REE Automotive Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
September 26, 2024

There are 12 speakers on the call.

Operator

Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Karen Shemesh, Ruiz's Chief Marketing Officer.

Operator

Please go ahead. I'd

Speaker 1

remind you that today's call may include forward looking statements. Any statement 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 those anticipated by such forward looking statements for a variety of reasons, many of which are beyond our control, such as the ongoing military conflict in Israel. Please refer to the company's Form 20 F filed on March 27, 2024 with the Securities and Exchange Commission, which identifies the principal risks and uncertainties that could affect our business, prospects and future results. We assume no obligation to publicly update any of these forward looking statements except as required by law.

Speaker 1

In addition, we will be discussing or providing certain non GAAP financial measures to date, including non GAAP net loss and non GAAP operating expenses. Please see our financial results press release for a reconciliation of these non GAAP measures to the most directly comparable GAAP measures. Listeners and those on our webcast are invited to follow along with our presentation today, which is available on the Investor Relations portion of our website. Today's call is hosted by Daniel Borrell, Ree's Co Founder and CEO. We will be joined by Josh Teck, our Chief Operational Officer Tali Miller, our Chief Business Officer and Yaron Zalsman, our Chief Financial Officer.

Speaker 1

I will now turn the call over to Daniel Borrell.

Speaker 2

Good day, everyone, and thank you for joining us today. For those of you who have been following our story and for those who recently joined, the past few months have been the most significant in Reade's history. We have achieved milestones that we pursued for years. Today, I can tell you that we have what we believe is by far the best product offering in our heavily underserved addressable market. I can also tell you that we have secured sufficient production capital and our funding position is strong.

Speaker 2

Thanks to our recently announced strategic supply chain management agreement with Motherson Group, we derisked our ability to ramp up to mass production. We have already kicked off U. S. Production with ROUSH as a U. S.-based contract manufacturer for our P7 product line.

Speaker 2

And we continue to see growing demand for our products both from fleets and OEMs. The strategic agreement with Mother Sun Group is transformational. It will allow us to grow faster while lowering production challenges that other EV companies often face as they ramp. With Mother Sun driving manufacturing, customers and shareholders could be confident on this front. Today, we are joined by 2 great gentlemen from Mr.

Speaker 2

Rajesh Goyal, President, Head, Special Projects and Mr. Aviral Kendall Hawal, Head of Group Strategy and M and A, who will share more on the rationale behind Motherstone's decision to partner with RII. But before we jump to discuss these strong milestones in more detail, let's first cover the Q2 of 2024 financials. 2nd quarter net loss narrowed by 57% quarter over quarter and by 59% year over year. Free cash flow burn continued to narrow with a 19% reduction quarter over quarter.

Speaker 2

Liquidity was $60,500,000 comprised of cash, cash equivalents and short term investment inclusive of a $15,000,000 credit facility. I believe that our strategic agreement with Mother Sun will allow faster and more stable production scale up and significant working capital benefits. Mother Sun is a very strong global engineering and manufacturing company and one of the world's leading automotive supplier. For fiscal year 2024, Mother Sun achieved gross revenue of $17,200,000,000 and they operate 400 facilities across 44 countries with 190,000 employees. Mothersun has a strong lasting relationship with some of the leading automotive brands.

Speaker 2

Combining Mothersun's manufacturing expertise and supply chain might with REE's market leading software defined EV product, lineup promises to create a dominant new force in the electrified commercial vehicle market globally, allowing us to service customers at scale and address the significant order growth anticipated for our products. As part of the strategic agreement, Mother Sun will manage sourcing and supply chain management of all production parts and support the assembly of the Recorner and the Re P7 electric trucks. They will drive operational manufacturing improvements to Re's production line, which we believe would significantly improve unit costs. Faster revenue growth and improved unit costs are expected to accelerate the road to meaningful free cash flow generation. Demand wise, we continue to see strong interest in our technology from potential customers, including OEMs.

