REE Automotive Q2 2023 Earnings Call Transcript

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August 29, 2023

There are 10 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Rii Automotive Q2 2023 Financial Results 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 that today's conference is being recorded. I would 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 Q2 2023 conference call. We hope that you have seen our press release and shareholder letter issued earlier this morning at investors. Re. Auto. If you haven't, I encourage you to review it as it has additional insights into the topics 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 anticipated by such forward looking statements for a variety of reasons, many of which are beyond our 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. At this point, I'll turn the call over to Daniel Borrell, our CEO and Co Founder.

Speaker 2

Thank you, Kamal. Hello, everybody, and thank you for joining us today. Halfway through 2023, we continue to make steady progress and we remain disciplined, both operationally and financially, as we focus on our execution of our P7 program. This morning, we announced that we have achieved one of our most important technology to date following months of testing. We confirm that it is feasible for our X by Wire system to pass The required FMV Assess Certification, a key step in our roadmap to delivering certified vehicles.

Speaker 2

Being the first to market with full x by wire system sets a high bar. So in order to prove feasibility, we contracted Horiba Maira, A world leader in testing to perform internal tests, modeling certain FMVSS certification requirements. We have already started to build our certification intent P7 fleet and are on track to initiate the next phase of the full certification process of P-seventy. We have progressed with the certification plan and are targeting delivery of our first Our confidence in our vehicles, combined with our discussions with dealers and fleet customers, make us confident in our business plan, which claims to reach cumulative sales of $1,000,000,000 over 2024 to 2026 by executing on our production plan and shared in our section of the letter. As we continue to build out our dealer network, which now covers the entire U.

Speaker 2

S. And our recent expansion into Canada. We see demand for our commercial electric trucks coming from both incentivized and non incentivized states, as charging infrastructures continues to become more accessible to fleet owners. In addition, in commercial trucking industry, after sales service is key and we also see demand growth from our ability to simplify service with our quick Recorner swap, with fleet and dealers only having to keep a single Service part in their inventory, the Recorner, which intends to increase uptime of our trucks And lower the cost of customers' inventory and its costs of management. As a customer centric company, We listened to our current and potential customers to expand our P7 offering with full vehicle solutions, including boxes, service bodies and platform bodies.

Speaker 2

Therefore, as we shared yesterday, we are growing our collaboration with market leading work truck body manufacturers Such as Nephi's, Morgan Truckbody and others, all planned to be available in 2024. We have already delivered our first P7S prototype to one of our existing U. S. Fleet customers for their initial internal Close track test with the help of our on-site and remote support team as we jointly develop a complete electric road truck that will pave the way for potential future purchases. The P7 lineup uses software based x by wire system, which will use over the air capabilities that allow for continuous vehicle improvements and update, continuous rolling out of new features and options and remote diagnostics, often negating the need to return to a service center to future improve off time.

Speaker 2

Our system architecture, coupled with data as a service capabilities, is intended to allow customers to manage fleet performance, gather any data required for incentive compliance and forecast and predict maintenance. We ended the Q2 with liquidity of $105,000,000 comprised of cash, cash equivalents and short term investments. As part of our efforts to secure 2024 capital need in advance, after the end of Q2, We have established a $35,000,000 ATM program and secured a bank facility of $15,000,000 Before we open it up for questions, I want to stress that we are aware of the market condition in general And the EV Industry in particular. We see strong demand for electric truck driven by both organic demand as well as the federal state incentive throughout the U. S.

Speaker 2

And we understand our customers and the market expect us to deliver. We are laser focused on bringing the best commercial EV to the market, and we have the right team and technology. We believe our stakeholders, customers and investors will see long term value creation because of our unique technology, IP, Operational Focus and Disciplined Approach. Operator, please open the line for questions. And I'm going to be joined by our Chief Financial Officer, Jeroen Zatzmann our Chief Business Officer, Tali Millen And Josh Steck, our Chief Operating Officer.

Operator

Thank you. We will now take the first question from the line of Michael Slitsky from D. A. Davidson and Company. Please go ahead.

