Arcimoto Inc (FUV) 2019 Q4 法說會逐字稿

Good afternoon, everybody. I'm Mark Frohnmayer, CEO of Arcimoto. Welcome to our 2019 full year earnings webinar. I am going to, as we usually do, play a short company video and then dive into some slides before I open it up to questions. If you have questions, you can use the chat function in the Zoom interface, and there'll be an option to just chat with the host, and then I will be able to read those questions and answer them as they come in. So with that, let me press play.

(presentation)

So as you can imagine, it's been quite a transition, I think, for pretty much everybody in the world adjusting to the new reality that we face. So I'm going to walk through, again, sort of the high-level story of Arcimoto, talk a little bit about -- a little bit more detail on 2019 and then focus more squarely on what we're doing right now as we look forward to in the immediacy of the COVID crisis and then what we see as we go forward.

For those who are new to the Arcimoto story, the Arcimoto is really all about bridging the disconnect between the idea of the car and how we actually use cars. So the footprint of the car is giant, it covers -- average car is about 100 square feet of space, yet we typically use it to carry just 1 or 2 people going at relatively short distance with a relatively small amount of stuff. And that disconnect creates huge inefficiencies in our cities, it creates excess carbon emissions. And even when we look at the idea of the electric car, Arcimoto isn't just about changing out the drivetrain to something that's radically more efficient, but actually really looking at the footprint itself. So the ability to park 3 in a space, the ability to carry 2 adults comfortably, to solve the same trips that we solve with a much larger vehicle.

And then ultimately, that that will allow us to drive down the cost of those solutions into something that is radically more affordable than cars on the road today, than electric cars on the road today and so on. The vehicle market is a very large market that we're going after. And our approach, as you saw in the video, is to go after slices of the overall vehicle market that make a lot of sense.

So starting with daily transport, that's what our initial consumer product is all about: the Fun Utility Vehicle, last mile delivery with the Deliverator and then the Rapid Responder, focused on the needs and the transforming needs of emergency response. We -- one of our analysts described this approach as multiple shots on goal, which I think is a fair characterization, is that we have 1 production system, 1 production line with multiple products that all sit on that very same platform. So where we are selling them as individual products, the reality is that under the covers, they are really fundamentally 1 machine that about 90%, 95% of the parts between all the vehicles are the same, they're built on the same -- have the very same frames, the very same platform dynamics underneath. And so as we see changes in the marketplace, and I think that's particularly notable now that this is sort of like the equivalent of having a sports car, a pickup truck and an emergency vehicle as products, but that all are really very flexibly moved from one category to the next.

The big news, of course, for last year was the transition into production. Arcimoto has been working on this problem since 2007. And we -- so 2019 on the 12-year anniversary of our beginning and the 2-year anniversary of our public offering, we delivered actual retail production vehicles for the very first time. And that involved not just a tremendous amount of work to get through vehicle engineering, final product compliance, testing, but then building out all of the systems that we need to support vehicles in the field, to manage recalls and warranty issues after the product is shipped, take care of our customers and then build the full sales process for our customers coming online. So there has been just a phenomenal amount of work under the covers. And some of that work is actually still ongoing as we refine those systems from what we have learned over the first 6 months of production.

When we think about our market entry model for the Fun Utility Vehicle, we have focused on vehicle rental instead of vehicle -- sort of vehicle franchise sales. So our franchising is about rental franchises. And we -- in 2019, we also -- we've signed our very first rental franchise. We shipped rental vehicles to that franchise, and they have actually begun operations just immediately prior to the COVID-19 pandemic. We see this ultimately evolving. We think that the Fun Utility Vehicle actually makes a fantastic vehicle for ride-sharing, for vehicle sharing. So the vehicle-as-a-service model where you can grab a vehicle and go, we see that as a future direction for the Fun Utility Vehicle and for the rental market.

When it comes to unit sales, this is what we -- and this is going to be a little bit of a follow-on to what we projected late last year and then at the beginning of this year. We thought we would sell 42 units, I believe, in quarter 4. We ended up beating that by a small number. We ended up ultimately producing 57 model year 2019 production Arcimotos. So 2019 was also the year that we passed the storied Tucker in terms of vehicles shipped, one of the milestones that we had had internally for a very long time, as sort of one of the original tales of vehicle entrepreneurship.

And then in Q1, at the beginning of the year, in our stakeholder letter, I laid out goals for the first couple of quarters, launching the Rapid Responder and Deliverator pilots. We did both of those. We finished our 100th vehicle. We've made great progress down the cost curve on our push to per unit profitability and then ultimately to company profitability. And then also for quarter 1, we were shooting for 3 units per day as a build rate, and that was the one that we did not hit. We were going to step that up in the very last couple of weeks of March, and instead, we suspended our production line.

