Exro: an opportunity in electrified mobility

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Letters, conferences and more on hedge funds in the second quarter of 2021

The role of knowledge in asset management

Actively managed fundsIs there a link between intelligence, knowledge and successful investment? At first glance, this may appear to be the case. Wall Street is known to hire only the best and the brightest. However, some of the most successful investors in the world have not attended the best universities in the world and do not claim to have an above average IQ Read More

Investors are looking for a similar situation for the electrified mobility sector

Form factors for electrified mobility

Form factors include buses, motorcycles, snowmobiles, all terrain vehicles / trucks, small to very large passenger vehicles and boats.

Exro electrified mobility

Highlights of the company’s capabilities

  • Its technological advantages:
    • Battery chemistry agnostic, works for all segments (buses, RVs, motorcycles, snowmobiles, off-road vehicles / trucks and boats)
    • The implementation can reduce the number of parts in the vehicle, save money, reduce weight, improve reliability
    • Increase the efficiency of the motor / battery system for better driving performance
    • Increase miles per charge regardless of form factor
  • $ Content per vehicle correlates with vehicle size
  • Large and growing patent portfolio
  • The implementation of their technology by a player in a segment would create a gradual improvement in the function of the vehicle, forcing competitors to adopt their technology or to concoct an alternative.
  • Company Leadership – Pedigrees of GE Motor, International Rectifier, Siemens, Ballard Power, Ford, Audi, Volkswagen, GM, Vision Marine (electric boats)
  • First commercial income likely in early 2012 with the motorcycle form factor
  • Premier pure play creating an “ecosystem” of electrification subsystems that work together

Company Finances

Method for estimating future numbers:

  • Estimate gross margin per unit encompassing all form factors from e-bike to trucks
  • Suppose a large-scale outsourced manufacturing, subtract a large amount for business expenses, apply a tax rate, and assume we are looking at 2025
  • Suppose free cash flow = annual net income.

Exro electrified mobility

* The far left column assumes units are sold globally, the company has enough cash for the next 18 months

Exro, a pioneer in mobile electrification

  • Exro Technologies Inc, listed in Canada as TSE: EXRO and bulletin board in the United States as OTCMKTS: EXROF with a market capitalization of US $ 310 million
  • The product is the coil-driver
  • Its technology
  • Partnerships
    • Land Motorcycles: for new generation models
    • Zero Motorcycles: for next generation models (Zero is also a Polaris partner for the next generation of Polaris electrified vehicles.
    • Templar: nautical application
    • Aurora powertrains: snowmobiles
    • Own seed capital: agricultural equipment
    • Sea Electric: fleet vehicles (trucks)
    • Heinzmann: Motors for cars, trucks and e-bikes Heinzmann is a Tier 1 automotive supplier
    • Motor proximity: Bus
    • Potencia Industrial (Mexico): Industrial and automotive
    • Linimar Corp: Auto parts

Advantages of Exro technologies

  • From zero point of motion to displacement, you need torque
    • As you get closer to cruising speed, the torque requirement decreases and you just need to maintain that speed.
    • Meet a hill, you need a couple again.
  • Exro has created a system that manages this relationship between torque and speed
  • This optimizes torque and speed to maximize engine efficiency, and in turn reduces the demands on the battery.
  • Using the coil driver replaces mechanical parts, reduces vehicle weight, increases kilometers / load, reduces costs
  • Lighter vehicle = more range, better performance
  • Because Exro lowers the cost of the finished product, they have a price umbrella that should give the company higher margins in an outsourced manufacturing model.

How does the coil driver work?

  • The product consists of electronic components in a software-controlled housing.
  • They change the motor coil configuration on the fly, with inputs based on vehicle weight, road grade, and need for acceleration.
  • Technology has the greatest impact on larger vehicles and / or those dealing with terrain such as hills and valleys, and situations with the greatest torque ranges.
    • It makes sense, which is a reason they work with ATV and snowmobile companies.
    • Buses are another good example of Exro technology. The weight varies depending on the number of passengers, many departures and stops, and must navigate with the slope and terrain. Garbage trucks and UPS type delivery vehicles as well.

