Q4 2023 REE Automotive Ltd Earnings Call

Participants

Kamal Hamid; VP of IR; REE Automotive Ltd

Daniel Barel; Chief Executive Officer, Co-Founder, Director; REE Automotive Ltd

Joshua Tech; Chief Operating Officer; REE Automotive Ltd

Tali Miller; Chief Business Officer; REE Automotive Ltd

Yaron Zaltsman; Chief Financial Officer; REE Automotive Ltd

Michael Shlisky; Analyst; D.A. Davidson & Co.

Jeff Osborne; Analyst; TD Cowen

Craig Irwin; Analyst; Roth MKM

Presentation

Kamal Hamid

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'll 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 contract 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'll 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 de-risks 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 for 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 offerings.
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 US and Canada. With CARB certification and the US EPA, our P7C 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 outfitted with [Nationwide] 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 on the way, 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 recorners 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 to 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 efforts to secure in advance the necessary working capital need for our first phase of production of [400] of trucks.
As we remain disciplined and with current market conditions, we decided to temporarily postpone the remaining production tooling investment until we raised 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 US 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 plan for greater capital efficient.
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?

Question and Answer Session

Operator

(Operator Instructions)
Michael Shlisky, D.A. Davidson & Co.

Michael Shlisky

Yes, hello. Good morning. Good afternoon and thanks for taking my question. Want 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 make sure that the folks who are selling you these tools, the I guess there must be some kind of suppliers there, if you have any contractual changes to what you have to pay them or for the payment schedule, if you change the dates we've been put into that from a kind of line of other people who need to et cetera as we make sure that when you are ready for it we'll get them at the exact time that you need until you get the pushback that date.

Daniel Barel

Yeah, sure. And of course, and first and foremost, good morning, this is Daniel. Josh, why don't you start? And I'll continue from that.

Joshua Tech

Okay. Yes, I like -- 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 two phase manufacturing approach, and it's related to our residual investment as we're in the final stages to nominate because the [CM] in US.
So the tooling for the corners has already been deployed. And then what we're doing and we're targeting to complete the remaining investment of approximately $10 million by midyear. And this is in sync with our capital raising plan. So this will still allow us to scale production US with our contract manufacturer by the end of 2024.

Daniel Barel

Does this answer your question?

Michael Shlisky

Well, yes. So I just want to make sure this confidence that you'll get the tools and you need that you've changed the -- today of your suppliers indicated that they are ready when you are or -- okay, still that doesn't change.

Daniel Barel

Yeah, we work naturally together with them. So no, no surprises.

Michael Shlisky

Okay, perfect. Then I also wanted to touch on some of the results of some recent trade shows. We had the big Work Truck Show. There's other more regional trade shows that have taken place last few months. I be curious of the large fleets that are out there and maybe a half dozen or a dozen of them that had TKP7 platform.
Just give a sense as to how that went or did you come out of these shows have any major new orders? I know you have a higher backlog from necessarily from dealers and certain fleets, but anybody new on the roster, we should be thinking about here in the beginning names. Just curious. So do you have new logos going out to like a flight if and when you're allowed to reveal who these customers are?

Daniel Barel

Yeah, those shows have been very successful for us, and we've seen very strong demand there. And very, very business, busy booth and a lot of positive metrics. It is regarding the fleet that you mentioned we have seen strong interest 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 is 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. Hi, good morning. So first of all, yes, very strong demand and high interest. We also shared the growth in committed orders for end of this year [half] 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 our multiple leading fleets to include, for example, France, bakery, canteen, the city of San Jose and others.

Michael Shlisky

Okay. I'll leave it there guys, All the best. Thanks so much.

Daniel Barel

Thank you.

Operator

Thank you. Jeff Osborne, TD Cowen.

Jeff Osborne

Thank you. Daniel, I was just curious on the $50 million order book, that's great to see, how much of that is exposed to California? And can you give us a perspective there? Is that more than half?

