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UQM: Its Strategic Partnership with CNHTC


The alphaDIRECT Insight

The opportunity in China remains a critical aspect for long-term growth at UQM in our opinion. Sinotruk and the CNHTC deal is a key part of that strategy and in this alphaDIRECT Management Series, we look for a progress report on that transaction and CFIUS approval as well as updates on Meritor and other recently announced wins. Over the past twelve months, the battery and fuel cell powered vehicle market has continued to gain traction and we are particularly encouraged by the opportunity in the commercial vehicle market around the world. In our view, UQM is one of the few pure play investments to take advantage of the vehicle electrification megatrend. With the recent cash infusion by CNHTC and the additional investment expected to be made once CFIUS review is concluded and approved, we believe UQM is very well positioned to take full advantage of the market opportunity. We are also watching the fuel cell compressor market closely as this could also become a meaningful market sector for UQM in the coming years. We are also keeping a close eye on Meritor and the E-axle development as UQM has now moved into the second phase with them and could present a meaningful commercial opportunity long-term.

Shawn Severson: Good Morning, Joe, and thank you for taking time to speak with us again today. The last time we spoke, we discussed the Meritor Alliance. Today’s focus will be on the strategic partnership with CNHTC. Can you start by providing us with a brief overview of the deal?

Joe Mitchell: Thank you, Shawn, and good to speak with you again. Quickly summarizing the CNHTC deal, the transaction is set up to be completed in two tranches, with the first tranche having them purchase 9.9% of UQM stock (that stage has been completed) bringing in approximately $5.0 million in proceeds to UQM. With this first stage, CNHTC is currently the largest shareholder of UQM.  With the second stage, CNHTC will purchase an additional approximately 24% of UQM stock, giving them roughly 34% ownership in UQM on a fully diluted basis and bringing us another $23 million in proceeds.  The second tranche required both shareholder approval and CFIUS approval.  Shareholder approval was obtained late last year with our shareholders voting overwhelmingly to approve the deal, and we continue to work with CFIUS to obtain their final approval.  Beyond the capital infusion from CNHTC, the most important element of the investment is the business opportunities for UQM.  CNHTC, being the parent company of Sinotruk, one of the largest commercial vehicle manufacturers in the world, will bring immense business opportunities to UQM.   To give us local manufacturing presence in the largest market in the world for electric vehicles, we will be forming a joint venture with Sinotruk to build our electric propulsion systems for this market to serve both Sinotruk and other customers.  Also included in the agreement is that UQM will have direct supplied content on every system with the control board including our proprietary software, along with funded development programs to support the JV product needs.

Shawn Severson: Thank you, Joe. In August you signed the stock purchase agreement CNHTC, and CNHTC completed the initial purchase of 9.9% of common shares outstanding. Can you give an update on the progress and the CFIUS review?

Joe Mitchell: We continue to work directly with many members of the Sinotruk teams defining the product portfolio and development needs along with planning for all aspects of the JV. We are looking forward to the closing of the second tranche that will provide us the funding to contribute our portion of the equity needed to fund the JV.  Our portion for our 25% ownership of the JV of contributed capital will be $6 million.  The CFIUS process and review continues.  CFIUS has sent a number of supplemental questions to both us and CNHTC that have put us into a 45-day extension period for the CFIUS process.  We now anticipate this being wrapped up by early March, assuming no other delays and they are satisfied with the responses provided and will not require additional information.