Exro electrified mobility

Additional functionality

  • Exro received new patents in July 2021 for new capacity
  • Electric vehicles (EVs) require 3 different types of power electronics to power the moving vehicle and charge the batteries:
    • One motor drive, one on-board charger and one external DC fast charger.
    • The coil driver can replace all 3 components, reducing the cost and complexity of deploying electric vehicles and simplifying the infrastructure required for recharging. Just another example of reducing vehicle complexity, reducing costs.

Business potential

Commercial potential:

  • No partner company has obtained an exclusive agreement with EXRO – for example, it works with 2 motorcycle companies (ZERO Motorcycles and Land Motorcycles).
  • In an interview with the CEO of Polaris (2’50 “from the link below), he referred to the partnership with Zero Motorcycles.
  • Does anyone relate where ZERO gets its next-gen technology? Apparently not.

Will it sell?

  • You are looking for an electric car, boat or motorcycle.
  • You have a hard time deciding between two brands, one with Exro, the other without.
  • With Exro inside, you achieve: 20% more kilometers per charge, recharging at home most of the time, fewer parts and therefore more reliable. – a clear competitive advantage.
  • When the adoption of the technology gains popularity, which I believe will be in the middle of 2022, investors won’t care if the hockey stick of revenue and profit takes off in 2024 or even 2025.

Barriers to adoption and commercialization

  • The coil driver must be perfectly connected to the motor, must be tested, tested and tested.
  • New Kid on the block crossing big fish with the “not invented here” syndrome.
  • OEMs and Tier 1 vendors may have existing multi-year vendor agreements that must expire before introducing the EXRO app
  • The first commercialization will be with more agile OEMs that produce motorcycles and all-terrain vehicles.
  • Auto OEMs established due to supply chain logistics are already locking in the ’23 model year, so even if an OEM were to sign with Exro tomorrow, the sooner we would see Exro in a major brand vehicle would be ’24 models. . But I wouldn’t be surprised to see a big name join us in the next 6-9 months.

Summary of investment

  • Eliminating heavy moving parts creates instant cost savings for an OEM.
    • This results in an increase in overall reliability, and if a problem arises with the Exro component, it can be easily accessed and / or diagnosed electronically.
    • In a YouTube video, an electric bus company said it will test EXRO at the end of this year and expects a 20-30% increase in kilometers per charge.
  • Lithium: With the world obsessed with access to lithium and as the price of lithium increases, more emphasis will be placed on optimizing the electrical system. As the price of lithium rises, technology that reduces the number of cells / batteries should be welcome.
  • Charging stations:
    • Companies are building charging stations all over the world. Why not do it at home?
    • With Exro integrated into the vehicle, you can plug your vehicle into a regular 115v outlet.
    • As the vehicle’s range increases between charges, you won’t need to go to an outdoor charging station unless you are traveling a very long distance. A great selling point for a car manufacturer.

Corporate Finance 2025

Exro electrified mobility

* The far left column assumes units are sold globally, the company has enough cash for the next 18 months

  • Based on net income of $ 662 million on 3 million units, 130 million shares = $ 5.09 EPS.
  • More cautiously, reduce it to $ 4.00 in EPS, push out to the benefits of 2026.
  • Current share price = $ 2.25 and Exro has enough cash for 18-24 months.
  • The announcement of an OEM deal could move the share price decimal point, in which case hopefully they will issue 2-3 million new shares. That would be all they would need until the money started pouring in.
  • But Exro could get the cash up front by signing a large OEM under a non-exclusive licensing deal, reducing the need for any equity offerings.

Battery monitoring system (BCS)

  • Exro also has a battery monitoring system for use when the battery packs reach the end of their life.
  • They optimize batteries for use as energy storage systems. The energy storage system can be connected to the grid and / or used as a back-up power supply for businesses and homes.
  • They are targeting the commercial launch in 2022.
  • They demonstrate at the North American Battery Show on 9/14
  • The incorporation of any BCS benefit is the icing on a rich cake already referred to.

Updated

About Terry Simmons

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