Daniel Barel

Hey, 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 US, 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 air CARB certification mainly around incentive, right, CARB recently that we announced unlocks more than $100,000 in incentive 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 were very hard to do so to cancel. And I think California is, of course, leading it. And as we said earlier, in earlier calls, having California dealers and CARB is important for us. Tali, do you have numbers on how many?

Tali Miller

Specifically from California, it's approximately a third.

Jeff Osborne

Got it. Thank you, [Tali]. And then how should we think about you mentioned adding capacity in Texas as capital permits. How should we think about sort of the cadence of production? Is it a bit more -- maybe front end loaded in the spring, 1Q, 2Q and then 3Q is a bit of a transitional quarter as you move from Coventry to Texas and then you had hit the ground running so to speak, exiting 4Q and into 2025. I know you're not giving official guidance on how many units you expect to produce and sell for some just trying to understand the sort of slope of production through the year?

Daniel Barel

No, that's a great question, Josh?

Joshua Tech

Yeah, -- maybe for this year, it's a little too early for us to answer the question of how many will deliver. But as we said in the shareholder letter by the tooling and the investment for the recorders or have been deployed, which we said we will continue to build those in the UK. We don't want to overinvest; we don't need to. So we kept We have plenty of capacity there. And then we again, will bring the remaining tooling online for the rest of the vehicle and scale up the production up to low one hundreds of the vehicles in US by the end of '24.
But again, the plan is linked to as completely the working capital needs, right? We're not going to spend too soon. So we want to make certain time perfectly together with that.

Daniel Barel

So yes, so basically, just that we will continue delivering strategically quantities to our dealer to the demo program from the UK and for vehicles that we've been started to do earlier this year. And we already delivered a few trucks to customers this year, one of which people got to see in NTA, Indianapolis and others are on the way.
And the reason we're using that approach, I sorry. And then, of course, once Tali comes online and the contract manufacturer is up and running will move to the US for full assembly production and continue the production of the corners from the UK. But the reason we're doing this and the reason for the demo program through the dealers is that our dealers provide us with a flywheel effect by the dealers have a large geographic footprint, and long-standing and trusted relations with multiple fleets in the service area.
Some of those relationships are decades old, right? And each vehicle we deliver will be demonstrated to multiple fleets. Now we believe speaking to our dividend to those fleets and other that this will result in follow on schedule.
So that is that we want to start this process early or we have started this process early, not waiting for the serial production to come online later in the year, and we will be producing strategically amount of vehicles out of the UK into that comes online.

Jeff Osborne

Makes sense. If I could squeeze in two quick ones here. Should we think about the quarterly expense rate, so not the CapEx, but the operating expenses should that stay about the same as the current level throughout 2024?
And then Daniel, if you could just make any brief comments on the readiness of your financing and charging partners that you've laid out to meet the demand exiting 2024 and into 2025?

Daniel Barel

Yeah. Maybe we'll start with the first financial bit on your own.

Yaron Zaltsman

Yeah, Hi, good morning. So I think going for full year 2024, we should keep seeing actually decreased in our cost. What we're going to do in 2024 is to continue the path that we started in year '23, where it's including decreasing in our operational costs.
In year 2023, we decrease our cost by roughly 25%, compared to year 2022. And going forward is this same process should continue more so and I think we'll also have another decrease of roughly 25% in our [burn] rate, India 2024.

Jeff Osborne

That's a burn with the CapEx and the OpEx combined?

Yaron Zaltsman

Yeah, that is correct. That is correct. So I think roughly the [annual] came in about $5 million to $6 million per month to leverage. It will not be splitted on the same rate over the quarters for the H1 probably will spend more as we need to complete the tooling and in other expenses and then go into the second half of the year, it will go down dramatically.

Jeff Osborne

Got it. Now any brief thoughts on the charging and financing partners you have, Daniel?

