where a next set of customer segment has to be unlocked, and that will be unlocked when a next set of proposition is presented to that customer base, proposition in terms of ownership experience, value. How much value there is in the product, in the range, at the end. We believe we have the answer to all of that. For range, we have 4680 products, which meaningfully improve range of the product in the city. Like our 4680 scooter has a 5.2 kWh battery pack, which nobody else will be able to do with a non-4680 cell.
That range is required for the next set of users in the city. Scooters. Bike market will only get unlocked once you have a bike with 200 km-300 km real world range, which is again what our Roadster X Plus 9.1 kilowatt hour unlocks, right? Its range is 500 km certified, real world will come above 250 km-300 km. These are the things which, you know, we have also then decided that, let's focus on rollout of our Gen 3 products, which bring this higher range, higher value proposition, experience to the customer. Let's roll out, let's improve our service experience, let's improve our parts availability, let's improve our third party service network. Now, all of this is where our energy has gone, and in this period, everybody else is fighting for the same set of market share. We believe it is strategically absolutely sound to focus on what will drive the future growth. Some of it is improving our own operation. Some of it is actually leveraging our strengths already on the product and the manufacturing.
Thanks, Bhavish, for that detailed answer, and hope that with the continued progress that we are doing, two quarters from time from now, the questions we ask would be at a different level. Thanks.
Thank you, sir.
Thank you. We will take the next question from Chaitanya Alluri of Invesco. Please unmute yourself and ask a question.
Thank you. In terms of battery yield, last quarter we have come up with, I believe, somewhere around 60. Just wanted to know where we are in terms of that.
In terms of yield,
battery yield percentage, yeah.
So, Chaitanya, the gigafactory has a ramp on two fronts. One is yield, and one is throughput, right? The way this goes is, you take a yield to a certain level, keep the yield there, and improve throughput, and then keep throughput there, improve yield. You know, it goes in lockstep. We are, you know, the metric to track is not just yield, but throughput and yield, and hence growth margins together. Now, Q3 is the first quarter where you will start seeing meaningful, some sort of meaningful volumes and revenue in the cell business, and hence. Q3 reporting onward, you will be able to track how my overall yields are doing, how my overall throughput is scaling up.
As of now, I don't want to get into specific numbers here. The volumes are low, but my focus is to keep improving throughput over the next few quarters, while improving yield over the next few quarters, and I hope you got the point about it. These are moving in lockstep.
Got it, got it. In terms of our quality, in terms of Gen 3. You know, how are we doing, like the product quality? Are we?
Chaitanya, product quality and product feedback, by the way, customer feedback is very very strong on Gen 3. A lot of the service commentary that you see on social media, it is largely linked to Gen 2 products or before. Gen 3 products are almost half in terms of defect rates on any important metric, whether it is three months defects, one month defect, at the overall our previous generations. Also, you know, the nature of defects are also very different in Gen 3. The defects are easily fixable, if any, right? Versus in Gen 2 and all, we had some extra focus on battery and motor, which made the vehicle immobile for the customer, whereas now the vehicle actually remains usable, and it is much more easily serviceable. The Gen 3 product is much more advanced in that dimension too.
So, that includes the Roadster, right? We are seeing, let's.
Absolutely, Roadster is also on the Gen 3 platform, yeah.
Thank you, thank you. That's all.
Thank you. We will take the next question from Mr. Yogendra Singh of Kotak. Please unmute yourself and ask a question.
Hello, hi, good afternoon. My question is again regarding this market share, specifically from Karnataka and Maharashtra. If we see numbers, our numbers are comparatively, comparatively very less. In spite of we are having 4,000 stores, we are saying, I think these numbers are, as I think Bhavish ji already answered that what is happening. It is a question. The second question I am having is regarding the service centers that, and my own experience, actually, I went to one or two stores, and I see that we, our stores are not that professional in terms of service. What is your plan and how do you see these things? Thank you.
