REE Automotive Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 23, 2023

There are 9 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Re Automotive First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Kamal Hamid, Vice President of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thank you all for joining our Q1 2023 conference call. We hope that you have seen our press release and shareholder letter issued earlier this morning at investors. Re.auto. Today, our Co Founder and CEO, Daniel Borrell, will be sharing highlights The shareholder letter before opening up the call to Q and A, where he will be joined by our Chief Financial Officer, Yaron Zalzmann Our Chief Business Officer, Tali Miller and Josh Peck, our Chief Operating Officer. I would like to remind you that today's call may include forward looking statements.

Speaker 1

Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts and assumptions are forward looking statements. Please note that the company's actual results may be different from other anticipated by such forward looking statements For a variety of reasons, many of which are beyond our control, please refer to the company's Form 20 F filed on March 28, 2023, with the Securities and Exchange Commission, which identifies principal risks and uncertainties that could affect our business, prospects and future results. We assume no obligation to publicly update any forward looking statements except as required by law. In addition, we will be discussing or These non GAAP measures to the most directly comparable GAAP measures. At this point, I will turn the call over to Daniel.

Speaker 2

Thanks, Kamal. Hello, everybody, and thank you for joining us today. I hope that you have seen our press release and Shareholder Letter issued earlier this morning at investors. Re. Auto.

Speaker 2

If you haven't yet, I encourage you to review it As it is, has additional information on the topic that we will discuss on this call today. I'm pleased to share that 2023 Our first quarter afforded us several exciting opportunities at events like World Truck Week and ACT Expo, where we were able to interact with influential fleets and dealers, understand their key challenges and showcase Reed's unique value proposition. Our team was also able to achieve important milestones Like the completion of our winter testing in Sweden, another considerable step on our journey to getting re vehicles on the road. Our focus remains on our path to certification by the second half of twenty twenty three, with initial pilot vehicle delivery by the end of 2023, and we continue to make great progress here. We are working on a 2 phase production plan that will allow us to achieve sustainable growth.

Speaker 2

Phase 1, which is expected to run through 2024, anticipates the pilot production and assembly of vehicles in the low 100s, targeting breakeven gross margin on the unit level by the end of 2024. Phase 2 targets production in the low to mid thousands of vehicles with breakeven EBITDA by the end of year 2025. More details on our 2 phase production plan can be found in our shareholder letter. As you may have seen, we recently announced the introduction of the P7C chassis cab, which complements our existing product lineup and further emphasizes our near term focus on 0 emission Class III to V vehicles. The P7C targets the fast growing and highly incentivized Class IV EV market and joins our P7B, the Boxtrot and P7S, the Street chassis in the P7 program.

Speaker 2

We expect significant demand for 0 emission Class 3 to 5 vehicles to be driven By the recently adopted California Advanced Clean Fleet Regulation, the ACS, which sets ambitious targets The 2020 MoU signed by 15 states And the District of Columbia is expected to expand the benefits and reach of the ACF throughout the U. S, further driving the commercial EV market. Interest in the P7 program increased As proven by the growth of our dealer network in the U. S, which now includes 8 dealers and 3 fleet customers. Together, these dealers have already placed initial orders of approximately 100 vehicles, which are included in our current order book.

Speaker 2

From a financial perspective, we ended the quarter with liquidity of $126,000,000 comprised of cash, cash equivalents and short term investment and no debt. We expect to end the year with $65,000,000 of liquidity, including financing the initial 25 vehicles for internal testing and pilot deliveries for selected customers. We expect to generate sufficient orders To ramp up series production based on our growing dealer network and fleet customers, we understand that this ramp up to the low to mid thousands of vehicle will require additional funding before we reach breakeven EBITDA, mainly due to the working capital requirement. We estimate that this ramp up will require $80,000,000 to $100,000,000 and we will explore option of raising debt or equity In the right form, all in line with the progress of our business cycle and need. We will provide more color on our model later this year with the progress of our plan.

Speaker 2

Before we open it up for questions, I want to first of all remind you to take a look at the shareholder letter, which we shared this morning, which talks to all of these highlights in more detail. You can access it on our investor website at investors. Ri.au. I would also like to take this opportunity and thank the REIT team across the globe For the continued hard work and dedication, particularly for the milestone they have already achieved this year. I look forward to sharing more of the great work we have accomplished together in future updates.

Speaker 2

Operator, Please open up the call for questions.

