Saietta Group e-drive “growth potential is off the Richter scale” (LON:SED)

Saietta Group plc (LON:SED) Chief Executive Officer Vic Kist and Executive Chairman Tony Gott caught up with DirectorsTalk to discuss a shift in strategy, ConMet collaboration, progress since IPO, its first major OEM contract, the target market, their Sunderland factory and the key milestone investors should look out for in 2023.

Q1: Tony, if we can just start with you. You recently announced a shift in strategy to focus on major customers with high volume demand. Is the development agreement signed this week the first evidence of that strategy bearing fruit?

A1: Yes, indeed it is, we’re so proud of the announcement on Monday.

We had a dilemma in September/October, when we did a trading announcement, where we signalled to the market that our concentration was on very large clients in very major markets, undergoing dramatic growth. That should be a natural target, but obviously we’re still a company of only 200 people and so, our ability to focus on that was critical to enable us to get over the line, as we announced on Monday. At that point in September/ October, every single light on our dashboard was flashing green, and the team was so highly motivated and engaged with many trips to India and the collaboration that’s been happening between us and the OEM has been superb.

So, yes, it is truly the first validation of the promise that we made when we joined AIM back in July 21, and we’re super proud.

Q2: Could you give us an update on the progress with the ConMet collaboration and when should we expect meaningful revenue to start flowing from that, do you think?

A2: The teams are making really great progress. I must admit, as an automotive engineer myself and Vic is the same, we’ve been really impressed with the quality of design, engineering that’s been going on to date and the preparation for the testing and validation phases that are coming along, it’s really world class. Our target remains for the revenue stream to start at the end of next year and we know now, because the commercial part of the joint team has been interacting with potential clients and they’ve had great positive feedback.

So, yes, our plans remain the same, towards the end of next year, we should be seeing those products enter the market with a revenue stream starting to trickle through into us.

Q3: Now, you mentioned earlier how you were 200-strong. What’s the biggest challenge for an emerging supplier to the automotive industry, and how are you going to overcome that challenge?

A3: I suppose I would say trust. I think when you are dealing with major multinational global OEMs, they’re committing quite a lot of their future on their first tier suppliers, and so they need to be able to trust that that supplier can deliver. That means, yes, a technical advantage of course, every OEM likes to have products which are special, and those buying Saietta will be so there’s a technical advantage that you need to offer.

It’s also robustness in engineering and pre-production planning, gearing up for volume manufacture and an important part of that is they need to have the trust in their supply chain. That’s not just us, but those that work for us, and we’ve managed to set up a fantastic supply chain in India to support this OEM and so I think it’s multi-dimensional.

Probably the last thing that’s very important is they need to know that they’re operating with a commercially sound business and being a PLC, quoted on AIM in London is a very, very important part of that. The whole industry here is regulated, we’re under scrutiny by our shareholders and so on, and that makes them, uh, much more confident in a business like ours.

So it’s all of those factors put together so it’s not easy.

Q4: As we’ve seen, you’ve made considerable progress in the 18 months since the IPO, what aspect of that progress are you most proud of?

A4: It has to be this Monday’s announcement. As I said, when we floated on AIM, the basic premise of the business was to help clean up the environment in the world’s major cities. Our target was the cities in India because if you’ve ever been to India, it’s quite a place, in the middle of the cities of the pollution, all those small, lightweight vehicles. So, when Vic started with the company years before, he was concentrating, laser focussed on producing motor tech that was precisely to meet the requirements of that market.

So, as a validation of those initial visions and also our company’s strategy, to achieve what we did on Monday, which is an enormous achievement as far as I’m concerned, within 18 months from floating on AIM, it’s truly remarkable to have such a multi-year contract with a major OEM.

Q5: How does Saietta Group differ from other companies trying to benefit from the electric vehicle revolution?

A5: That’s a such a tricky one because again, it’s multi-dimensional. I think from our experience, or we understand the market very well, we understand what it needs and,  say how best to support that OEM.

We have some very special tech, AFT motor from Saietta is a remarkable product, for the first time you get all of the performance advantages of Axial Flex motors but at low cost, and specifically it’s tuned for low res, low voltage high torque. That’s a combination that other folks aren’t manage.

In addition, the combination of transmissions and power control systems onto our products means that there’s a fully-fledged e-drive system supplier. There are a few companies around capable of doing that so they go from the basic motor power unit, the motor through a transmission to drive the wheels and through the electronic interface with the vehicle. We understand all that world, Vic’s been our powertrain engineer forever, so there’s nobody better qualified than him to really understand that.

So, multidimensional things but our little company is quite special in its approach to market and also its tech.

Q6: Just to turning to you, Vic. The OEM contract that you announced this week, it is a major milestone. What needs to be delivered between now and September next year to enable production to commence and beyond schedule?

A6: That’s a very good question. We’ve already been working with this OEM for a number of months, so we understand their platform development timing plan, that’s what we have committed to.

A number of powertrains are already in India, we’ve completed the proof of concept and in typical automotive terms, we now need to increase the amount of prototypes, move to pre-production as quickly as possible. These vehicles in India, but also powertrains on the dyno will have to complete rigorous durability testing, which we’ve already been doing for the last four years so our confidence is high there. It’s all about the integration into the client’s vehicle, and that’s the transmission, the motor, the inverter but also the communication tools’ modules that are in the vehicle.

So, we have a number of e-drives to be delivered in quarter one then we have a very good outsourcing strategy because it’s very easy to design a small transmission but we’re much better at designing the electric motor and the inverter and running the software. So, we found a very strong partner in India who is also committed to the same timetable, they already make more than 10,000 transmissions per month, so that is a solid, trusted partner who can take care of the transmission, and we know that we’re on target for the cost price.

