Electreon Wireless Ltd. — Investor Presentation 2020

Jun 17, 2020

Update report June 17, 2020

Received additional 4.2M NIS for Sweden project; additional commerial agreements expected in 2020; Q4 20 Tel-Aviv application demo; target price unchanged

Stock Exchange: TASE Highlights

Symbol: TLV:ELWS

Sector: Technology

Sub-sector: Cleantech

Stock Price Target: NIS 181

As of June 17, 2020 (source: TASE website):

Closing Price: 155 NIS

Market Cap: 1.31 billion NIS

of Shares: 8.5 million

Stock Performance (3 mos.): 44.05%

Average Daily Trading Volume (3 mos.): 3,783 shares

Dr. Tiran Rothman - Lead Analyst _________________________________

Email: Equity.Research@frost.com Tel.: +972-9-9502888 www.frost.com/EquityResearch

Executive Summary:

Electreon achieved significant milestones in 2019 and Q1 2020:

• On November 28, the Company announced that it had completed the first electric road segment in its Sweden project. So far Electreon has received 22.7M NIS in payments (55% of the initial project total value) which include the latest 4.2M NIS payment announced June 11.
• Announced the successful completion of a dynamic and static wireless charging trial of an electric truck connected to a 40-ton trailer in harsh terrain and weather.

We view 2020 as a significant year for Electreon after proving its technological feasibility and overcoming safety and regulatory hurdles.

Electreon's solution is an answer to the world's current and imminent problems – urban pollution and the need for low key charging infrastructure within city areas.

The Company's go-to-market strategy is to focus on cities (buses, taxis and fleet operations); and on highways (trolley, trucks, and intercity buses). The Company has also identified Europe as the main entry point, focusing on Sweden, Germany, France and Italy as well as the US (California) while continuing its activity with Tel Aviv municipality.

From a business model point of view, it expanded its business model – from only charging infrastructure (km of roads and vehicle units) to a service model. The Company is focusing on charging as a service, a part of MaaS (Mobility as a Service), a growing business model used by top mobility firms. Frost and Sullivan expect the market to recover fully and use of MaaS solutions relevant to Electreon are expected to reach a market size of \$31 bn by 2030.

We maintain our value for Electreon at \$432M / NIS 1.53B; the average target price is NIS 181.

We will update our valuation based on upcoming potential catalysts: Completion of deployment of the ERS in Sweden and Tel Aviv Projects in Q4 2020 as well as new commercial agreements. For a comprehensive analysis of Electreon including market players, business models, trends, market sizes and valuation see our last Annual Q4 Report published May 27 as well as other quarterly reports on the same link.

In order to mitigate global warming and avoid severe climate change, governments, NGOs and the commercial sectors have embarked on a journey to decrease the use of fossil fuels. Road transportation is a major contributor of greenhouse gases (GHG) and therefore the transition to electric vehicles is the focus of many government policies.

In the past years 14 countries, representing over 50% of total vehicle market unit sales, have declared a ban on new internal combustion engine (ICE) vehicle sales by dates ranging from 2020 to 2040. The decision of China, the largest car market in the world with about 30% market share, to ban all ICE vehicles by 2040 was an end-game call for all manufacturers and lagging countries and puts an end to the ICE era.

