Exro Technologies (EXRO.TO): M&A Activity in EV Space

New to the Exro story? Read our Intro post below:

In today’s post, we highlight an M&A event that potentially has some read-through for Exro and its shareholders.  So what happened?

• On October 9^th, 2023, German conglomerate Schaeffler Group made an offer to buy Vitesco Technologies in a 3.64 Bn Euro deal (~US$3.8bn).  More info here (Link) 

• Vitesco is a public company traded on the XTRA exchange in Germany under the ticker VTSC.  The company produces a range of EV technologies including EV Powertrains, Inverters and Controllers.  The company also has a legacy business building Internal Combustion and Hybrid Engines.  (Company website: Link)

• Schaeffler is a multi-billion Euro company owned primarily by the Schaeffler family, one of the richest in Germany.  (Company website: Link)  Of note, Schaeffler already owned 49.9% of Vitescu from a prior acquisition it made in 2008.

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It appears to us that Schaeffler recognizes the global push towards greater adoption of EVs globally and wants to be a bigger player in this industry.  The company’s strategy clearly indicates its desire to be a “motion technology company that leads through innovation, agility and efficiency.”  (Link: https://www.schaeffler.com/en/strategy/ )

The company states its five focus areas are:

Specifically, as it relates to the Vitesco acquisition, it appears it is Schaeffler’s CO2 Efficient Drives is where the company is looking to add to its offering (see below). 

Interestingly, Schaeffler is focusing on 6 product families with motion as the key theme:

We believe there are number of read-throughs from this deal for Exro investors:

1.       Good technologies will ultimately be acquired.  Exro’s Coil Driver technology, with its ability to provide greater torque-speed operating conditions for electric vehicles, is an attractive offering for potential customers.  Exro of course has the base strategy of continuing as is, but with continued evidence of enhanced operating performance from its technology, we see the Coil Driver as being attractive to multiple parties.

2.       There will be a race for EV manufacturers to ramp-up technology offerings.  From battery design to enhanced driving range through to handling and performance, we believe EV manufacturers will continue to evaluate new technologies to provide users with a driving experience comparable to internal combustion engines. 

3.       Timing is uncertain.  M&A can happen at any time.  Our intent is not to suggest an Exro take-out is imminent by any stretch.  However, the company’s development partners get access to data and performance metrics the rest of us do not.  So long as Exro’s offering remains ahead of competitors, we continue to see Exro as a natural consolidation target within the EV technology arena.

Despite achieving a number of milestones in 2023, including most recently commercial production at its manufacturing facility in Calgary, Exro’s share price has trended lower on what we believe is general market malaise. EXRO has been trading inline with some of the better know EV companies (Tesla, Rivian, Fisker) over the past month. This sell off is most likely driven by the commentary from China that they will restrict the export of EV battery metals (Link) and the overall demand picture for EVs coming in weaker than anticipated (Link).

Starting from essentially zero in terms of sales, we do not view the broader recent negativity on EV sales as a direct read-through to Exro. The company can still grow into its existing partnerships and grow revenue from its low base despite the near-term sentiment challenges.

We continue to see Exro poised to deliver news that can provide some momentum to the share price.  As noted in its recent update to investors, Exro management provided the following highlights (Link) :

• On track to deliver the first batch of Coil Drivers to Vicinity Motors for bus applications in North American by end of November 2023

• Integration efforts continue in Brazil for high voltage Coil Driver applications with a large global beverage company.  Exro also co-developing the same system for other customers in 4Q23

• Progress with Linamar continues, with the next milestone a next generation e-beam axle with an integrated high voltage Coil Driver.  This could be marketed to potential customers by early 2024.

• Completed phase 1 testing of NDA partner in Europe for Exro powered hybrid-diesel engine

• Wolong Electric motors have been received for testing in 4Q23, with an update likely over coming weeks

• Cell Driver Energy Management System (EMS) on track for UL completion by end of 2023.  The first Cell Driver unit was installed on the Calgary Manufacturing Facility recently. 

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

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