© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and thank you for standing by. Welcome to the REE Automotive Q2 2023 Financial Results Conference Call. [Operator Instructions] 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. Please go ahead.
Thank you, operator, and thank you all for joining our second quarter 2023 conference call. We hope that you have seen our press release and shareholder letter issued earlier this morning at investors.ree.auto. If you haven't, I encourage you to review it as it has additional insights into the topics we'll talk about on the call today. I would like to remind you that today's call may include forward-looking statements. 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 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. At this point, I will turn the call over to Daniel Barel, our CEO and Co-Founder.
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 milestones to date following months of testing. We confirm that it is feasible for our x-by-wire system to pass the required FMVSS certification, a key step in our road map to delivering certified vehicles. Being the first to market with full x-by-wire System, such a high bar. So in order to prove feasibility, we contracted HORIBA MIRA, a world leader in testing to perform internal tests, modeling certain FMVSS certification requirements. We have already started to build our certification in P7 fleet and are on track to initiate the next phase of the full certification process of P7 vehicles. We have progressed with the certification plan and are targeting delivery of our first pilot vehicles by the end of this year, while ensuring they are safe, reliable electric trucks that dealers and fleet owners can depend on. 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 billion over to 2024 to 2026 by executing on our production plan as shown in our shareholder letter. As we continue to build out our dealer network, which now covers the entire U.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, aftersales service is key, and we also see demand growth from our ability to simplify service with our quick REEcorners swap, with fleet and dealers only having to keep a single service part in their inventory, the REEcorners, which intends to increase uptime of our trucks and lower the cost of customers' inventory and its cost of management. As a customer-centric company, we listen to our current and potential customers to expand our P7 offering with full vehicle solutions, including boxes, service bodies and platform bodies. Therefore, as we shared yesterday, we're growing our collaboration with market-leading work truck body manufacturers, such as Knapheide Morgan Truck Body and others, all plan to be available in 2024. We have already delivered our first P7-S prototype to one of our existing U.S. fleet customers for their initial internal closed-track tests with the help of our on-site and remote support team, as we jointly develop a complete electric work 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 uptime. 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 second quarter with liquidity of $105 million, comprised of cash, cash equivalents and short-term investments. As part of our efforts to secure 2024 capital needs in advance, after the end of Q2, we have established a $35 million ATM program and secured a bank facility of $15 million. Before we open it up for questions, I want to stress that we're 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 incentives throughout the U.S., and we understand our customers and the market expect us to deliver. We're 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, Yaron Zaltsman; our Chief Business Officer, Tali Miller; and Josh Tech, our Chief Operating Officer.
[Operator Instructions] We will now take the first question from the line of Michael Shlisky from D.A. Davidson & Company.
Can you hear me okay?
Yes, we can.
Are you there?
Yes, we can year you fine, Mike.
Can you maybe take 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 FMVSS. I guess I would like to know if that was a long process. Was it very iterative? Or 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 in that very long process or relatively short one?
I'm not sure I heard the full question. Sorry, Mike, my bad, the line is a little bit -- can you repeat, please?
Yes. 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, longer than expected? Or did you just kind of send in a chassis and get back a pretty clean report card from a very early stage?
Sure. Josh, do you want to take this?
Yes. I guess, Miller on hold, I'll take that one. So basically, to sum it up. So the P7 lineup is going to be the first by-wire commercial truck out there. And our x-by-wire technology is what makes us unique. And 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 FMVSS standards are generally their design neutral. 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 and feasibility testing showed that the REE x-by-wire architecture could be tested according to the applicable FMVSS standards. So for example, we have the FMVSS 105 test performance requirements for breaking during normal operation and failing injection. Our REEcorner comprehensive architecture goes beyond those requirements and includes multiple redundancies that allow for fail operations. So for example, if breaks on one of the wheels fails, the other corners will allow you to continue to drive safe -- drive the P7 vehicle safely. So the feasibility testing also provided a lot of other data that we refined and as we tune our calibrations ahead of what we expect our full certification by the end of the year.
Okay. Okay. Great. I want to also ask you that you mentioned 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. I was looking there was some ramp-up in there, obviously, between '24 and '25, but could you kind of give us some kind of breakdown of the cadence of the $1 billion you plan to be on the road there in sales, how much might be in the early stages in that 2024 at the very least?
I guess, Dave, I can take that one too as well. So to answer the question. For Phase 1, we plan to produce from the U.K. facility the minimum number of pilot vehicles that we require to get customer feedback before we begin mass production in the states, right? This is intentional from our side because the cost reduction towards breaking the gross margin per unit level is expected to start only after we have our production tooling in place. So as we built confidence through the positive feedback from the customers over the next few months, we initiated our $15 million production tooling purchase program in July of '23. So this was earlier than we planned. 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 '24, which is expected to be a total production plan of up to 300 vehicles during that calendar year, ramping up to a low thousands in 2025 and then mid-thousands 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 contract manufacturer.
Just to be clear then, the 2024 vehicles that are coming out are going to be prototype or still low volume and there will be -- and all of the -- all of them will be in the U.K. shipped over here, correct?
The first half to first 3 quarters, yes, those will be that what we said, those will be the pilot vehicles. And then for -- by Q4, we will start to ramp up the remaining, as we said, up to 300 from the U.S.
[Operator Instructions] We will now take the next question from the line of Jeff Osborne from TD Cowen.
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 million investment that was flagged. I think Josh just mentioned that you had a $15 million tooling purchase in July last month. Was that part of the $50 million? Or is the $50 million still to come more next year? I'm just trying to get a sense of the cadence and associated cash burn.
