REE Automotive: EV's Commercial Future & Capital Strategies with CEO Daniel Barel

Thank you so much for having me.

So REE is an automotive tech company. We utilize advanced software and hardware to modernize the commercial vehicles industry by creating smarter electric trucks that are designed to deliver greater efficiency, lower total cost of ownership, and enhanced safety. I founded it together with my co-founder 10 years ago with a vision of expediting and solidifying vehicle electrification through a white-label technology approach. Basically, we complete, we don't compete. And if you think about electrification 10 years ago, it was very much a question of if and not a question of when back then. And our core technology is what we call the REEcorner. It's an advanced by-wire software and hardware mashup that packs the core components of a vehicle—steering, braking, suspension, powertrain, and control—into a single and compact module positioned between the chassis and the wheel. This basically eliminates all the legacy mechanical connections, enabling a pure software-driven vehicle. And the REEcorners, the by-wire technology, or as we call them X-by-wire, it's been the fundamental technology and our key differentiator throughout many years. And although many have tried before, we are the first and currently the only one to have ever certified and delivered a full by-wire vehicle. And earlier this year, on the heels of that certification, we also started to deliver first vehicles to our customers. And the first product is called the P7-C, and it's a medium-duty electric truck. So last-mile, mid-mile deliveries, the UPSs of the world and others. Market-wise, we're concentrating on the medium-duty segment, so it's about 200,000 new trucks a year. And if you look at that specific segment, it has very mature charging infrastructure, very lucrative federal and state incentives, and that basically makes that segment of the market the fastest and strongest growing EV segment in the industry. And we actually expect it to continue growing going forward.

That's a great question. So think about us as Intel Inside for auto. So the goal in the next few years is that every truck manufacturer be using our by-wire REEcorners. But in order to kickstart this market and supply the strong demand we see today, we're not waiting for those OEMs to come in. So we're working with several OEMs, some of them for years now, in adopting technologies and allowing them to use ours, like in that example of Intel to have a Dell or any other brand with Intel Inside on the sticker. So essentially, the key differentiator is the by-wire technologies, the REEcorners, but we're also currently selling in the market the first-ever REE-powered truck, which is ours, which is called the P7-C.

Three to five.

Well, that's a really good one because a lot of people don't differentiate between one commercial vehicle and passenger vehicle, and of course the breakdown within those segments. So first and foremost, these markets are completely uncorrelated. So although we see some slowdown in the passenger vehicle segment of the EVs, mainly around saturation and quite strong adaptation over the past few years, the commercial segment is just starting and the demand is really, really strong for many, two, maybe three reasons. One, at the end of the day, regulations. Many governments, including the US but everywhere around the world, have been very clear in carbon emission goals and the ability to put ICE, internal combustion engine vehicles, on those roads. And by somewhere between 2030 and 2035, you won't be able to do that. And we saw the latest just a week ago, the latest EPA update on those emission goals. That's one. Second, at the end of the day, when it comes to commercial trucks, TCO, total cost of ownership, is what makes the decisions. It's not just the acquisition cost, right? Because think about it, what is a good deal if I'll give you a truck that costs a third but breaks down five times more? Not true, right? So the industry calculates it according to TCO. You take the acquisition cost, the residual value, the maintenance, the support, the cost per mile, etc., and you come up with a number and you can compare apples to apples. And EVs in general drive TCO down, and our trucks, the by-wire trucks powered by REE, drive it even further down, making it one of the best TCO operators out there. And this is very important for that industry because at the end of the day, these are work trucks, they need to make a buck for their owners, right? And third, which is temporary, we can't count on that, is there are very strong incentives in that segment. So if you look at a Tesla's segment, for example, you can get between five to seven thousand dollars back when you buy an EV. In our segment, three to five, you can get up to $110,000 back on about a $150,000 truck, but it actually costs you after the rebates about half of the diesel one.

Interesting. Thanks for breaking that down. Of course. By the way, one more thing about that is range. That specific segment is not the long haul, right? It's not the 500, 900 miles coast to coast, etc., where range anxiety or charging infrastructure. These trucks go 150, 200 miles a day, and that's easily achieved today with today's battery technology. And also the charging infrastructure within the depots is mature enough, right? It's an important point. And that last mile is there's a depot and there's planned routes and it's very controlled how far they're going. And so it's really a matter of does that depot have petrol or does it have a charger, and either way it works similarly.