Operator

Thank you. Please standby while we compile the Q and A roster. Thank you. We'll now take our first question. Please stand by.

Operator

First question is from the line of Mike Schliskey from D. A. Davidson. Please go ahead.

Speaker 3

Hello, good morning and thanks for taking my question. I guess, I just wanted to ask quickly Daniel about your last comment there about potentially Curious to more capital for production as things ramp up. I guess I'd be curious, you're weighing debt, you're weighing equity. I guess I was wondering, Do you expect to have orders first before you go to raise the capital? Because that would make debt a lot easier for Marie or do you To raise money before you have any orders to kind of keep the operation going just before you start the heavier production.

Speaker 4

Hi, good morning. It's Jaron here. So I think for us, it's a little bit too early to make a decision about What to do first, right? So basically speaking, we know we have access both to equity and probably also to operating debt Even today, we are quite sure that we can achieve our goals here. We will explore it over time Based on the coming months and then we can make a decision, but for now it's too early for us to make that direct call what we are going to do if it's equity or if it's sell it.

Speaker 3

Okay. Okay. And just a quick product question. You mentioned winter testing and that was over in Sweden. I guess from that point, what is left to do to ensure that we have a road ready vehicle for Purchase and Drive, is there anything major left to do?

Speaker 3

Or is it going to be a sales and ramp up from that point on?

Speaker 2

Josh, do you want to take this one?

Speaker 5

Yes, sure. I'll take that. No problem. So yes, what we plan on doing is This year, I mean, the winter test was a milestone for base calibration, but we will continue to this year, we're still on track For completing certification activities, so we will be building our homologation vehicles ready for Q3 and that will allow us to complete all those Related activity to be homologated and certified for by the end of the year. So we don't we do not see any roadblocks there at the moment.

Speaker 3

And that's all 3 major P7 products or one of them?

Speaker 5

No, that's correct. That's The P7B, the P7C and of course the strip chassis for the classified walk in van.

Speaker 3

Okay, got it. And maybe one last one for me. Can you maybe update us on the status of the So the readiness to produce in both Coventry and Austin, I'm curious if one's way ahead or the other or if Austin's just waiting Do you have that large order start building within the U. S. At this point?

Speaker 4

Yes.

Speaker 5

So what we do we plan, I mean, 2024 production is expected to be as we said in the low 100s. We're going to initially do that from Coventry and that's intentional of course. And then during 2024, we'll plan to build out the U. S. Production capacity across the board.

Speaker 3

Okay. I'll leave it there. Thanks so much for the color. I appreciate it.

Operator

Thank you. We'll now take our next question. Please standby. This is from the line of Colin Langan from Wells Fargo. Please go ahead.

Speaker 6

Great. Thanks for taking my question. Last quarter, you talked about you had enough cash to sort of launch the P7. What's changed in the last few months that now you need to raise $80,000,000 to $100,000,000 in capital?

Speaker 4

It's Yaron here again. So actually nothing changed, right? So basically, if you look at our projection for the end of the year, In the coming three quarters, we are going to spend roughly $20,000,000 per quarter. Part of it is because we still need to invest in the NRE. The question is what's going to and we are also going to have like 25 first vehicles.

Speaker 4

The question is how to work in the coming 2 years afterwards because we are going to ramp up. And for us, in order to ramp up, It's always a working capital issue because there's always a time gap between the time we are paying to the time that we are getting the money from the customers. So for that, It's the plan to raise money. So if there was no working capital issue, probably the answer would that we don't need to raise 80 to 100. But based on our current plan for the next 2 years, I think we need to be here a little bit to take another step and to make sure that we have enough capital Not to have any working capital issue in the coming 2 years.

Speaker 6

Got it. And just maybe this is an obvious question, but does this affect your accounting opinion? Because you're saying you need to raise capital. I think liquidity is one of those things that they Sometimes flag, will there be does it affect your audit opinion that you need to raise capital? Or is this since it's so far out, it's not going to be an issue just so we could

Speaker 4

So the question is why we are mentioning 80 to 100? Can you repeat the

Speaker 6

Does it affect your accounting the auditors opinion of your financials?

Speaker 4

That was so It's like a going

Speaker 6

concern, I believe is That's what they refer to it as if you need to raise capital. But it sounds like maybe this is next year, so that would be an issue in terms

Speaker 2

of Yes.