Speaker 2

Let me repeat that last point. We are currently in discussions with 3 OEMs seeking to utilize RIG's software defined technology in their future product lines, offering the potential of meaningfully expand our current offering from full vehicle or platforms to software licensing of our full x by wire technology, allowing OEMs to take our software to EVEZ in all classes and segments. Our order book continues to grow, reflecting strong demand even amidst broader challenges in the EV market. We remain committed to offering excellent products that provide improved operational efficiencies and a low total cost of ownership. With the additional confidence, customer gain from our collaboration with Mother Sun.

Speaker 2

We anticipate strong order flow to continue. To put numbers on it, our order book is up 15% quarter over quarter, as we continue to expand our dealer and service network to 78 locations across North America. We now have one of the largest service network of its kind in North America. On the demand front, it is important to note that the commercial vehicle fleet globally is not electrifying as quickly as fleet owners would like. The reason is simple.

Speaker 2

The available electrified vehicle options are simply not good enough. I think it's fair to say that major fleet owners today are desperate for a fit to purpose electric product that they can order at scale. At the risk of repeating myself, we believe that Re has the best in class technology led product. Not only do we have the best product, but now thanks to Mother Sun, Rie also has the manufacturing scale, experience and expertise to scale production to meet the demand of large and global fleet owners. The annual market for medium duty vehicles in the U.

Speaker 2

S. Alone is 240,000 units with more than double that in Europe and Asia. Currently, only a small part of that is electrified and those units that do sell are essentially retrofitted ICE products. With the right product and production availability, the industry could easily be ordering tens of thousands of EV units per year in the US alone, especially in Class III to V. With the right product, the required manufacturing backing and the required service network, we are ready to meet the growing demand.

Speaker 2

As you may have seen, last week we announced a $45,350,000 capital raise. As you know, we went public via SPAC transaction. And at the time of the transaction, we underwent approximately $153,000,000 in redemptions, causing us to commence our life as a public company with less cash than we expected. However, since that time, we continue to adopt and today we feel that we are finally in a very, very strong cash position. We are proud that we have made it to the mass production point with the best in class full SMVSS certified X by wire product that has been custom designed for the target customers.

Speaker 2

Thanks to the continued support of our patient long term investors, this additional capital allows us to move forward confidently into the mass production phase from a financial standpoint. Mother Sun contributed to the capital raise, as you have seen, fully aligning their interests with ours. With that, let me hand it over to Josh to tell you more about our plan to meet the growing demand we see.

Speaker 3

Thank you, Daniel. We believe that our supply chain management agreement with Mother Sun is a game changer and bolsters our commitment to deliver our amazing powered by REIT technology reliably with quality and at scale to all our customers. It allows us to grow our production capacity responsibly with the demand, while leveraging Mother Sun's purchasing power, global footprint and experience. This translates into a more efficient and stable production ramp alongside improvements to working capital. For those that are new to the story, Mother Sun Group is a major supplier to the automotive industry with long standing relationships with global OEMs.

Speaker 3

And I would like to hand it over to Aviral for Mother Sun to tell you more about them and in why in their eyes they did partner with us. Thanks, George.

Speaker 4

We at Madarsun have been highly impressed by these path breaking corner module based architecture and the value proposition it represents for both truck makers as well as end users. Our goal is to support real growth and technological progress by expertly managing its supply chain and leveraging our top tier engineering and manufacturing capabilities to drive commercialization and industrialization through a mutually beneficial commercial framework. Additionally, we aim to enhance fleet integration into the automotive ecosystem by providing exceptional customer support across the value chain. Our participation in the financing round further underscores our commitment to support this exciting technology. We believe the strategic partnership will contribute to Motherstone's diversification and strategy of increasing content per vehicle.

Speaker 4

Over to you. Thank you, Aviral. We believe that we have

Speaker 3

the most compelling product on the market, well positioned to meet the growing consumer demands within the segment. Now with Mother Sun's vast network of supply chain professionals, we can better support our customers through the start of production and ramp up phases as they build their electric commercial fleets. We know how important the ability to produce at scale and provide nationwide support are to our customers. Mother Sun will be looking to drive efficiencies throughout the supply chain, especially in areas where they have production expertise. With this manufacturing backbone, we will be able to grow sustainably while maintaining our DNA as an innovative technology company.