So the simple update is that we are on track on the plan we laid out. That's the simple answer. As you mentioned, we're targeting to sell cumulatively about 6,000 trucks in the next three years, which is roughly 1% of the market. That's all. And if you just, you know, 6,000 trucks multiplied by just over $150,000 per truck, you get to the billion that you mentioned. So that's one. Speaking about where we are, so 2023 was really a pivotal year for us at REE. We achieved very important key milestones in line with our original timelines and basically de-risked the go-forward path. And it allows us to advance the state of the art in the medium-duty commercial vehicle space by orders of magnitude compared to other offerings, both EVs and ICE, like we talked about. Basically, if you look at our latest shareholder letter that we released a couple weeks ago, you'll see that much of the heavy lifting is behind us on this path to commercialization. Our technology is mature, tested, and REE-powered vehicles are certified, with the first to have FMVSS, EPA, and CARB out there. And that gives us the incentives. And the order book that you mentioned is driven by the strong demand we see from leading fleets and dealers. And we actually grew our order book by more than 900% from the beginning of the year till today, reaching more than $50 million, which is a very substantial amount for a commercial vehicle fleet for EVs. And that represents a few hundreds of trucks powered by REE, which is important because this is what we need to get to the positive unit economics that makes us so unique. Now we have about 66 points of sales and service across the US and Canada, which makes it probably one of the largest pure EV service networks out there in the commercial segment. That's huge. And think about those dealers, our dealer network is servicing the largest and the smallest fleets you can think of. Some of them are huge and some of them are small, but at the end of the day, more than 70% of all trucks in that segment are going through dealers, and they've been doing this for decades. And I think the important thing that we're doing now is we kicked off a demo program that we're giving, we're selling actually trucks to our dealers. Those dealers get to show them to the fleet customers. The fleet customer experiences the tech, the experience, the benefits, and puts in the following orders for 2025, 2026 to get to the 6,000, to the 1%. Which from what we see now, we believe this demo program will have a flywheel effect on orders as more and more fleets get to test it, try it out, and experience the benefits.

Yeah, well, first, it actually starts way before then, right? Because what makes us really unique in the industry is that I think we're the mirror image of what Henry Ford Sr. used to say many, many years ago about the Model T, that you can get it in any color you want as long as it's black. Basically saying there's one model, you can have it or you can't, or you don't. We are very, very much attuned to the voice of the customer. We actually built this truck together with leading fleets. We bring the tech methodology of the design partner. We have been working for years with leading fleets, global fleets, in designing that truck, listening very carefully to what's important. Because when you bring a commercial vehicle in, you have to justify every bit of it dollar-wise. I'll give an example: we have four motors, one in each corner. So usually, traditionally, fleets will say, no, we'll just have one or two and we'll save a couple of hundreds of dollars on cost. And you have to show them that actually by having four motors, you have more regenerative energy, you can regen more, you spend less energy, you need less batteries—batteries are very expensive—you have more payload, and the math shows it's actually better. And you start there. And then, for example, our driver-centric cabin. One of the biggest hurdles in last-mile today is drivers, and fleets are trying to get better vehicles to attract drivers to sign in with them. And we have a very, very driver-centric cabin. So all of that comes together, and then we bring it to the market. You certify it, you test it, you certify it, and then you start the sales process. And this is where you can go either of two ways. One, you can do the direct approach like Tesla, that they sell direct, or you go through the dealers. We decided to go through dealers mainly because of the reason that they're so good in what they do. Basically, the things they've already forgotten, we have not yet learned, if we're honest. And the relationship that they have with those fleets goes decades back. So they basically call up their fleets that they've been buying trucks from for years, say, hey, we've got something new for you to try out, and they come in, or they go to them, they try it out for a day or two, a week, or a couple weeks, put it in day-to-day usage, and then when they like it, they put in the orders for the next batch and the next batch. And before we take those orders, we make sure they understand what it means to charge them, if they have the right infrastructure, and so on and so forth. That's second. And third, and probably I would say the most important of them all, is service. You cannot sell a truck, a commercial vehicle, without the ability to service it. It's impossible. And this is why the 66 points of sales and service that we have, probably the largest one in North America for pure EV, is so essential. Because if something happens, they drop in at one of those stations, if they can do it themselves, and we get them back on the road real quick.