At the same time, production is ramping up in Sunderland for the AFT motor, but we have to create a copy of that production line and commission that in the first HY of ‘23 in India. We’re also working with a very solid outsourcing partner for the BCB’s and VCU modules that also need to go into the vehicle.

So it’s a multi-dimensional powertrain integration programme and we’re on track. We believe that we should be off to a process from the second half year in India on all of these four aspects that make the e-drive, and then volume starts ramping up before Christmas. Another platform comes online, and that ramps up in January the year after, it’s serious volumes, but Tony and I have seen higher volumes on other programmes in the past, so it doesn’t scare us at all.

Q7: 80,000 units does seem a lot, but can you put it into context for us in terms of the market that you’re targeting? Is this a big proportion of your future production or is it just a tip of the iceberg?

A7: I can answer that in so many different ways, but I think the picture behind me illustrates, excluding the bus, the bus is all with ConMet, or truck applications, but that lightweight mobility market that we’ve been focusing on for the last five years. If you look at India, for example, they register around 23 million vehicles per year on the road, those are the figures from just before Covid. Of the 23 million, 20 million are motorbikes, motorbikes and last mile delivery vehicles, and that market, because it’s a light vehicle, therefore the battery doesn’t need to be as big, and therefore we strongly believe, and we have done for years, that that market will switch to electric much faster.

So, you can imagine that the production lines that we are setting up in Sunderland, but also in India, are factors higher than this initial contract. Obviously, we don’t shout about things, we are a solid, trusted tier one supplier coming into the automotive e-drive solutions arena, and when more contracts land in the future, we’ll no doubt have another interview with you.

Q8: Just for our UK audience, can you give us an update on Sunderland? How much of your targeted 100,000 unit production capacity will be in Sunderland and what might it mean in terms of local jobs?

A8: First of all, we love that factory, we already met the team in November last year, 4th of April we took on the factor, the UK government has been fantastic in supporting us. What is interesting is that we took on the team of 40 people but also all of the production equipment that remained in that factory so we are repurposing one of those lines to increase the volume capacity for the AFT motor so that’s progressing very well. I don’t really want to go into exact figures because there’s grants linked into it, and we’re a PLC but I can assure you that from the 1st of April, we will be producing substantial volumes in Sunderland of the AFT motor, but also our latest and greatest addition to the portfolio, which is the RFT motor.

The RFT motor, this is you might remember the Axial Flux motor sits in that 10-20 kilowatt domain. This brand new motor, which is almost easier to assemble, it’s less exclusive from an IP point of view, but because it still runs our inverter and our source code from within the group, it’s a product that people can’t copy easily. We have sitting in Sunderland two production lines that can produce 40,000 motors per month, one of those lines is going to be shipped to India, and the other one stays in Sunderland so that we can create both products in India and in the UK.

No doubt that will create substantial jobs, we know in the heyday of TRW, which used to own that factory many years ago, and they’ve had hundreds of people working there. At the moment, it’s 40, and we’re recruiting, there’s quite a few adverts on our website for people if they’re interested, please do have a look.

No doubt, the team will grow substantially creating long-term quality jobs in the UK.

Q9: As you said earlier, 100,000 units per annum is by no means the limit of your ambitions. Will you build further production plants yourselves or in partnership, or will the units be built under license maybe from customers?

A9: That’s a complicated one to answer. First of all, Sunderland must become, with the R&D centre in Silverstone, and other things that we do in Europe, Sunderland will be the centre of excellence for assembling in a cost efficient way, with a sustainable supply chain behind it, of all the motor topologies that we create within our group.

We’re also in advanced discussions with the UK government to see if we can make the plant carbon neutral, we don’t like talking about ESG, we like doing it, that effectively becomes an export model. So, a client comes to us, we can tailor the powertrain into their vehicle, and even using their preferred suppliers and local sourcing, we can then pick up the line and ship it to India and make the product there.

We believe quite strongly that whatever we make in India, we will sell into the rest of Asia, there are of course ideas, especially on the RFT motor to ultimately go into China, but at the moment, the market is booming so strongly in India and Indonesia, Vietnam, Africa, don’t forget Africa, there’s a lot happening over there. So, we believe that India must be a substantial plant, and then if there are more requirements or specific government demands of make locally for OEMs to qualify for those incentives, we could well have even more factories in 10 years’ time but let’s walk before we can run.

Q10: Finally Vic, what are the key milestones for Saietta Group that investors should look out for in 2023?

A10: I don’t come from a listed company background, I’ve learned in the last 1.5 years what an RNS means, I’ve forgot the abbreviation, but what I always find interesting is when I point out to the investors, please do go to saietta.com and don’t click on the investor button immediately, just go to the normal news flow where it’s business as usual. We have more contracts already in the pipeline and, you get a much better flavour of developments in the company, and of course, there’s LinkedIn and our YouTube channel.

I must say key milestones, obviously we’re approaching the next financial year very rapidly, my brain is already in August/September next year to make sure that these customers roll into volume. There are a number of inquiries of people that want to buy e-drives from us, as predicted at the IPO, we can’t serve the whole world so we are very, very strategic in who to accept as clients and who not.

One thing is for sure, the three pillars of the company; light duty, heavy duty, and leisure marine, the growth potential is off the Richter scale and we only want to work with established OEMs or established distribution partners around the world and like Propel. Who knows there might be big license deals in the future because, again, our team is only 200 people, we don’t want to be thousands of people, we want to be smart and clean up the air in large cities around the world.

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