Speaker 3

We are freeing up resources for future technological development and product enhancements while reducing production risks, becoming more efficient and improving on unit economics. We kicked off U. S. Production of our P7 lineup with ROUSH as our contract manufacturer for full vehicle assembly. ROUSH is a leading global product development supplier operating across more than 30 countries.

Speaker 3

We signed agreements with Rausch during the Q2 and have been preparing to start production over the past few months. This effort will be supported by a joint mother son and re team responsible for quality assurance, logistics and testing. We will continue to manufacture our proprietary ReCorner technology in our Coventry integration center. Now that we have secured the capital required for production, the execution of the strategic agreement with Mother Sun and the production kickoff at Rausch, we are updating our production plan to start deliveries in 2025 in order to utilize our renewed capabilities while addressing the strong customer pull we see and to capitalize on the significant saving and efficiencies our collaboration with Mother Sun is expected to enable. As a result of the very recent signing of our agreement with Mother Sun, we expect it will take some time to develop a production plan, which includes Mother Sun's important input.

Speaker 3

Following the finalization of the revised production plan, we believe the revised production and revenue plan will benefit our ability to address larger fall in orders from fleets and OEMs and coupled with the expected improved unit costs will accelerate the road to meaningful free cash flow generation. With that, let me hand over to Tali to tell you more about our business and product achievements. Tali?

Speaker 5

Thank you, Josh. The demand and interest for RAY software defined electric vehicles continues to grow. We see strong demand from both fleet and OEMs. Our order book increased by 15% quarter over quarter and is valued today at approximately $60,000,000 Reauthorized Dealer Network, one of North America's largest offshore commercial electric vehicles continues to grow now covering 78 sales and service points. This is a key strength for our fleet customers who seek nationwide service and support.

Speaker 5

We continue to receive strong positive customer feedback from our demo program as we continue to deliver more P7C demo trucks to our dealers across the U. S. The Recorder business line continues to show strong potential with 2 new OEMs joining our OEM program. We continue to see growing interest in our software defined technology by traditional and new OEMs interested in adopting our Re corners and thus gaining access to software defined EV technology. We believe that although this is a long cycle business, it has the potential to bring our technology across vehicle categories and classes making it the Intel insight for automotive.

Speaker 5

As Josh mentioned, we are updating our production plan and as such we are working with our current and new customers to secure production slots for their deliveries. Naturally, our production slots are limited and we prioritize according to several factors, one of which is significant follow on orders commitment. During the quarter, we delivered the 1st Powered by Re demo trucks to Penske and Newhall amongst others and have expanded our collaborations with upfitters such as Wabash who upfitted the Penske EV with a 16 foot Wabash DuraPlate body. These trucks received great feedback from potential customers and Penske began offering Powered by Re electric vehicles for demos and orders across North America. In addition, UHaul received the first P7S platform, completed it with a full body and is now evaluating it as the first solution to support the electrification of its fleet.

Speaker 5

The feedback from you all is very positive and we believe that the P7S trip chassis is an excellent solution for a significant portion of the U Haul fleet. The newly unveiled P7S, a software defined electric truck was designed in collaboration with the leading parcel delivery fleet. The P7S is designed to enable a fully flat platform with low step in height, modular configuration, high payload and revolutionary all wheel steer, aligned for flexibility in dimensions and ultimate design freedom for fleet and bodybuilders to develop their own purpose built electric vehicles such as step vans, box trucks and vocational specific vehicles. On the autonomy front, we are very excited by the progress in our joint program with Airbus. Airbus has fitted powered by RII with basic A350 airliner controls to demonstrate the first ever autonomous drive on runway in France as part of the Airbus 3 year OptiMate project.

Speaker 5

According to Airbus, they expect to see this technology tested in a full flight within 1 year on the Airbus A350 with more platforms to come. This project further improves the future of aviation, airport ground traffic management and safety and the RIZ technology is in its core. As of July 2024, over 50,000 government and education entities were granted access to purchase REE software defined electric trucks through Sourcewell contract. Subsequent to the quarter end, REE announced that its P7C will be available to government and education entities in all 50 states in the U. S.