So traditionally, when it was diesel, you either hammer things into place or you have to have a very big inventory that you have to hold because if you're missing one part, the vehicle is decommissioned or it's on a lift for a few days and it's not making money. And that's a big issue, right? So you have to have a very big inventory of spare parts, whether if you serve them yourself at your depot or at the dealer. EVs have significantly less moving parts, therefore are less prone to break down. But you still have to service them, you still have to have spare parts and everything else. What's really cool about REE and our REEcorners is that remember, everything sits in that corner and it's a compact module. So that module, if something doesn't work, it's software-driven. So 80% of cases we solve over the air, we just send the code and fix it, like your Mac or iPhone. But if something breaks—and it's commercial vehicles, things break—right? Instead of three days on a lift trying to fix stuff and wait for parts, you basically can swap out a corner in less than one hour and get back on the road. Really similarly to an F1 pit stop. You come in, you put it on a small lift, unscrew the corner, take it out, bolt a new corner in. Now the corners are identical front and rear, left and right. It's the same corner. So you basically stock one part, which is a corner, just bolt it in. It takes you about 20 minutes mechanically, physically, and after that 20 minutes it's in place. Then the system takes about another 40 minutes to recalibrate, safety checks, security, cyber updates, etc., and you're back on the road. And that's gold for commercial trucks.

Good question. I'll just maybe start by saying that we didn't burn through, I look at it more, we spent strategically. And now with the majority of the heavy lifting behind us at this point, we expect to be able to drive down our spend looking forward. That's one. But listen, we've been doing this for more than 10 years and we've always been very disciplined in our cash spend. And being very disciplined in cash spend is one thing, but it's an entirely different thing to do that while meeting your targets. And that's what we've done in 2023. And I think we did even more in 2023 because not only we met all of our milestones, we did it while cutting cash flow by 25% year-over-year while meeting those milestones. So we are very, very, very disciplined, and we've always been. It's not just because of the macro environment. And I think that what being disciplined means is finding new ways to meet your targets in a more efficient way. Now, listen, we are very confident in our market position and our technological leadership, but we also recognize the challenging macroeconomic condition. It's quite obvious. And we're doing what we can to combat these external forces, including securing funding with favorable terms. We secured about 24 million in the past few months in very favorable terms compared to others in the market. And we're doing it because we are very mindful of shareholder dilution. And I think that's what's characterized us out there. So we want to ensure operational efficiency while being mindful of shareholder dilution. And maybe lastly, I'll say that while others in the industry are burning through hundreds of millions of dollars or maybe billions for some, our working capital needs going forward for producing our pipeline are very modest. We're talking about double digits of millions only for the next couple of years when we ramp this up. And I think this is a very, very important differentiator for us in our industry. I think that now with the heavy lifting behind us, the tech proven, the investment that we already made in the production of the corners, the REEcorner plant that is up and running with ample capacity, and the growing order book, I think we're in good shape for success. The only thing we need to do now is complete the working capital raise that we need. Because as you mentioned, we have enough money currently in the bank for daily operations. We want to make sure that we have enough to see the production through in the form of working capital. And once we secure the required working capital for the current order book, we go and produce. We will not do that before. To your point, I think it would be irresponsible on our part to start scale production without being able to see it through and putting our shareholders at risk, because that would require us to potentially look at highly dilutive funding options. Because you will be between the hammer and the hard place, which makes no sense. So we want to make sure that we have all the working capital needs in advance and then kick off the serial production.

That if you take out the Mag 7, I think you'll see a different market. The Magnificent Seven, right? The main different markets are different. We've seen high interest levels that are not going down as fast as people have been thinking. We've seen different risk appetites in recent quarters with investors. And I think we need to recognize it as a company. And we need to make sure that we are very, very, very disciplined in how not only we spend the cash that we have, but also how do we raise additional funding and what do we use that funding for. And we've been very, very open, I think, very open with our shareholders and the market about what we need exactly and what we're going to do with them.

Yeah. And I think it's very important to recognize that investors, especially retail investors, not only put significant funds into us and expect that we treat it with the utmost respect of their money, right? Because that's what funds us. And we do exactly that. And this is why we've been cutting cost year-over-year by 25%. This is why we've been very deliberate in making sure that we have all the working capital funding we need in order to go to market. So we've spent all the money that we needed on the development of the tech, the R&D, that's done, that's certified, that's behind us. We spent all the money we need on the production line of the corners, that's done. We spent all the capex tooling on those corners, that's done. What we need to do now is raise the required working capital to bridge between when we order the parts to when we sell and get paid for the $50 million order book that we have. And once we have that, we'll go to produce, we'll complete the other parts of the tooling program that we have, we'll kick off contract manufacturing in the US to assemble the vehicles, of course, and then we're off to the races. But I think that's the responsible approach to make sure that you can see it through, especially in today's market. They don't come out short and say, oh, I'm missing some funding, but now I have to take unfriendly terms or funding options.

