Military Contracts, Leasing Factory Key to Arcimoto’s Recovery Plan

The company lost $13.2 million this quarter, but CEO Chris Dawson says the electric vehicle manufacturer is on track to become profitable by 2025.

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Eugene-based three-wheel electric vehicle manufacturer Arcimoto’s second-quarter earnings report, which was released Thursday,  shows the company earned $1.7 million while taking $13.2 million in net losses. The numbers do reflect improvement, a 17% increase in revenue and 25% decrease in net losses compared to the second quarter of 2022, when the company lost a net $17.4 million.

Leading up to the earnings call this month, the company announced plans to lease space in its Eugene factory, as well as a fundraising round of $6.7 million, and a partnership with Department of Defense contractor Matbock, which makes hybrid-electric tactical vehicles.

The company also debuted its MUV (Modern Utility Vehicle), a modular utility vehicle in the company’s lineup of small-footprint electric vehicles meant for professional and commercial use.

Shortly after the earnings call Oregon Business spoke with Arcimoto CEO Chris Dawson, who stepped into the role on April 20, replacing interim CEO Jesse Fittpaldi, who took the reins of the company after the departure of founder Mark Frohmayer last summer following a DUI arrest. Dawson is optimistic about the future of the eco-friendly vehicle manufacturer, saying it’s becoming more efficient, eliminating costs, and on track to become profitable.

This interview has been edited for length and clarity.

When you took over Arcimoto the company experienced a lot of a lot of financial difficulties, a lot of revenue loss compared to profit. What has been your general strategy for reducing costs?

You did a good job of lightly talking about the fact that Rome was burning. Like in sports, it’s focused on the fundamentals. We sat down and went through all 3,500 unique parts, quite literally part by part, and asked “Why are we spending $9 on this bolt? Why are we spending $800 on this battery?” Now we’ve made all our make-versus-buy decisions.

We’re very vertically integrated. We have a ton of capital equipment and capability that we’re not utilizing. Originally, we were planning on scaling to 50,000 units a year very quickly, so they spent a lot of money on a 250,000-square-foot building on 10 acres with tons of very nice CNC equipment, which I’m very familiar with. We’ve been leveraging that for contract manufacturing any time that we don’t need it as another revenue arm. And we’re not real estate investors, we’re a vehicle manufacturer.

We’re also scaling up to 24/7 operations. We’ve derived enough business to be able to warrant that. We have all this manufacturing potential just hanging on the vine, so we’re leveraging that. Not only will we be able to leverage and only lease the areas that we need, which is a drastic cost savings, it also pulls a fairly large amount of equity that’s going to catapult us through next year as far as runway and driving us closer to that breakeven point and then getting into operational income.

You recently partnered with defense contractor Matbock. You also have a background in defense contracting yourself. How will defense and military contracts figure into Arcimoto’s overall strategy?

I’m ex-military myself. Before I got out I was actively upgrading and fixing repairing submarines, nose to tail and get them back out to the deployment. That means integrating new technologies and new prototypes. A few years ago, I started my own engineering firm that concentrated on the development of these green technologies for military application.

As you know, as geopolitics continues to shift and our supply chains are looking less and less reliable, the military right now is very worried about where we’re sourcing a lot of our technology from, and our company is well-positioned as we have our own battery factory and build our own batteries. All the action currently in Ukraine and potentials in Asia are absolutely getting the military folks excited. They see the vulnerabilities in the supply chain and how that’s going to affect our ability to continue to operate in foreign theaters.

I see this being a very large market. Right now, we are in the prototyping phase and there are tens of thousands of [military] vehicles that could benefit from technology we’re injecting into these current prototypes. There’s an opportunity to float and grow almost solely on defense. That’s not the goal, but when we look at the potential of what our Arcimoto could supply there I have every confidence that I could shut everything down for the retail commercial side, concentrate solely on military, and build business on it.

Is the military interested in green technology right now?

If you go to the Army or Navy, Marines, Air Force, and you say, “here’s something to reduce your carbon footprint,” that’s actually not a core problem that they’re trying to solve. But if I go, “What if I gave you 300 miles of range at silent operation and another 600 miles of range with a highly efficient generator on board, so now you have an insane level of operational efficiency on the battlefield?” It doesn’t matter that it’s electric, it doesn’t matter that it’s green, it’s just a better product.

It’s very valuable to the military and they’re willing to pay for that in the fact that we’re able to move very quickly. We can simply add a shift and crank out a bunch of batteries for whatever they might need.

