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A Speculative Play On UQM Beginning 2/7/2015

|Includes: UQM Technologies, Inc (UQM)

This is a follow-on to my original "A speculative play on UQM" which grew to over 700 comments since May of 2011. To make it faster to load going forward I decided to start this new one.

The major changes since the original was posted is that UQM's first major customer, CODA, has gone belly up. The testing with the European automakers supposedly continues. UQM has 39(?) motors out for certification for an energy management application that is supposed to yield follow-on orders for up to 500 motors if all goes as hoped.

A couple recent developments on the positive side are worth noting.

"UQM Technologies Granted Patent on Innovative Permanent Magnet Electric Motor Design that Allows the Use of Non-Rare Earth Magnets" from January 20, 2015, positions UQM to cope with volatility in the REE space, which can affect the input costs of UQM's products.

There's a couple recent (Feb. 5, 2015) PRs that may portend good things going forward: "UQM Technologies Achieves Electric Motor/Controller System Certification in China", "UQM Technologies Enters Cooperative Production and Supply Agreement with the KESHI GROUP in Changzhou, China for Explosion Proof Systems", and "UQM Technologies Announces Business Relationship with South Korean Power Plaza for UQM PowerPhase Electric Motor and Controller Systems".

Since it's recent and has some additional information beyond the PRs, here's the "UQM Technologies UQM Q3 2015 Results - Earnings Call Transcript". One of the more interesting tidbits from the transcript (emphasis added): "We expect to be in production in China later this calendar year. Through our exclusive agreement with KESHI, they will buy critical components from UQM while sourcing the explosion-proof components in China. We have agreed to grant KESHI a license to build and sell these motors in China. UQM will have the ability to sell these products in other regions of the world. We have protected all of the IP rights for our core technology, and we believe this is just the first phase of our relationship. Already, we are exploring other applications for explosion-proof motors, and we've agreed to work on other mining projects with them in order to grow our presence in this very interesting market".

A little later (emphasis added):"And we continue our discussions with a third company who already has our buses on the road in a test mode as we have previously mentioned. We are working to finalize negotiations with them as soon as possible, and they're reaching a critical stage that they'd like to be in production later in this calendar year".

Further down, regarding the Power Plaza effort in Korea (emphasis added): "Power Plaza has placed their first order to build a small fleet of test vehicles to gain real-world data and at the same time to allow homologation of this retrofit, which will take approximately 6 months. They have agreed to exclusively purchase motors and controllers from us for all future orders for their high-performance 1-ton truck conversion. And this application will use a version of the PowerPhase 100 that will also help to reduce our current inventory". That last item should be the CODA motors inventory which has been collecting spider webs, mostly, until now. If quantities ordered are significant the working capital situation should improve quite a bit (by shortening the WC cycle as these motors convert to cash going forward), and it's supposedly OK already per the CC: "Finally, our balance sheet remained strong, as we ended the quarter with $7.2 million of cash, working capital of $16.4 million and no debt". We'll might want to go back and see if we can determine how much of that $16.4MM of WC was in finished goods and "ballpark" what portion was motors originally destined for CODA if we want to see the potential impact.

In the Q&A portion we get a very small additional insight into the new energy management application area: "... they were in the finalization of selection of the final product. And then we mentioned that we had to go gain additional certification, which we're in the midst of now. They are buying, we announced a certain number. They told us that they may actually exceed that number by a little bit. ... [regarding the 35 or something motors for certification] But they think they'll go beyond that in the early stages because they're gaining some interest". That's followed by a more detailed discussion which boils down to roughly a year of certification testing left to do if everything stays on track (please confirm for yourself my take being right or wrong).

That wraps up with (emphasis added): "... is want to do it just a little bit quicker and the good news is that their indications are that the support level from their ultimate customer is also improving. So we feel pretty good". So, was "their customer" leery initially or ...? Regardless, is this "improving" just hopium, which is addictive to all parties? Best be conservative here and figure things will actually take longer than anticipated: "expect the worst and hope for the best and you won't be disappointed".

The next part of the Q&A gets into the China stuff, specifically buses and such. Lots of fuzzy estimates regarding that - not a criticism, just observation. Worth a read though.

Some fleshing out of the South Korea opportunity is presented and a bit more on the explosion-proof motors for in China: "... The one advantage we have certainly in the beginning here is we're the only explosion-proof motor that we're aware of in China for a permanent magnet motor and that's a pretty good competitive advantage. It's taken us quite some time to get this far".

There was some more discussion of buses in China and BYD.

Some negative news on the U.S. hybrid front: "... wasn't positive on the Eaton announcement. We did confirm it while we were sitting here talking that they had announced that they dropped hybrids within the North American market, which was one of our users. They're still in the rest of the world".

That's "All the news that's fit to print".

I've got a micro-blog going, "UQM Short Interest Table", that just makes some short interest data convenient to review. I update it aperiodically.

For now this is all I'll have in the header. If time and interest coincide, I'll try and gather a bunch of links to articles and such that folks were kind enough to post in their comments in the prior blog and put them here so we don't have to go back to that slow loading version to find interesting stuff. It won't happen quickly though. If/when I add those things, I'll post a comment letting folks know.

Disclosure: The author is long UQM.