REE Automotive Shareholder Fireside Chat with CEO and Co-Founder Daniel Barel

Thanks Kim and hello to everybody from REE's Zion campus here in Israel. I'd like to start by thanking you all for the countless messages we received from our partners, customers, suppliers, investors, and people around the world over the recent horrible events in Israel. We cannot thank you enough for the support and well wishes. At this time, all of our REE employees are accounted for. The REE team is united and strong, and we are all committed to continue delivering no matter what and to do good. The AMA, Ask Me Anything, is a very important thing for me personally because it allows us to have a direct conversation with you, our investors, and I'm excited to see what you've got for me today. So let's start with your first question.

Sure. So the current status of our order book is that we've recently announced that we've doubled the initial order book value since August, which was our last earnings call, and it's now reaching approximately $40 million, which is very good news. Now it's worth mentioning, I think, that we only opened our order book less than a year ago for binding orders. And some of our listeners here today and investors might ask yourself why only less than a year ago. And the reason is we all here believe that it is very important to bring to the market a ready product, especially when you're talking about work trucks. You have to put them to work and you need to make sure they're ready. So only less than a year ago we reached to the point where we felt that it is the right time to bring that product to the market. And ever since we've seen a steady and strong growth in our order book and also a steady growth in our authorized dealer network that now covers the whole US and parts of Canada. For revenues, for the revenue question, we aim to start delivering, you know, the first P7s as we also said this year. So we expect to record income, but that income will be recorded according to relevant accounting requirements. So first deliveries still on track by the end of this year of first P7s.

It's a fair question, and I think the reason that we chose to go through the dealership model and create a dealership network is linked very tightly to our core philosophy of complete, not compete. And we've said it so many times in the past, we always would prefer to complete an offering instead of competing with others. Why? Because a lot of our partners, like our dealers, are very, very good in what they do. And it's the same for the supply chain, the componentry, the top hat, or the dealers. They are very, very good in what they do. So if we combine forces together, it allows us to bring our customers, the end customers, a much better product or service. Now if you look at the North American or US midsize, mid-duty truck segment, class 3 to 5, the vast majority, more than 70% of commercial vehicles in that segment are actually sold through dealers. So it makes a lot of sense to complete and not compete. Now since electrifying a fleet is not replacing apples for apples and it's not easy to replace an ICE vehicle with an EV, we need to very, very carefully choose the dealer partners that we bring into our network that have the capabilities. Now having that and having the right partners, of course, benefits the customers significantly, but also it saves a lot of money for REE that otherwise we would have to spend on huge sales teams and go-to-market penetrations instead of concentrating on P7 lineup. Now our dealers, just to put things in perspective, I don't have the formal numbers right, but from conversations that we've held with our dealers, those conversations suggest that they've sold over 50,000 commercial vehicles last year, generating over a billion dollars. So those 16 dealers that currently we have is the right approach and provide us with the right opportunity to scale as we move forward.

Well, I'd really love nothing more than to share a customer's name here and now with you and with all of our investors and give you all the details, but we're bound by confidentiality and we can't share this at this point in time. And I know a lot of people are asking about that. We are excited, you know, to share who we're working with and I promise we'll do it as soon as we can. You know, for example, on the last earnings call we reported that we delivered a first prototype to one of our fleet customers and we would have loved to share who that is, trust me, but there's a time and place for everything, I guess. What I can suggest is for our investors and everybody listening to the call, have a look at our dealers, see who they are, see who they service. We shared all the names of our dealers and the local dealers and the three national fleets that we work with. So the dealers are very much, as we said, linked to fleets and I think you can look up who they work with. I can't say that these exact matches who we work with, but that at least gives some clarity. Now, having listened to a lot of people asking me when can we share those names, I can say maybe something more and say, you know, a lot of the fleets in the US and North America and corporations have pledged significantly for carbon neutrality and we believe that once they've deployed the first P7 electric trucks into their fleet and they've operated them within their fleet and they've done what we believe they will do, which is a good job, they'll start ordering significant amounts. I mean, our dealer network, as we said, sold large numbers and we believe we can see orders of hundreds or maybe thousands of vehicles annually. And I think what we would love to do, and I'm a very strong believer in that, is well done is much better than well said, and we want to show you, our investors, our vehicles in our customer hands instead of telling you about that. So hopefully soon.

Of course. Just before I do that, I'll just note that we're a tech company in the automotive world, so we do things a little bit differently. We take the voice of the customer very, very seriously and in some aspects we actually work together with our customers as design partners to ensure that the product is exactly what they're looking for. As to the feedback we're getting, I think I can say comfortably that we're receiving consistent endorsements both from dealers and fleets, recognizing the advantages of the by-wire technology, of the REEcorner, which is what's powering the P7. As examples, we can note operational downtime, TCO, safety, and of course the low stepping height and the driver-focused cabin that we have. There's another attribute that a lot of people like, which is the corner swap, the ability to swap every corner in less than an hour. It's very, very appealing both to fleets and dealers because it not only optimizes the downtime, which is super important, but it simplifies the spare part management because we're talking about a one-part system as opposed to having many parts and sometimes the truck is just on the lift for a few days because a bolt is missing, God forbid.