Daniel Barel

Yes. So on the charging front, we're working with several charging partners, one of which is, of course, Hitachi, Hitachi Power that have very interesting and very compelling offering of large-scale commercial grade charging infrastructure.
I think recently they have announced something around that with [Penasquito], which is interesting to look at and we work with others because some are, are asking for other solutions, more local solutions.
And also on the upside, it's super important, right? I mean, we showed how we work with not hide. And of course, you'll see other operators that we work with [Noctiva] very happy, of course, with the process mentioning that we're able to complete the marriage of the chassis and the body within less than three days, which is a record for them because of the ease of design for free.
One thing maybe important to note here, Jeff, is, we build to order. We don't build for inventory. Therefore, we make sure that when we start building for a customer. We make sure that they have the outfit ready, the infrastructure, the chargers ready, everything ready to receive the vehicle and I think this is key for us because we're not building for inventory and therefore, we don't get stuck with inventory or with this phone pickups.
We deliver only to order and we make sure that for all of our partner they have everything they need in advance of us delivering the trucks or the truck arrives and complete and directly goes into service. And we will continue to be very prudent on that approach.

Jeff Osborne

Perfect. Thanks so much.

Daniel Barel

Pleasure.

Operator

Thank you.
Craig Irwin, Roth MKM.

Craig Irwin

Good afternoon or good morning. Hi, guys, for those of us in New York -- can you please talk about the order book, I should say congratulations on the continued strength that are building that out, what is the approximate per head count, the number of individual dealers and fleets that have placed orders with you?
And if you could maybe talk about them, how is this how this can potentially be delivered? Do we have a couple of units on upfront from one of the fleets followed by follow-on orders it? How much of that I guess would be sort of, first unit versus follow-on, I guess is the question?

Daniel Barel

Yeah, good morning, good early morning. So for the first question we currently have -- we see strong demand for our battery and for our technology for the [Bioar] and [R]. Current dealer network now covers 66 points of sales and service. I think one of the largest four EVs in the country.
And we do this through 20 dealers, both in the US and Canada and that gives us a very broad footprint across the whole US and parts of Canada. And I think what we see in the commercial market in terms of demand is interesting because it is different than passenger demand and how you deploy passenger vehicles in that segment. Maybe Tali, you can add more color on that.

Tali Miller

Yeah, sure. Good morning and thank you for this question, it's an it's a strong questions, so first to add on to Daniel's point, the importance of having these 66 service points allows fleets to receive service across US and Canada, which is what fleets are looking for and this was this is very important for us to try to achieve.
Second, we see with respect to the demand, unlike I think what we see in the slowdown of the demand on the passenger easy, we do see a continuous and actually growing demand in the mid duty Class three to five EV space that this is the space we currently serve.
We believe this demand is driven by several reasons Of course, the mandates and very strong incentive, both federal and state, very strong, the zero emission goals are very important for fleets and of course, the TCO advantages of electric vehicle versus ICE vehicles.
And moreover, I would say that from a charging infrastructure perspective, which might be a complex one on the passenger vehicle space, we are at the mid-size duty and also the feedback of the fleets we work with actually the cycle, the driving cycle is short. So basically, the driver would start in the morning and in the day and at the end of the day and charge at the depot. So from that -- the charging infrastructure is easier for them to be served?

Daniel Barel

And to last point, yes, I think your approach to how to roll out the fleet is correct. We are starting to ramp up later on the year and then we will start providing a few trucks to have every fleet and then ramping it up through 2025 when we ramp up towards the low to mid thousands of vehicles in production.
I think it's very, very important to deploy a few to run the demo program received the voice of the customer, which we are very attuned to and listen to any changes or modification, they still want although that we've been developing those vehicles to go with them for a long time. So this is why you see the high level of satisfaction there, but it will always remain attuned to the voice of the customer. So we would like to explore as many fleets as possible to our vehicles in the coming months, providing them with vehicles and then ramping them up towards 2025.

Craig Irwin

Understood. Thank you. So Daniel, we had an opportunity recently to meet with your -- the customer that took your first commercial deliveries of commercial Vehicle Care in the US, and they're obviously very big supporters. I'm actually -- we've just got to tour the vehicle with them to, so it seemed to generate quite a lot of excitement.
Can you maybe share with us what you're learning from these early deliveries? What are customers saying? Is this maybe shifting your understanding of what the priorities are for investment and purchase decisions on the part of customers out there. What are you learning from these early deliveries?