Country	Ban announced	Status and proposed commencement	Scope	Selectivity
China		2017 "researching a timetable"[8]	Gasoline or diesel	New car sales
France		2017 2040[12]	Gasoline or diesel	New car sales
Netherlands		2017 2030 (coalition "plan")[16]	Gasoline or diesel	All cars
Norway		2017 2025 (tax and usage incentives) [17]	Gasoline or diesel	Cars
Slovenia		2017 2030 (emission limit of 50 g/km)[19]	Gasoline or diesel	New car sales
Sri Lanka		2017 2040[20]	Gasoline or diesel	All vehicles
United Kingdom	2017	2040 – England, Wales, Northern Ireland[22] 2032 – Scotland[23]	Gasoline or diesel	New car sales
Iceland		2018 2030 (clima­te plan) [13]	Gasoline or diesel	New car sales
Ireland		2018 2030 (private members bill, not yet passed)[14]	Gasoline or diesel	New car sales
Israel		2018 2030 "natural gas or electricity" [15]	Gasoline or diesel (natural gas exempt)	New imported vehicles
Sweden		2018 2030 (coalition agreement to ban new sales)[21]	Gasoline or diesel	New car sales
Costa Rica		2019 2050[9][10]	Gasoline or diesel	New car sales
Denmark		2019 2030[11]	Gasoline or diesel	New car sales
Singapore		2020 2040 (incentives on electric vehicles) [18]	Gasoline or diesel	All vehicles
United Kingdom		2020 2035 or 2032 (proposed new dates [24])	Fossil fuel, including hybrids	New car sales

A growing number of cities around the world are not waiting for central government regulations and are rather implementing registration and zoning policies that promote clean transportation, including designating car-free city centers and major metropolitan areas. For example, in Shanghai there are annual quotas on the number of new license plates available for drivers in order to fight congestion in the city. License plates for ICE vehicles in Shanghai are sold at auction for prices of over \$14,000, more than the price of many domestically produced cars, while electric vehicle plates are free.

Electrification of the urban public transportation sector will demand numerous charging technologies and solutions, depending on the use case scenario. Federal and institutional mandates governing emissions, fuel economy, and pollution, together with green car subsidies and incentives have been the strongest drivers supporting the growth of EVs. For instance, in Europe, by 2021 ,the average CO2 emissions from an OEM vehicle fleet needs to be reduced by 27%, compared to 2015 levels. In the US, to avoid penalties, OEMs need to comply with both the EPA GHG fleet emission ceiling of 163g CO2 / mile and CAFE standards of 48.7-49.7 miles per gallon by 2025. In addition, the Zero Emission Vehicle (ZEV) program requires car manufacturers to sell electric vehicles in California and nine other states.

Increased consumer interest in EVs due to environmental, performance, and style considerations, is starting to and will increasingly become, the key driver of growth of the battery electric vehicle (BEV) market, particularly amongst younger generations.

Expansion in charging infrastructure and upcoming business models that ensure a seamless charging experience are encouraging consumers to opt for EVs. For instance, there are about 5 ultra-fast charging projects already commissioned in Europe. In addition, the number of EV models will increase substantially, thereby creating a wide array of choices for customers.

By 2025, it is expected that about two out of five premium car models will be available in EV configuration. The cost of ownership of an electric vehicle will be 15% less than that of a conventional vehicle by 2025. The choice of charging solution (whether inductive or conductive) depends on what transport task will be performed.

1

The table below includes a list of selected cities that already have regulations in place or are in the in process of banning the use of ICEs.

City or Territory	Country	Ban announced	Ban commences	Scope	Selectivity
Athens	Greece		2016 2025[27]	Diesel	All vehicles
Madrid	Spain		2016 2025[27]	Diesel	All vehicles
Mexico City	Mexico		2016 2025[27]	Diesel	All vehicles
Paris	France		2016 2025[27]	Diesel	All vehicles
Auckland	New Zealand		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Barcelona	Spain		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Cape Town	South Africa		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Copenhagen	Denmark		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Heidelberg	Germany		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
London	United Kingdom		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Los Angeles	United States		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Milan	Italy		2017 2030[6]	Diesel	All diesel vehicles, electric buses by 2025
Oxford	United Kingdom		2017 2020−35[6]	Gasoline or Diesel	All vehicles (initially during daytime hours on six streets)[33][34]
Quito	Ecuador		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Seattle	United States		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Vancouver	Canada		2017 2030[6]	Gasoline or Diesel	All vehicles, electric buses by 2025
Balearic Islands	Spain		2018 2025−35[28]	Gasoline or Diesel	All vehicles
British Columbia	Canada		2018 2025[30]	Gasoline or Diesel	All vehicles by 2040, 10% ZEVs by 2025
Brussels	Belgium		2018 2030[31]	Diesel	All vehicles
Hainan	China		2018 2030[32]	Gasoline or Diesel	All vehicles
Rome	Italy		2018 2024[35]	Diesel	All vehicles
Amsterdam	Netherlands		2019 2030[26]	Gasoline or Diesel	All vehicles
Bristol	United Kingdom		2019 2021[29]	Diesel	All private vehicles (city center from 7 am to 3 pm)