Yeah, sure. I mean, we did it because we wanted to regain compliance with NASDAQ's $1 minimum bid price rule. So we basically had to do that in order to continue trading.

On a technical level, I mean, to regain compliance with the NASDAQ requirement for the $1 minimum bid price, we have to trade for at least 10 consecutive business days before November 6 in order to comply, and we expect NASDAQ to confirm our compliance in the coming days. That's on the technical level. But in addition to that, I'd say, you know, the way I see this is there's been a lot of turbulences in the market, especially in the EV segment, and market conditions are not ideal to say the least. And with all that, I think as a company, what we need to do, what we must do, is to remain focused, to remain disciplined, to keep our heads down and concentrate on executing our business plan as we've been doing now, regardless of the market conditions and the war in Israel or COVID. At the end of the day, REE, everybody at REE, we are completely committed to continue delivering no matter what.

The short answer is yes. So, you know, we're committed to transparency and open communication and we aim to share as much as we possibly can, you know, on orders, operational goals, capital needs. And I think over the past two years we all learned the importance of keeping our shareholders informed even during, for example, challenging market conditions. And we also understand that our current valuation has been influenced by those challenging market conditions. Going forward, I think the way I see it is once we start putting the P7 in customers' hands on the road, I believe that the stock price will eventually reflect the competitive technological advantages we represent. We also, I think, learned that effective shareholder communication is not just about conveying information, right? It's about engaging with our investors and ensuring that they understand our vision and our progress. And I think we could definitely communicate more regularly with our investors, particularly around the growing retail investor base that we're seeing now. And I think also, you know, this AMA is just the start to how we do better on communication with our investors.

Maybe I'll repeat what I just said of REE being a tech company in an automotive world, and it makes us very different than quite a few other players of the market. What we've done here is that we've built REE from inception to be profitable in low volumes, and this is really unique to REE. And we looked literally from the technology side to the production side and throughout that journey of how to become profitable in low volumes. And I think this is really important. We believe that the technology that we have, the by-wire, the x-by-wire corners, and our efficient, capex-light assembly strategy is the right approach to address how you become profitable in low volumes. And we've said it before, right? I think in the last two earnings calls, we expect to reach bill of material break-even, or BOM break-even, by the end of the fourth quarter of next year, 2024, on low hundreds of unit volumes. Low hundreds, right? And that means that, in other words, we don't expect to be losing money on each unit from the first batch of scale production. This is something that I'm personally and all leadership and I think everybody at REE is really, really proud of, because we've seen what can be the effect of digging your own grave by losing money on the first batches, and we're not going to do that completely. Now, as we continue to scale, right, we expect to reach EBITDA break-even in the fourth quarter of 2025, so a year after, which reflecting low thousands of unit volumes. Right? Now keep in mind that it's more or less the same daily production rate, so we don't expect to scale the required additional capex for that. So the hundreds in 2024 and the low thousands in 2025 is roughly the same daily production rate. So we're remaining operationally focused, but it would allow us to reach EBITDA break-even by the end of 2025. Now honestly, I mean, being profitable in the low thousands of vehicles a year after SOP, I think it's an aspirational goal, but I think it's a goal that our disciplined approach and the two-phase production approach that we shared can achieve. So maybe we'll talk a little bit about the two-phase approach that we already shared, but I think it's good to spend just a minute on that because it's important. So phase one, we expect it to extend through 2024, where we intend to manufacture and deliver up to 300 vehicles. Now this is deliberate, and it's important to emphasize that this is deliberate. It's deliberate because it would help us to ensure that we reach bill of material break-even on the first scale batch in the fourth quarter of 2024. And we plan for the production tooling to come online. What does it mean? It means that we have to wait a certain amount of time towards the second half of next year until that production tooling comes online and is ready to produce through. And we'll use that tooling in order to reach the bill of material break-even from the first batch. That, in that production capacity, we will be able to manufacture and deliver up to 300 vehicles. Right? And as I said earlier in this chat, we build to order. Now, the REEcorners themselves will be built in our Olive Tree campus in the UK, where the full vehicle assembly is done by a contract manufacturer in the US. Now in phase two, as I said, we intend to continue with the same production capacity that should yield low thousands of P7 trucks over the full year, and that would allow us to reach break-even EBITDA by the end of 2025. So we'll be in, I believe, in very good position by the end of 2025. And again, I can't stress enough that I believe that delivering a ready product is more important than delivering a first product. So we want to scale up responsibly and ensure that we create a stable and reliable production process. Before, basically, we want to make sure that we walk before we run.

