REE Automotive Ltd.

good day and thank you for standing by welcome to the re automotive fourth quarter 2023 full year financial results at this time all participants are in the listen only mode after the speaker's presentation there will be a question and answer session to ask a question during this session you will need to press star 1 1 on your telephone you will then hear an automated message advising your hand is raised To withdraw your question, please press star 1, 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kamal Hamid, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and thank you all for joining our fourth quarter 2023 conference call. We hope that you have seen our press release and shareholder letter issued earlier this morning at investors.ree.auto. If you haven't, I encourage you to review it as it has additional insights into the topics we will talk about on today's call. I would like to remind you that today's call may include forward-looking statements. Any statements describing our beliefs, goals, plans, strategies, expectations, projections, forecasts, and assumptions are forward-looking statements. Please note that the company's actual results may be different from anticipated by such forward-looking statements for a variety of reasons, many of which are beyond our control, such as the ongoing military conflict in Israel. Please refer to the company's Form 20F filed today, March 27, 2024, with the Securities and Exchange Commission, which identifies principal risks and uncertainties that could affect our business, prospects, and future results. We assume no obligation to publicly update any forward-looking statements except as required by law. In addition, we will be discussing or providing certain non-GAAP financial measures today, including non-GAAP net loss and non-GAAP operating expenses. Please see our shareholder letter for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures. I will now hand the call over to Daniel Burrell, our CEO and co-founder.

Thanks, Kamal, and thank you all for joining us today. 2023 was a pivotal year for us. We achieved key milestones in line with our original timeline and de-risked our go-forward path, all while keeping true to our vision to expedite and solicit the electrification of commercial trucks through a white-label approach. I'm happy to report that much of the heavy lifting is behind us, on the path to commercialization. With a clean sheet design and unbound by legacy thinking, our full-by-wire technology is mature. I'm proud to say that we have created the world's first FMVSS-certified full-by-wire electric vehicle, allowing us to advance the state of the art in the medium-duty commercial vehicle space by orders of magnitude. compared to other EVs and ICE offerings. We continue to push the boundaries of our product testing vehicle dynamics and operations, having successfully conducted our second consecutive year of winter testing under extreme weather conditions. We have also made significant progress on the business side. With the strong demand we see, our order book value grew by more than 900% year over year, and now exceeds $50 million. And our dealer network continues to expand to 66 points of sales and service in the U.S. and Canada. With CARB certification and the U.S. EPA, our P7C customers are eligible for federal and state incentives of over $100,000 per vehicle. Our first vehicle was driven off the line and has been upfitted with an uphide body and delivered to one of our largest commercial vehicle dealers in the country. With the first customer deliveries to our demo fleet completed and more on the way, we plan to advance towards scale production later this year while remaining focused on our business plan and the P7 lineup. Alongside our significant progress, we remain financially disciplined with a 25% year-over-year decrease in cash burn with tooling investment for the re-corners deployed. We ended the year with $86 million in cash, cash equivalents, and short-term investment, including a $15 million credit bank facility. Confident in REIT's bright future, our largest institutional shareholder, M&G, has led two successful capital raises for a total of $24 million alongside existing and new investors. And I thank them for their ongoing support and trust. With those behind us, we continue our effort to secure in advance the necessary working capital needs for our first phase of production of low hundreds of trucks. As we remain disciplined, And with current market conditions, we decided to temporarily postpone the remaining production tooling investment until we raise the additional required working capital for our production plan. We target completing the remaining tooling investment by mid-year in order to scale up production in the U.S. as we build against committed orders and not for inventory. This strategy ensures we do not exceed our available capital by aligning orders flow with production plans for greater capital efficiency. 2023 was a pivotal year for REE because of what we have achieved and because we've accomplished it together, despite many of us facing significant geopolitical instability. For that, I am so very proud of each of our great people at Team REE. With that, we'll open up the call for questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Thank you.

We will take our first question. And your first question comes from the line of Michael Schliske from DA Davidson & Co. Please go ahead. Your line is open.

