Ola Electric's board approves change in IPO fund use, timeline extension

Amid a delay in expanding the capacity at its cell manufacturing plant, Ola Electric Mobility’s board has approved a proposal to change the terms of utilization of proceeds from the funds raised in the initial public offering.

The decision to change terms and timelines for IPO proceeds utilization comes a couple of weeks after the company said it would delay the expansion of its gigafactory capacity, citing lower-than-anticipated growth of the electric vehicle market.

In an exchange filing on Friday night, the automaker said its board has approved "proposed variation in the objects/terms of utilization of the Initial Public Offering proceeds and extension of time limit for utilisation of IPO proceeds."

Earlier this month, Ola Electric informed investors that it would limit the capacity at the Giga factory to 5 GWh till FY2029. At the time of the IPO in 2024, the company said it was targeting 20 GWh capacity by mid-2026.

During the IPO, the company had outlined plans to start operations of the Giga factory in Krishnagiri, Tamil Nadu, with a cumulative capacity of 1.4 GWh and expand it to 5 GWh by October 2024 in the first phase.

In the second phase, the cumulative capacity was planned to be expanded to 6.4 GWh by April 2025 and to 20 GWh by June 2026 in further phases. 

"We do not foresee the need to expand beyond 5 GWh over the next three years at least," co-founder, Chairman and MD Bhavish Aggarwal told investors earlier this month. The first phase of cell manufacturing was planned to be funded via internal accruals and long-term borrowings from its cell business.

However, the second phase's capital expenditure was set to be primarily funded by Rs 1,228 crore, drawn from the Rs 5,275 crore raised during the IPO.

Ola Electric's first-quarter profit and loss statement shows that the company has utilised only Rs 2,681 crore from the Rs 5,275 crore raised in its IPO last year. Around Rs 2,594 crore remains unutilized. As capital expenditure to expand cell manufacturing capacity beyond 5 GWh, the company had earmarked Rs 1,228 crore from the proceeds.

"We had raised some money in anticipation of this expansion beyond 5 GWh in our IPO. As we go along, we might look to redeploy that capital into other productive uses," Aggarwal informed investors after the June quarter results.

Ola Electric's decision to scale back its cell manufacturing capacity plan will likely have repercussions on its participation in the government's Production Linked Incentive (PLI) program for Advanced Chemistry Cell (ACC) Battery Storage.

In 2022, Ola Electric was selected for the Rs 18,100-crore PLI scheme to set up 20 GWh of cell manufacturing capacity. Now, the company faces the prospect of incurring penalties for failing to meet the stipulated operational and capacity milestones.

The PLI scheme mandated companies to establish manufacturing facilities within two years. Reliance Industries and Rajesh Exports are among the other beneficiaries also selected to set up advanced cell manufacturing units under this initiative.

In March, Ola Electric received a letter from the government for missing a key milestone in setting up its cell plant. The company has now commenced cell manufacturing at its facility, and the cells are now ready for integration into its vehicles starting from this year's festival season.

Aggarwal confirmed that capping cell capacity at 5 GWh will directly impact Ola Electric's PLI scheme commitments, as the company will not meet the timelines for its previously targeted 20 GWh capacity, thereby incurring penalties.

"There is a maximum of about Rs 100 crores of penalty and we are actually accruing that every quarter in our P&L already,” Aggarwal had said, adding that Ola Electric will engage with the government to relook at the scheme's timelines.

READ MORE: Ola Electric Delays Expanding Cell Capacity Beyond 5 GWh; May Miss PLI Scheme Timeline