REE Automotive Stock: A Modular Electric Vehicle Platform
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Readers have been steering us toward evaluating the massive traffic jam of electric vehicle (EV) companies going public, mostly through mergers with special purpose acquisition companies (SPACs). We issued a warning last year about the wisdom of investing in EVs, as well as the particular dangers inherent in SPACs that are becoming all too obvious as many of these companies fall one by one. It certainly didn’t take long for an Israeli EV technology firm called REE Automotive to drop. Let’s see if REE Automotive stock is a buy at any price.
About REE Automotive Stock
Founded a decade ago, REE Automotive (REE) had raised $57 million in disclosed funding, according to Startup Nation Central, Israel’s equivalent of Crunchbase. The company is developing a modular EV platform that basically consists of the chassis and wheels (more on the tech below). The initial market emphasis is on urban mobility, so think last-mile delivery vehicles. In July, REE completed a reverse merger with a SPAC named 10X Capital Venture Acquisition Corp, a name you can now promptly forget because it’s no longer germane to the conversation.
A few things that are relevant:
REE Automotive netted only $288 million from the deal, significantly less than the $500 million originally projected from the SPAC and additional outside investments through what’s called private investment in public equity (PIPE). It’s not entirely clear what happened, except that some shareholders decided a safer bet might be on Tom Brady winning an eighth Super Bowl.
REE is a development-stage company, meaning zero revenues and no particular timeline when the company expects to start making money.
Its recent third-quarter results were most notable for posting a net loss of nearly $415 million, compared to last year’s $18.8 million. Wow. REE must have built a factory or something, right? Actually, the change was “primarily related to higher non-cash share-based compensation expenses of $409.8 million … which were granted to founders prior to the merger with 10X Capital and were vested at the time of closing.”
REE claims to have about $294.5 million in cash, which should be enough to take the company all the way to commercialization. Well, the actual phrasing is “execute on its business plan,” and so let’s not make any assumptions and take a closer look at REE Automotive stock.
The Technology
At first glance, it looks like REE has developed a rather large electric skateboard:
The design consists of two technologies. The primary innovation is called REEcorner (you can tell it’s a big deal because the company trademarked it), which packs all of the components that make it go vroom into a single compact module between the chassis and the wheel – including steering, braking, suspension, powertrain, and control. That means there are no mechanical links between the four individual corner modules, so the company’s X-by-Wire Control technology controls all of these functions. The flat EV Chassis, the REEboard, hosts the control system, thermal management system, power converter, and power module.
The company claims that its EV skateboard design boasts a lower center of gravity than those with the motor located between the wheels. That allows it to carry more passengers, cargo, and batteries, as well as supports taller cabin designs and lower step-in height for more overall volume. Its customers, which would presumably be mostly OEMs, can customize the design. For example, customers can order front-wheel drive e-shuttles with maximum payload capacity and minimal kWh consumption. Conversely, logistics companies can choose low-speed, all-wheel drive, all-wheel steer configurations for last-mile delivery, with low step-in-height and minimum turning radius for easy maneuverability in congested urban streets.
The bigger claim is that the design will also lower the total cost of ownership by up to 59% for cars still slinging combustion engines and up to 19% for comparable electric vehicles. The cost savings are calculated based on purchase price, energy cost, charging infrastructure cost, and maintenance cost for a vehicle that lasts for 225,000 miles.
Of course, a lot of this is still very much theoretical, since REE Automotive has yet to put most of this technology to practice.
The Business Plan
In fact, based on all of the press releases of the last year, it sounds like the company is still figuring out how the whole thing will come together. For instance, just last month, REE announced that American Axle & Manufacturing (AXL), an automotive supplier, will provide the 3-in-1 electric drivetrain technology that houses the electric motor, gearbox, and inverter into a single package. A different company called Brembo has been tapped to develop and supply the braking system.
This outsourced approach to manufacturing, REE maintains, will help keep big capital expenditures low. The company plans to assemble the various components at future integration centers that should be able to crank out 600,000 EV platforms by 2026. Each facility will cost $15 million to build. The first U.S.-based integration center is scheduled to open in Austin, Texas by next year with the capacity to assemble 40,000 EV platforms.
Meanwhile, REE is also signing MOUs and agreements right and left to partner with companies to develop commercial EVs based on its platform. Hino Motors, the truck arm of Toyota, is probably the most prestigious name on the long list of proposed alliances. There are also companies like JB Poindexter, which manufactures commercial truck bodies, and NAVYA, which is developing self-driving buses and other autonomous technologies for commercial vehicles. In addition, REE just released the Leopard, a last-mile autonomous concept vehicle.
Most of these supply and manufacturing agreements are about as binding as your buddy saying he’ll meet you at the bar for a drink and then deciding to get trashed at home, leaving you high and dry. Everyone’s previously favorite EV company, Rivian (RIVN), was supposed to do big things with Ford (F) but that collaboration ended just last month. Not surprisingly, Rivian stock has fallen from its ludicrous highs after its IPO in November.
Should You Buy REE Automotive Stock?
If you got to this section, then it probably means you skipped ahead and missed the fact that REE Automotive is not just pre-revenue but hasn’t even completed developing the final commercial product. Institutional investors bailed even before the SPAC deal was done. The founders got their big payday, but any retail investors who jumped on REE Automotive stock back in July have lost -60% of their investment already. The company’s market capitalization has correspondingly dropped from $3.1 billion to about $1.25 billion.
At this point, we really can’t envision a price that would make REE stock an attractive buy. Retail investors like us can’t afford to float a company’s R&D, especially in the highly competitive and well-financed EV market. Both Amazon and Walmart, in particular, are spending heavily on autonomous and electric fleets for last-mile delivery services that are being developed mainly by third-party tech companies.
We’re also leery of the company’s ability to pull off this horizontal business strategy that sources all of its major components from third-party manufacturers. Most of the agreements are little more than handshakes at this time, and supply chains these days aren’t extremely reliable.
Conclusion
The day may come where we feel safe investing in an EV stock, but today is not that day. REE Automotive offers an interesting, but unproven model for the nascent EV market. It might actually turn out to be a viable model if the economics really work like the company predicts, but we’re still years away from verifying what is just a hypothesis at this point, and we don’t invest in theories.
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Thanks for the analysis, what do you think about MIH by Foxconn?
We hadn’t heard of it so thank you for the heads up. Looks like an interesting initiative!