REE Automotive Ltd. (NASDAQ:REE) Q3 2023 Earnings Call Transcript

REE Automotive Ltd. (NASDAQ:REE) Q3 2023 Earnings Call Transcript November 30, 2023

Operator: Good day, and thank you for standing by. Welcome to the REE Automotive Q3 2023 Financial Results. 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 third quarter 2023 conference call. I hope that you have now 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 will 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, such as the ongoing military conflict in Israel.

Please refer to the company’s Form 20-F filed on March 28, 2023 with the Securities and Exchange Commission, which identifies principal risks and uncertainties that could affect our business, prospects and future results. We assume no obligation to publicly update any forward-looking statements, except as required by law. In addition, we will be discussing or providing certain non-GAAP financial measures today, including non-GAAP net loss and non-GAAP operating expenses. Please see our shareholder letter for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. I will now hand 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. I’m pleased to share that we have had a strong third quarter. We continue to see strong market demand for the P7, which was converted into the expansion of our authorized dealer network and North American footprint, which now stands at 20 partners and more than doubling our initial order book value to $43 million in the last 3 months. As evidenced by our achievements this quarter, we continue to receive strong positive market feedback on our unique P7 vehicle, with the robust feature set, value proposition and low total cost of ownership. The first batch of customer demo trucks are in advanced stages of build, and we are on track to finalizing our FMVSS and CARB certification, which follows our recent EPA approval and x-by-wire certification feasibility.

We expect to ship the first demo units to our customers by Christmas. Support is a critical part in commercial trucks. Therefore, we have built a strong customer experience team who will work together with and support our customers as they put our vehicles to the test in their fleet. As we grow our order book, we continue to strengthen our balance sheet with additional selective financing. These efforts are part of our risk-adverse plan to secure in advance the working capital funding required to produce the expected binding orders of our growing order book. I’m particularly encouraged by the continued confidence and support from our shareholders, which have resulted in a capital raise of $8 million, with favorable terms, led by a long-standing institutional investor in a very challenging environment, as we shared a couple of pages ago.

Operationally, we continue to demonstrate strong financial discipline by remaining on track while decreasing our year-on-year GAAP net loss by 28%, partly because of the efficiencies we implemented around R&D and SG&A as well as government grants received. We believe we are scaling up responsibly, building vehicles to order and not for inventory. As we work to bring our production tooling online. We currently plan to have this operational by the end of 2024, which we believe will enable us to reach bill of materials breakeven on the first scale production batch. In line with our philosophy of complete, not compete, we are in advanced stages of nominating a U.S. contract manufacturer to assemble our P7 lineup in the U.S., to help us facilitate economical mass production.

We believe we will be able to scale production up to a rate of 4 to 6 trucks a day by the end of 2024, with a max capacity of up to 5,000 trucks per year. We look forward to providing you with an update on this soon. Before we open for questions today, I wanted to end with this. In the past 3 years, we’ve seen a pandemic, challenging market conditions, and now war. But today, more than ever, we are strong, focused and committed to deliver no matter what. It is so inspiring to see our teams around the world working together as one to continue delivering, especially with the recent war in Israel, which affects us all in different ways, but is not expected to have a material impact on our operations. Our teams in the U.K. and the U.S. are supporting our people in Israel, and we are thankful for the hundreds if not thousands of messages of support we have received from our partners, customers, suppliers, shareholders and even people we have never met or done business with before.

Your support is everything. As ever, I thank you all for your continued good wishes. We recently held a very productive Q&A session with our retail investors. So we have invited our retail investors to share their questions for this quarter. Today, in addition to analyst questions, we will also answer several of the retail investors’ questions. Therefore, I would like to open the call for questions, where we will be joined by our Chief Financial Officer, Yaron Zaltsman; our Chief Business Officer, Tali Miller; and our Chief Operating Officer, Josh Tech. Operator, you can now open the line for questions.

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Q&A Session

Operator: [Operator Instructions] We will now take the first question. It’s coming from the line of Mike Shlisky from D.A. Davidson & Co.

Mike Shlisky: I’m glad everyone is safe over there in Israel, at least. And then — so I want to ask quickly about some of the comments you made about having a third-party contractor doing the production, to start. Can you just clarify, are they just going to be doing the corners and then you’ll be building the actual vehicle itself within a REE facility? Or are they going to be doing the whole thing? Can you kind of just give us an overview of how it’s going to work at this point?

