Pinned straw:
Also agree, and from my point of view, as a holder of RFT with a bullish outlook, I really like to see the bear case posted and its a great part of the strawman value prop.
I agree with you, something like your option b) feels like what is spooking the market to me. Catalysed by the new director Jitto Arulampalam coming on board with a history in banking, capital markets and corporate activity. Whether its expansion to the US who knows, could be something a bit more simple like raising working capital to accelerate and close the next round of fast charging contracts, or a new product. I would expect customers might be pushing for proof of capacity or some sort of financial incentive or penalty on availability/timing in the contracts - this might mean that RFT need to break their usual conservative capital management practices to be ready. Maybe I’m over egging it, they seem to have been able to access debt in the past.
like you say, an expansion could go wrong, but it could go very right too! In another market this would be a hot rumour, with people buying into the expansion potential! At the moment its “this could go wrong - sell”, another day its “how big could this be - buy buy buy”! All weighed up I think what we’re seeing is a long term buying opportunity, but there is enough signs of smoke around with the timing (ie. contracts coming to expiry), new director (feels like he’s in to do a job) and the share price action to make me nervous about some short term volatility. You’ll never get a great deal when its obvious!
I’m not sure about incentives for rectifier for moving to the US in great detail, however for their customers (Eg. tritium), manufacturing in the US with a higher percentage of US made components helps them qualify for IRA benefits. In a large expansion scenario for RFT, it potentially makes sense that there’s manufacturing in the US (Australia could also be an option as we are likely to qualify as a local under a deal with US) could make sense, while they current manufacturing could provide customers elsewhere. I didn’t think this would be necessary yet though, my notes from the strawman discussion say that Nicholas Yeoh did confirm they’ve been in talks about it.
Probably also doesn't help when Tritium's own future is also in doubt..
Disc: Not held.
@Llati @Longpar5, good conversation on potential capex if RFT does decide to expand manufacturing the US. This paragraph in the annual report is all we have to go off:
The NEVI program forms part of Biden's "Build America, Buy America" funding to try and re-shore manufacturing the US. I think it's extremely important RFT is able to be compliant for their customers who would be looking to sell into the $7.5bn program. What this means in practice:
So it may not be a requirement of RFT to expand manufacturing if customers are able to stay under the 55% threshold.
It's also worth considering how much capex could potentially be even if manufacturing was expanded. The total cost of the Malaysian expansion was ~$2.5m for land and buildings and another ~$2.7m in plant and equipment built up over the last few years. You would hope they could find suitable facilities in the US that wouldn't require the >12 months is took to build the Malaysian facility, which would drastically reduce the capex requirements and leave it closer to the cost of the plant and equipment.
What would change the economics is I suspect RFT's uses low cost Malaysian opex as a substitute for capex, so you would either see margins hit because of higher US cost base, or higher capex to automate the manufacturing process further.
But either way, I would view any US manufacturing expansion a huge positive for the business. I am sure the decision wouldn't be made on a whim, but rather after detailed discussions and likely contracts with key US customers to support the process.
Based on its current share price performanc, I'm guessing Tritium might have a bit of space in their new shed in Lebanon, Tennessee
DISC: Hold a small amount of DCFC and RFT IRL (... even smaller recently)