Bhavish Aggarwal’s gamble: Can Ola deliver India’s first AI chip by 2026?

Ola CEO Bhavish Aggarwal is embarking on a daring mission to position India as a leader in artificial intelligence technology by developing the country's first AI silicon chip by 2026.

This audacious project demands not only cutting-edge technological expertise but also the ability to navigate the global semiconductor supply chain.

The stakes are immense, and the pressure on Aggarwal to deliver is intense. As he drives forward with this high-risk, high-reward project, the success of Ola’s future — and his legacy as a tech visionary — rests on his ability to execute this bold vision against significant odds.

Access to capital

While specific funding details have not been disclosed, Ola's recent successful IPO and ongoing investments in technology suggest that the company has access to capital. In its red herring prospectus, Ola Mobility has earmarked Rs 1,600 crore for research and development, which could include the development of the AI chip.

Ola Electric Mobility raised Rs 5,500 crore via its IPO. Besides that, it has raised a total of $1 billion so far from various investors in the form of debt and equity.

Last week, Ola Mobility also declared its Q1 results, with the net loss amounting to Rs 347 crore, compared with Rs 267 crore net loss in Q1 FY24. But revenues increased 32 per cent to Rs 1,644 crore for the same period.

What failure would mean

If Ola's AI chip development project were to face delays or fail, the consequences could be severe. Failure to meet the 2026 target could lead to a significant loss of market credibility, allowing competitors to solidify their dominance and making it even harder for Ola to gain a foothold.

Financially, the repercussions could be equally dire, with wasted investments in R&D, partnerships and infrastructure, potentially leading to substantial losses. Such an outcome could deter future investments as stakeholders might view Ola's ambitious projects as overly risky.

However, the announcement of providing Rs 100 crore worth of free cloud services indicates a commitment to building a developer ecosystem, which can indirectly support its chip development initiatives.

HSBC voices concern

A few analysts have raised concerns about Ola Mobility.

In a note to investors, HSBC Securities and Capital Markets said: "The company admittedly faces multiple headwinds and uncertainties. Firstly, the EV penetration rate may be much more gradual than the company expects. In the draft red herring prospectus (DRHP) filed by Ola, the company expects e2W penetration to reach 41-56 per cent in FY28, while we expect just 20 per cent by FY28 and 30 per cent by FY30. In our view, range anxiety, resale value and charging infrastructure remain significant concerns for customer acceptance."

“Secondly, Ola is unlikely to gain market share as incumbents are now equally aggressive, and some of them have deep pockets. Thirdly, regulatory support may decline eventually. Finally, battery manufacturing is a plausible but risky proposition for Ola. Failing to compete with global players regarding quality and yield may impact Ola’s competitive positioning and balance sheet strength," the note said.

Unusual surge in Ola shares

Shareholders, who have likely raised their expectations in response to Aggarwal’s bold vision, would almost certainly react negatively to any setbacks.

A failure to deliver on the promise of AI chips could result in a decline in stock prices and erode confidence in the company’s leadership and strategic direction.

Since its listing on August 9, Ola Electric’s shares have surged 92 per cent (till August 19) over its issue price of Rs 76, with the market capitalisation at around Rs 63,000 crore. The issue was subscribed 4.45 times.

Aggarwal’s earlier attempts to build an electric passenger car have now been shelved, with at least 30 per cent of the workforce of 100 for the project having quit already. The project was put on the back burner as the company wanted to focus on developing more electric two-wheeler models.

Critical partnerships

A couple of weeks ago, Aggarwal, announced a ground-breaking initiative to develop India's first AI silicon chip by 2026 through the company's AI subsidiary, Krutrim.

This ambitious plan could position Ola as a critical player in the global AI hardware market and significantly advance India's technological capabilities. However, the feasibility of this venture is under intense scrutiny due to its myriad challenges.

Ola's partnerships with industry leaders such as Arm and Untether AI are crucial to building a competitive AI chip. These alliances provide Ola with access to vital design expertise and cutting-edge AI hardware technologies.

Yet, even with these collaborations, the road to developing a successful AI chip is complex. Itdemands a sophisticated blend of semiconductor design and AI algorithm integration — areas where Ola, traditionally focused on electric vehicles and ride-hailing services, has limited experience.

Ambitious timeline

One of the most significant challenges lies in executing this ambitious timeline. Developing a state-of-the-art AI chip involves a series of intricate stages, including design, testing and iteration, each of which carries the risk of delays.

Furthermore, Ola's decision to adopt a fabless model — relying on external foundries like TSMC or Samsung for manufacturing — adds another layer of complexity. Securing these manufacturing partnerships and ensuring the chips meet the stringent performance standards expected in the competitive AI market will be critical hurdles. Any setbacks in these areas could significantly derail the project.

Financial considerations also loom large over this endeavour. Developing AI chips is an extraordinarily capital-intensive process, potentially requiring investments in the hundreds of millions, if not billions, of dollars.

Although Ola has recently enjoyed financial success, including a strong IPO, maintaining the necessary investment levels over the long term could strain the company’s financial resources, particularly if the project encounters delays or technical challenges.

Specific Indian challenges

Beyond these internal hurdles, Ola faces the broader challenges inherent in developing AI chips within India. The global semiconductor supply chain is highly concentrated in regions like the United States and Taiwan, which could complicate Ola’s access to essential components and materials.

Additionally, while India’s talent pool in semiconductor design and AI algorithms is growing, it still lags behind global leaders, necessitating a concerted effort by Ola to attract and retain top talent in these specialised fields.

Regulatory challenges and intense global competition further complicate Ola’s path forward.

Competing with established giants like Nvidia and Intel, who have decades of experience and substantial R&D budgets, will require a competitive product and the ability to navigate a complex regulatory landscape. This environment could impact the pace of innovation and Ola's ability to enter the market effectively.

Regulatory hurdles

Ola faces a web of complex regulatory hurdles in its quest to develop AI chips, including stringent data privacy laws, navigating the intricate landscape of intellectual property rights to avoid patent infringement, and complying with export controls and trade policies that regulate cross-border technology transfers, which require deftly manoeuvring bureaucratic processes to secure necessary approvals and permits.

Ola's ability to manage these risks effectively, secure critical partnerships, and maintain transparent communication with stakeholders will be crucial to its success.

If the project falters, the impact on Ola’s financial health, reputation and shareholder trust could be profound.