Speaker 3

Good morning and thanks for taking my question. Can you hear me okay?

Speaker 2

Yes, we can.

Speaker 3

Are you there?

Speaker 4

Yes, we can hear you fine, Mike.

Speaker 3

Great. Thank you.

Speaker 5

Can you maybe take

Speaker 3

us behind the scenes of the external testing that you did To get to the point where the external firm said that you're ready for FMBSS. I guess I would like to know if that was a long process. Was it very Ritu, did you just send in the chassis and you got back a nice report card? I'm curious to see whether that was very expensive and very long process or

Speaker 2

I'm not sure I heard the full question. Sorry, Martin, the bad the line is a little bit can you repeat, please? Yes.

Speaker 3

Is that a little bit better? Sorry about that. I guess I was wondering if you could take us behind the scenes of the external testing to get The P7 chassis to the FMVSS, kind of the external third party approval. I guess I'm curious whether that was an iterative process that took a very long time, Along with unexpected or did you just kind of sit in a chassis and get back a pretty clean report card from a very early stage?

Speaker 2

Sure. Josh, do you want to take this?

Speaker 4

Yes. I guess, Meeve, I'll take that one. So basically to sum it up, so the P7 lineup is going to be the 1st BioWire commercial truck out there and our X BioWire technology is what makes us unique Therefore, we've been testing these core systems for months, okay. As we shared today, we've also contracted a third party to do the tests. So the FMBSS standards are generally they're design neutral.

Speaker 4

So different vehicle and vehicle technology designs can be certified if those minimum requirements are met. But some of those standards have test procedures that are written with a traditional vehicle mindset in mind. So the certification feasibility testing showed that the RE Architecture could be tested according to the applicable FMBSS standards. So for example, we have the FMBSS 105 sets performance requirements Our ReCorner comprehensive architecture goes beyond Those requirements and includes multiple redundancies that allow for sale operations. So for example, if brakes on the wheel fails, The other corners will allow you to continue to drive safe drive the P7 vehicle safely.

Speaker 4

So these feasibility testing also provided a lot of other data that we refine and As we tune our calibrations ahead of what we expect our full certification by the end of the year.

Speaker 3

Okay. Okay, great. I want to also ask you didn't mention in your prepared remarks, Daniel, but some of the things that were in the press release about your sales outlook for, I think it was 2024 to 2026. Obviously, there's some ramp up in there, obviously, between 2024 and 2026. But could you maybe kind of give us some kind of breakdown of the cadence On the $1,000,000,000 you plan to sit down on the road there in sales, how much might be In the early stages in 2024 at the very least?

Speaker 4

I guess, David, I can take that one too as well. So to answer the question, for Phase 1, we plan to produce from the UK The minimum number of pilot vehicles that we require to get customers feedback before we begin mass production in the States. This is intentional from our side because the cost reduction towards breakeven gross margin per unit level is expected to start only after we have our production tooling in place. So as we build confidence through the positive feedback from the customers over the next few months, we initiated our $15,000,000 production tooling purchase program in July of 2023. So This was earlier than we planned.

Speaker 4

We believe this will allow us to shorten our Phase 1 and enter Phase 2 by Q4 of 2024. So Phase 2 is currently planned to commence in Q4 of 2024, which is expected to be a total production plan of up to 300 vehicles During that calendar year, ramping up to a low 1,000 in 2025 and then mid 1,000 in 2026. For chassis manufacturing and final vehicle builds in Phase 2, we plan to use a contract manufacturer located in the States and we'll give you guys more information on that once we have Selected, that said contract manufacturer.

Speaker 3

Just to be clear then, the 2024 vehicles that are coming out are going to be For the TiO4 is still low volume and they'll be and all of them will be in the UK shipped over here,

Speaker 4

Correct. The first half to first three quarters, yes, those will be what we said, those will be the pilot vehicles. And then by Q4, we will start the ramp up the remaining, as we said, up to 300 from the U. S.

Speaker 3

Okay. Okay. I'll give everyone a chance. Thanks so much for the time. Thank you.

