With revenues expected to grow by 40pc year on year and £11m in the bank, are Saietta worth a punt?
“…with projects underway targeting the Asian, North American and European markets, does the fundamental case for SED warrant reconsideration?…”
Electric motor designer Saietta (AIM:SED) joined AIM in 2021 as part of the wave of ambitious small caps promising to usher in the emerging green economy. As with so many the company’s share price surged, before falling away as the market turned away from growth stocks. But with projects underway targeting the Asian, North American and European markets, does the fundamental case for SED warrant reconsideration?
SED designs, engineers, and manufactures motor ‘powertrains’ for electric vehicles (EVs) both on land – from scooters to buses – and at sea. The company is evolving a scaleable, modular electric powertrain model that, in the words of CEO Wicher Kist, challenges ‘the industry’s fixation on high-performance all-electric passenger cars’. Mr Kist argues that ‘the more power you dial into an e-powertrain, the greater the adverse impact on both charging time and real-world driving range’.
SED aims to design lightweight, high torque and high efficiency electric motors carefully aligned to the specific requirements of individual manufacturers, thereby reducing their reliance on raw materials and reducing total vehicle up-front and operating costs. For Mr Kist the ‘world is still coming to terms with e-mobility and, as a result, there is much more to this shift than attention-grabbing headline power performance figures and brand-building. It is about true sustainable mobility across the lifetime of the vehicle and, just as importantly, zero emissions and clean air for all.’
SED’s philosophy inspired the design of the company’s proprietary Axial Flux (AFT) and Radial Flux (RFT) technologies, flexible modular systems that can be combined with EV manufacturers’ in-house power electronics, powertrain controls, mechanical axles, and transmissions. The company offers solutions for three target markets: low-cost, low-voltage electric motors for manufacturers of electric scooters, motorbikes, rickshaws, and final mile delivery vehicles, which can be tailored to specific controllers and gearboxes; high voltage RFT motors that can be integrated into electric axles for heavy-duty EVs such as trucks and buses; and in-board and out-board AFT-powered motor solutions for marine propulsion systems, designed to deliver sustainable and clean mobility on waterways subject to increasingly stringent emissions legislation.
SED has engineering bases in the Netherlands and in the UK, including, since last April, a major manufacturing site in Sunderland acquired from ZF Automotive, which is being tooled for the production of AFT motors, with the first target set for the construction of 100,000 units per year.
Targeting the India’s EV market
The company’s immediate focus is selling its AFT and RFT technologies to India’s huge EV market through its Indian subsidiary Saietta VNA. The country is urgently working to reduce emission levels produced by its vast fleet of two-wheeled vehicles, including scooters, motorbikes, rickshaws and final mile cargo carriers. Scooters and motorbikes alone are estimated to account for more than 60pc of India’s retail petrol consumption, with sales in 2019 of just over 21 million units set to rise sharply. Tough new regulations are being introduced to drive the uptake of electrification in mega-cities.
SED has entered into a joint venture with Tier 1 automotive supplier Padmini VNA, an approved supplier to major lightweight vehicle manufacturers, to develop eMotors targeted specifically at the Indian market. A new RFT eMotor has been developed for lightweight two and three wheel applications: the RFT85-65, a compact air-cooled unit, produces 4kW of continuous power at 48V, is lightweight and efficient, and can be fully integrated with SED’s power electronics and transmission. SED plans to produce the device in India alongside the company’s AFT140, an AFT eMotor ideal for premium motorbikes and lightweight three and four wheel applications, such as last-mile delivery vehicles. A new high-tech manufacturing facility is being constructed in India.
Late last year SED secured the first of what the company anticipates will a series of agreements with a global OEM (an original equipment manufacturer making devices from component parts bought from suppliers), which it describes as ‘one of the largest OEMs operating in the light duty mobility market in India’. Under the agreement SED will develop AFT electric vehicle drive (eDrive) systems and associated electronics for the client, securing approximately £3.2m of engineering design services revenue. A target of a minimum of 80,000 units has been set for five years of production scheduled from this September.
Earlier this month SED announced that the supply chain for the complete eDrive system was now ready to support the agreements, with production on track to begin in Q3 this year. The chain involves deals with major tier-1 companies in the region for the production key components including the gear box and power electronics, and notably a master supply agreement with AVTEC Limited, one of India’s largest independent manufacturers of powertrain and precision-engineered products. AVTEC’s transmissions will be integrated with SED’s motors and inverters, both to be made in India, to deliver class-leading eDrives for lightweight vehicles. The announcement added that beyond ‘the master supply agreement there is a common desire for both Saietta and AVTEC to not only supply the initial confirmed OEM customer but also jointly promote the combined eDrive technology to other existing and prospective clients, tailoring the core eDrive design to meet the precise requirements of additional individual OEMs in India and beyond.’ Over the course of the initial five years of the contract SED and AVTEC will develop the capability to produce a minimum of 150,000 complete eDrive units for customers globally.