Yogendra, as I said. Store number of stores, the number of stores is less important in the current state of the industry, where what is more important is to actually improve the experience of the customer. And your observation is absolutely correct. In our service network, we have more work to do, and we are focused on that. We are focused on our own service network. Challenge, like I said, there is the availability of trained EV technicians, and we are also investing our energies into increasing the pool of trained EV technicians, which we will benefit. The whole industry will benefit. We have also hence launched this initiative on Hyperservice, which is making parts openly available. The initial response has been very strong, actually. Already, we are selling a lot of parts direct to customer on a daily basis. We are also going to be signing up a few third-party organized garage chains, and you will hear more about it in the near, in the immediate near future, actually. In that sense, service proposition to the customer is going to meaningfully improve. Our own network's operations will also improve, but we are also broadening the base in the near term to third parties, as well as opening up the parts ecosystem completely. Now, this advantage we have because we have a D2C customer network. In dealership models, there is always a channel conflict the OEM faces when he wants to open up beyond the dealer, whereas we have our own network, and we do not have that channel conflict in that sense. Right?
know, that is a focus. You will hear more updates on it, and you will hear improved customer sentiment also on service. In terms of market share, Yogendra, like I said, the market is in a consolidation phase, and this is important for all those who are tracking the EV industry to understand that market is in a consolidation phase. There are six competitors, if this number even becomes 20, they will just eat into each other right now, because in the market, customers want something else. Now, what is that something else?
The customer wants a higher reliability and a higher price value equation for the products, both of which we are very confident of with our Gen 3 products, with our 4680 cell in the Gen 3 product, and with us focusing on fixing and growing our service experience and network. It's not as if the other guys are growing the market with their actions. They are just actually, you know, competing with each other on price right now. We feel very strong confidence that our strategy focused on product differentiation, product value proposition to the customer, and, you know, our growth margins linked to that is the right strategy for the future.
Thank you. I think Karnataka and Maharashtra, these two, if you see, in these two states, there we are having a big difference in numbers. But anyway, I think you are already aware. One more, actually, what I said was showrooms. The experience, when a customer enters into our stores, I think the vibe of entering into a two-wheeler store is not there. So, basically, I think of course you said that we will train our people, but I think not.
that point, is Yogendra a valid point that our experience in the service center has to go up, and we are focused on that. Store and all, I do not fully agree that store mein utna differentiation hai between our experience and any other dealership, but service definitely, we do have to take it up a notch, and we are focused on that.
OK, thank you.
you. We will take the last question from Mr. Kaustubh Babna of BMP SL. Please unmute yourself and ask a question.
Hello, yeah, thank you so much for taking my question. Just wanted to understand, Bhavish. Does the company have a risk mitigation strategy in case the Bharat 4680 cells, you know, do not live up to the expectations of quality for all the, you know, new electric two-wheelers which are going into the market with these cells?
Kaustubh, good question. I will answer it on two-three levels. See, firstly, the company has focused a lot of time and energy in making sure the ramp-up of the sales is gradual. These are some lessons we have learned from our past, and we are focused on making sure that all quality checks, all standard certifications, all absolute extreme quality checks that any agency kind of suggests, also not even enforces, all of those we have gone through. Right?
There has been a lot of testing done of our own cells. That is point number one, and we have been under development for the last few years in this, and that is why the gigafactory also we are scaling a little gradually. It is not like in one quarter you will see a big spurt. That is point number one. Point number two is that we are also transitioning our product portfolio into this over time. We are not one fine day moving all our automotive products into our 4680 cell. It will happen over the course of from now, almost a year. Right?
It will take us three-four quarters to fully transition our products from the cells we use currently to our own cells, and that gives us a lot of runway to see how the cells do in the market with customers. That is the second point. Third, we have also, since we through our software can track products in the field real time, we also have a little extra tracking of our own cell vehicles, so that we can see early warning signals or anything, if any of that sort. Fourth, also from an accounting perspective, we will be making sure our provisioning, warranty provisioning policy for our cells is slightly more conservative in the interim, so that the financials have room for any kind of risk. We will take one, we have 10 minutes, we can take a couple more questions.
