REE Automotive Ltd. (NASDAQ:REE) Q4 2023 Earnings Call Transcript

REE Automotive Ltd. (NASDAQ:REE) Q4 2023 Earnings Call Transcript March 27, 2024

REE Automotive Ltd. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the REE Automotive Fourth Quarter 2023 Full Year Financial Results. [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 fourth 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 will talk about on today’s call. 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 today, March 27, 2024, 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: Thanks, Kamal and thank you all for joining us today. 2023 was a pivotal year for REE. We achieved key milestones in line with our original time line and derisked our go-forward path, all while keeping true to our vision to expedite and solidify the electrification of commercial trucks through a white-label approach. I’m happy to report that much of the heavy lifting is behind us on the path to commercialization with a clean sheet design and unbound by legacy thinking. Our full by-wire technology is mature. I’m proud to say that we have created the world’s first FMVSS certified full by-wire electric vehicle, allowing us to advance the state-of-the-art in the medium-duty commercial vehicle space by orders of magnitude compared to other EVs and ICE offering.

We continue to push the boundaries of our product testing vehicle dynamics and operations, having successfully conducted our second consecutive year of winter testing under extreme weather conditions. We have also made significant progress on the business side. With the strong demand we see, our order book value grew by more than 900% year-over-year and now exceeds $50 million and our dealer network continues to expand to 66 points of sales and service in the U.S. and Canada. With CARB certification and the U.S. EPA, our P7-C customers are eligible for federal and state incentives of over $100,000 per vehicle. Our first vehicle was driven off the line and has been upfitted with Knapheide body and delivered to one of our largest commercial vehicle dealers in the country.

With the first customer deliveries to our demo fleet completed and more underway, we plan to advance towards scale production later this year while remaining focused on our business plan and the P7 lineup. Alongside our significant progress, we remain financially disciplined with a 25% year-over-year decrease in cash burn with tooling investment for the REEcorners deployed. We ended the year with $86 million in cash, cash equivalents and short-term investments, including a $15 million credit bank facility. Confident in REE’s bright future, our largest institutional shareholder, M&G, has led 2 successful capital raises for a total of $24 million alongside existing and new investors and I thank them for their ongoing support and trust. With those behind us, we continue our effort to secure in advance the necessary working capital need for our first phase of production of low hundreds of trucks.

As we remain disciplined and with current market conditions, we decided to temporarily postpone the remaining production tooling investment until we raise the additional required working capital for our production plan. We target completing the remaining tooling investment by midyear in order to scale up production in the U.S. as we build against committed orders and not for inventory. This strategy ensures we do not exceed our available capital by aligning orders flow with production plans for greater capital efficiency. 2023 was a pivotal year for REE because of what we have achieved and because we have accomplished it together despite many of us facing significant geopolitical instability. For that, I am so very proud of each of our great people at team REE.

With that, we’ll open up the call for questions. Operator?

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Q&A Session

Operator: [Operator Instructions] We will take our first question. And your first question comes from the line of Michael Shlisky from D.A. Davidson & Co.

Michael Shlisky: I wanted to ask first about the tooling investments. I guess, first, when you do get them, will they be the exact same tools you had before? And I just want to make sure that the folks who are selling you these tools, I guess there must be some kind of suppliers there, are you having any contractual changes to what you have to pay them or the payment schedule, if you change the dates, maybe put in the back of any kind of line of other people who need tools, et cetera. So I just want to make sure that when you are ready for it, you’ll get them at the exact time that you need them still, even though you have to push back that date.

Daniel Barel: Yes, sure. And of course, first and foremost, good morning. This is Daniel. Josh, why don’t you start and I’ll continue from there?

Josh Tech: Okay. Michael, good to talk to you again. So yes, so to answer your question, we’re still targeting to have our tooling in place by the fourth quarter. So what we’re doing, we’re progressing with our previously shared 2-phase manufacturing approach and it’s related to our investment and so we’re in the final stages to nominate the CM in the U.S., okay? So the tooling for the corners has already been deployed. And then what we’re doing, we’re targeting to complete the remaining investment of approximately $10 million by the midyear and this is in sync with our capital raising plan. So this will still allow us to scale production in U.S. with our contract manufacturer by the end of 2024.

Daniel Barel: Does this answer your question?

Michael Shlisky: Well, so I just want to make sure there’s confidence that you’ll get the tools when you need them, even though you’ve changed the date. Have your suppliers indicated that they are ready when you are? Or are you — okay, still that doesn’t change?

Josh Tech: Yes. We work naturally together with them. So no surprises.

Michael Shlisky: Okay. Perfect. Then I also want to touch on some of the results of some recent trade shows. We had the big Work Truck show. There’s a couple of other more regional trade shows that have taken place in the last few months. I’d be curious of the large fleets that are out there and maybe there’s half a dozen or a dozen of them that could take a P7 platform, just give us a sense as to how that went. Did you come out of these shows with any major new orders? I know you have a higher backlog from necessarily from dealers in certain fleets but did you get anybody new on the roster we should be thinking about here, any names, just curious do you have new levels you could add to, like a slide, if and when you’re allowed to reveal who these customers are?

Daniel Barel: Yes, those shows have been very successful for us. And we’ve seen very strong demand there and had a very, very busy booth and a lot of positive meetings. Regarding the fleet that you mentioned, we have seen strong interest from those — from living fleets as well. And I think it’s important to recognize the fact that the demo program is designed exactly to do that, to give those fleets the ability to try out those — our vehicle, the P7 lineup and to allow them the confidence to nominate us as an approved supplier to them. So I think in short, the answer to your question, yes, we have come up with new opportunities for that show, very interesting discussion with many of the fleets and other dealers. And maybe I’ll let Tali, Chief Business Officer, continue.

Tali Miller: Yes. Good morning. So first of all, yes, a very strong demand and high interest. We also shared the growth in committed orders for the end of this year or quarter. So this translated into orders. But in addition to this, through the demo program and we have initiated the delivery of vehicles in the low volumes. We are going to see additional fleets that showed already interest in trying those demo units following the events they saw. And we expect this to convert into scale orders from those fleets. Specifically, we’ve demonstrated — we are going to demonstrate the vehicles to multiple leading fleets to include, for example, Franz Bakery, Canteen, the City of San Jose and others.

Michael Shlisky: Okay. I’ll leave it there, guys. All the best.

Daniel Barel: Thank you.

Operator: We will take our next question. Your next question comes from the line of Jeff Osborne from TD Cowen.

Jeff Osborne: Daniel, I was just curious on the $50 million order book, that’s great to see, how much of that is exposed to California? Can you give us a perspective there? Is it more than half?

Daniel Barel: Good morning. That’s a great question. I’m not sure I have the answer top of mind here, let me look into the numbers but the majority of our orders is not linked to California to that aspect. We see demand across the U.S. But to your question, linking it to our recent CARB, California air bureau certification, I think that gives us a very strong tailwind in California in general but also in the other states that support California or adopt the CARB certification, mainly around incentives, right? CARB recently that we announced unlocks more than $100,000 in incentives per truck for our customers. So our customers basically see now with CARB, more than 70% of the cost of the truck covered through both federal and state incentives.

And I think this is great. We worked very hard to do so. And I think California is, of course, leading it. And as we said earlier, in earlier calls, having California dealers is and CARB is important for us. Tali, do you have numbers on how many…

Tali Miller: Specifically from California, it’s approximately 1/3.