Yes. Hello. Good morning. Good afternoon. And thanks for taking my question. I want to ask first about the tooling investments. I guess first, when you do get them, will they be the exact same tools you had before? You know, I just want to make sure that the folks who are selling you these tools, I guess there must be some kind of suppliers there, you know, are you having any contractual changes to what you have to pay them or the payment schedule if you change the dates, even put to the back of any kind of line of other people who need tools, et cetera. I just want to make sure that when you are ready for it, you'll get them at the exact time that you need them still, even though you have to push back that date.

Yeah, sure. And, of course, first and foremost, good morning.

This is Daniel. Josh, why don't you start, and I'll continue from there.

Okay. Yes, hi, Michael. Hey, good to talk to you again. So, yeah, so to answer your question, we're still targeting ahead of our tooling in place by the fourth quarter. So what we're doing, we're progressing with our previously shared two-phase manufacturing approach, and it's related to our – it's related to the tooling investment as we're in the final stages to nominate the CM in the U.S., okay? So the tooling for the corners has already been deployed, obviously. And then what we're doing, we're targeting to complete the remaining investment, approximately $10 million by mid-year. And this is in sync with our capital raising plan. So this will still allow us to scale production in the US with our contract manufacturer by the end of 2024.

Does this answer your question, Matt? Well, yes.

So I just want to make sure there's confidence that you'll get the tools when you need them, even though you've changed the date. Have your suppliers indicated that they are ready when you are? Or are you, okay, so that hasn't changed.

Yeah, we work naturally together with them, so no surprises.

Okay, perfect. Then I also want to touch on some of the results of some recent trade shows. We had the big work truck show. There's a couple other more regional trade shows that have taken place the last few months. I'd be curious, you know, of the large fleets that are out there, maybe it's a half dozen or a dozen of them that could be TKP7 platform. Just give us a sense as to how that went. Did you come out of these shows with any major new orders? I know you have a higher backlog from necessarily from dealers in certain fleets, but did you get anybody new on the roster we should be thinking about here? Even if we can't name names, just curious, you know, do you have new levels you could add to like a slide if and when you're allowed to reveal who these customers are?

Yeah.

Those shows have been very successful for us, and we've seen very strong demand there and had a very, very busy booth and a lot of positive meetings. Regarding the fleet that you mentioned, We have seen strong interest from leading fleets as well, and I think it's important to recognize the fact that the demo program is designed exactly to do that, to give those fleets the ability to try out our vehicle, the P7 lineup, and to allow them the confidence to nominate us as an approved supplier to them. So, I think, in short, the answer is to your question, yes, we have come up with new opportunities for that show, very interesting discussion with many of the fleets and other dealers. And maybe I'll let Tali, our chief business officer, continue.

Yes, hi, good morning. So, first of all, yes, very strong demand and high interest. We also shared the growth in committed orders for the end of the serial order. So this translated into orders. But in addition to this, through the demo program, and we have initiated the delivery of vehicles in the low volumes, we are going to see additional fleets that showed already interest in trying those demo units following the events they saw. And we expect this to convert into scale orders from those fleets. Specifically, we are going to demonstrate the vehicles to multiple leading fleets to include, for example,

friends bakery canteen the city of San Jose and others okay I'll leave it there guys all the best thank you so much thank you thank you we will take our next question your next question comes from the line of Jeff Osborne from TD Cohen please go ahead your line is open

Thank you. Daniel, I was just curious on the $50 million order book. That's great to see. How much of that is exposed to California? Can you give us a perspective there? Is that more than half?

Hey, good morning. That's a great question. I'm not sure I have the answer top of mind here. Let me look into the numbers. But the majority of our orders is not linked to California, to that aspect. We see demand across the U.S., but to your question linking it to our recent CARB, California Air Bureau certification, I think that gives us a very strong, you know, tailwind in California in general, but also in the other states that support California or adopt the CARB program. certification mainly around incentives, right? CARB recently that we announced unlocks more than $100,000 in incentives per truck for our customers. So our customers basically see now with CARB more than 70% of the cost of the truck covered through both federal and state incentives. And I think this is great. We work very hard to do so, to come so, and I think California is, of course, leading it. And as we said earlier, in earlier calls, having California dealers and CARB is important for us. Tali, do we have numbers on how many?