Operator

Thank you. We will now take the next question from the line of Jeff Osborne from TD Cowen. Please go ahead. Your line is open.

Speaker 6

Great. Thank you. Thanks for all the detail in the letter. Maybe just a few follow-up questions on some of the points raised. Daniel, I was wondering if you could walk us through the $50,000,000 Investment that was flagged.

Speaker 6

I think Josh just mentioned that you had a $50,000,000 tooling purchase in July last month. Was that Part of the $50,000,000 or is the $50,000,000 still to come more next year? I'm just trying to

Speaker 5

get a sense of the

Speaker 6

cadence and associated cash burn.

Speaker 2

Yes. So these are 2 different things, I think, if I heard you right. So we initiated Pastel, the $15,000,000 tooling program ahead of schedule, because we are we have higher confidence Ahead of plan. So I think all in all good news there and that would allow us to kick off the tooling program. We're expected, as Joss said, to enter Phase 2, which is production tooling and Scale in the second half of next year as we prepare the ramp up for that.

Speaker 2

On burner, I can probably Aron can add more.

Speaker 5

So most of the $50,000,000 have not been spent yet, But it's part of our business plan and we share information about the amount of cash that we have right now and the amount of cash that we need The next 2 years, we can include in there. We secured $50,000,000 loan from an Israeli bank that this will fully cover the 2 d spend.

Speaker 6

So the cumulative cash burn CapEx is less than $105,000,000 over the next 2 years. That what you're trying to say? And then if you add the ATM and the $15,000,000

Speaker 5

What I'm trying to say that the $105,000,000 that we have right now Last additional ATM and the loan security is well enough for the next year. We still need to cover year 20 25 due to working capital. Therefore, we need to raise another $50,000,000 for year 20 25.

Speaker 6

Got it. And then the I apologize for following up on Mike's questions with Josh, but You mentioned pilot vehicles. So I'm just trying to get a sense of the map of the dealers is impressive. You have pilot vehicles being produced and then at some point in time Late next year up to 300 vehicles. At what point in time will there be vehicles for revenue?

Speaker 6

Is that Q4 of next year? Or will there be revenue associated with any pilot vehicles before that?

Speaker 2

I think, yes, Yaron will add more color, Jeff, on that. But I think The quick answer for that is all of our vehicles are for revenue depends on where we recognize them, right? But we're being paid for each of those vehicles that we deliver. The difference between the reason we call them, like Josh said, Pilot vehicles is because they're intended to gather customer feedback in order for us to, if needed, make the relevant Changes before we initiate production tooling because of the cost naturally and time that it takes to change production tooling. And once we are very comfortable with this, we'll kick off the production tooling and go to, Like we said, about 300 by the end of next year and then mid the low 1000s and mid 1000s.

Speaker 2

Josh and Yaron, if you want to add.

Speaker 5

So we are starting delivering the pilot vehicle by the end of this year. Most of the vehicles that we provide are not pilot vehicles, of course, right. And therefore, all of them will be recognized as revenues. Small amount only on the first part of the year, probably Q1, we still see it as a pilot vehicle. And therefore, We are I think we already gave some guidance about revenue recognition guidance about this specific amount of makeup, but it's really small amount Only for this year and only for Q1 exit.

Speaker 6

Sorry for the fall, but so Q4, Q1 you'll have modest Revenue for pilots and then there'll be a lull in Q2, Q3 and then it ramps back up in Q4?

Speaker 3

Yes, correct.

Speaker 4

And just maybe to add a little color, that's very strategic what we did because why we're calling those pilot vehicles is basically to make sure that our dealer network Has the units they need to get customers and seats and test the vehicle. And that way we're using those feedback before we start the ramp. And as we said, we kicked off the tooling. Key for the ramp isn't just to build trucks, it's to get them where we can start driving towards material margin parity, right. So we want to get the parts down at a lower cost.

Speaker 4

So as we start ramping, We're actually coming to bond parity and then driving positive material margin as we ramp, right. So it's very strategic what we did there.