Speaker 5

Through a 4 year contract awarded to National Autofill Group by ForceWell, a government agency dedicated to streamlining the procurement process by fulfilling the bidding requirements on behalf of their members. As you can see, we've made strong progress on the demand side. We continue to see high interest from both fleets and OEMs for our very differentiated products as customers appreciate the value our technology brings to their needs. I believe the market has been waiting for electric trucks to be better, safer and more efficient than combustion engine trucks. The Powered by re electric trucks are made to serve this exact need and customers recognize that.

Speaker 5

We are working with our fleet customers to secure production slots to ensure they have the best possible pathway to build meaningful electric fleets. I'm very encouraged by the level of interest our software defined technology receives from leading auto manufacturers. With that, I would like to hand over to Yaron to talk about financials. Yaron?

Speaker 6

Thank you, Tali. I'm very happy to share that we have secured the necessary funding to kick off U. S. Production. This will allow us to start delivering vehicles to our customers in North America in year 2025 and to grow it to scale.

Speaker 6

I believe our collaboration with Mother Sun will allow us to start reduce our production cost and to accelerate growth as we concentrate on our core, which is our technology and product offering. I'm very proud of our teams across the world for driving results while cutting cost. With that, let us dive into our Q2 financials. As David stated earlier, our working capital position is strong. We ended the quarter with $60,500,000 in cash and short term investments inclusive of a $50,000,000 credit facility.

Speaker 6

Our cash burn narrow in the 2nd quarter as did our net loss. Free cash flow burn continued to decrease with a 19% reduction quarter over quarter and 17% reduction year over year. Net loss narrowed as well to $10,800,000 a 50 percent decrease quarter over quarter and 59% decrease year over year. Non GAAP net loss in the 2nd quarter decreased by 41% quarter over quarter to $12,400,000 a 43% decrease year over year. Reconciliation of GAAP to non GAAP measurement has been provided in the financial statement tables included in our earnings press release.

Speaker 6

Last week, we completed $45,000,000 registered direct offering for the purchase of about 11,000,000 ordinary shares or prefunded warrants. M and G Investments, our long term supportive shareholder, led the investment with a $20,000,000 and they now hold approximately 16% of ReShare Outstanding. Mother Sun invested $15,000,000 and now hold 11% on fully diluted basis. We believe our funding position is strong and that with the recent financing run, we have the capital we need to kick off production without the need for further funding. We always said that we will kick off our production plan only when we know we are not taking any major financing risk.

Speaker 6

And now we are finally ready. There is a lot going on for it. We have our work cut out for us as we merge our operational activities with Mother Sun and we will be providing new guidance soon. Once we are deeper into the plan with Maserson, we will be able to share the updated number, which we expect to include positive margin on our production and faster path to positive cash flow than previously announced. I will now turn the call back over to Daniel.

Speaker 2

Thank you, Yaron. As you can probably tell from the tone of this call, the recent announcement of Re's strategic collaboration with Mother Sun represent an absolutely transformational development. It's very big news for Re's future prospect and our ability to realistically scale into what we know is a massive market opportunity where customers have limited alternative options. We have also strengthened our financial position with new capital from stable long term investors, including Mother Sun itself. In combination, this marks a major positive inflection point for the business.

Speaker 2

The combination of core competencies from Re and Mother Sun will significantly benefit our customers, be they fleet owners or OEM. They've been in need of a mature and capable electrified product lineup that can be produced and serviced at scale. In fact, we've already started discussion with key customers to secure production slots and we are currently updating our production plan. We will update you on this as things progress. Looking ahead, we anticipate 3 different ways to that reed technology will be sold and integrated into the market.