Specifically from California, it's approximately a third.

Got it. Thank you, Tali. And then how should we think about, you know, you mentioned adding capacity in Texas as capital permits. How should we think about sort of the cadence of production? Is it a bit more, you know, maybe front-end loaded in the spring, 1Q, 2Q, and then 3Q is a bit of a transitional quarter as you move from Coventry to Texas, and then you would hit the ground running, so to speak, exiting 4Q and into 2025? I know you're not giving official guidance on how many units you expect to produce and sell, but... Just trying to understand the sort of slope of production through the year.

No, no, that's a great question. Josh?

Yeah, put some color. So maybe for this year, it's a little, like you said, it's a little too early for us to answer the question of how many we'll deliver. But as we said in the shareholder letters, the tooling and the investment for the recorner has already been deployed, which we said we will continue to build those in the UK. We don't want to overinvest. We don't need to. So we have plenty of capacity there. And then we, again, we'll bring the remaining tooling online for the rest of the vehicles. and scale up the production up to low hundreds of the vehicles in the U.S. by the end of 24. But again, the plan is linked to us completing the working capital needs, right? We're not going to spend too soon. So we want to make sure everything's tied perfectly together.

So basically, Jeff, we will continue delivering strategically quantities to our dealer, to the dealer, to the demo program from the U.K., It's full vehicles that we've been started to do earlier this year, right? We already delivered a few trucks to customers this year, one of which people got to see in NTA, Indianapolis, and now these are on the way. And the reason we're using that approach, sorry, and then, of course, Once tooling comes online and the contract manufacturer is up and running, we'll move to the U.S. for full assembly production and continue the production of the corners from the U.K. But the reason we're doing this and the reason for the demo program through the dealers is that, you know, our dealers provide us with a flywheel effect, right? These dealers have a large geographic footprint and, you know, longstanding and trusted relations with multiple fleets. uh in their service area some of those relationships are are decades old right um and um each vehicle we deliver uh will be demonstrated to multiple fleets uh now we we believe speaking to our dealers and to those fleets and others that this will result in follow on scale orders so the idea is that we want to start this process early or we have started this process early not waiting for the serial production to come online later in the year and we will be producing strategically amount of vehicles out of the uk until that comes online makes sense if i get a squeeze in two quick ones here should we think about the uh the quarterly expense rate so not the capex but the operating expenses should that stay about the same as the current level uh throughout 2024

And then Daniel, if you could just make any brief comments on the readiness of your financing and charging partners that you've laid out to meet the demand exiting 2024 and into 2025.

Yeah, maybe we'll start with the first financial bit. Yaron? Yeah, I should take it. Yeah.

Hi, good morning. So I think going forward for year 2024, we should keep seeing actually decrease in order cost. What we're planning to do in year 2024 is to continue the path that we started in year 2023, where it's including decreasing in our operational costs. In year 2023, we decreased our costs by roughly 25% compared to year 2022. And going forward, this process should continue also. And I think we'll also have another decrease of roughly 25% in our burn rate in year 2024.

That's a burn with the CapEx and the OpEx combined.

Yeah, that is correct. That is correct. So I think roughly we are speaking about $5 to $6 million per month in average. It will not be splitted on the same rate over the quarters, because in H1 probably we'll spend more as we need to complete the tooling and the NRE expenses. And then going to the second half of the year, it will go down dramatically.

Got it. Any brief thoughts on the charging and financing partners you have, Daniel?