A second statement added that purchase orders of approximately £0.986m had been received from the OEM so far this financial year with the balance of the £3.2 million being receivable in the full year 2023/24. SED had ‘a further 11 OEM live enquiries at various stages from RFQ (Request For Quotes) through to final selection stage for its primary Light-duty vehicle applications’. The company is seeking to reach a market for some two million vehicles over the next five years as demand for eDrive solutions in the sector gathers pace. SED Executive Chairman Tony Gott said that ‘the core business of Saietta in light-duty integrated eDrives is developing at a greater scale and faster pace that the Company originally envisaged. Meeting current customer demands for volume mass production in Q3 2023 in order to allow the associated vehicle platforms to be launched in Q1 2024 has become an absolute priority for the Group.’ SED has accordingly ‘resolved to make all necessary refinements to its strategy to ensure its achievement without recourse for further external fundraising.’
Heavy-duty and marine projects
SED’s heavy-duty vehicle and marine propulsion divisions are also pursuing opportunities. A Joint Commercial Development (JCDA) programme is in development with Canadian company ConMet to supply heavy-duty commercial vehicle industry with wheel ends, hub assemblies, brake drums, hubs, rotors, aftermarket wheel products and OEM genuine products. Product concepts have been shared with several US and European truck OEMs, with the first road trials planned this year to allow truck and trailer OEMs to order initial production series. Earlier this month SED reported that ‘product design and sales commercialisation is progressing’ according to ‘a revised plan’ with the expectation that prototype parts will be ordered during the next quarter. The update stated that ‘Some aspects of the programme are being adapted as the technical specifications are optimised. While the overall outlook for the US e-truck market remains compelling we are adjusting our internal expectations as to the timing of material revenue contribution to the Group.’
SED’s marine division, marketed under the Propel label, is nearing completion of the testing and development of its S1 electric outboard motor, which will join the D1 inboard electric motor that has been on sale since the summer of 2022, as well as a new B1 modular ‘suitcase’ battery solution. Propel will begin series production of the S1 in early 2023 at a new Dutch assembly line. The company said ‘distribution plans are also underway with 10 experienced dealers in the Netherlands already nominated and going through training and onboarding’, adding that ‘discussions with dealers and distribution partners in several other key markets across Europe are at an advanced stage and agreements will be announced in the coming months’. The European market for leisure marine outboard motors is worth $900m, recording 200,000 sales each year. The Dutch government has decreed that all of the country’s vessels must be electric by 2025, amid forecasts that 74pc of outboard motor sales in Europe will be electric by 2030.
As with the ConMet venture, there may be complications, SED stating that though ‘the Propel team has been demonstrating both the inboard and outboard electric marine systems with clients and has now reached commercial agreements with distributors in the UK, Ireland and Finland … delays have occurred in the supply of key electronic components which has impacted sales performance in the immediate term.’ The delay has not affected the long-term potential but the company ‘does not expect material sales for the 2023 boating season’ and will seek to advance downstream products in Q4 2023 once the mass production of AFT motors is fully underway.
Outlook
SED invested heavily in its production push last year, helped by a placing that raised a gross £23.6m. The company’s interim results for the six months ended 30 September 2022 reported a loss before tax of £10.4m (H1 2021: £5.2m loss) and an adjusted EBITDA loss of £6.3m (H1 2021 £1.1m loss). The deficit included ‘significant share options expense and costs related to the additional fund raise’. Group income (including grants) increased to £1.3m (H1 2021: £1.0m), and gross profit to £0.1m (H1 2021: £0.4m). Net cash at the end of the period was £22.7m. Going forward SED expects to realise revenues ‘from the manufacture and sale of the AFT and from the ConMet project’, but if ‘there are significant delays this may lead to the Company needing to raise further funds in early 2024 either through debt or equity.’
Earlier this month the company’s reported a cash balance as at 28 February 2023 of approximately £11m. Full year 2022/23 revenues are expected to grow by 40pc year on year, and the outlook for 2023/24 ‘indicates further growth of at least 100pc year on year’. The company expects to deliver a positive EBITDA ‘from early calendar 2024’. Executive Chairman Tony Gott said directors were ‘confident that the Company is now in position to fully finance the coming financial year (2023/24) without recourse for further external fundraising by removing excess costs, reviewing all key relationships and focussing on the delivery of major revenue streams flowing from late summer.’
As SED continues to seek to navigate the challenging transition from a research and development company to a fully fledged manufacturer the company’s share price has subsided, declining from a high of 255p in December 2021 to 23.7p at the time of writing, taking its market cap to £24.2m. SED joined AIM with a price of 120p in July 2021. There are indications that the decline may have levelled out this month, the price picking up slightly over the past few weeks.
Clearly, SED has much to prove, and has had to weather the exceptionally tough market environment that has beset small cap growth stocks over the past 18 months. The company is burning cash quickly in the course of making its big push to establish itself – another fundraise may loom into view sooner rather than later. But SED’s ambition cannot be faulted, as it pursues commercial opportunities across three continents. There’s plenty for interested investors to look out for this year, particularly in regard to the company’s efforts to tap the big Indian EV market. At this low price SED is perhaps worth holding for the medium term, with a view to the prospect of Indian production starting later this year.