So the pandemic came upon us very quickly, although, of course, we had been watching it progress for at least a month beforehand, keeping close tabs on the spread of the disease. So we acted over the course of March to put in successively more stringent procedures within the facility for safety and cleanliness and so on. Then ultimately, when we had our first case here in the local county, we decided that we could not protect the safety of our workers in the facility at -- as it was operating. So we suspended general production activities.

And that is the state that we find ourselves in today. So we have -- the assembly line proper is suspended. We have launched our -- so our focus now is, first, just really pushing on the fleet story of Arcimoto. We launched both of our fleet product pilots last month. And those fleet pilots are now underway. And we now have the actual sales tools to go after fleet sales in a truly meaningful way. The early response, I think as you can see from the video, has been really phenomenal from our local folks at Eugene Springfield Fire. And as we made mention in our press release, we have -- and in the K, we have inked an agreement to pilot 2 Deliverators with a major national grocer. And we'll have a lot more to share about that once that pilot program gets underway.

I would say also the efforts that we have in terms of cost reduction are still -- those are proceeding forward at full steam. So our critical goals for this year are increased scale, decreased cost. In terms of scale, it's all about -- right now, it is all about planning facilities improvements and so on for a much higher-scale production. We are really in the thick of that. And all of that feeds into our application for the advanced technology vehicle manufacturing loan program through the Department of Energy.

For those of you who have been following along for some time, we have talked about that repeatedly as our ideal source for scale capital, and we are now at a point where we have a clear measure of our processes for assembly. We have shown how the Arcimoto manufacturing plant works, and that it is scalable in terms of those basic units of production, part cutting and forming, welding and so on. And so now we're basically doing all of the math and paperwork to show what production looks like at a much higher scale, at the same time that we are charging down the cost curve in terms of value engineering and material sourcing.

So we're expecting all of that to come together over the course of the next couple of quarters in terms of just really looking at the broad picture of the vehicle and the platform family to show the case for Arcimoto as a profitable, scaled vehicle manufacturing company, and laying in all of the other systems that we have now learned from everything from service and recall and warranty and sales to prepare for that next stage of scale of the company. So while the actual production line and a lot of the work that goes on around that is suspended, the main push of the venture continues forward. And in some senses, as we look at what has happened, we think that the actual product opportunity for Arcimoto has grown as a result of this pandemic.

We have also -- just in terms of basic blocking and tackling, of course, we have applied for the payroll protection program and the emergency disaster loan program. And both of those provide sources of much needed financing to move forward as the markets have been unpredictable.

So we have also -- we've not forgotten about our early Evergreen customers, those who have put down firm reservations for those first 100 Fun Utility Vehicles. This vehicle was actually delivered several days ago to a key customer, my mom, and she is -- it has certainly been heartwarming for all of us to be able to bring some joy to folks in these really challenging times.

So with that, I am going to go ahead and open it up to questions. You have a chat interface, and I will -- if you just message directly, then -- so one of the questions was -- over chat was, how do we ask questions? And the answer is, with the same interface that you just asked me that question. So go ahead and fire away.

So first question is, can you give a little more color on the grocer that plans to test the Deliverator? Are there milestones that the vehicle or Arcimoto must reach? And what size is the potential order?

So in terms of the size of the potential order, this is a grocer with hundreds of grocery stores around the country. The potential size of the order -- yes, what we're -- what I would say at the outset, what we're really looking for at this point is 1 or 2 sort of marquee fleet customers to anchor Arcimoto production scale going forward. So the organizations that we are focusing on now on the fleet side are -- we're really looking for orders in the thousands of units that would happen over time. And the goal of the early pilots is to give organizations that can make orders in that range an opportunity to really experience the vehicle and test the vehicle in the field.

And if you have been following along with what is happening with parcel delivery, with grocery delivery, with food delivery, those are the areas of the market that -- where you're seeing tens to hundreds of thousands of employees being added to the payroll to meet the incredible demand that the COVID pandemic has brought on. And that is what -- as we are looking forward, what you're seeing is you're seeing people, some of whom have never bought products on Amazon before, buying products on Amazon for the first time; tons of people who have never ordered groceries online, ordering groceries online for the first time. And we expect those patterns to continue well after the dust has settled simply because they are just radically more convenient ways to get things. And so once that initial adoption hurdle, you see it even with something like the tool that we're using right now. Arcimoto has been using Zoom for a long, long time, but now we're using it all of the time to communicate with just about everybody. And folks are finding that this new way of doing things is actually quite a bit more convenient than the way we were doing things before. So we expect that -- those trends to persist well after the pandemic ends and will continue to drive interest in the sales of those products.

Second question is, do we have an intended reopening date? Is it April 17?

