EXRO TECHNOLOGIES INC. (EXRO-TSXV)
Auto Parts
Michael Glen, CFA | 514.687.5970 | michael.glen@raymondjames.ca
Sheldon D'souza, (Associate) | 416.777.7116 | sheldon.dsouza@raymondjames.ca
Heinzmann Update Outlines Commercialization Plan; Milestones Well Defined; Grow in Importance
Exro management has provided investors with a fairly detailed timeline of milestones and events to take place through the balance of 2021 (Ex 1). Such milestones include: 1. Additional deliveries of pilot/demonstration product (Heinzmann, Zero Motorcycle, SEA Electric), 2. Test results from pilots already shipped (Potencia + those mentioned above), 3. Additional commercial agreements with smaller electric vehicle OEMs (i.e., similar to that announced with Land Motorcycle), and 4. Perhaps the biggest of them all, the potential signing of a large strategic (Tier 1 supplier/OEM) partner in the automotive space before the end of 2021.
From that perspective, we would view the update provided this morning with respect to Heinzmann as exceeding our own expectations. Specifically, our expectation on Heinzmann was that we would see the shipment of a pilot product to the customer. Instead, what we saw this morning was an announcement regarding the validation of Exro’s 100V Coil Driver system alongside a Heinzmann motor. Specifically, this means that the motor works and delivers the expected torque and power results. Most importantly is that in conjunction with this validation, Exro and Heinzmann will now look to commercialize the integrated Coil Driver / motor solution during 4Q21, with first revenue expected in 1Q22. Our understanding is that the product will cover the micro-mobility market, namely electric bikes and scooters.
ANNOUNCEMENTS GROW IN IMPORTANCE THROUGH 2021; APPLICATIONS EXPANDING
What is even more important is that the news items anticipated through the balance of 2021 grow in importance. We are specifically referring to the proof-of-concept (PoC) expectations associated with Potencia and Zero Motorcycle, and that to come with SEA Electric during 3Q/4Q. In particular, the validations for the 400V and 800V Coil Drivers during 3Q/4Q (designed for larger light vehicle platforms and the commercial truck market) are quite meaningful events, that we believe set the groundwork for the signing of a large strategic partners before the end of the year. As we have described previously, this particular event, the signing of a large strategic partner, stands as a very significant potential catalyst for Exro's stock. It would not only provide strong visibility on revenue growth, but would clearly confirm the functionality and benefits that the Coil Driver provides and serve as a massive de-risking event.
DEFINED MILESTONES WILL REPRESENT THE TRUE BENCHMARK TO GAUGE SUCCESS
We recognize that Exro's stock has continued to see pressure since the publication of a report on Seeking Alpha earlier this month. We found Exro's response to this report as rapid and thorough, with management stepping immediately in front of investors to defend the company, and no wavering from any portion of the executive management team including the Board of Directors. Unfortunately, we recognize that there was considerable damage done, and we know that investors can have very long memories when it comes to this type of event. At the end of the day, the best way for anyone to gauge the viability and success of this company will come via commercial agreements, strategic partners, purchase orders, and revenue generation. Fortunately, we have a detailed timeline from Exro for this to occur, and we view the news release this AM as a strong signal that the company remains on track to hit those milestones previously identified.
CANADA RESEARCH PUBLISHED BY RAYMOND JAMES LTD.
MARCH 25, 2021 | 10:29 AM EDT COMPANY BRIEF
Strong Buy 1