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Indian ride-hailing unicorn Ola to enter used car retailing: Report

Written by Moulishree Srivastava Published on     3 mins read

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The used car market in India is expected to reach 8.2 million units by FY 2025, which will make it twice as big as the new car segment.

Indian ride-hailing giant Ola is reportedly entering the used car retailing business as it looks to diversify its product portfolio after the COVID-19 pandemic dampened the demand for its core business.

The mobility unicorn is in the process of setting up a team for the new product and is likely to pilot it next month in Bengaluru, where it is headquartered, according to a report by local media Entrackr.

“Ola is likely to enter the segment with a full-stack model where it will buy cars from people and the company’s driver-partners and sell them to buyers after glitches are removed,” the report said, quoting a source.

Dubbed Ola Cars, the new business will be complementary to its core business of cab-hailing. If the plans materialize, Ola will be directly competing with used car startups like Spinny, CarDekho, CarWale, Cars24, and Droom.

Since last year, the pre-owned vehicles segment has been witnessing accelerated growth, with many consumers opting to buy used cars instead of taking cabs due to fear of catching the deadly virus. According to a report by Autocar, 3.8 million used cars were sold in the financial year ended March 31 compared to 2.6 million new cars. About 64% of the customers who bought pre-owned vehicles were first-time car buyers. The report also predicts that the used car market will reach 8.2 million units by FY 2025, which will make it twice as big as the new car segment.

Investors have also begun to bet big on the used car space in the world’s second-most populous country. For instance, earlier this month, Gurugram-headquartered used car retail platform Spinny raised USD 108 Series D round led by Tiger Global. Similarly, its rival Cars24, which landed a USD 200 million check in its Series E funding round last November, is in talks with existing investors like DST Global to raise another USD 200–250 million.

The move comes at a time when the company is waiting for demand for cab-hailing services to recover completely across the country. Ola’s operations, which were severely impacted due to the pandemic, started coming back on track by the end of 2020. However, the second wave of COVID-19 earlier in April and May derailed its operations once again. Although Ola claims to have seen a strong recovery over the past month, it is still far from reaching the peak demand it was witnessing before the pandemic.

“Over the last 12 months, we’ve made our ride-hailing business more robust, resilient, and efficient,” Bhavish Aggarwal, chairman and group CEO at Ola, said earlier this month while announcing a secondary share sale transaction among its existing backers. “With strong recovery post lockdown and a shift in consumer preference away from public transportation, we are well-positioned to capitalize on the various urban mobility needs of our customers.”

Ola’s early backers, Tiger Global and Matrix Partners India, sold their partial stakes worth USD 500 million to other existing investors, including Temasek and Plum Wood Investment Ltd., an affiliate of global private equity fund Warburg Pincus. It is to be noted that Tiger’s partial stake sale in Ola coincides with its investment in Ola’s future rival Spinny.

The change in the cap table happened after the US-based investment firm Vanguard Group, which owns less than 1% stake in Ola, slashed its valuation by half to USD 3 billion earlier in March.

Aggarwal, meanwhile, has been focusing on the group’s electric vehicle business, Ola Electric, to make sure it takes off. He set up a 500-acre electric scooter manufacturing site in the South Indian state of Tamil Nadu last year with an estimated investment of USD 330 million. Ola Electric is now gearing up for the launch of its first electric scooter, for which it received 100,000 reservations within the first 24 hours of opening bookings last week.

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