Daniel Barel: Thank you for the kind wishes. Yes, on the contract manufacturer, I think it’s very simple. The core technology for REE is our by-wire technology, right, the REE corners. That remains within REE and will always remain within REE. The contract manufacturer will be assembling a full truck, whether it’s going to be a cab chassis, a strip chassis or a full truck, Powered by REE, and that will be in the U.S. So the full assembly will be done in the U.S. The corners will be shipped from the U.K. from our already set integration center.

Mike Shlisky: I see. So it’s all the way around. They’ll be receiving fully assembled, ready-to-go corners from you, and they’ll be the ones.

Daniel Barel: Correct.

Mike Shlisky: I get it. Perfect. And then I wanted to clarify some of your comments that you mentioned, how you’re going to be building to order and not building to inventory. I guess when you say inventory, do you mean you won’t be building final products that’ll be on REE’s books and there will be inventory at the dealership level? Or will nobody have inventory? We won’t have inventory in normal dealers unless they’re specifically ordered from the customer?

Daniel Barel: Yes. So when we say we’re building to order, it means that we’re building only for binding orders that we’re receiving. So our customers can have — of course, they would need to have some sort of inventory, especially our dealer for our growing dealer network in the U.S., they’ll have an inventory of trucks. But REE itself is not going to be building inventories sitting up in parking lots waiting for it to be taken. We’re building only for the orders that we are accepting, from our customers. Did that answer your question?

Mike Shlisky: Perfectly, yes, yes. And maybe one last one for me. Have you got any change in tone from any of your California customers in the last quarter or so? I mean at this point, they’re a month away from being forced to adopt EVs. Are they asking you about like January 1 delivery dates, if possible? Or I don’t know if you could deliver at that time, but are they asking in a more urgent manner for their vehicles?

Daniel Barel: Yes. We see very strong demand across the U.S., but of course, also in California. And we’ve also seen yesterday a change more relevant to smaller fleets in California, on the level of payment that they can receive reimbursement. But maybe, Tali, you want to add something more on that.

Tali Miller: Yes, sure. Thanks, Mike, for this question. It’s a good opportunity to share with you that we definitely see very strong demand for the Powered by REE vehicles. We see our customers, so the dealers as well as the fleets, are asking for — are anxious to receive our demo vehicles because they see the advantages of the technology, the Powered by REE, x-by-wire technology with the different advantages of the operational efficiency, safety and others. We see this demand in California, but not only, so across U.S. and Canada.

Mike Shlisky: Okay. I’ll leave it there. And again, my best wishes to everyone staying safe. Thank you.

Operator: We will now take the next question from the line of Colin Langan from Wells Fargo.

Colin Langan: Just want to follow up, in the press release, you talked about a grant that helped Q3 results. Any size of how much that helped? And then is that sustainable? Are we going to — is that going to continue or is that just a onetime thing?

Yaron Zaltsman: Yaron here. So the grants are following with us this year, and they will be with us also next year. We cannot give too much information about the amount, but it’s not a meaningful amount. But it will stay in the same phase as we have right now also in the next quarters going forward.

Colin Langan: Sorry, it would be in the next quarters going forward?

Yaron Zaltsman: So also for next year, we still expect to get the grant from the government.

Colin Langan: Sorry, is it continuing every quarter? Or is it just you get once a year, you’ll get this grant?

Yaron Zaltsman: No, no. It’s part of the plan that we are getting for this year and also for next year. The payment is depending on the timing. But in general, it’s an existing grant that’s also following us for next year.

Colin Langan: And then the press release also mentioned that you need $20 million of funding to execute your 2024 plan. When do you need to get that funding by? Is that by midyear next year? Is that by January 1 that you need to get that $20 million? And what are your current options to get that needed funding?

Yaron Zaltsman: So it’s our decision when to take it, right? It’s based on the way that we prefer to work. We want to be in the safe side all the time. We reported right now that we have a liquidity of $100 million, and that is before the additional $8 million that we raised after the end of the quarter. So it’s not that we need money tomorrow morning or we have any issue of liquidity at all. But generally speaking, we want to be always on the safe side when we are planning the next year ahead. And when we want to make sure that we offer all the capital and all the money we need upfront before we are starting the mass production in the U.S.

Colin Langan: Will you be able to hit your target of getting capacity ramp by the end of next year without the $20 million?

Yaron Zaltsman: No. No, no. In order to ramp up to the amount of size that we want to, we will need to raise over the next year the additional funding of $20 million.