OEM Integration And Cost Reductions Will Improve Production Efficiency

Key Takeaways

• Strategic partnerships and technology integration are expected to enhance production capacity, driving future revenue growth and efficiency.
  
• Cost-cutting measures and a focus on innovation are set to improve net margins and profitability as commercialization advances.
  
• The company's reliance on cost reductions, technological integration, and external funding highlights risks from supply chain disruptions, innovation hindrances, and financial instability.

Catalysts

Focuses on developing generation power-control electronics in Canada.

• The integration and successful performance of Exro's coil driver technology with OEM partners is expected to drive an increase in production capacity and efficiency, potentially boosting revenue growth in the future.
  
• Exro's commitment to reducing costs, evidenced by achieving more than an 18% reduction in bill of materials, is aimed at improving net margins as the company scales production.
  
• The company's strategic focus on innovation within power electronics and the anticipated integration of advanced technology into all propulsion systems by the second half of 2025 could lead to increased demand and higher earnings.
  
• Continued partnerships and upcoming integration projects, such as those with Hino and MAC, along with a new program with Stellantis, suggest potential growth in revenue streams and enhancement of profitability as commercialization progresses.
  
• Reduction in operational expenses, including a 35% decrease in SG&A costs and further reductions in payroll, are part of Exro’s ongoing cost-cutting strategy, which is likely to improve net margins and support profitability plans.

Exro Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Exro Technologies's revenue will grow by 121.3% annually over the next 3 years.
• Analysts are not forecasting that Exro Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Exro Technologies's profit margin will increase from -1246.3% to the average CA Electrical industry of 10.2% in 3 years.
• If Exro Technologies's profit margin were to converge on the industry average, you could expect earnings to reach CA$25.5 million (and earnings per share of CA$0.04) by about April 2028, up from CA$-287.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.2x on those 2028 earnings, up from -0.2x today. This future PE is lower than the current PE for the CA Electrical industry at 9.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.02%, as per the Simply Wall St company report.

Exro Technologies Future Earnings Per Share Growth

Risks

• Exro Technologies' significant dependency on achieving substantial cost reductions and efficiency improvements suggests vulnerability to supply chain disruptions and inflationary pressures, potentially impacting net margins and profitability.
  
• The recent $211 million non-cash write-down of goodwill and intangible assets related to the SEA Electric acquisition reflects concerns over future revenue growth and share price depreciation, indicating a risk to earnings and overall financial health.
  
• Reduction in costs and workforce suggests aggressive cost-cutting strategies, which could hinder operational capacity and product innovation, thereby affecting revenue growth and long-term sustainability.
  
• The company is heavily reliant on technological integration and achieving production scale with OEM partners; delays or failures in these initiatives could impede expected revenue increase and margin improvements.
  
• Exro's financial position is supported by external equity financing, suggesting possible dependency on external funding sources to maintain liquidity; a lack of sufficient cash flow improvement could lead to increased financial risk.

Valuation

• The analysts have a consensus price target of CA$0.143 for Exro Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$0.2, and the most bearish reporting a price target of just CA$0.08.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$250.1 million, earnings will come to CA$25.5 million, and it would be trading on a PE ratio of 5.2x, assuming you use a discount rate of 11.0%.
• Given the current share price of CA$0.08, the analyst price target of CA$0.14 is 44.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.