Speaker 2

REED corners, the REED platform and full vehicle such as the P7. We will work with Mother Sun to build a reliable, stable and long term production plan across all three avenues. We will leverage Mother Sun's production capabilities and expertise to lower our costs and improve our cash flows as we ramp production and delivery quantity. Before opening to Q and A, I should also mention that I'm encouraged by our recent capital raise, which secures our working capital need to start U. S.

Speaker 2

Production, and I'm grateful to Mother Sun, to M and G Investment and the rest of our other long term investors for their continued support, trust and patience. I also look forward to Mother's Fund additional contribution to our Board of Directors. Lastly, as always, I would like to thank the entire Team REIT for their devotion and dedication as this very talented group of professionals are the true factor behind our success. I would also like to thank Aviral and Rajesh from Adesund for joining us on this call today. Operator, please open the line up for questions.

Operator

Thank you. And the questions come from the line of Craig Irwin from Roth Capital Partners. Please ask your question.

Speaker 7

Good morning and congratulations for the strategic investment. It was big news and a big deal actually for the EV trucking industry considering the vote of confidence there from Motherson. So I wanted to ask if we could maybe talk a little bit about the ROUSH contract manufacturing agreement. You did mention in the release you kicked off U. S.

Speaker 7

Production. Does that mean that there are trucks that have started the build process or that you're preparing for the build process? Can you maybe frame out for us your interaction with ROUSH and how you would qualify the vehicles with them and then certify those for U. S. Customer delivery and maybe the capacity or the number of vehicles a day that you would hope to get to over the next number of months?

Speaker 2

Sure, Craig. Good morning. This is Daniel. Thank you for the question. Maybe, Josh, do you want to start?

Speaker 8

Yes, I can take that. Hi, Craig. How are you doing?

Speaker 3

I'm great.

Speaker 2

Okay. How are you? So, yes,

Speaker 8

so Rauch, as we noted, we started working with them back way earlier in the year and we kicked off the actual contract back in Q2 and we've been preparing for this moment with them for actually quite a while now, right. Now is the right time to bring it to fruition and announce it. But basically our collaboration with ROUSH is really centered around contract manufacturing for the full vehicle assembly of our Powered by REVE vehicle. ROUSH will play a super critical role in helping us scale that direction in North America and through joint operations with the REVE team, right? So as we noted, ROUSH will build the vehicle for us.

Speaker 8

It's an exact copy of the vehicle that we've certified already. So keep in mind, as a contra manufacturer, they're building to our spec, right? So that's how the certification handles. They're really doing what we've already done. And as we noted, we're going to start we start production in Q4, and then we will deliver the first vehicles in 'twenty five.

Speaker 8

So right now, we're in the preparatory phase to be able to start before the end of the year and then of course ramp up through next year.

Speaker 7

Understood. So my second question is about the cash burn, right? So you guys have done a fantastic job bringing expenses down. I know some of the belt tightening there is sometimes a little bit painful, but you've got the company to a much leaner overall structure. As we look at the progress to customers' deliveries in 'twenty five, Is there much in the way of incremental expenses that might need to be added back or can this be part of the conversation you started in your prepared comments about getting profitability faster with the Motherson agreement and obviously manufacturing at Rausch?

Speaker 2

Sure. I think this is a very good question. You're on, why don't you?

Speaker 6

Hi, good morning, Craig. So the cash burn is getting was getting down and it's not going to go up. Actually, it's going to get more down in the following quarters because the R and D, as we always said, is more or less done. And R and D was the major expense in our cash burn. And R and D now is going to go more down in the future.

Speaker 6

And of course, the SG and A should go slightly up because we need to increase our position in the U. S. But in total, there's not going to be increase in the cash burn.

Speaker 2

Maybe I'll just add to that. Thanks, Yaron. I'll just add to that. There's a lot of expenses that we are reevaluating now that we thought we would need to expand to spend, but we might not necessarily need to do to the collaboration with both Mother Sun and with ROUSH as we move forward. This is why this collaboration with Mother Sun and ROUSH as a contract manufacturer is so transformational for us, because not only that it gets us to scale, it helps us to significantly lower cost that we already thought we're going to be spending, but not necessarily will be spending in the future, hence the revised production plan.

