Life during wartime: Tech startup Ree Automotive operates as Israel-Hamas war rages | Truck Tech

Well, it has. It touches us all. October 7th has been a significant event here. It's beyond words. I think everybody here knows at least one or two people that have been killed during October, and even in the war after, which has now been going on for more than a year now. Just today, I've been spending some time of my day in bomb shelters, as over the weekend during Yom Kippur, the holiest day in the Jewish calendar, with my family for a few hours. And a couple of weeks before, we spent some time bonding in the office in bomb shelters, which is interesting because although we were taking shelter in our office bomb shelter, there were at least a couple of guys that continued to do their Zoom calls from the bomb shelter, and a couple of others continued working on their laptops for the 15-20 minutes that we've been there. But it's very difficult to articulate, to be honest, how complicated this situation is and how it is to run a business during a long wartime. As for REE, we've been hitting our milestones, we've been making strong progress, we have a lot to talk about today, and we've been doing this in spite of the fact that a big portion of our company, although not the majority of it, is in Israel. The majority of our workforce is actually outside of Israel, and the manufacturing is in the US, partly in the UK, but there's a rather significant team here in Israel, and the HQ sits in Israel.

Yeah, on the business side, there has not been an effect because we were able to divert resources and assignments and to balance the workload. So there's been business continuity throughout, and we have not had, I think, a single day that the business slowed down. Even on a personal level, oh man, this is different. People have been called for their second and third tours during the war. It's been taking its toll, and unfortunately, we've all had our share of war. There have been way too many wars here in the region. It's a rough neighborhood, but this recent one has a significant, different personal toll on all of us. I don't think any of us is the same.

Absolutely. So I think going back to the days of the SPAC, back in 2021 when we went public, that was the only path to raise money. So for better or for worse, a lot of companies have taken advantage of that specific vehicle and became public, some of which probably should not have gone public to begin with. But they've raised money, and definitely because of what's called now the SPAC attack and the vast number of companies that joined the market, there have been quite a few disappointments. Nonetheless, I think that since we went public, we kept on being very, very clear with our investors and customers on two very, very important points. One is the fact that we're very disciplined and we tend to under-promise, over-deliver. And second is that we want to be very clear in describing our goals. We kept on laying down our goals in front of everybody. When we became public, we said the first goal is to validate the tech, and you saw a lot of validation by different names, like back in the day, like Hino and others, that have validated the tech and said that it works. Then we said, okay, next phase would be the ability to certify, because nobody's ever been able to certify by-wire technology. Now everybody's talking about by-wire, or the more common name, software-defined vehicle, and every OEM out there is trying to get to a software-defined vehicle. We saw VW and Rivian on one hand, and we saw BMW with a recall a week ago on by-wire braking as an example. But everybody's trying to do by-wire, and I said to everybody, guys, the next goal would be to be able to certify, to meet all these criteria, because it's not that easy naturally. And earlier this year, we reached that milestone and we certified. We had FMVSS, carbon, EPA certification for our technology, first ever in the world.