Speaker 6

Great. Thank you. Appreciate the detail.

Operator

Thank you. We will now take the next question from the line of Colin Langan from Wells Fargo. Please go ahead.

Speaker 7

Great. Thanks for taking my questions. Just to follow-up on the cash flow needs, so I understand. So You have enough cash to get through the end of 2024, but you will need another $50,000,000 is for 2025. And one is that correct, but or you need the cash, but you still have to use the ATM program, so because there's $35,000,000 I think you only used less than $1,000,000 of it.

Speaker 7

So does that mean more dilution will be coming as you use that program Through 'twenty five, that will give you $35,000,000 And then on top of that, you go some part before 2025, you need To raise another $50,000,000 So there's 2 pieces. There's $50,000,000 for $25,000,000 and then $35,000,000 Are 34 left on the ATM in terms of sort of dilutive impact?

Speaker 5

So I think we published last time that we'll need to raise between $80,000,000 to $100,000,000 in equity or in debt For year 2 2024, year 2 2025. So what we are trying right now is actually to give much more color on that. We are trying to give breakdown between year 2 2024 to year 2 2025. We are saying for year 2 2025, we will need $50,000,000 Which means that for year 2024, the need is less than $50,000,000 It's probably between around $35,000,000 We are going to take this $35,000,000 We can take it by bank loans or by using the ATM. So we have both options.

Speaker 5

And this is still what we are doing right now. So already $15,000,000 out of that already been secured. And based on that, we will not need to use the full ATM of $35,000,000 It's our decision based on the stock price how much do you do. Okay.

Speaker 7

But still you still will have So the ATM has not been really used yet at this point? Correct. Okay. And then you have 100 and So the 155 orders that so how does that compare to the 300 orders? So it's just the 155 are initial orders that are locked in and then the 300 is The target, once they get the first, you're hoping to get the second.

Speaker 7

Is that the logic? Sorry, make sure I'm comparing apples to apples.

Speaker 8

Yes, sure. So again, as we are reporting the shareholders letter, the production planning targets is $1,000,000,000 for the years 2024, 2005 and 2006. And the plan is expected to reach production of up to 100 vehicles in 2024 and then low 2025 and mid1000 in 2026. Now we continue to grow our authorized dealers network. We disclosed that we had 1 dealer at the end of last year and now it has grown to 12 dealers currently covering the U.

Speaker 8

S. And Canada. In the previous earnings call, although we don't have formal numbers, conversations held with our dealers Exadata, we sold over 50,000 vehicles a year. We generated over $1,000,000,000 and therefore we feel confident in our ability to execute this business plan of ours. Now and this is in addition to the previously announced 3 large fleet customers.

Speaker 8

These dealers and fleets, they are committed to electrification and they've already placed these orders of 155 vehicles or P7 vehicles. And this initial order book is similar to the number of initial deliveries by market leaders. And these numbers reflect initial orders and they support the growing pipeline. So we believe that these dealers and fleets could purchase 100 and thousands of units per year and we also continue to see strong demand for the entire P7 product line.

Speaker 7

And the 155 orders you have, you get paid when you deliver or do you get paid when they actually deliver it on to a customer since they're Dealers.

Speaker 5

They're getting paid when they are delivered.

Speaker 7

To the dealership, not to the customer. So they're taking Correct.

Speaker 6

Yes. Okay. All right.

Speaker 7

Thanks for taking my questions.

Operator

Thank you. We will now take the next question from the line of Andre Sheppard from Cantor Fitzgerald. Please go ahead.

Speaker 4

Hi, good morning, everyone. Good afternoon. Congrats on

Speaker 9

the quarter and thanks for taking our questions. I was wondering if you could maybe remind us Where ASPs stands, just curious with the inflation and the rise in interest rates, Whether you may have whether you may now expect some differences in your selling prices? Thank you.

Speaker 2

Sorry, probably our line. Can you repeat? Sorry, Andreas. Hi, Ben.

