REE Automotive Ltd. (NASDAQ:REE) Q2 2023 Earnings Call Transcript

REE Automotive Ltd. (NASDAQ:REE) Q2 2023 Earnings Call Transcript August 29, 2023

REE Automotive Ltd. reports earnings inline with expectations. Reported EPS is $0.07 EPS, expectations were $0.07.

Operator: Good day, and thank you for standing by. Welcome to the REE 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 session. [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.

Kamal Hamid: 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.

Daniel Barel: 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 [Technical Difficulty], 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.

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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 are growing our collaboration with market-leading work truck body manufacturers, such as Knapheide and 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 pro 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. 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 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 incentives throughout the U.S., 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, Yaron Zaltsman; our Chief Business Officer, Tali Miller; and Josh Tech, our Chief Operating Officer.

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Q&A Session

Operator: Thank you. [Operator Instructions] We will now take the first question from the line of Michael Shlisky from D.A. Davidson & Company. Please go ahead.

Michael Shlisky: God morning. Thank you for taking my question. Can you hear me okay?

Daniel Barel: Yes, we can.

Michael Shlisky: Are you there.

Josh Tech: Yes, we can year you fine, Mike.

Michael Shlisky: Great. Thank you. 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 and asked before card. I’m curious to see whether there was a expense in that very long process or a lot of short one?

Daniel Barel: I’m not sure I heard the full question. Sorry, the bad — the line is a little bit — can you repeat, please?

Michael Shlisky: Yes. Is this 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?

Daniel Barel: Sure. Josh, do you want to take this?

Josh Tech: Yes. I guess, maybe we’ll — 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 FMVSS105 sets performance requirements for breaking during normal operation and failing injection. Our REEcorners comprehensive architecture goes beyond those requirements and includes multiple redundancies that allow for fail operations. So for example, it breaks on one of the wheel sales, the other corners will allow you to continue to drive safe — drive the P7 vehicle safely. So these 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.

Michael Shlisky: Okay, okay, great. I want to also ask, 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. Obviously, there’s some ramp-up in there, obviously, between ’24 and ’25, but could you kind of give us some kind of breakdown of the cadence that the $1 billion plan on the road there in sales, how much might be in the early stages in that 2024 at the release?

Josh Tech: 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. This is an intention 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 build 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.