Sure. Let's start with the easy bit. The US class 3 to 5 truck market segment is estimated to be north of 200,000 trucks per year. So based on the demand we're seeing for our vehicles and our go-to-market strategy, we're targeting, and we said that before, right, but we're targeting a billion dollars in cumulative revenue between 2024 and 2026. Now that $1 billion revenue company can be achieved by reaching a low single-digit market share, and this is what we're targeting. And this is what is very unique and very attractive in this specific market, that you can reach a $1 billion revenue company through a low single-digit market share. Now for the price, for the unit price, I mean, you know, we haven't shared our MSRP yet, but I can say that we're in line with commercial EV segments. But it's worth noting that in the commercial EV segment, as opposed to passenger vehicles, acquisition price is not the most important factor, right? Because let's say you can get a vehicle for one-third the price, but it breaks down five times more than average, is it a good deal or not, right? So there's many factors to calculate in. And I think that at the end of the day, the P7 has a much better TCO, total cost of ownership, and unit economics than ICE, and therefore a better alternative for fleets in the long term. There is also significant federal and state incentives for class 3, 4, and 5 in the US. Now according to location, they may vary between $40,000 up to $140,000 per truck in certain states, right? So with all of that together, I think that the quick answer to your question, yes, we're targeting a billion dollars in cumulative revenue between 2024 and 2026.

Well, the short answer is not at this time. Now, the REE technology, the by-wire, the REEcorners, they've been developed for very large and wide aspects of capabilities and variations. So you can assume that the first three corners that we're going to launch now are the first of their kind, that there is more to come and more developments under the hood that we're not sharing at this point. Technology-wise, yes, it's relevant from class 1 all the way up to class 8s, but I'm not sure that the markets are ready for electrification in all of them or the margins are there at this point. I think currently we're seeing very strong demand, partly because of how the market structure, the incentive, regulatory support, charging infrastructure, etc., in the mid-size trucks, 3 to 5, and this is where we want to concentrate. I think that for us, and we've been showing it for the past 10 years and two years have been public, we are very, very disciplined and we're going to remain focused on medium-duty commercial markets. And I think the main three reasons for that, if we keep it short, would be there's a potential for much better unit economics, lower competition, and reduced capital requirements. But at one point, sometime in the future, we would definitely want to look at other aspects, either on market segments or, for example, data as a service and other subscription services.

Well, the by-wire technology, the x-by-wire, was designed with a clean-slate approach, right? So as a result, we have tremendous flexibility to control and accommodate multi-platforms and partners. And at the end of the day, I'll maybe repeat what I started with this conversation: we complete, we don't compete. So the quick answer is yes, there is interest with quite a few players in the market. Each player has potentially different reasons. Some would look at the maturity of our technology and the ability to put by-wire technology on the US market roads, as we've shared on the recent milestones on homologation, the P7 reaching feasibility of certifying, FMVSS certification of by-wire technology, EPA, and others. Some would look at the advantages of the by-wire from the product side, and we touched on that earlier about what makes our technology interesting and relevant for fleets. Some would look at our network and relationship with large dealers and fleets. And some would look at the by-wire as a segue to autonomy. At the end of the day, if you want to run autonomy, you have to be by-wire, and naturally our functional safety and redundancies, the inherited redundancies within the system, are very strong. So yes, we are seeing interest.

Well, of course, I mean, it has. How could it not, right? Listen, I don't think that I want to start a political discussion on the platform, so I'll just say that first and foremost, I can update that all of our employees are safe and accounted for. Nonetheless, it seems that at least in our Zion campus here in Israel, virtually everybody has been either directly affected by these horrible attacks or knows somebody that has been affected by them. And we're doing everything we can to support those in need in various ways. For example, last week, employees and their children used the cafeteria here to bake goods and write letters to families evacuated from their homes. Nonetheless, I want to say that the REE team around the world is united and resilient, and our global team around the world are working around the clock. You know, because we deliver no matter what. And for example, here at REE, we allow the employees to return to the office with their children as not all schools are open. But at the end of the day, the majority of the REE team is outside of Israel, so we currently believe that we will reach our target to deliver first vehicles to customers by the end of this year. On a personal level, I'm fully committed to continue delivering no matter what.

Sure. I mean, in the past year we achieved significant milestones and made substantial progress. In general, I'd say that we've been disciplined and steady in executing our plan throughout the year. I think our foremost achievement is a substantial achievement on our product maturity, transitioning from B samples early in the year to production readiness today. We established and validated our UK integration center production facility and have worked diligently to secure our supply chain. We made strong progress towards FMVSS and US certification. We scaled up our business development team, and they contributed to an impressive $40 million of initial order book value, which was doubled since August. And by the end of the year, I think we look back at 2023 and see it as the biggest year for REE so far. But I'll tell you something, I mean, it has always been in our plan and we've been saying it year after year for the past 10 years.

Yeah, maybe three things. Immediate milestones for this year, very simple: completion of US certification and delivering first customer deliveries. Done. For 2024, I think we want to be scaling up production, putting the production tooling in place, and delivering up to 300 P7s. And of course, growing the authorized dealer network. But looking beyond 2024, I think we want to start seeing entire fleets powered by REE vehicles on the road. And we're working very hard and I'm hoping that around 2025 we'll see the fruit of it, is kicking off our data as a service insights that optimize not only the vehicle performance but actually define how trucks are being brought to the market based on all the data we collect.