“We want to be the agnostic arms merchant to the fiber optic industry”
– Kevin Kalkhoven of Uniphase to David Schneider in 1996
Q2 2021 hedge fund letters, conferences and more
Investors seek similar situation for the electrified mobility industry
Form Factors for Electrified Mobility
Form factors include buses, motorcycles, snowmobiles, off-road vehicles/trucks from small to very large passenger vehicles and boats.
Highlights of Company Capabilities
- Its technology advantages:
- Agnostic to battery chemistry, work for all segments (buses, RVs, motorcycles, snowmobiles, off-road vehicles/trucks and boats)
- Implementation can reduce number of parts in the vehicle, save money, reduce weight, improve reliability
- Increase efficiency of motor/battery system for better driving performance
- Increase miles per charge regardless of form factor
- $ content per vehicle correlates with size of vehicle
- Large and growing patent portfolio
- Implementation of their technology by one player in a segment would create a step function improvement in the vehicle, forcing competitors to adopt their technology or cobble together alternative
- Company Leadership – Pedigrees from GE Motor, International Rectifier, Siemens, Ballard Power, Ford, Audi, Volkswagen, GM, Vision Marine (electric boats)
- First commercial revenues likely early 2012 with motorcycle form factor
- First pure play creating an “ecosystem” of electrification subsystems that work together
Company Financials
Method for guesstimate of future numbers:
- Estimate gross profit per unit encompassing all form factors from electric bike to trucks
- Assume outd manufacturing for scale, subtract a high amount for corporate expenses, apply a tax rate and assume we are looking at 2025
- Assume free cashflow = net income annually.
* Far left column assumes units sold globally, company has enough cash for next 18 months
Exro, A Pioneer In Mobile Electrification
- Exro Technologies Inc, traded in Canada as TSE:EXRO and bulletin board in US as OTCMKTS:EXROF with a market cap of US $310M
- The product is the coil-driver
- Its technology
- Partnerships
- Land Motorcycles: for next generation models
- Zero Motorcycles: for next generation models (Zero is also partner of Polaris for next generation of Polaris electrified vehicles.
- Templar: Boating application
- Aurora Powertrains: Snowmobiles
- Clean Seed Capital: Farm Equipment
- Sea Electric: Fleet (truck) Vehicles
- Heinzmann: Auto, truck, e-bike motors Heinzmann is a tier 1 auto supplier
- Vicinity Motor: Buses
- Potencia Industrial (Mexico): Industrial and automotive
- Linimar Corp: Auto parts
Advantages Of Exro Technologies
- From the point of zero motion to moving, you need torque
- As you get closer to cruising speed, the need for torque drops and you just need to maintain that speed.
- Encounter a hill, you need torque again.
- Exro has created a system that manages that relationship between torque and speed
- This optimizes torque and speed to maximize the efficiency of the motor, and in turn reduces the needs on the battery.
- Using the coil driver replacesmechanical parts, reduces weight of the vehicle, increases miles/charge, reduces cost
- Lighter vehicle = more range, better performance
- Because Exro reduces the cost of the finished product, they have a pricing umbrella that should give the company premium margins in an outd manufacturing model
How Does The Coil Driver Work?
- The product consists of electronics in a box that is software driven.
- They change the coil configuration of the motor on the fly, with the inputs based on vehicle weight, grade of the road, and need for acceleration.
- The technology has the greatest impact on the largest vehicles and/or those dealing with a terrain such as hills and valleys, and situations with the biggest torque ranges.
- This makes sense, a reason why they are working with an ATV and snowmobile companies.
- Another great example for Exro technology is buses. The weight varies with number of passengers, lots of starts and stops, and have to navigate with slope and terrain. Garbage trucks and UPS type of delivery vehicles also.
Additional Functionality
- Exro received new patents in July, 2021 for a new capability
- Electric vehicles (EVs) require 3 different types of power electronics to power the vehicle in motion and charge the batteries:
- A motor drive, on-board charger and external DC fast charger.
- The coil driver can replace all 3 components, reducing cost and complexity of deploying EV’s and simplifying the required infrastructure for charging. Just another example of reducing complexity of the vehicle, pulling out costs.
Business Potential
Business potential:
- No partner company has gotten an exclusive deal with EXRO – example they are working with 2 motorcycle companies (ZERO Motorcycles and Land Motorcycles).
- In an interview with CEO of Polaris (2’50” of the below link), he mentioned partnership with Zero Motorcycles.
- Anybody make the connection of where ZERO is getting their next generation technology from? Apparently not.
Will It Sell?
- You are in the market for an electric car, boat, or motorcycle.
- You are having a tough time deciding between two brands, one with Exro, another without.
- With Exro inside, you realize: 20% more miles per charge, charge at home most of the time, fewer parts so more reliable. – clear competitive advantage.
- When the adoption of the technology gains traction which in my opinion will be mid 2022, investors won’t care if the hockey stick of revenue and earnings takes off in 2024 or even 2025.
Hurdles To Adoption And Commercialization
- Coil Driver needs be perfectly connected to the motor, need to test, test, and test.
- New Kid on the block intersecting with big fish with “not invented here” syndrome.
- OEM’s and Tier 1 suppliers may have existing multi-year supplier deals that need to expire before introducing EXRO application
- First commercialization will be with nimbler OEM’s that produce motorcycle, off road vehicles.
- Established Automotive OEM’s due to supply chain logistics are already locking down model year ‘23, so even if an OEM signed with Exro tomorrow, earliest we would see Exro in a major brand vehicle would be ‘24 models. But, I would not be surprised to see a major name come onboard in the next 6-9 months.
Investment Summary
- The elimination of heavy moving parts creates instant cost savings for an OEM.
- This translates to an increase in overall reliability, and should an issue arrive with the Exro component, it can be easily accessed and/or diagnosed electronically.
- In one video on YouTube, an electric bus company said they will be trialing EXRO at the end of this year and they expect a 20-30% increase in miles per charge.
- Lithium: With the world fixated on access to lithium and as the price of lithium increases, there will be more focus on optimizing the electrical system. As the lithium price rises, a technology that allows for fewer cells/battery pack should be welcomed.
- Charging Stations:
- Companies are building out recharging stations all over the world. Why not do it at home?
- With Exro built into the vehicle, you will be able to plug your vehicle into a regular 115v outlet.
- With the increased range of the vehicle between charges, you won’t need to go to an outside recharge station unless driving a very long distance. A great selling point for an automotive OEM.
Company Financials 2025
*Far left column assumes units sold globally, company has enough cash for next 18 months
- Based on $662 million net income on 3 million units, 130 million shares = $5.09 in EPS.
- More conservatively cut it down to $4.00 in EPS, push it out to 2026 earnings.
- Current stock price = $2.25 and Exro has enough cash for 18-24 months.
- News of an OEM deal could move the decimal point on the stock price at which point I would hope they would issue 2-3 million new shares. That would be all they need until the cash starts to roll in.
- But Exro could get cash up front in signing a major OEM on a non-exclusive license deal, reducing the need for any equity offering.
Battery Control System (BCS)
- Exro also has a Battery Control System for use when battery packs reach the end of their life.
- They optimize the batteries for use as energy storage systems. Energy storage system can be grid connected and/or used as a backup power supply for business and homes.
- They are targeting commercial launch is 2022.
- They are doing a demo at the North American Battery Show on 9/14
- Incorporation of any upside from the BCS is icing on an already target rich cake.
– Valuewalk