The simple answer is yes. I think this is of paramount importance. I mean, I'm very accessible either on AMA, on LinkedIn. I make sure to personally reply to anybody who asks something or messages me. And of course, to the extent that we can, of course we can't share non-public material information, but for everything we can do better work in explaining or take advice or making sure that maybe something was not clear, that's not only mine, our entire leadership's job to do. We also do that through the few trade shows that we take part in. We did one a few weeks ago in Indianapolis, next one is in Vegas in a few weeks' time. And this is where we get the opportunity also to meet not only our peers in the industry and our suppliers and customers, but also many of our investors who come in and say, hey, I'm an investor, I had a question. And I think this relationship is super important because, I mean, let's be honest, we can't do what we do without our investors. As simple as that. They are part of what makes us who we are.

Absolutely. I mean, one good example for that, if you take a look at our latest shareholder letter from a few weeks ago, we literally did a check-the-box exercise for each of the divisions. We did, hey, this is what we promised you we're going to do, check, check, check, check, check, and that's what's left for us to do. So we also laid out what's coming to make sure that everybody understands what we're concentrating on. And we did it across tech, operational, business, and finance. And we've been very, I hope that we've been very, very clear to saying, hey, this is what we promised you we're going to do, and this is what we did, and this is what we have yet to do, and we're on it. And I think this is important for everybody, of course the institutional investors, but also the retail, because we want to make sure that we communicate what we're doing as clearly as we possibly can.

Oh wow. Really simply, we are the flattest organization I think on the planet. Flatter than a pancake. I think there is no hierarchy. Everybody can and should have a say. We hire only the best. It's very, very difficult to get accepted. And we make sure that if you're on board, you get the resources, capability, responsibility to do what you think is right. Nobody's going to tell you what you need to do. You need to tell everybody what you think we should be doing. And everybody has a voice. So everybody sits in one big open space everywhere around the world. It's very friendly. Everybody, we form ad hoc teams all the time and we break them up according to what we need. And in almost all cases, the best idea in the room, the smartest idea in the room, hopefully wins. There's no hierarchy. So that's one. And two, as I said, we hire only the best, literally only the best. I know everybody says that, but hey, team REE is the best team I've ever had a privilege of working with. And we are one team. That's how we work. We are one team. And we make sure that we work really hard, but we also appreciate the time together. We make sure that we enjoy the ride as much as we can. Some days are not that fun, right? But most days. And we make sure that we communicate internally basically as flat as we can. We are very, very data-focused. So if you come in and say, hey, I feel that A and C, then that's a little bit tricky because feelings, you know, we don't know what to do with those feelings. Please, not work. But if you can show numbers about what you think, and those numbers hold, done, that's yours, go execute. And this is what I think allows us to be the first to start full by-wire vehicles. Many have tried for years, for 30-something years people have been trying to do by-wire vehicles. I mean, planes fly by wire for 50 years, but think about it, a pilot is a very, very, very trained professional and usually you need two to figure out stuff. So we needed to take that tech and bring it to auto where everybody could drive it. And even you, Katie, right? Everybody can drive it. I drive it, even Katy Perry.

Done. Okay, you are, I'm assuming the vehicle's insured and it's all good there, just in case.

Yeah, but you won't need it because it's the safest out there.

I'll take you on that. We did two consecutive winter tests, right? And we tested those in the Arctic Circle in minus 30 degrees Celsius. Yes. And it's more or less the same. And one of the tests we tried to do with a by-wire is to oversteer it. We drove over a completely frozen lake, right? Zero traction. And you try to oversteer. As disappointing as it might be, you just can't oversteer because the by-wire keeps you safe. You have all-wheel steer, all-wheel brake, all-wheel drive, so many redundancies. The computer oversees everything, and this is real time.

Ah, that's a good question. I'm driving a tiny electric Fiat 500 convertible.

And I love it. I absolutely love it.

That's a good one. So, that's a good question. I have to get back to that because it's a hard question. It is a hard question. And you know, where was it? I think I was in the UK, in an airport in a connection, and I was sitting in the lounge and suddenly I see somewhere in the corner a Peloton bike. And I said, hey guys, do you happen to have showers? They go, like, yeah, sure. So I thank you, book me one. And I went out in the middle of the airport, took it to the side, and had a great workout and made my way back to the airplane a couple of hours later.

I would have done the same exact thing. I might have missed my flight, so I'm right there with you. If it's just sitting there, might as well, you know.

Looking forward to it. And thank you so much, it was so much fun.