Ola enters Indian online car rental space as local youths stop buying cars

India’s online car rental space is heating up due to multiple factors that include a change in car ownership.

Less than half a year after pronouncing its plan to launch a self-drive car rental service in India, SoftBank-backed ride-hailing giant Ola has begun piloting the service in Bengaluru, the capital of India’s southern state of Karnataka, with a few select users, local media reported.

The Bengaluru-headquartered mobility company is reportedly in talks with car manufacturers such as Audi, BMW, among others, to include luxury cars in its fleet of around 10,000 cars meant for self-drive under three models: rental, subscription, and corporate leasing.

In March, an Ola spokesperson had revealed the company’s interest in getting into self-drive car rental space. The then coverage had it that Ola was looking to invest around USD 500 million through debt and equity over the next couple years to kick start the operations.

Ola’s entry into India’s online car rental space will put other players, such as Bengaluru-based Zoomcar, Y-Combinator-backed Drivezy, Carzonrent, and Myles, on the back foot, especially if they are unable to scale exponentially in the coming years.

“For them [Ola] to solve the operational challenges such as sourcing good quality cars and finding the right location, would take some time. So we have at least two to three years, and that is a good time for us to capture their users as they spend money and time on the acquisition,” said Ashwarya Singh, co-founder, Drivezy.

But he also admits that “if we don’t scale up and match to the potential of Ola in the next two to three years, it would be bad news for us.”

In the following years, Drivezy expects to launch a few new services to acquire customers and push Ola away from capturing its territory.

Revving it up

According to Singh, Drivezy, which claims a fleet of 17,000 vehicles, has around 23% market share for four-wheelers and 37% two-wheelers.

“If we combine the market share of Zoomcar and ours, we collectively own 75-78% of the market,” Singh said.

When it comes to the four-wheelers rental market, Zoomcar is the current market leader with 7,000 cars in 45 cities, in comparison to Drivezy’s 4,000 in 11 cities across India. Less than three months ago, Drivezy launched its rental service in San Francisco as well.

However, with a USD 6.2 billion valuation, even as a latecomer to India’s online car rental market, Ola still has a shot at turning into a dark horse. While both Drivezy and Zoomcar will have to quickly ramp up their offering if they don’t want to be eaten up by the goliath backed by a lineup of top tier investors such as Masayoshi-led Japanese Internet giant SoftBank, Singapore’s sovereign fund Temasek, South Korea’s car-maker Hyundai, Flipkart co-founder Sachin Bansal, and Steadview Capital among others.

Zoomcar has raised a total of USD 103 million, Drivezy has raised USD 31 million in equity till now. “We have secured a round of USD 100 million that we will receive in two equal tranches—first by October end and the remaining 50 million dollars by January next year,” Singh said.

Solving the supply chain

Singh said as new players enter, the Indian market is getting “quite competitive.”

“Since India is very price-sensitive, anyone who solves supply-chain at the right price point will be able to capture the market share. That’s where we think we have an advantage over others,” Singh said.

In last November, Drivezy had secured an asset financing deal worth USD 100 million from Harbourfront Capital. According to the deal, Harbourfront would provide cars and two-wheelers worth 100 million dollars to Drivezy in the next three years on a revenue share model. Similarly, Singapore-based venture capital firm Das Capital, led by Japanese entrepreneurs also invested USD 30 million in two rounds and provides Drivezy vehicles on a revenue share model.

“Usually the delta between the financing option for our competitors and us is more than 10-12%, in terms of two-wheelers and for cars it’s around 6-7%. That gives us a huge advantage on the pricing part plus as we get them in bulk without financing there is a lot of money that is saved on the capex cost,” Singh explained.

He claimed the overall cost to acquire assets becomes 15-20% cheaper for Drivezy compared to its competitors because of the company’s financing model. He said around 30-40% of its vehicle fleet is sourced from Japan on a revenue share model.

None of the players own vehicles as they source their fleet from car manufacturers. In March this year, Japanese Hyundai Motor Company and Kia Motors got into a strategic partnership with Ola to develop the latter’s fleet with customized vehicles as well as provide India specific electric vehicles. Similarly, Zoomcar has raised money and gotten into a strategic partnership with several auto manufacturers such as Tata Motors, Ford Motor Company, Volkswagen, and Mahindra&Mahindra.

India’s auto sector is experiencing one of the worst slowdowns in the last two decades as sales of cars and SUVs (special utility vehicles) have gone down for the continuous 10 months till August. As the sales deteriorate every month forcing manufacturers to slash production and lay off employees, companies such as Mahndra&Mahindra, Hyundai, Skoda, and Fiat are offering rental offers to car-buyers with an option to even upgrade.

Drivezy’s Singh said one of the reasons to affect vehicle sales in India is that the generation Y and Z, millennials and the generation after them, don’t want to own vehicles as it’s not aspirational for them. In a country where traffic congestion in almost all cities is growing, people are choosing to rent vehicles rather than buying.

“If we are able to provide the right price point and easy accessibility, people would prefer a mobility service which is 40-50% cheaper than Ola and others,” Singh said.