Daniel Barel

Yeah, it's a great point because as you mentioned, we had the chance to talk to a customer to a very large customer. And I think it's key to hear from them and I think what we're learning on from the first deployment is first and foremost that we get an overwhelmingly positive feedback for the design, for the spacious and the agronomic advantage, of our cabin, of the low floor at the very center drive -- driver centric cabin that would that we offer and the performance of the trucks that's one.
Second, a lot of the fleets like the -- our ability to work with multiple up seaters and to offer multiple applications for different use cases due to the our modularity approach and low flat flow. And another point that they all mentioned is the data we have to back the offering, for example, the extensive winter tests that we are just conclude for the 2nd year in a row.
So for example, we don't have to guess what is the range in extreme conditions and like minus 30 degrees and what is the performance, which is a good thing. And I think all of that, the ability to provide data behind our trucks and to showcase the offering and that leads to our customers being able to calculate their future going TCO expectations and it makes them easier, make the transition towards electrification easier for them.
Last but not least, of course, chargers are very important and as previously asked, we're working closely with charging partners to ensure that they have the adequate infrastructure to support the trucks.

Craig Irwin

Excellent. And last question if I may is it's actually pretty basic question. SMVSS, the Federal Motor Vehicle Safety Standards certifications, is this a gating factor that is necessary for commercial deliveries and you know, how long did it take you to achieve SMVSS with your certification partner.
If someone was to start today, is it logical for them to take a similar amount of time with a different technology or a competing technology. If you could if you could help investors understand a little a little bit better the significance of FMVSS. and how this how this is such a big accomplishment?

Daniel Barel

Yeah, of course, I mean, it is a huge accomplishment. First and foremost, because we were the first, we still are the only one in the world to be able to certify and put on the road. The fully by wire vehicle.
There are some vehicles out there that are partially by wire that, mainly steer-by-wire like the Tesla Cybertruck, right. And we see more and more OEMs trying to adopt more and more by wire technology slowly because it's very heavy lifting to do by wire, especially when you do a full by wire therefore, redundancies and control and stability and maturity of the software is critical.
So definitely, we see more and more players out there like Tesla, like Lexus and other that offer partially by wire system any around steering. But we are the only one that have been able to do a full by wire vehicle. And it took us years, years of testing and validating that technology. And it's not just the hardware, mainly as I'm sure people understand. It's mainly around software and running algorithms and AI and others to ensure that we have all the abilities and the machine learning needed to run in real time are by wire capability with all the redundancies.
And as you fairly mentioned once we decided to take it to the market. It is a -- you can put a vehicle in the US without FMVSS sort any [PA] by the way. But definitely a society is a critical one. And we have decided to go and pursue this with a third party that helped us to ensure the validation process correctly and run those tests in a manner that is as perfect as possible, right, because being the first one, we believe that it is critical to ensure a very high level of performance?
Should anybody else tried to do it. I mean, I'm not sure the -- they should them. I mean everybody should and I think they're all trying. But I think currently we with FMVSS, we opened eight capping type of magnitude with everybody else in the industry being able to do that. And keep in mind that as more of our trucks are on the road, the more data we collect from our by wire system, and that allows us to improve it even further.
And one should assume that everybody now saw the first version of our corners and our by wire technology. But we've been working on by wire for 10 years now. So one should assume there is far more coming in the future.

Craig Irwin

Excellent. I'll take the rest of my questions offline. Congratulations on the progress.

Daniel Barel

Thank you so much.

Operator

There seems to be no further questions. I would like to hand back to Daniel Barel for closing remarks.

Daniel Barel

So I want to thank everybody for taking the time and joining us today. I want to thank our investors for their strong great support and on this -- they say thank you again for everybody on team REE for a phenomenal year, overcoming so many challenges and driving strong results. Thank you, everybody, and stay safe.