Speaker 2

And I think this is what we believe will drive faster profitability and free cash flow as we move forward.

Speaker 7

Excellent. My last question, I guess, it's probably interesting for both Wall Street and your customer base, right? So I've talked to a lot of customers that are enthusiastic to take delivery of units from REIT. And I was hoping you might be able to talk a little bit about how you select the customers that are likely to be front of the line for deliveries in 2025? Are there certain characteristics or potential longer term commitments that could be solidified?

Speaker 7

Or are these more key customers or customers that have made the right level of investment to allow adoption? Can you maybe flesh that out for us?

Speaker 2

Of course. First of all, I tend to agree we see a lot of demand and a growing demand for powered by RE vehicles out there for multiple customers. And to your point, we have a very clear decision matrix, you know, upon which we prioritize orders. Amongst other indexes that we look at, you know you can find order size, price, even the fleet electrification readiness and of course the future potential and we weigh them all together in order to score that at the end and according to that score we prioritize the production slot. I think maybe Tali can shed a little bit more light on customers actually visiting a few now in the U.

Speaker 2

S. Tali?

Speaker 5

Yes, sure. Thank you. Good morning here. Yes, definitely. We see demand we see growing demand.

Speaker 5

The way we prioritize is, 1st of all, we have again how to allocate that now that we have a clear production plan for 2025. We're working with the fleet and working with the dealers that we have in place and prioritization goes by size, potential, price and also the fit to their needs.

Speaker 7

Understood. Well, congratulations on the progress. I'll go ahead and hop back in the queue. It's great to see you guys strong out of the gates.

Speaker 2

Thank you so much.

Operator

Thank you. We are now going to proceed with our next question. And the questions come from the line of Amit Dhal from H. C. Wainwright.

Operator

Please ask your question.

Speaker 9

Thank you. Good morning, everyone. Congrats on all these important strategic milestones that you recently accomplished. With respect to the 3 OEMs, Daniel, can you give a little bit more color on what kind of customers these potentially are? I know you mentioned Penske and U Haul in the last earnings call.

Speaker 9

Are these the same customers? Are these different customers versus what you highlighted previously?

Speaker 2

Yes, thanks and of course good morning. So no, these are not the same customers. When we're talking about OEMs, remember, when we always what we always said is that re complete, it does not compete. So we have the ability to work with other OEMs such as us to allow them access to our software defined technology, given them by wire software defined vehicles. And we see a lot of demand and growing demand from other leading car and automotive manufacturers interested in our technology.

Speaker 2

And when I say interested in our technology for other OEMs, they are not interested in us building trucks for them. They are more than capable of building and sort of find their own trust. They're more interested in the software. And why is it important? It's important because, 1, we are at the end of the technology company.

Speaker 2

And second, it allows us to open up an opportunity for software licensing revenue, which is very, very significant in general and also for us, especially margin wise and scale wise. Why is that? It's because it opens up the opportunity for our software to be implemented in vehicles that are not necessarily only commercial and are not necessarily only in the current Class III to V. So we can we're looking at lower and higher classes, both in the commercial and not commercial world. And I think if you look at the market in general, most of the car manufacturers and auto manufacturers out there have been talking about trying to get access to software defined vehicles.

Speaker 9

Understood. So my follow-up question on that is, these OEMs or other types of customers who are looking into your software, they don't have to buy the re corners?

Speaker 2

They can buy the reek corners and we will be more than happy to supply them and of course leverage on Motherson's production capabilities at scale, which is also just to make sure we understand is super important for those OEMs. But at the end of the day, production of mechanical parts can be done by several fronts. We believe that the best way to do it is for REIT itself to concentrate on software and together with Mother Sun, we will be able to produce the REIT corners as a full set with better scale, better economics and better efficiencies and then the OEMs will basically the way we see it, put it on their own chassis, their own bodies and be able to drive it. When we look at different vehicle classes, naturally it's going to be different requirements.

Speaker 9

Okay, understood. Thank you for that. These the regulatory incentives that were in place or that you were expecting, are those still in play for customers who purchase the REE vehicles? Any changes on that front?