We will take the next question from Mr. Atul Kedia. Please unmute yourself and ask a question.
Hi, Bhavish. Congratulations for foraying into Battery Energy Storage System. I wanted to ask you that our competitors are entering into battery as a service model. When are we planning to enter into this model, like Ather's sale is skyrocketing after they have started this battery as a service model?
Atul, battery as a service is not really what is selling in the market, even for Ather or even for any other. Sales for other companies would be going up for a multitude of other factors, but not battery as a service. We do not feel battery as a service is a meaningful area to focus on. It is largely as it exists today, a financing scheme. If 60%-70% customers anyway finance their vehicles, then whether they have battery as a service or not, it does not make a difference. For us, that is not one of our key focus areas. What is our focus area is to increase the range of our products with our own cells. You know, even if we talk about batteries, with our 4680 products, the range is higher. That is what customers really want, which will open up penetration to the next segment.
OK, so second question is, what is the break-even unit after PLI? Like before, it was 25,000 units per month.
Atul, agar break even [Foreign language] , to to is quarter [Foreign language] . 52,000 deliveries [Foreign language] , to about 17,000 units-18,000 units. So, we are already EBIT break even, but I know that's total EBIT on operating EBIT. You can add another 2,000-3,000, so about 20,000 units a month. And auto business breaks even at that level.
OK, so we have reduced it from 25,000 to 20,000, right?
Yes.
Oh, and are we entering into container model? That container X closure, think of Battery Energy Storage System.
Absolutely, you will find a very nice photograph in our earnings letter, where we have all the battery storage products from a small one to a medium one to the container one. Container one, last question in that, in Q1 our container will get launched for whoever is wanting to buy a container. Today, everyone is buying from China, so they can buy mine when it launches.
OK, and last thing is, I did some channel check on service thing. In that, people are saying that in Hyperservice they are charging them INR 5,000, but what is being promised is that the chain, the belt, will be given free and every 2,000 km the battery brake pad that needs to be changed will be given, but they are not giving that.
Atul, some things are anecdotal. Right now, I cannot make policy on anecdotes, but. Hyperservice is not about promising any discounts or freebies. In fact, it is about charging for parts. You know, we are focused on making parts openly available. Right? One of the challenges is that our parts are only available in our network. We are now making parts completely openly available, which is a big—you know, you can imagine the kind of enabler that will be, because every independent garage guy is also now buying my parts in the last two weeks that we have open.
You are converting that into a profit center.
Two-four months [Foreign language] revenue [Foreign language]
Thank you, thank you so much.
Thank you. We will take the next question from Mr. Pawan Kataria. Please unmute yourself and ask a question.
This will be the last question.
Yes sir.
Thank you for the opportunity. I would just like to ask. Respect multiple initiatives in Hyperservice and network expansion. Right? There continues to be a visible customer frustration and delayed repairs. Could you share the exact quantum of the current service backlog and how many vehicles are still awaiting service or resolution? What concrete deadline has management committed for fully clearing the backlog across the regions?
See, Pawan, this, we have to look at backlog, you know, in that way, is not the complete way. The way, the important, one important metric in which we look at it is how many vehicles are serviced in one day or two days. Almost 75% + vehicles are serviced in a couple of days. There is a certain amount of backlog and that to some extent, after monsoon, every OEM has. In ours, it is a little bit more than that. To some extent, our parts availability is also a reason for that. To some extent, technician availability is a reason for that. We are, you know, focused. Now that monsoon has ended, you will see this automatically reduce. Structurally, what we are doing is making our parts openly available and opening third-party garages, who actually will find a business value in this. The customer's pain will also be solved, and we will also make a profit. It is a win-win, you know, the way we can solve for this in a structural way.
Right, right. Okay, thank you, sir. That answers my question.
Thank you, Bhavish. Due to paucity of time, we will have to conclude the session here. We 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. Thank you for joining us. You may now log out from the conference call.