Yes. So these are 2 different things. I think, if I heard you right. So we initiated first hand the $15 million tooling program ahead of schedule because we're -- 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 programs. We're expected, as Joe said, to enter Phase 2, which is production, tooling and scaling in the second half of next year as we prepare the ramp-up for that. On burn, I can -- probably Yaron can add more.
So most of the $50 million 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 in the next 2 years. So you can include in there. We secured $50 million loan from an Israeli bank that -- this will fully cover the tooling spend at the moment.
So the cumulative cash burn, CapEx is less than $105 million over the next 2 years? Is that what you're trying to say? And then if you add the ATM and the $15 million?
What I'm trying to say is that $105 million that we have right now, plus the additional ATM and the loan security is well enough for the next year. We feel we need to cover '25 due to working capital. Therefore, we need to raise another $50 million for year 2025.
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 math 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? Is that Q4 of next year? Or will there be revenue associated with any pilot vehicles before this?
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 and like Joe said, pilot vehicles are because they're intended to gather customer feedback in order for us to, if needed, make the relevant changes before we initiate our production tooling because of the cost naturally in time that it takes to change production tooling. And once we're very comfortable with this, we'll kick up the production tooling and go to, like we said, about 300 by the end of next year and then the low thousands and mid-thousands. I don't know Josh and Yaron, if you want to add?
So we've started 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 vehicles, and therefore, we're -- I think we already gave some guidance about -- revenue recognition guidance about this specific amount of vehicles, but it's a really small amount only for this year and only for Q1 next year.
Sorry for the follow-up. So Q4, Q1, you'll have modest revenue for pilots, and then there'll be a low in Q2, Q3 and then it ramps back up in Q4?
Yes. Correct.
Maybe to add a little color to that. 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 units they need to get customers in seats and test the vehicle. In that way, we're using those feedback before we start to ramp. And then 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. So as we start ramping, we're actually coming to bump parity and then driving positive material margin as we ramp, right? So it's very strategic what we did there.
We will now take the next question from the line of Colin Langan from Wells Fargo.
Just to follow up on the cash flow needs, so I understand. So you have enough cash to get through the end of '24, but you will need another $50 million as for '25. And one, is that correct? But -- or do you need the cash, but you still have to use the ATM program, so -- because there's $35 million, I think you only used less than $1 million of it. So does that mean more dilution will be coming as you use that program through '25. That will give you $35 million. And then on top of that, you go some -- before 2025, you need to raise another $50 million. Is that -- so there's 2 pieces. There's $50 million for '25 and then $35 million or $34 million left under the ATM in terms of sort of dilutive impact?
So I think we published last time that we'll need to raise between $80 million to $100 million in equity or in debt for year 2024 to year 2025. So what we're trying right now is actually to give much more color on that. We're trying to give breakdown between year 2024 to year 2025. And we're saying for year 2025, we'll need $50 million, which means that for year 2024, the need is less than $50 million. It's probably between -- around $35 million. How we're going to take this $35 million? We can take it by bank loans or by using the ATMs. We have both options. And this is still what we're doing right now. So already -- $50 million out of that already been secured. And based on that, we will not need to use the full ATM for $35 million. And, two, it's our decision based on the stock price, how much do we need.
Okay. But still, you still will have to -- so the ATM has not been really used yet at this point?
Correct. The answer is correct.
Okay. And then you have a 100 -- so the 155 orders, how does that compare to the 300 orders? So 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 a second? Is that the logic so I make sure I'm comparing apples-to-apples?
Yes, sure. So again, as we're reporting the shareholders letter, the production plan targets is accumulated of $1 billion for the year 2024, '25 and '26. And the plan is expected to reach production of up to 300 vehicles in '24 and then low thousands in '25 and mid-thousands 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.S. and Canada. In the previous earnings call, although we don't have formal numbers, conversations held with our dealers suggest that they sold over 50,000 vehicles a year, which generated over $1 billion, 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. 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 hundreds and thousands of units per year and we also continue to see strong demand for the entire P7 product line.
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?
We're getting paid when they are delivered.
To the dealership not to the customer. So they're taking....
Correct. Yes, correct.
We will now take the next question from the line of Andres Sheppard from Cantor Fitzgerald.
Congrats on the quarter. 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.
Sorry, probably our line. Can you repeat sorry, Andres? My bad.
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?
No, I think we cannot share the exact price that we're selling to the dealers. The one 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 than maybe others. But this is over time.
I'll add, Andres, on that. 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 state. So definitely, don't get in the wrong way. The incentives help a lot. But I look at them more as a fire starters and not continuous support.
Okay. And maybe a different way of asking is, can you give us the sense of what kind of gross margins we might expect for next year or between 2024 and 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?
So we mentioned that we will get to breakeven burn cost by the end of next year when we have 300 vehicles. Going forward from that, when we're having higher production, of course, we have a positive gross margin. And we also mentioned that we'll go to positive EBITDA in year 2025. So therefore, the gross margin should reflect also all of the cost that we have in the company, and we'll share more information about that next year.
Got it. Okay. 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?
Josh, you want to take this one?
Yes. I got it. Yes. So basically, right now, as we said, we're going to -- our intention is always to use the manufacturer of 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. So as we launch the contract manufacturer in the U.S., that's -- we'll do that in 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 the U.K. for at least the beginning of Phase 2. And then as we ramp, we have the option, of course, we have already secured the outcome facility to start that up in any time when it makes sense. Obviously, we don't want to overinvest until we need that part. So we'll make sure that we're not really dropping excessive amount of capital before it's needed, okay? So we'll basically keep that flexibility.
I would now like to turn the conference back to Daniel Barel for final -- for closing remarks.
Thank you. So I would like to thank and acknowledge our teams around the world for their devotion and dedication to bring P7 line up 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.
This concludes today's conference call. Thank you for participating. You may now disconnect.