Speaker 2

Could you please repeat the question? I couldn't hear you well, sorry.

Speaker 10

So,

Speaker 9

the regulatory incentives for purchasing these electric trucks, are those still in place? Any changes to that just to see if customers can still enjoy those incentives when they purchase these offerings?

Speaker 2

Yes, I mean, I think Tali can answer that, but before she does, I can I think I can say that we've seen we haven't seen a change in incentive? On the contrary, I think in the quarter, we actually added another state that provides incentives. Tali, can you share some more on that?

Speaker 7

Yes. Sure.

Speaker 5

So on the incentive side, we don't see major difference. There continues to be incentives on both state level and federal level. We're talking about U. S. Now, but of course there are also other states and we see this definitely as interesting too.

Speaker 9

Understood. Thank you. Just one last one for me. The $60,000,000 in your order book, this is all for the full vehicles, right? These are not just orders for the corners, but these are orders for full vehicle delivery, right?

Speaker 2

Yes. So that's actually a very good question. So remember, we have 3 different product lines, full vehicles, chassis and corners. The $60,000,000 the approximate $60,000,000 order book value is for full vehicles and chassis.

Speaker 9

Okay. Thank you. Yes, I'll take my other questions offline. Thank you guys. Appreciate it.

Speaker 2

Thank you. Thank you.

Operator

Thank you. Thank you. We are now going to proceed with our next question. And the questions come from the line of Jeff Rosebond from TD Cowen. Please ask your question.

Speaker 11

Great. Thank you. Daniel, just a couple of quick questions on the I wanted to understand the process flow. So obviously you'll be making the corners in Coventry. Will you be making chassis there and then Roush is doing the full vehicles or will the skateboard actually be made by Roush as well and you're just making corners in Coventry, it's confusing as to what Rauch is actually doing?

Speaker 2

Yes. Corners are in coverage in the UK, all the rest is with Rauch. But Josh, do you want to maybe dive a little bit deeper?

Speaker 8

Yes. Hi, Jeff. How are you doing? Good to hear again. Good to see you again.

Speaker 8

Yes, so again, we're going to Coventry is our again, like with all our we want to keep our core IP to us. So again, we're going to manufacture the corner there, right? That's ours. We're going to do then is we locally source everything else, right. So again, the truck, the compelling vehicle is our design, everything is our IP.

Speaker 8

We will source that like our normal models. We're not going to invest in heavy equipment to make chassis. So we have current chassis manufacturers that will manufacture the chassis for us. Cabin parts we made locally by local suppliers in the U. S.

Speaker 8

Again, we want to localize the supply chain. Again, Mother Sun will have a huge impact on that as well. And then Roush will do the final assembly for us, right? So again, that's with us and Mother Sun together, we'll localize the supply chain, we'll bring down the costs. A lot of that has to do with logistics, of course, quality management, able to be with the suppliers, work hand in hand, and we'll bring the entire vehicle together at Roush.

Speaker 8

Then again, what's key is us with Mother Sun as well, we'll be at Roush. Roush is putting the vehicle together to our specifications. We then take the vehicle back over. We'll do the shakedown, quality qualification and then handle the distribution within the U. S.

Speaker 2

Just to add on that, Jeff, I think it's important to mention that you're touching a very important point in my view is that for a company like us to be able to manufacture in multiple locations around the world and manage that everything from supply chain to logistics is a big challenge. And I think this is one of the key strengths that we are now enabled through this partnership with Mother Sun. So maybe to add a little bit more color about how do we see now as a joint group the global supply chain and logistics, maybe Rajesh or Amaral, you can share a little bit more on that.

