India’s Ola Will Lease Cars to Boost Taxi-Hailing App in Uber Challenge

  • Sets up subsidiary that will spend $754 million to lease cars
  • Cars leased will operate exclusively for Ola customers

Ola, the operator of an Indian taxi-hailing app, will lease cars to boost the number of vehicles in its network to stave off competition from Uber Technologies Inc.

Ola, owned by ANI Technologies Ltd., will set up a wholly-owned unit that will spend 50 billion rupees ($754 million) to lease cars and expects to add more than 100,000 driver partners by the end of next year, it said. The unit, into which Ola will initially invest 5 billion rupees, will lease the cars and give drivers the option to own them after three years, it said.

The step signals a shift in strategy by Ola as its service so far has engaged drivers who already owned cabs. Unlike the U.S. and some other countries where individuals with private cars can offer services using a smartphone application, in India only for-hire vehicles are eligible under local regulations.

“It’s very difficult to lock in drivers, and this would help them control some part of the market,” said Deepesh Rathore, managing director of Emerging Markets Automotive Advisors in London. “The business model for app-based services may emerge somewhere between traditional taxi companies and the app-based services, where the companies own some cabs and also have some independent owners.”

Supply Constraints

Both Ola, which counts billionaire Masayoshi Son’s SoftBank Group among its investors, and Uber have been taking steps to expand their presence in India where public transportation services in most cities and towns haven’t kept pace with the needs of a growing population, and where car ownership is low. While Ola acquired smaller rival TaxiForSure in March, Uber in July said it would spend $1 billion to fan out to more cities in the country.

“It’s simply a way of addressing supply constraints,” said Anand Subramanian, an Ola spokesman, said in a phone interview. “It doesn’t change the model. This creates new opportunities as a driver can come on board at a much lower cost, with service and maintenance taken care of and at the end of 3 years, can own the car.”

The cars leased to drivers will operate exclusively for Ola customers, according to Rahul Maroli, vice president for strategic supply initiatives, who will head the leasing program. The drivers will have an option to make daily payments that may be as little as 800 rupees, he said.

The subsidiary will seek to raise 45 billion rupees from “multiple sources” to fund its leasing program within the next 15 months, Subramanian said. Ola has 250,000 cabs and is adding 1,200 every day, he said. By the end of the fiscal year ending March 2018, the service expects to have 1 million taxis signed up.

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