So by-wire means that a computer, or an array of computers, what we call ECUs, runs the vehicle and not mechanical connection. So in today's vehicles, in all of them basically, almost all of them, for example, the steering wheel that we hold is connected mechanically through a rod to the wheels, and by turning it, it might be power steering, etc., but there is a direct connection between our hands, basically, and the wheels themselves, and we literally turn them mechanically. Brakes are the same, and so on and so forth, and it's been like that forever. The problem with that is that it has a lot of limitations, mainly around changing dimensions, mainly around efficiencies, because we've reached the point where computers can run faster calculations, faster than us, more accurately than us, and therefore becoming safer. But the ability to do that today is very complicated. Because if you think about it, there is something called a by-wire car for years, it's a remote control car, right? You just move it and it moves. But there's what industry calls no redundancies. Think about an airplane. The by-wire basically started in airplanes back in the day. The helm, the joystick, used to be mechanically connected through cables to the flaps. In today's airplanes, there is a computer and an array of actuators, motors, that move the flaps. But what happens, God forbid, if you're flying across the ocean and one of your engines shuts down or breaks? The airplane is built with enough redundancies to be able to fly only with one engine and to be able to operate different hydraulics, etc. When it comes to vehicles, it's even more complicated. Why? Because airplanes cost hundreds, if not tens of millions of dollars. They're being operated by very highly skilled people, co-pilots, and even when the pilot is encountering some kind of problem, there is ground control to help them get through that. When we drive our vehicles, we just want to get from A to B. We're not trained in any mechanical way or any special training to operate the vehicle. So the vehicle needs actually to be far more reliable, and even if there are malfunctions, to be able to operate. And this is where the industry struggles, because when something happens to by-wire, as an example, what happens if you lose power to the computers and suddenly you don't have computers? You can't afford the car, the vehicle, to stop, or actually even worse, not to brake or to accelerate, and so on and so forth. So you need to create an array of computers, an array of actuators, motors, that are able to control the vehicle in a safe manner where there is not a single point of failure. There's not a single incident that causes that vehicle to put you in harm's way. And that's by-wire. So we've created a technology that we call the X-by-wire, which means all steer, brake, and drive, that is designed around six ECUs, six computers, that control the entire vehicle. Now think about it, in today's regular car, you have tens, if not more than a hundred, small computers that run everything from your power windows to your steering wheel to your air conditioning. We decided to aggregate them all and use only six, but those six are built differently, far stronger, far more reliable, far better. So for example, you mentioned we have corners, so we put all those in the corners of the vehicle where the wheels are, and if one corner doesn't work, the other three can take over the vehicle itself. Even if two don't work, the other two can compensate, and we have all the redundancies to be able to be allowed to go on the road, which is called certification. We can meet all the regulatory and safety requirements to allow us to go on the road.

Yeah, thanks. I mean, after certifying, which is the last bit of proving the puzzle, then you got a company, us, with a validated, reliable, and certified technology. That's great. And as you mentioned, it created a lot of interest with a lot of fleets, like Penske, U-Haul, even Airbus that we work with on airplanes, and others that have started working with us and put initial orders, and growing our order book significantly quarter over quarter. That's even greater. But then, you know, every time there's a new challenge, it is the biggest challenge. It's like every time you shatter a bottle, there's another one after, right? So, but the biggest challenge now, which is what basically killed almost everybody else in the industry, and that's known, is what I think Elon called it, production hell. It's when you got all that great stuff and now you have to produce and scale up. This is a major challenge. It's a major challenge for three reasons. One, as a new young company, it's very difficult to have a stable supply chain because you have to start small, the suppliers don't have long-term relationships with you, so you're always fighting it up, and you're going to pay more per unit. Second is unit economics. You don't have economics of scale, you have to grow to that point. So, you know, back in the day you could open a supermarket and then you got a couple and then you got a chain and then one day you cross a curve, that's great, but that's old economy. Sorry for that, but that's the truth. Today it doesn't work that way. You can't scale that way. And you have to get the economics of scale, otherwise you'll be sending vehicles with a shovel to dig your own grave, because you'll be losing money on each truck or each vehicle, and you're just digging your own grave faster and faster, the more you produce, the more you go. And we can give you examples of that happening right now. And the third thing is the ability to give your customers, mainly fleets, the comfort that they can count on you to scale up, because they would be hesitant to scale it up based on a new company if they can't see it through. Because in commercial fleets, when an OEM comes in and it works well, it's usually 10 to 15 year programs at least, and you have to show them the ability to scale. So we understood that, and we saw all of our peers hitting that wall, and we chose, you know, it's easy to say retrospectively after we announced, but we chose to leapfrog that production. We said that maybe we just leapfrog. And how do you do that? You partner with an 800-pound gorilla that has the scale, the capacity, and the stability to do it for you. And that's what I think we announced a month ago. We partnered with a company called Motherson.