Speaker 4

So for now, you see we didn't have any going concern Paragraph in our report. But again, we need to explore it on a quarterly basis, right?

Speaker 5

So

Speaker 4

for now, we don't have any going concern issue.

Speaker 6

Got it. That's what we're getting at. Okay. And then just lastly, so you have 76 orders now. How should we think about those coming in?

Speaker 6

Because I remember last year, I think you had a big event In July, are those still potentially coming in? Are the new events going to drive new orders? How should we think about the cadence of the orders from here? Thanks.

Speaker 7

Hi, this is Tali speaking. Good morning. So With respect to how do we see our order book growing, I can say that we believe that it's The existing customers' potential is very significant. We're constantly growing carefully and with a selected customer base And prioritizing those with significant market share, especially those that are committed to electrification. And we expect to continue to build our authorized dealer network from the growing pipeline of dealers.

Speaker 6

Okay. All right. Thanks for taking my questions.

Speaker 7

Yes. And actually, maybe to complete that, although we don't have a formal number, I can tell you that With the conversations held with our dealers, they indicative sales of magnitude of 50,000 vehicles per year And generating over $1,000,000,000 annually.

Speaker 6

Okay. All right. Thank you.

Operator

Thank you. We'll now take our next question. Please stand by. This is from the line of Jeff Osborne from TD Cowen. Please go ahead.

Speaker 8

Good morning. A couple of questions on my end. I was curious on the Phase 1 and 2. Is all of the Phase 1 in 2024 expected to be produced for final assembly in Coventry? Or can you give us an update on how Austin is progressing?

Speaker 5

Yes. Hey, this is Josh again. I'll take that one. At the moment, we're again, we're going to Focus on that those deliveries from the UK. I mean we have the infrastructure and everything set up there.

Speaker 5

And as we build out our U. S. Structure over 24, we'll make a logical decision when we make Great point. But either way, let's be honest, either way, we're going to ensure that we get the vehicles at the right time to the customers as needed.

Speaker 8

Got it. And then Josh, as you get into the 1,000, would Phase 2 be done in Austin or would that be done at A partner's location, I thought that was one of the angles that you had.

Speaker 5

Yes. I mean, yes, keep in mind, our approach is always the CapEx light approach. It's part of how we Our approach is always to build the vehicle besides the corner, obviously, With partners.

Speaker 8

Got it. And then what is the remaining you mentioned the $20,000,000 of burn. Should the R and D be at similar levels to Q1 for the rest of the year? And can you just touch on what the remaining CapEx is for your CapEx like approach that you have?

Speaker 4

So this year, the EUR 20,000,000 per quarter roughly, of course, included heavy R and D, but lower than R and D that we have already until now. Next year, of course, we still have an R and D because we want to explore other opportunities. But the major R and D investments already have been taking place in our

Speaker 8

Got it. It might be an unfair question just because the news was yesterday, but I think the loan that your battery partner MicroVest received from the DOE was pulled. And so I was just curious, does your relationship or contract with them Involve domestic manufacturing that might be at risk and do you have a backup plan if so?

Speaker 2

Yes, Ed. Hey, Jed. It's Daniel. I think that we still It just happened yesterday. There's a lot of discussions to be made.

Speaker 2

Currently, we don't see any risks to the supply chain at this point or to the deliveries.

Speaker 8

None of your potential customers or dealers are expecting an American made battery. Is that a safe assumption? As well as my understanding for the credits, you don't need that?

Speaker 2

Yes. I think you should differentiate between the short term of the few of the low 100 in 2024, which are test fleets as to the ramp up of the low to mid 1000s of 2025, which is the Follow-up deployment. So for the test fleets, there are more flexibility in terms of sourcing and design naturally. Remember, we keep the voice of the customer very close to us. So you can expect that Once we deliver Test Lead to customers, they would want to test it.

Speaker 2

They will be as we said earlier in previous calls, we are Deploying product teams together with the test fleets to the customers to work together with them But as I said to your question, it's too early to tell.

Speaker 8

Understand. That's all I had. Thank you.

Speaker 2

Thank you.

Operator

Thank There are no further questions coming through at this time. So I will hand back to the speakers.

Speaker 5

Thank you all for joining

Speaker 1

us today and feel free to reach out if you have any follow-up questions or would like to speak with management.

Operator

Call. Thank you for participating and you may now disconnect. Speakers, please stand by.

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Earnings Conference Call
REE Automotive Q1 2023
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