OEMs Focus on Electric Vehicles

Already well committed to the trend, the world's leading automotive manufacturers continue to introduce new EV models to meet growing market demand. With over 160 models already on the market and expected to grow to over 400 in the next 5 years, around 2.3 million vehicles were sold globally during 2019, just under 1.7 million fully electric.

While the EV market has averaged ~50% YoY growth, it slowed in 2019 to ~8% YoY growth, due to significant slowdown in China (which makes up ~50% of the total) as a result of a combination of headwinds, from withdrawn EV incentives and weak demand as the economy weakened from both global and US-China specific trade-war effects. The start of 2020 has seen wildly different trends across the major regions, with Europe recording Q1 sales double those in 2019 and above those of China for the first time, as OEMs push sales to support CO2 fleet compliance targets; the US was marginally higher on Q1 2019 and China significantly down from 2019 levels due to COVID-19 impacts, although this is expected to recover by the end of the year to at least 2019 full-year volumes.

While COVID-19 may create some volatility in sales over the coming 6-18 months, as we move into 2021 and onwards, the underlying secular trends driving the market are expected to bring a return to higher growth rates of >50% YoY globally and consumer demand in the end, may even be boosted by the COVID-19 experience, as societies sharpen their focus on available, pragmatic solutions to address urban air quality challenges. This would benefit not just the automotive market, but buses, light commercial (last-mile deliveries) and heavy duty freight and logistics. The electric revolution looks set to continue once the immediate impacts of COVID-19 are finally out of the way.

Batteries are not an optimal solution

Widespread electrification of the transport sector faces significant challenges as it requires infrastructure adaptation that is difficult to implement. Large scale investments in increasing electricity production and charging infrastructure is required, but via a distributed shared framework whereas the current electric infrastructure layout is centralized, and has public funding. We can summarize the main challenge with electric mobility:

• Millions of commercial and private vehicles with huge batteries
• Setting individual charging infrastructure for each fleet operator doesn't make sense
• No real estate available for charging infrastructure
• The city can't have additional visual hazards

While batteries for passenger cars are evolving to meet the range anxiety of consumers at an affordable price, this problem still exists for commercial vehicles, which operate extensively and require a robust solution. Led by a team of veteran entrepreneurs, Electreon aims to empower stakeholders and enable municipal transport authorities to achieve their goal of providing urban public transport that is clean, green, reliable, safe and quiet.

Challenges

Whilst recent improvements have increased battery range and decreased charging time of passenger cars, main barriers to the wide adoption of buses, commercial vehicles, and passenger vehicles include:

• Charging stations require planning, approval, as well as infrastructure investments by public and private entities
• Increasing grid capacity (sub stations, lines, etc.) as well as real time management of the electricity grid by utilities
• Long charging time causes operational complicity
• The price of the battery and charging infrastructure

In appendix B we present a short intro to Electric Road Systems (ERS)

The solution: company's technology

The company offers:

• 1. Cost-effective and time efficient operations - No need to stop for charging
• 2. Minimal battery size and weight.
• 3. No visual impact on the vehicle with shared infrastructure and no moving parts

The technology is composed of three main elements:

1. Receiver

The Receiver enables the reception of energy during the drive without changing driver habits. The receiver is installed on the floor of every bus or vehicle, and transmits the energy directly to the engine in the same format as a battery. It will be easy to adapt to any electric vehicle. The receiver weight is 25 kg and its dimensions are Height: 30 mm Width: 560 mm and Depth: 785 mm Source: Electreon

2. Stripe (Coils)

A unique rubber covered stripe is optimally shaped to improve efficiency and reduce radiation. Embedded within, copper wires reduce the need for maintenance and increases reliability. The stripe is stationary and composed of 1-meter long segments.