Yes. So on the charging front, we're working with several charging partners, one of which is, of course, Hitachi, Hitachi Power, that has very interesting and very compelling offering of large-scale commercial-grade charging infrastructure. I think recently they've announced something around that with Penske, which is interesting to look at. And we work with others because some are, you know, are asking for other solutions, more local solutions. And also on the outfit, it's super important, right? I mean, we showed how we work with NAPI and, of course, you'll see other Upfitters that we work with, NAPI were very happy, of course, with the process, mentioning that they were able to complete the marriage of the chassis and the body within less than three days, which is a record for them, because of the ease of design for RE. One thing maybe important to know here, Jeff, You know, we build to order. We don't build for inventory. Therefore, we make sure that when we start building for a customer, we make sure that they have the outfit ready, the infrastructure, the chargers ready, everything ready to receive the vehicle. And I think this is key for us because we're not building for inventory. And therefore, we don't get stuck with, you know... with inventory or with postponed pickups. We deliver only to order, and we make sure that for all of our partners, they have everything they need in advance of us delivering the truck so the truck arrives and directly goes into service. And we will continue to be very prudent on that approach.

Perfect. Thanks so much. Pleasure.

Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question. Your next question comes from the line of Craig Irwin from Roth MKM. Please go ahead. Your line is open.

Good afternoon or good morning, I guess, for those of us in New York. Can you please talk about the order book? I should say congratulations on the continued strength there. building that out. What is the approximate head count, the number of individual dealers and fleets that have placed orders with you? And, you know, if you could maybe talk about how this could potentially be delivered. Do we have a couple units up front from one of the fleets followed by follow-on orders? And, you know, how... How much of that, I guess, would be sort of, you know, first unit versus follow-on, I guess, is the question.

Yeah, hey, good morning, good early morning over there. So, for your first question, we currently have, we see strong demand for our biore and for our technology for the BioWire and our Current dealer network now covers 66 points of sales and service. I think one of the largest for EVs in the country. And we do this through 20 dealers, both in the US and Canada. And that gives us a very broad footprint across the whole US and parts of Canada. And I think what we see in the commercial market in terms of demand is is interesting uh because it's it's different than passenger uh demand and and how you deploy passenger vehicles in in in that segment maybe tali you can add more color on that uh yeah sure uh good morning um and thank you for this question it's a it's uh it's a strong question so first to add on uh daniel's point the importance of having these 66

service points allows fleets to receive service across U.S. and Canada, which is what fleets are looking for, and this is very important for us to achieve. Second, we see with respect to the demand, unlike I think what we see in the slowdown of the demand on the passenger EV, we do see a continuous and actually growing demand in the mid-duty class 3 to 5 EV space that this is the space we currently serve. We believe this demand is driven by several reasons. For several reasons, of course, the mandate and very strong incentives, both federal and state. They are very strong. The zero emission goals are very important for fleets. And of course, the TCO advantages of electric vehicles versus ICE vehicles. And moreover, I would say that from a charging infrastructure perspective, which might be a complex one on the passenger vehicles, the space we are at, the mid-size duty, and also the feedback of the fleet we work with, actually the cycle, the driving cycle is short, so basically the driver would start in the morning, end in the day, end at the end of the day, and charge at the depot. So from the charging infrastructure is easier for them to be served.

And to your last point, yes, I think your approach to how to roll out the fleet is correct. We are starting to ramp up later on the year, and then we will start providing a few trucks to every fleet and then ramping it up through 2025. when we ramp up towards the low to mid thousands of vehicles in production. I think it's very, very important to deploy a few, to run the demo program, receive the voice of the customer, which we are very attuned to, and listen to any changes or modification they still want, although we've been developing those vehicles together with them for a long time. So this is why you see the high level of satisfaction there, but we always remain attuned to the voice of the customer. So we would like to explore as many fleets as possible to our vehicles in the coming months, providing them, you know, with vehicles and then ramping them up towards 2025. Understood.

Thank you. So, Daniel, we had an opportunity recently to meet with the customer that took your first commercial delivery of vehicles. of a commercial vehicle here in the US. And they're obviously very big supporters. Actually, we got to tour the vehicle with them too. So it seemed to generate quite a lot of excitement. Can you maybe share with us what you're learning from these early deliveries? What are customers saying? Is this maybe shifting your understanding of what the priorities are for investment and purchase decisions on the part of customers out there. What are you learning from these early deliveries?