They're global now. They have more than 400 plants in 44 countries around the world. They're just under 200,000 employees. They're one of the world's largest tier-ones. They're BMW's largest supplier, as an example. They're huge. And the relationship with them is that they're taking our entire supply chain. They're going to manage the supply chain and manage our production, because this is what they do best. And that's how we get the economics of scale of a company of almost $20 billion in revenue and $80 billion or something in backlog. That's how you get the payment terms, the unit economics, and that's what gives our customers, and we know for a fact because that's the feedback we've been getting, the customers now are far more comfortable counting on us to scale up. Right now, in addition to that, we also announced that we've nominated Roush out of Detroit to assemble the full vehicle in America for us. So the corners, the REE corners, the by-wire, is going to be manufactured in the UK in our plant there. We have ample capacity, shipped into the US, where everything is going to be assembled into the P7 truck that you've been in, by Roush. Roush is a renowned contract manufacturer in America. They work with everybody, and we kicked off the production there earlier this year, and we're hoping to roll out the first truck by this year.

Yes, yeah, absolutely.

That's going to be in the next phase when we want to bring the UK capacity into America. So when we're going to run out of capacity for the corners in the UK, we're going to move it or add more in America. And you have that property or whatever in Austin set aside for that. Okay, so that's we're building everything we need so we can. And Ellen, I think this is one of the key things that characterizes us, is we grow with the demand. We don't believe in 'if you build it, they will come.' Right? It was a great movie, actually, not sure it was a great movie, it was a movie. It's a good movie. Yeah, but it doesn't work in real life. It's more important for us to be able to ramp up with the demand and not to allocate too much CapEx and OpEx and expenses and then have inventory laying down. So we make zero trucks for inventory.

So like four months ago, five months ago, analysts and investors asked me during one of our calls, what's missing for you to take off? And I said two things. We will not go into production without the working capital secured to see it through. We're not going to start and then like Tarzan, leap from one branch and hoping to catch the other, because that's not a good recipe for success, I believe. And second is we need a production ramp-up capacity. So we talked about the production capacity, and alongside with that, we also announced a $45 million raise that, very interestingly, we've done without any bank. We did it ourselves, led by our largest investor, which is M&G, which is a half a trillion, around half a trillion dollars of assets under management, who continues to increase their share with us, and they're a shareholder in many automotive companies, including Motherson, by the way. And that capital, I believe, would be probably the last dilutive money we will be raising in the near future. It simply secures our needs to execute our plan and go to production. Now we can not only kick off production, but we can see it through, and that's super important for our customers, because they're not interested in us building a few tens or a few hundreds of trucks. They want us to scale up, because they're counting on us.

So we just reported last month in our earnings call that our order book continues to grow. It grew 15% more, now reaching $60 million, where most of the industry is actually slowing down. So the demand for most EVs is actually slowing down, and us, we continue to grow. And I just saw somebody sent me a cool picture somebody put on, I think on Reddit or something, of the demo truck we gave to Penske somewhere driving, I don't know even where. And I saw a different truck of ours at a university, I think, in America somewhere. And somebody sent me a couple of our trucks on the West Coast, and you started to see them running there. And it's very interesting that people post it because it doesn't have the REE logo, there's no OEM logo on it.

Exactly. We want to be the Intel inside for automotive.

Well, as I've always said, we under-promise and over-deliver. There is a P7 truck, which is the only platform in the world that is not only allowed, is actually driving autonomously on airports in Europe, run by Airbus. So we have a program with Airbus where they're running REE P7 with their autonomous algorithm later on, in order to be adopted into their airplanes, into the A350, which is massive. It's a different market for REE and our truck. Airbus, I think a few weeks ago, published the first ever fully autonomous vehicle driving on a tarmac and on a runway next to airplanes. Because think about it, the cost of hitting an airplane, damaging an airplane, is tens of millions of dollars, if not more, and it's catastrophic. It's not just you ding something. And it's a very hectic, very busy airport in France, and we're the only one doing it.

Thank you so much for having me.