When a bus rides over the stripe, only the segment located directly under the bus is activated and transmits energy to the receiver.

3. Smart Inverter (Management unit) - Communication

The Smart Inverter transfers the energy from the electricity grid to the stripe, which communicates in real-time with all the vehicles within the system.

System architecture:

Source: Electreon

Key Business Benefits

Electreon's ERS technology offers significant cost advantages compared with existing solutions servicing such as trolleys, batteryoperated electric buses, and trams. Implementing the system results in lower CAPEX (less expensive battery-less buses) and OPEX (less electricity required for the much lighter buses).

Basically, the company turns the road to an asset for road owners and fleet operators by deploying shared electric road platform for commercial fleets.

The key benefits of Electreon 's solution in general and in comparison, to alternatives and competitors are:

• Quick to deploy with minimal interruptions Electreon aims to have dedicated equipment that can achieve laying 1 km per day. It does not require opening the road completely, rather only a small section in the middle that can be paved immediately after installation.
• Safe meets all standards and does not have environmental impact
• Unique Dynamic Wireless Power Transfer (DWPT) technology that transmits energy on demand only i.e. when a vehicle's receiver is over it
• Minimum energy required due to minimum vehicle weight and high efficiency
• Low cost in terms of vehicle, operation per km, and infrastructure
• Minimum maintenance required
• An energy-sharing infrastructure that is used by multiple types of vehicles can offer countries and cities a mechanism to bill road traffic

4

Key Business Risks

• Electreon 's system readiness level of 8-9, and has another 1 year before it can be deployed in a fully commercial, scalable manner.
• In each location a significant number of entities, which are not always incentivized or have a positive attitude and interest, such as municipalities, transport authorities, and operators must work together in order to succeed in implementing the system.
• Many countries and cities lack the experience and knowledge required to promote advanced business models such as Build Operate Transfer (BOT), etc.

Strategy

Electreon is a company with the vision of becoming a leading enabler of shared infrastructure for "all-electric city transport". The Company's mission is to provide a cost-saving solution for the electrification of roads and vehicles.

Main goal is to implement and operate the "Smart Road" – an electrified road that is based on wireless energy transfer, which powers and charges vehicles while driving. With today's over-crowded urban centers, and urban transport accounting for approximately 40% of transport sector emissions, Electreon's first aim is to enable mass electric bus and trucks adoption that will utilize its unique on-the move wireless electrification system. By removing the energy source from vehicles, Electreon will enable the next generation of public transportation: dramatically reduced weight (existing batteries account for approximately 33% of bus weight), low cost (existing batteries account for approximately 25-30% of vehicle cost), no visual overhead infrastructure (easy to deploy under asphalt paths), no charging burden or range anxiety (no gas or charging stations required), safe (meets all standards, no chemical batteries) and generic for all electric vehicles.

Analysis of company progress

Type	Event	Significance	Timeline	Status
Market validation for highway	Initiating a pilot in Sweden for bus and long-haul truck	High	Q4 2019	Achieved
Market validation for City bus	Initiating a pilot in Tel Aviv for bus	High	Q4 2019	Achieved
Regulatory validation	approval from Swedish authorities for the deployment of ERS system	High	Q4 2019	Achieved
Technology capability	Present a static and dynamic charging of long-haul truck	High	Q1 2020	Achieved
Technology validation	Completion of deployment of ERS in Sweden and Tel Aviv Projects	High	Q4 2020	In Progress
Commercial project	Sign an agreement for commercial project	Medium	Q4 2020	In Progress

Upcoming Potential Catalysts

Appendix A:

2019 Financials

The Company's financial statements in years previous to 2018 are not relevant for comparison due to the merger. (All amounts in thousands of NIS). The Company reports financials biannually.

