Bhavish Aggarwal’s email to Ola Cabs employees on 20 May, his first in six months, bore bad news. The co-founder and CEO said around 1,400 of the ride-hailing company’s 4,500-plus employees would be laid off. The reason: the Covid-19 pandemic had brought its operations to a standstill and cratered revenue by about 95% over the last two months.
The layoffs also included around 20% of the 750-odd people working for Ola Fleet Technologies, its cab-leasing business, said a senior executive. They requested anonymity as they are not authorised to speak to the media. Ola Fleet, started in 2015, was suffering the same fate as ride-hailing. About 96% of its roughly 33,000 leased-out cabs are gathering dust in Ola’s parking lots around the country.
Ola Fleet, which Ola touts as India’s biggest fleet company in internal newsletters, leases out cabs to drivers who can’t afford to buy a car or do not have access to credit. In return, drivers pay a partially refundable security deposit of around Rs 25,000 (~$330), with daily rentals ranging from Rs 750-1,150 ($10-$15), depending on the city, car model, and other factors. The fleet cabs can be easily distinguished from others on Ola’s platform by their distinct green stripe, along with the company logo.
Aggarwal’s idea with Ola Fleet was simple. There was never going to be a demand shortage for cabs in India, with its poor public transport systems, high fuel costs, and a massive population. Instead, Aggarwal wanted to solve the supply side of the equation by enabling more drivers to join its platform.
This was great in theory. It helps solve for supply, which in turn sees ANI Technologies, Ola’s parent company, earn commissions on each ride. Ola Fleet also makes money through the daily rentals.
Ola Fleet enjoyed initial success between 2015 and 2017, when almost all the cabs it bought were leased by drivers. Aggarwal aimed to have 200,000 leased cabs on the road by the end of March 2019, according to a former executive who was with Ola Fleet from its inception. That would have constituted around 20% of the total number of cars on Ola’s platform.
Not only is Ola Fleet nowhere close to that number, but even the cars it has on its books are a ticking time bomb for the company. To start with, the depreciation cost for its existing fleet was Rs 293 crore ($39 million) in the year ended March 2019. That alone accounted for almost 40% of Ola Fleet’s total expenses, which includes maintenance and insurance costs. That’s without accounting for the financing costs for all these cabs.
Moreover, only 50-60% of Ola Fleet cabs were on the road until mid-2019, according to the two sources. As Ola cranked the revenue lever by raising rental rates and decreasing driver incentives, drivers began pulling out.