You also introduced your modern utility vehicle (MUV) light industrial vehicles able to be fitted for different commercial purposes. What was the impulse behind that vehicle?

That really was birthed out of our deliverator, which is basically an SUV with enclosed rear cabin in the back seat, only instead of a back seat it has shelving. When we started putting out the deliverators on various pilot projects, customers thought it was neat and sleek and looks cool, but it’s weird to work with, and if you’re loading square boxes into a non-square space, you actually don’t get to utilize the full capacity. So, in listening to customers we said “Okay, how about how about a box in the back?”  

Now it’s perfect for typical last-mile delivery, and parts leveling, and all the things that business might utilize. And then we heard “how about a flatbed on the rails, right?” So that was when said “this whole thing needs to be modular, this is just like a tractor on the farm to build an interface on that allows somebody else, and outfitter, entrepreneur farmer, whoever needs whatever kind of function, to build an implement just like tractors have multiple implements that you can integrate.

Now we’ll work designing very specific implements for specific customer requests to facilitate whatever kind of work applications that they want. The MUV is a blank canvas by which anybody can paint whatever commercial solution that they want.

What has been the reaction to them so far? Haven’t you sold any of the units yet?

Yeah, we certainly have and there’s a ton of interest. There’s a few there’s a few folks that are individually interested, in retail tech sales, which we’re certainly open to, but what we really built this for as large-scale fleet application. We’re in various conversations and various levels of deal execution on large fleet purchases of these vehicles. It’s clear we knocked it out of the park.

This is something that I would expect to see big waves from even within this quarter, if not this year, right within this year, if not this next quarter.

Its clear businesses didn’t know they had problems that could be solved by this. From some outfits that you’ve heard of, but everything from smaller mom and pop solutions to density is a big box and delivery applications for companies you’ve definitely heard of. There’s no other product that does this and it does it efficiently and doesn’t have acquisition costs without any need for upgraded infrastructure.

Is it safe to say Arcimoto’s new strategy is to diversify and look at areas where this technology like military and industrial can be used where there’s more demand?

It’s safe to say that.

Previously, Arcimoto was predominantly concentrated on direct consumer retail sales, so that’s a very niche lane which Tesla has done a great job cultivating, having spent many years there. We took a lot of arrows in the back to try to make that work. Arcimoto is not in the same position that Elon is with the relative pocket depth that he has. He was able to weather that storm long enough to make it work. We’ve got to build a lot more pragmatic business where we’ve got to leverage relationships, such as dealers and third-party service groups in order to support the product.

We’ve made 1000 vehicles, and that is great, but it’s still a small quantity of what we will build in the future. I’m not Elon and so [my perspective is] let’s build a business that makes sense.

You raised $6.7 million in capital this year.  Where’s that money going?

We’re we’re scaling up our manufacturing equipment, I should say, the availability of that manufacturing equipment, I don’t need any more of it, I just need to utilize it more often. One of use case for some of that money is to add the heads and the chefs that I need to scale my manufacturing facilities 24/7.

Another use of those funds will go into recommissioning our San Diego location, dressing it up turning it into a true-blue real dealer and with sales, service, financing, where someone actually come in and buy a vehicle like we’re all used to buying a vehicle, and then control C control V that Florida do the very same thing.

Most of our sales this year are in Florida and Southern California, and there’s enough meat on the bone in any one of those areas to take us past our break-even point. One of the most proven methods for selling vehicles is butts and seats.

Even with the progress, Arcimoto still has a sizeable revenue gap. When do you expect Arcimoto to become profitable?

Late 2024, or early 2025 we expect to hit that break-even point, which for us is 7,500 units a year. We won’t have made that by that time, but we’ll be at that run rate table, that stable foundation.

What you see with the current loss of $13 million versus the $17 million is a massive improvement.  We went through all the listed unit parts and the build-versus-buy material and said “okay, here’s the path on how we get the build material to profitability, now how much potential revenue is sitting on the shelf we’ve already lost that money?” On its face, that sounds silly to say, “Okay, let’s start manufacturing, even though we know we’re losing money on every single vehicle.” But the truth is, we’ve already lost that money. So we’re pulling the money off the shelf, we’re putting it out. That’s the reason you see that trend going from 17 to 13, and then even lower next year when we’re swapping those parts out, whether we can make them internally cheaper, or we’re finding cheaper suppliers.