We do not have a fixed reopening date at this point. When the stay-at-home guidance from the federal government was extended to April 30, we let our team know that we were going to be suspended at least until that point. But we're basically going to -- due to sort of -- take into account a variety of different data points to decide when the appropriate time to reopen production is.

The follow-on to that question was, can you give a sense of whether the suppliers are ready?

So this is not just an issue, obviously, of Arcimoto, but of our supply chain. I would say that we're in a relatively good position in terms of inventory on hand, and you can see that in the 10-K. So we can produce vehicles beyond what we have produced with the inventory that we have and that is available. But we're -- our main focus today is on putting all of the pieces together for the Arcimoto scale push story, that whole puzzle, both in terms of the financing push through the Advanced Technology Vehicle program, the planning that goes alongside that for production and then the firm sales pipeline that puts that whole story together. So I think what we're planning is to -- as this continues to unfold, we will have clearer guidance to offer. And I think that you can look to our -- both our ongoing press releases and then, of course, our earnings call for Q1. We should have a clearer picture at that point.

And I think the sense of the question also related to cash burn. We have dramatically reduced our cash burn as a result of shutting down production. And that, in combination with the -- with both furloughed employees having better access to unemployment benefits and our applications to the EIDL and the PPP, the combination of all of that puts us in a dramatically better cash picture.

Yes. So the next question was from Jim, and that was when we will reopen the factory. I just touched on that.

It appears -- so next question was it appears that we have new preorders in Q1. Yes. So we have -- quarter-over-quarter, we've had increasing net preorders for, I think every quarter going back to 2015. We have done really nothing in Q1 specifically focused on driving preorders. Right now, we have more than 4,200, almost 4,300 preorders. Those are for the -- largely for the consumer vehicle. And we want to make sure we don't get really any further out in front of our skis on consumer preorders because we're just -- we need to get the production pipeline pushed forward enough to meet demand before we really start driving additional consumer preorders. And where we see -- one of the real reasons for the focus on fleet -- large fleet orders is that that helps us really build the full production story, gives us more predictable, long-term unit delivery plans that then the consumer sales augment and synergize with.

So are you able to refine the production process even though there is no production ongoing, no trial and error available?

I would say, yes. One, we have learned a tremendous deal about the production process over the last 6 months that we need to catch up on in terms of engineering change orders, in terms of just station-by-station analysis of what we are doing currently. And so all of that is feeding into our next stage of planning. We're also looking at, again, how can we -- and part of this is in order to satisfy our Evergreen customers who have put down nonrefundable significant deposits on vehicles, is what can we do on a very slow production rate, one, to fill that piece of demand; and two, keep the pipeline going for R&D vehicles and for pilot vehicles for the Deliverator program primarily. So we're looking at that presently. That is likely to happen alongside or throughout the primary shutdown period.

So how much -- the question is just around cash on hand and plans to raise money. As I addressed in the presentation, where we see the immediate sources of capital are through the federal government programs, fully forgivable paycheck loan program. That application is in. Emergency disaster loan, that application is in. So we don't -- our -- the FUV stock took a beating alongside a big chunk of the market. And so we really haven't looked at the market as a viable source of capital for the near term. But the programs that are in place at the fed are really the ideal sources for us to go today. And then in terms of our scale financing piece, the Advanced Technology Vehicle manufacturing loan program is what we've been aiming for this entire time. And now we have a concerted chunk of time to really focus on getting that application in. We've learned what we need to learn in order to finish it. And so it's sort of all hands on deck on both the production and the finance side to get that application finished and submitted.

So question was, can you give more details on profit margins on each vehicle?

I would say that the profit margins have gone from atrocious at the beginning to just bad today. So we're still negative as of the -- when we suspended production. But we had about a 20% cost reduction from initial launch to March. The engineering and materials team has said that they are, and I think this is a direct quote, "Tripping over low-hanging fruit for cost reduction." This opportunity, again, gives us a window to continue to tackle the cost problem without building additional vehicles and without having the assembly line up and running.

Can we discuss what design changes we made based on early production and early warranty experience?

You can look for some of the details in our -- in the recall reports that we've already done, but there have been a whole host of optimizations that have gone on in the suspension system in terms of wiring, in terms of cabling. We have looked at our first -- and this is true of basically any new vehicle program, your first 100 vehicles off of the production line really are an opportunity to learn not just about the production process, but also what goes -- once you actually have a decent number in the field, what happens in the immediate term and then what happens in the longer term in terms of reliability. So we have made a whole ton of improvements to both the product and the production process that are -- that have been, in many cases, applied back to vehicles that we've already built, and that process is ongoing. And then, of course, those will affect new vehicles that come off the line as well.