Speaker 11

Okay. Thanks, Daniel. Thank you

Speaker 10

for the question. So as was mentioned during the announcement and by Daniel and Josh, the partnership is to bring in Motherson's global expertise, a, to help with supply chain management, which obviously includes sourcing and managing the entire supply chain. The value that it brings is because we do a lot of manufacturing of multiple components by ourselves globally, including harnesses, including mirrors, including plastic parts, including lighting, etcetera, etcetera. So the components at Mother Sun can contribute definitely competitively helps the competitiveness of the second is because we have a fairly large sourcing organization and with that expertise, we are able to source lot of the other components that we don't do by ourselves because we being module manufacturers on modules like the IP module or the bulk module, etcetera, our ability to source other components also is of a significantly high nature. And I think all of that in terms of aid, taking away that management bandwidth, granting that management bandwidth to be and taking away that from them and to bring efficiencies both in terms of cost and in terms of the process is I think what Mother Sun will bring to this partnership.

Speaker 11

Thank you. That's helpful. Two other quick questions. Josh, I think you mentioned that Rausch was in production currently. I assume those are for demo units and you wouldn't have revenue attributed to those in Q1.

Speaker 11

But can you just give us any type of comments as to when you expect to deliver vehicles for revenue? Would that be in Q2 or second half of next year?

Speaker 8

Yes. So like I said, we plan to start Q4. We didn't say it. So we've been preparing for production and obviously getting infrastructure and things together with them, start before end of the year and then we will start production next year. So as far as the production plan, again, as we've noted throughout this call, we signed with Mother Sun just a little bit ago and we're in the process of updating that production plan.

Speaker 8

So again, we expect to start in Q4, delivery is in 'twenty five. And then following the finalization of the revised plan, we believe this revised production revenue plan will benefit our ability to really address the larger fall in orders from fleets and OEMs. So we feel like this is a hugely beneficial thing and we're going to work to optimize it to the best, I guess, deliveries in 'twenty five for sure.

Speaker 11

Got it. And then can you share what the maximum capacity is at the Michigan facility from Rausch, if it were fully utilized hypothetically?

Speaker 8

So the way we've done the production plan over the next couple of years is we could scale on a single plan up to 5,000 vehicles on 2 ships. But again, we'll be putting that plan together for what 25, 26, 27, etcetera is with them over the next couple of weeks.

Speaker 11

Got it. Last question is, do you think by the next call you could update us on what the production plan is, potential cost savings and then what the new gross margin and EBITDA breakeven levels are based on volume that you've shared in the past?

Speaker 2

Yes. Guys, we are working really, really hard to update the plan and we are very, very excited by this plan. It will take us a little bit longer. Remember, we just we announced the partnership last week, literally I think a week from today. And it will take us I think a little bit longer, but the moment we have it, we'll update you, update our customers, of course, and everybody.

Speaker 2

As Tali said, we already started to work with our customers to secure their production slot for the new plant and build that new plant. And I believe it's going to be very beneficial for me.

Speaker 11

Perfect. Thanks. That's all I had, Daniel.

Speaker 2

Thank you.

Operator

Thank you. We have no further questions at this time. I will now hand back to Daniel Barrow for closing remarks.

Speaker 2

Thank you. Thank you, operator. And thank you, everybody, for joining our call today and being part of this story. Thank you again for all everybody at Rea for putting such a hard and great work in this quarter and every day, making us who we are. Thank you all.

Speaker 2

Have a great day.

Operator

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

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Key Takeaways

  • Signed a transformational supply chain partnership with Motherson Group and launched U.S. contract manufacturing of its P7 electric truck line with ROUSH to de-risk and scale production.
  • Q2 2024 net loss shrank by 57% sequentially and 59% year-over-year, free cash flow burn fell 19% quarter-over-quarter, and ending liquidity stood at $60.5 million after a $45.35 million capital raise led by M&G Investments and Motherson.
  • Order book rose 15% sequentially to roughly $60 million in full-vehicle and chassis commitments, supported by an expanded 78-location dealer and service network across North America.
  • Currently in advanced discussions with three OEMs to license its software-defined, x-by-wire corner module technology, potentially creating a high-margin software revenue stream.
  • Updating its production plan to commence deliveries in 2025, expecting Motherson’s manufacturing scale to drive lower unit costs and accelerate the path to meaningful free cash flow.
AI Generated. May Contain Errors.
Earnings Conference Call
REE Automotive Q2 2024
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