By Brian Lantier, CFA
NASDAQ: SEV
READ THE FULL SEV RESEARCH REPORT
Before the market opened on November 10, Aptera Motors (NASDAQ: SEV) announced that it had secured an agreement with institutional investors to raise $6 million through a registered direct offering. The primary terms include the issuance of 3.43 million Class B shares at $1.75 per share. This represents about a 23% discount to yesterday’s closing price of $2.28. Additionally, the company will grant 3.43 million warrants to investors in the private placement, with an exercise price of $2.05 per share. The total gross proceeds are anticipated to be $6 million, and we assume that the company will net about $5.6 million.
In the company’s press release, it indicated that the use of proceeds would be for continued vehicle validation, testing, and improving vehicle designs to simplify manufacturing.
While this undoubtedly moves the company a step closer to beginning manufacturing, it is clear that investors have assigned Aptera a higher risk profile, and the cost to existing shareholders, in terms of dilution, continues to rise.
This is a positive step for Aptera as net proceeds of $5.6 million would represent 20-25% of what the company believes it needs to raise to reach production (see below). However, the two biggest concerns for investors will likely remain the price of the shares issued in the capital raise (and the resulting dilution) and the relatively small size of the raise, which implies the company will need to complete another financing soon. We think existing investors would rather see the company complete one large financing of $65 million+ to ensure it can fund operations through to a self-sustaining level of production, rather than 8-10 smaller financings that will each be challenging to close.
The most significant news from Aptera recently was a press release in early October, in which the company indicated it was lowering its estimate for beginning production from $40-45 million to about $25 million. The company also stated that it believes it can reach self-sustaining operations and produce roughly 500 vehicles per month with an additional $40 million in capital beyond the $25 million needed to begin production (a total of $65 million). Today’s financing would represent a little less than 10% of the capital needed to reach that lofty goal of 500 vehicles per month.
Our model will likely need continuous adjustments over the next 12 months as it approaches low-volume production, when factors such as component costs, the vehicle’s final price, and initial customer demand come into sharper focus. We also assume that the company will be able to successfully access capital to fund operations through the second half of 2028, when we expect it could turn cash flow positive. We currently anticipate that the company will issue up to an additional 20 million shares at prices between $2.00 and $5.00 to fund its shift to low-volume production. If the capital raised in the coming years is at prices materially below today’s raise ($1.75/share), we may have to adjust our assumptions for total share count and our ultimate price target.
For the time being, we are leaving our target valuation for Aptera at $4.00/share, which we will review after the Q3 results are released. We would encourage investors to review our full updated research report for further information on Aptera Motors.
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