Saietta products power electric vehicles

Saietta (LSE:SED) went public in August 2021. In November of the same year, its share price hit a high of 300p but has fallen back to 73p, which is a significant discount. This penny stock might be a diamond in the rough because it designs, engineers, and manufactures complete powertrains for electric vehicles.

Electric vehicles are undoubtedly a growth market. The UK will ban sales of internal combustion engine vehicles entirely from 2040. Other countries have similar plans. Eventually, nearly all vehicles will have electric motors and powertrains, which is what Saietta produces.

Axial flux technology motor

The company’s edge comes from a potentially disruptive solution for electric propulsion. Its axial flux technology motors, like the AFT 140, are said to be both cheap and highly efficient compared to rival offerings. Its initial aim was to get these into electric bikes, mainly in Asia. It has set up a joint venture in India to spearhead this effort. An acquisition in November 2021 brought it into the market for electric motors for heavy commercial vehicles. It has also launched a range of electric boat motors.

In the last fiscal year, which ended on 31 March 2022, Saietta manufactured 168 motors. That’s some way off the target of 100,000 per year by 2024. But, a new manufacturing facility in Sunderland, UK, is operational. This site produced 24m electric motor units under its former tenant. It will need reconfiguring, but its addition to the Saietta estate has made management confident of hitting its target ahead of schedule and under budget.

A penny stock for the long term

At the moment, Saietta is an early-stage company that sells relatively few motors, and 60% of its revenues come from just three customers. There can be no guarantees that it will find substantial, sustained traction as an original equipment manufacturer for vehicle makers. However, revenue growth of +300% in the last year with 86% growth forecast for the coming years looks inviting. Although the company is making losses, these should eventually swing into profits if the growth story holds.

Part of its share price decline over the last year is due to the market dragging it down. But some of it has to do with company-specific issues. It has raised quite a bit of equity this year. That’s not surprising, given Saietta’s stage in the corporate lifecycle. But, regardless, the share count has increased by 21% this year. Shareholder dilution waters down future returns. More equity raises are inevitable, as the company has enough cash for about a year and is still expanding.

However, despite it being a highly speculative stock, I am happy to buy Saietta for my Stocks and Shares ISA for 2023 and beyond. There might be more share price volatility, and I only expect to be rewarded in the long run.

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EV stock set to motor

Pancake shaped axial flux motors can be mounted on the wheel of an electric vehicle. They are efficient but expensive. Saietta has developed a patent-pending axial flux electric motor that it says can be mass-produced at a low cost.

Saietta’s AFT 140 motor is optimised for mid-power motorbikes and final mile delivery vehicles. Saietta sees the Asian market, in particular India, as the one to crack. Light motorbikes are already ubiquitous on the roads there. And, by 2030, 100m new motorbikes could hit the roads each year, and 40% of them are forecasted to be electric vehicles. These new electric motorbikes are what Saietta wants its motors to run.

A partnership with Padmini, an Indian automotive parts manufacturer, is part of Saietta’s plan to participate in the electrification of India’s motorcycles. It will be a manufacturing and distribution partner in India. The AFT 140 is tuned to operate in high ambient temperatures with heavy payloads over relatively short daily distances. The motor will be low voltage, allowing servicing by individuals untrained in high-voltage repairs. The high torque produced by the motor means no transmission, which reduces the overall price of the bike.

Getting electric motorbikes onto India’s roads requires new infrastructure. Thankfully, that is already on its way. Gogoro, a Taiwanese company, has already announced a partnership with a large two-wheeled vehicle manufacturer to bring its battery swapping refuelling platform to India. Home charging is, of course, an option, but a network of refuelling stations should help speed up electrification. 

Saietta stock price

So, this is the Saietta stock story: it has a design for a potentially disruptive axial flux motor ideally suited to the demands of the light motorbike market in Asia, in particular, India, where it has a partner to help move its motors. There appears to be a growing market for electric motorbikes supported by infrastructure improvements and general trends. The company now wants to scale up production to establish itself as a low-cost manufacturer of electric motors for two-wheeled vehicles.

Now, how do the numbers look? Saietta raised gross proceeds of £37.5m in the run-up to today’s flotation. Part of that will pay for a UK durability testing (to reassure buyers of the motor’s longevity) facility. Most will go towards scaling up the UK based production to 100,000 units per year within three years. It has increased its revenues on limited production from £174,188 to £870,966 from 2020 to 2021. But apart from that, I do not know much.

I have not seen an IPO prospectus from Saietta. It has filed only balance sheets with Companies House. This is not uncommon for a new AIM stock, but it does leave me in the dark. As much as I like Saietta and its plans, I would like some more financial information before buying this EV stock for my Stocks and Shares ISA. In particular, I would want to see some pricing information. I will wait until I see it.

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