Yeah.

It's a great point because, as you mentioned, we had the chance to talk to a customer, to a very large customer. And I think it's key to hear from them. And I think what we're learning from the first deployment is, first and foremost, that we get an overwhelmingly positive feedback. for the design, for the spaciousness and the ergonomic advantage of our cabin, of the low floor, the very driver-centric cabin that we offer, and the performance of the truck. That's one. Second, a lot of the fleets like our ability to work with multiple upfitters and to offer multiple applications for different use cases due to our modularity approach and low flat flow. Another point that they all mention is the data we have to back the offering. For example, the extensive winter test that we just concluded for the second year in a row. So, for example, we don't have to guess what is the range in extreme conditions, you know, like minus 30 degrees, and what is the performance, which is good, just saying. And, you know, I think all of that, the ability to provide data behind our trucks and to showcase the offering, And that leads to our customers being able to calculate their future going TCO expectations. And it makes them easier, make the transition towards electrification easier for them. Last but not least, of course, chargers are very important. And as previously asked, we're working closely with charging partners to ensure that they have the adequate infrastructure to support the trucks.

Excellent. The last question, if I may, is actually a pretty basic question. FMVSS, the Federal Motor Vehicle Safety Standards Certifications, is this a gating factor that is necessary for commercial deliveries? You know, how long did it take you to achieve FMVSS with your certification partner? If someone was to start today, you know, is it logical for them to take a similar amount of time with, you know, a different technology or a competing technology? You know, if you could help investors understand a little bit better the significance of FMVSS and, you know, how this is such a big accomplishment.

Yeah, of course. I mean, it is a huge accomplishment, first and foremost, because we were the first We still are the only one in the world to be able to certify and put on the road a fully bi-wire vehicle. There are some vehicles out there that are partially bi-wire, like mainly steer bi-wire, like the Tesla Cybertruck, right? And we see more and more OEMs trying to adopt more and more bi-wire technology slowly. because it's a very heavy lifting to do by wire, especially when you do a full by wire, therefore redundancies and control and stability and maturity of the software is critical. So definitely we see more and more players out there like Tesla, like Lexus and other that offer partially by wire system and around steering, but we are the only one that have been able to do a full by wire vehicle. And it took us years, years of testing and validating the technology. And it's not just the hardware, mainly, as I'm sure people understand, it's mainly around software and running algorithm and AI and others to ensure that we have all the abilities and the machine learning needed to run in real time our Biowire capabilities with all the redundancies. And as you fairly mentioned, once we decided to take it to the market, you can't put a vehicle in the US without FMVSS cert and EPA, by the way, but the FMVSS cert is a critical one. And we decided to go and pursue this with a third party that helped us to ensure the validation process correctly and run those tests uh in a manner that is is as perfect as possible right um because it because being the first one we believe that it is critical to to ensure a very high level of of performance um should anybody else try to do it i mean i'm not sure that the phrase shoot them i mean everybody should and i think they are all trying but i think currently we with fmvss we opened a gap in size of magnitude with everybody else in the industry being able to do that. And keep in mind that as more of our trucks are on the road, the more data we collect from our Biowire system. And that allows us to improve it even further. And one should assume that everybody now saw the first version of our corners and our Biowire technology. But we've been working on Biowire for 10 years now. So one should assume there is far more coming in the future.

Excellent. I'll take the rest of my questions offline. Congratulations on the progress.

Thank you so much.

There seems to be no further questions. I would like to hand back to Daniel Barra for closing remarks.

So I want to thank everybody for taking the time and joining us today. I want to thank our investors for their strong, great support. And I want to say thank you again for everybody on Team Re for a phenomenal, phenomenal year overcoming so many challenges and driving strong results. Thank you, everybody, and stay safe.

This concludes today's conference call. Thank you for participating. you may now disconnect.