בר 31 בדצמ
2018	2019	ביאור
000 NIS
			נכסים
			טפים: נכסים שו	Current assets
9,416	12,592	5א'	ם שווי מזומני מזומנים ו	Cash and cash equivalents
1,329	2,034	6	רות חובה חייבים וית	Other debtors
10,745	14,626
			ם: נם שוטפי נכסים שאי	Non current- assets
158		45 5ב'	עבד פקדון משו	withheld deposit
83		67	רוך אש לזמן א הוצאות מר	Prepaid expenses
3,258	4,586	7	רכוש קבוע	Fixed assets
­	495	8	ש זכות שימו נכסים בגין	Right use-of assets
3,499	5,193
14,244	19,819		סך נכסים	Total assets
			יכוי גרעון ת והון )בנ התחייבויו
			בהון(
			: ת שוטפות התחייבויו	Current liabilities
44	1,058		שירותים ונותני ספקים	Trade and other payables
1,391	8,356	10	רות זכות זכאים וית	Other liabilities
­	202	8	חכירה בגין התחייבות	Current maturities of lease liabilities
1,435	9,616
			בויות ת והתחיי התקשרויו
		12	תלויות
­	512		: שוטפות שאינן ת התחייבויו	Current maturities of lease liabilities Long-term lease liabilities
1,435	10,128	8	חכירות בגין ת התחייבויו	Total liabilities
			בויות סך התחיי
		13	הון:	Equity
­		­	ות מניות רגיל	Ordinary shares
­		­	ה סדרה א' מניות בכור
			בי אופציה, פרמיה, כת	Share premium account
82,758	92,713		רות וקרנות אח
			ות תרגום דוח התאמות מ
	(7)		כספים
(69,949)	(83,015)		ד יתרת הפס	Accumulated deficit
12,809	9,691		סך ההון	Total equity
14,244	19,819		והון ת התחייבויו סך	Total equity and liabilities

* מייצג סכום הנמוך מאלף ש"ח.

הביאורים המצורפים מהווים חלק בלתי נפרד מדוחות כספיים אלה.

		לשנה שה	ום 31 בדצ סתיימה בי	מבר
	ביאור	2019	2018	2017*
			NIS 000
ח: חקר ופיתו הוצאות מ Research and development	14
ח חקר ופיתו הוצאות מ expenses וצאות תתפות בה בניכוי הש		14,518	16,146	1,145
וח מחקר ופית		(6,751)	(4,892)	(409)
D&R Net ח, נטו חקר ופיתו הוצאות מ		7,767	11,254	736
General and ות הלה וכללי הוצאות הנ administrative expenses		5,011 15	4,280	874
חר שום למס הוצאות רי		1ב' ­	51,770	­
Operating loss עולות הפסד מפ		12,778	67,304	1,610
Other income חרות הכנסות א		­	­	(99)
Finance expenses ת( מימון ת )הכנסו (הוצאו (income		256	(33)	5
Loss before taxes ל ההכנסה י מיסים ע הפסד לפנ		13,034	67,271	1,516
Income tax expense מס הוצאות	9	32	­	­
Loss נה הפסד לש		13,066	67,271	1,516
להיות שר עשויים סעיפים א ח או חדש לרוו מסווגים מ להפסד:
Exchange differences on וחות מתרגום ד הפרשים translating foreign טבע חוץ ערוכים במ כספיים ה operations		7	­	­
Loss for the year לשנה כולל הפסד		13,073	67,271	1,516
למניה סי ומדולל הפסד בסי per Loss share )בש"ח(	16	1.60	9.34	0.36

* לאחר יישום למפרע של שיטת הרכישה במהופך, ראה ביאור 1ב'.

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The named lead analyst and analysts responsible for this Report certify that the views expressed in the Report accurately reflect their personal views about the Company and its securities and that no part of their compensation was, is, or will be directly or indirectly related to the specific recommendation or view contained in the Report. Neither said analysts nor Frost & Sullivan trade or directly own any securities in the company. The lead analyst has a limited investment advisor license for analysis only.

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