Friday, January 17, 2014

UQM Technologies ( Nasdaq - UQM ) -- The EV Power Train

UQM Technologies (UQM $2.15) is a leading provider of complete power train systems for the electric vehicle market.  The company builds compact motors that deliver high levels of torque.  Those engines also feature high power density (output to weight) and energy efficiency.  UQM combines its motors with sophisticated control systems that maximize performance.  The engines can work with virtually any power source including electric batteries, fuel cells, and hybrids.  Applications include automobiles, trucks, buses, and work machines.

Government regulations and subsidies, both here and abroad, are driving the market.  Corporate (fleet) Average Fuel Efficiency ("CAFE") standards will rise to 56 mpg in the next decade.  Similar hikes are on tap in other advanced nations.  Auto makers currently are engineering a new generation of vehicles to satisfy those requirements.  Lead times typically extend 4-5 years.  So most of the next batch of cars and trucks won't be commercialized until 2015 or so.  Final design decisions will be made soon, however.  Once everything is finalized key suppliers are likely to benefit from lengthy production cycles that could ramp to high levels if consumer demand responds.

UQM Technologies is working on several EV programs.  The most promising from a near term perspective are in the truck and bus areas.  Those manufacturers tend to be more willing to outsource motor production than auto producers.  Many of the OEMs that UQM deals with have been reinforced by loans and other investments by the Obama Administration.  Boulder EV is developing a series of electric delivery trucks for United Parcel Service.  Electric Vehicles International iw pursuing a similar vehicle with PG&E.  The utility is pursuing the technology to meet California's stringent green energy regulations.  Eaton is making electric engines for Freightliner and Paccar.  Zenith Motors is making a new line of shuttle vans .  And Proterra is working on all electric transit buses for the U.S. market.


UQM also is supplying electric power trains to Audi for its A-1 vehicle.  That project remains in the development stage and may never roll out due to a fairly high sticker price.  But additional Audi projects are in the pipeline.  UQM additionally is supplying motors for the new all electric SAAB sedan, which probably will be commercialized and could ride on Tesla Motors' coattails in the luxury market.

The Chinese market offers exceptional opportunities, as well.  New government regulations, designed to combat air pollution, require that 30% of all new transit buses use electric motors by 2015.  That figure could be exceeded in light of the $80,000 per unit subsidy the government is offering.  Electric powered trucks and work machines are eligible for $24,000 subsidies, moreover.  And electric automobiles will benefit by $7,000 to $10,000 per unit.  UQM Technologies began working with a major Chinese bus manufacturer two years ago.  Design work is approaching fruition.  A final contract has not been signed yet.  But UQM recently announced plans to raise $30 million in fresh capital to finance growth.  Some of the programs the company is working on could be nearing an inflection point.

Financial results are likely to improve in 2014.  We estimate sales will double to $20 million, pushing income above the break even mark for the first time.  In 2-3 years sales could reach $50-$60 million, yielding fully taxed earnings of $.10-$.15 a share.  Growth could be sustained at superior rates beyond.  Volume is likely benefit directly as the EV and hybrid vehicle markets expand.  The company also is developing an alternative to the rare earths that currently are essential components in electric engines.  That could provide a competitive advantage while also providing lucrative licensing opportunities.  Military applications hold further potential.  Research is underway at most military contractors to electrify a wide range of military vehicles.  Higher fuel economy created by hybrid systems could expand range and reduce logistical costs.  Having on board electricity generation also could support more surveillance and other types of equipment; and laser weaponry.


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