Exro Technologies (EXRO.TO): Merging with SEA Electric

Creates accelerated platform for Coil Driver implementation

Chris Feltin

Jan 30, 2024

Event Highlights:

Today (Jan. 30/24) Exro announced it will merge with SEA Electric. Exro will be the surviving entity and continue to trade on the Toronto Stock Exchange under the ticker EXRO. The transaction is expected to close by the end of 1Q24. (Link to News Release)
Total Deal Value is US$300M (C$402M). SEA shareholders will receive ~153.8M Exro common shares plus 168.7M Exro non-voting convertible preferred shares.
Concurrently, Exro will be raising US$22M (C$30M) via the issuance of subscription receipts with a purchase price of C$0.95. The Sub Receipts allow for the purchase of one common share of Exro (plus any dividends declared, if any, prior to closing date). The equity issuance is on a bought-deal basis co-led by Canaccord Genuity and Eight Capital. The Underwriters have the option to further issue up to an additional US$15M (C$20M).
Sur Ozdemir will remain CEO, while Darrell Bishop will become CFO.

Our Take:

Solidifies Partnership. Exro and SEA Electric have been partners in developing high-voltage Coil Driver applications since August 2022 (Link). We see this deal as evidence both parties are comfortable with the near-term implementation potential for Exro’s Coil Drivers in SEA Electric’s product line.
Leverages Relationships. SEA Electric’s SEA-Drive propulsion technology (more below) is been validated and already in use by blue-chip OEM manufacturers such as Mack (Volvo) and Hino (Toyota). The integration of the Coil Driver with SEA-Drive provides end-to-end performance improvement for EV vehicles with lower total cost of ownership.
De-Risks Coil Driver Technology. We see this transaction accelerating the number of Coil Drivers being utilized by top-tier EV manufacturers. We see the key benefit of this as providing further credibility to the Coil Driver technology, which should improve future take-up by additional OEM manufacturers.
Accelerates timeline to Revenue and Profitability. One of the main push-backs to the Exro investment thesis has been uncertain timeline to Revenue Growth and ultimately positive EBITDA. The advantage of this merger for Exro shareholders is it provides visibility to Coil Driver growth in a market already established by SEA Electric. We suspect this timeline is considerably quicker than what would have been achieved by Exro on a standalone basis.
- Through our conversation with management this morning, they expect Coil Drivers in all SEA systems by 2025, and in Hino and Mack pilots over the next 6 months.

Sea Electric Website

An Intro to SEA Electric

SEA Electric is a private e-Mobility technology company originally founded in Australia, but now headquartered in the US. A quick overview direct from the company’s website is below:

The company’s initial push has been implementing its drive system for commercial buses and trucks in a number of industries.

Specifically as it relates to Exro’s Coil Driver, the SEA Drive system has a wide range of power options. As a reminder, the Coil Driver’s key benefit is improving the operating performance (torque and power) over a range of conditions to enhance performance of the batteries on these systems.

Exro facing negative EV sentiment of late

There have been a number of recent data points from the likes of Tesla, Ford and GM regarding weakening demand for EV Vehicles. Exro’s share price has weakened in recent months on weakening EV growth sentiment, in our opinion.

Today’s transaction highlights Exro’s Coil Driver demand is more likely to initially be driven by Fleet Vehicles, not the Passenger Vehicles seeing the negative press of late. We Fleet Vehicles as being more conducive for EV implementation for a few reasons:

centralized charging infrastructure
shorter driving distances
regulatory / government push to fund municipal applications of EV trucks and buses.

Additionally, starting from zero in terms of Coil Driver revenue, any growth in EV Passenger demand will be meaningful for Exro. The company already has a number of partnerships with OEM’s in the passenger space, and we expect more news on that front over the course of 2024. But in the meantime, investors should look more more tangible revenue associated with the SEA Electric merger.

Disclosures

4Front is compensated by Exro for the preparation of these materials. 4Front receives its compensation in cash from Exro. 4Front participated Exro’s equity raise in December 2022 and is currently a shareholder of the company.

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