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UltraCharge (ASX:UTR) – Signs first commercial deal in the EV vertical and sets up JV in large Indonesian market

Article written by Pitt Street Research.  For the full report click here:

UltraCharge (UTR) is building an intellectual property (IP) portfolio around rechargeable battery technology. The company is developing TiO2 nanotubes to be used as future anode materials in batteries. UTR aggregating rechargeable battery IP in a bid to become a one-stop-shop for industry players that require such technologies, e.g. electric car / E-BUS manufacturers and battery cell Manufactures.

UltraCharge (ASX:UTR) recently announced it has signed a conditional purchase order (PO) with Israel-based Blitz Electric Motors Ltd (Blitz) for the design, development and manufacturing of lithium-ion batteries for electric scooters. The PO is dependent on achieving several testing milestones, including lab, vehicle and fleet testing.

Additionally, the company has announced it will establish a joint venture with PT Garda Persada (PTG), a supplier of battery and energy solutions for the Indonesian Military and Defense industries. The PTG deal marks UTR’sfirst production agreement with a JV partner.

Blitz supplies Pizza Hut, McDonalds and Domino’s Pizza

Blitz is active in 12 countries, predominantly in Israel and Europe and currently supplies Israeli Quick Service Restaurants (QSR), including Pizza Hut, Domino’s Pizza and McDonalds with electric delivery scooters.

Pizza Hut owns more than 1,400 stores in Europe and the UK. Domino’sPizza Group owns around 900 stores in the UK, Ireland, Germany and Switzerland, while other countries are serviced through other franchise organizations.

Given those arrangements we believe there is a very substantial growth opportunity for Blitz, and thus for UTR, if the development of the two pouch-cell batteries for Blitz proves successful.

Overall, we believe it’s fair to say that Blitz provides a tremendous opportunity for UTR to roll outits IP portfolio and expertise across the fast-growing vertical of Electric Vehicles (EV). Additionally, we believe this deal will go a long way to validating UTR’s technology fordeployment in other sectors, including drones and electric cars.

Two battery types to be developed

UTR will develop two battery types for Blitz’ current two electric scooter models, i.e. the Blitz3000 and the Blitz6000 (Figure 1). These two models have respective engine capacities which are comparable to 125cc and 200-250cc combustion engines.

Both models currently use Chinese Lithium-ion batteries that typically operate at 3.6V per cell. Lithium-ion batteries based on UTR’s technology operate at 4.7V and thus provide more powerper cell, requiring fewer of them in a single battery pack in order to provide the same electrical output.

Offtake of 28,000 units over three years would represent substantial revenues

If and when the conditions of the conditional PO are met, Blitz has agreed to purchase a minimum of 2,500, 5,000 and 10,000 battery units from UTR for the Blitz3000 in the first three years respectively. For the Blitz6000, the company has agreed to purchase 1,500, 3,000 and 6,000 from UTR in the first three contract years.

While UTR hasn’t mentioned unit prices, we believe the company will need to be cost competitive while providing a better performance than electric batteries currently on the market from companies such as Samsung SDI and Chinese manufacturers.

This would put the pricing roughly in the range of existing Lithium-ion battery solutions, i.e. around US$ 1,000 for a 4kWh battery pack, according to a Bloomberg New Energy Finance report.

Applying this price point to the projected offtake agreed between UTR and Blitz during the first three years of commercial supply, one can see the substantial revenue potential this deal holds for UTR if and when UTR can go into commercial production for Blitz.

Joint venture and sales agreement with established player to address the Indonesian military and defense battery market

UTR also recently announced it will establish a Joint Venture (JV) with PT Garda Persada (PTG), an Indonesian manufacturer of lead acid batteries, energy facilities and solar power systems. PTG mostly supplies different types of 12V lead acid batteries to the Indonesian Military for use in their radios, vehicles, ships, submarines, aircraft and portable solar chargers.

UTR will own 70% of the JV and will be required to contribute up to US$ 3M to the JV once PTG has secured at least US$ 5M in customer orders for UTR’s high-voltage lithium ion pouch cell batteries, e.g. from the Indonesian armed forces and throughout the ASEAN region.

UTR will be looking to set up a business relationship with PTG’s parent company Trinitan Group, which owns multiple companies in various industries, including energy storage and renewable energy.

UTR and PTG aim to finalize the JV within the next few quarters, which will require final due diligence, business planning and budgeting. If the JV goes ahead, we believe UTR will be in an excellent position to commercialize its technology with the Indonesian Military and more broadly in the ASEAN region.

Buy recommendation reiterated

While UTR will first need to successfully develop the two battery types for Blitz over the next twelve months, the Blitz deal is a strong validation of UTR’s technology and, in our view, is likely to trigger additional industry interest. The JV with PTG is potentially even more promising, givenPTG’s current access to the Indonesian armed forces and other clientele throughout the ASEAN region.

Therefore, we reiterate our Buy recommendation for UTR.

Disclosures

Pitt Street Research has been commissioned to prepare the Content. From time to time, Pitt Street Research representatives or associates may hold interests, transact or hold directorships in, or perform paid services for, companies mentioned herein. Pitt Street Research and its associates, officers, directors and employees, may, from time to time hold securities in the companies referred to herein and may trade in those securities as principal, and in a manner which may be contrary to recommendations mentioned in this document.

Pitt Street Research receives fees from the company referred to in this document, for research services and other financial services or advice we may provide to that company. The analyst has received assistance from the company in preparing this document. The company has provided the analyst with communication with senior management and information on the company and industry. As part of due diligence, the analyst has independently and critically reviewed the assistance and information provided by the company to form the opinions expressed in the report. Diligent care has been taken by the analyst to maintain an honest and fair objectivity in writing this report and making the recommendation. Where Pitt Street Research has been commissioned to prepare Content and receives fees for its preparation, please note that NO part of the fee, compensation or employee remuneration paid will either directly or indirectly impact the Content provided.

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