A follow-on question was, there have been some recalls during Q1, products already shipped to customers. Were the number and nature of recalls within your expectations? And were the cost to repair them within expectations? Do we expect that cost as a percent of sales to decline over time?

The answer to all 3 of those is yes. So yes, we were anticipating that we would have recalls. We obviously did a ton of testing work before we shipped the production vehicle. We built 35 test chassis in the early part of 2019, submitted to rigorous durability testing, everything: salt spray, electromagnetics, seatbelt poles, you name it. But there is no substitute for actually building production vehicles and putting them in the field and the wide range of uses that people use. So those -- I would say, we were anticipating that we would have recalls happen, particularly stacked immediately after production launch and in the couple of quarters after production launch.

We expect that, over time, as those bugs get worked out, that we will see those happen with lower and lower frequency as we get more -- much more longitudinal data on vehicles in the field and as we address those early problems. So that will mean that the cost hit is not something that we expect to happen on vehicles as we scale up. These are all -- the stitch in time saves 9. We want to get all of these problems and wrinkles addressed while we have a relatively small number of vehicles in the field.

Question is, I'm most interested because of an order number is when the 2,000th vehicle may be delivered?

It is difficult to predict in this moment what our ramp is going to look like over the course of the next 6 months. I think that's going to -- there are going to be a lot of factors that go into that, including the length of the response to the pandemic, how long it takes suppliers to get spun back up. But we are still very much targeting higher scale production for next year. And in fact, we're expecting that that effort is going to be more focused now in terms of building the pieces that need to be put into place for that. So I'm not going to give any specific guidance, but I -- in terms of what day the 2,000th vehicle will come out, but that's definitely the time frame that we're looking at.

So question on the ATVM program and the current administration and the turn cycle on the application.

Just speaking to that largely, that what we have seen from the federal government in the last month has been an unprecedented focus on stimulus for businesses, large and small, focus on American manufacturing. And so I think if there has ever been a time for those processes to move expeditiously, now will be that time. We're also obviously working with our delegation and a number of other folks in D.C. to make that -- to move through that process as quickly as we can. But the key is, obviously, what starts the clock is us getting the application in the door. We have all of the background information that we need, and we're just furiously putting all of those pieces together right now.

Final question is, any updates on the 3D manufacturing company that you formed a partnership with before the shutdown?

They are awesome -- Avi Reichental and XponentialWorks. They -- but they have -- if you follow any of their news, they have pivoted and are -- have been focusing heavily on getting emergency PPP gear built, all kinds of stuff that they're doing with 3D printing. We -- and of course, we've been tangling with a whole host of issues throughout March and into April. So we have -- that project is still very much in the works, but there is no new update on that collaboration at this point.

We definitely expect that, yes, for those who are not aware, we have partnered up with XponentialWorks down in Southern California to help lightweight the Arcimoto through some advanced 3D printing and algorithmic design studies that they have done. In just 30 days, they were able to demonstrate a 30-pound part weight reduction for the Fun Utility Vehicle. And all of that plays into the next-generation of the platform down the road. Actually, all of the work that they're doing has been -- is sort of backward compatible in terms of it uses the same suspension mount points and so on. So it could ultimately be -- should we decide to do it, could be some kind of a retrofit update kit for existing owners.

But ultimately, I would say that the -- our long-term goal remains, as you saw in the presentation, the aspiration is a 1,000-pound vehicle that gets less than 100 -- eats less than 150 watt hours per mile driven. We got close to that. So that's about the equivalent of 230 miles per gallon equivalent. Our production vehicle was 173.7 miles per gallon equivalent out the gate. We think it was -- for urban driving, we think that's maybe -- it is certainly in the uppermost, upper echelon of everyday electric vehicle efficiency around the world. But it is not our end point. We have -- our original targets that we laid out years ago are still our long-term goals: we want to make something awesome and then beat it.

And with that, I think I've touched on the broad points in the questions that have come across the -- well, actually, it looks like there's one more here that, for the delivery fleets, what's the projected average daily mileage log for those fleet vehicles? And will the current battery capacity handle that?

My understanding is -- and this is just kind of back of the envelope, is that the average delivery driver is doing about 75 to 100 miles a day. It's going to vary widely by fleet and by driver type. And we're going to focus our initial efforts on fleets where there is a match between the capacity of the vehicle and the range of the vehicle accommodating for charging capabilities within the day. Ultimately, of course, as time goes on, we expect that we will have longer-range product offerings, that we'll have faster charger -- charging product offerings. But we see plenty of opportunity in the field at the unit volumes that we're targeting over the next couple of years to hit them with the product that we've already got.

All right. Well, thank you all for taking time out of your afternoon and evening to catch up on the Arcimoto story. I hope you're all staying healthy and safe and at home and socially distant, and yet still engaging with the world. So thanks again for tuning in. And we'll see you next time.