Speaker 9

Yes, no problem. The question is if you can maybe remind us where you expect the average Selling prices of either the corners or the platforms to be, just wondering if those may have changed given the inflationary environment? Thank you.

Speaker 5

So I think we cannot share the exact price that we are selling to the dealers. The only thing that we can share is that we do believe That we can have a better vehicle compared to the others. And therefore, over time, we can increase prices and get Better prices may be addressed, but this is over time.

Speaker 2

I'll add on that Our business model take into let's put differently, our business model does not take into consideration Evergreen IRA or any other incentive plan in place, meaning the business plan, prices And margins are built from the bottom up where we believe we have competitive market pricing that are sustainable and also acceptable by the industry also without incentives. And naturally, It's supported by the fact that we see demand for our vehicles both from incentivized and non incentivized So definitely, don't get me wrong way, Ed, the incentives help a lot. But I look at them more as a fire started and not continuous support.

Speaker 9

Okay. Thank you. And maybe a different way of asking is, can you give us a sense of What kind of gross margins we might expect for next year or between 2024 In 2026, as we look at that new sales guidance that you've mentioned, just wondering when we Could see positive gross margin. Is that something that you expect from the production of the 300 vehicles in 2024 or perhaps is that more likely in 2025? Thank you.

Speaker 5

So we mentioned that we will get to breakeven BOMCOs by the end of next year when we have the 300 vehicles. Going forward from that, when we are having higher production, of course, we have a positive gross margin. And we also mentioned that we'll go to positive EBITDA In year 20 25. So therefore, the gross margin should reflect also the all of the costs that we have in the company. We'll share more information about that And next year.

Speaker 9

Got it. Okay. Thank you. And maybe the last question is, can you just remind us Where you stand with all of the integration centers, you've mentioned the U. K, but just Remind us maybe the future plans and kind of where those stand.

Speaker 9

Thank you.

Speaker 2

Josh, do you want to take this one?

Speaker 4

Yes, yes, I got it. Yes. So basically right now, as you said, we're going to Our intention is always to manufacture the corners and then work with partners for platform and full vehicle integration. So and of course the corner is our core competency around the corner. So that's the value add.

Speaker 4

So as we launch the contract manufactured in the U. S, That's we'll do that second half of next year. We have the option. So we'll continue to build at the beginning. We'll continue to build the corners In UK for at least the beginning of Phase 2.

Speaker 4

And then as we ramp, we have the option, of course, we have already secured the Austin facility To start that up at any time when it makes sense. Obviously, we don't want to over invest until we need that part. So we'll make sure that we're not Really dropping excessive amount of capital before it's needed. So we'll basically keep that flexibility.

Speaker 9

Okay. Thank you.

Operator

Thank you. I would now like to turn the conference back To Daniel Barrell for closing remarks.

Speaker 2

Thank you. So I would like to thank and acknowledge Our teams around the world for their devotion and dedication to bring our P7 lineup to market. We're getting closer every day, and I'm confident that we have what it takes to deliver the best electric trucks available on the market. So thank you everybody for taking the time today to listen to our call. Have a good day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • After months of internal testing, Rii contracted Horiba Maira to validate that its full x-by-wire system meets FMVSS certification requirements, marking a major P7 program milestone.
  • The company has begun building its certification-intent P7 fleet and targets first production deliveries in Q4 2024, with a plan to produce up to 300 units that year and ramp to low-1,000s in 2025 and mid-1,000s in 2026.
  • Rii’s dealer network now covers the U.S. and Canada, backed by 155 initial orders from dealers and fleet customers and collaborations with leading work-truck body manufacturers for complete vehicle solutions.
  • The P7 lineup offers over-the-air updates, remote diagnostics and a patented quick-swap “ReCorner” module to simplify service, boost uptime and enable fleet-performance data services.
  • With $105 million in liquidity at quarter end, plus a $35 million ATM program and $15 million bank facility, Rii is funding its 2024–25 capital needs and aims for positive gross margin post-Phase 2 and positive EBITDA in 2025.
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Earnings Conference Call
REE Automotive Q2 2023
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