By Bart Taylor | Nov 29, 2021
It's fitting that as nominations open this week in the 2022 Colorado Manufacturing Awards, we circle back with Tim Reeser, CEO of 2018 winner Lightning Systems, today Lightning eMotors. Reeser's high-flying EV systems manufacturer is the first CMA winner to go public -- though, we think, not the last.
Tim's always one of the best interviews in the business. We caught up in November 2021.
CompanyWeek: Tim, the first time we spoke, in 2014 or so, you were getting Lightning off the ground and I was launching CompanyWeek. Today you're CEO of a public company, and I'm still trying to grow a small, regional media business. What's wrong with that picture?
Tim Reeser: [Laughs.] Sadly, as we all know, it's not all kicks and giggles. There are some days when I long for a small company where I could just get things done, instead of right now where every decision requires 13 lawyers' approval before I can say a word, so it's a very different world. I'm enjoying it, but there are some days I look fondly and jealousy at where you're at.
CW: Seriously, congratulations on the success. So what's changed in the short time since you've gone public, from this sleepy little growth story in Colorado to a publicly traded company, for both the company and you?
TR: Yeah, from a corporate standpoint I'll share a couple things your readers might enjoy. As a private company, my directors and officers [D&O] insurance -- essentially our lawsuit insurance -- was about $100,000 a year. Our base premium is $5 million dollars a year now. And I have a $15 million per year retention, or deductible. So the first $15 million of any lawsuit you pay directly, and there's a $5 million premium.
That kind of set's the stage, and I think it's important to say that yes, part of being a public company is you have access to the markets, but there's also a lot of overhead. Our finance department, prior to being a public company, was two people. We're 13 right now, and four or five of those people are just to handle the SEC reporting requirements -- every month, every quarter, on the Qs and the Ks. And Admittedly, before going public, I didn't know anything about that. Thankfully, we've hired an extraordinary CFO and general counsel.
So where before I spent my time primarily building the business in terms of product and customers, now there's overhead to being a public company, of keeping investors happy and all the SEC, legal, and finance overhead that goes with that. And people warned me that it's far different than even two years ago. I would have argued then that you could be a small public company, but today, you're guaranteed to be in lawsuits, it's part of being a public company no matter how good you run it or what you do. The effort to keep investors and the SEC is a big effort. There isn't really an option to be a small public company anymore. You have to go big.
It's the same thing in manufacturing. There's not really an option to be a small manufacturer anymore; you have to get to critical mass with the supply chain, and you have to get to critical mass with labor and overhead costs. That means keeping a factory busy and having a big enough factory to do that.
The great part of what allowed us to go public was thankfully the market inflected about a year ago. As our costs came down and we started to grow, the market started to say, "Hey, we really want electric vehicles, electric trucks and buses," and as we found our niche in this space, that allowed us to say, "We can be big, there's a huge scale opportunity, and we can therefore be a public company because we have the opportunity and business to scale."
So those two things had to come together: If we didn't have that scale, it wouldn't have made sense for us to talk about going public, but when you talk about scaling, the amount of money and capital required to be a big public manufacturing company, we needed the investment capital. Those two things came together, but certainly it has changed my job.
CW: So you're still raising capital, but the conversations have changed.
TR: I've always been involved in the investor side, but what's changed there is the magnitude of the conversation. Before, when I had meetings with a VC or small family office, we were talking about a half-million dollar or $2 million investment, today it's not unusual to talk to an investor about their $40 million investment.
And I'm spending about the same amount of time and due diligence to get someone with $40 to $80 million invested than before. In fact, I look at who's investing, and I found out somebody just bought the better part of $50 million of our stock and I'd never even met them. So, that part is really odd, but that timing of convincing investors on why we're a good investment, what we're doing, how we're trying to get there, that's still a significant amount of my time and that I enjoy doing.
So the jobs definitely changed, but some things are the same. As you know, for any CEO, it's about looking at where do you need to spend your time to get the best return on that time investment -- what part do you you delegate to the great team you building, and what part do you continue to do yourself, what do you keep doing because you're good at it and enjoy it. That part hasn't changed, whether you're a five person company or a 500-person company.
CW: How have the earnings calls gone so far? How many have you had?
TR: We've had two earnings calls so far; I admit I like them. But it is highly stressful: In a private company, there are very few positions where in an hour's time, you can either create a $100 million dollars of investor interest, or lose $100 million in investor interest!
And a lot goes into it. For each investor call we spend about three weeks of intense effort preparing, really understanding the business, creating all the reports and Powerpoints that go into, so that when you have the hours earnings call you can be prepared, and when the analysts ask you questions, you can answer them effectively. But as you know one of the challenges of a public company is that there's a lot of things I can't say anymore. Before, when an investor asked me a question, I could answer it at whatever level of transparency I wanted. Today that's not an option. Today I have to know in the back of my head what's already public information, and what's not.
It's a new skill set I've had to learn. It makes it a highly stressful and exciting time, but so far the market has generally been fair to us and the feedback I get is that the analysts have liked the earnings calls, and the response has been good.
CW: So talk to me about how the electric vehicle supply chain is changing, and how it might move out of Detroit -- to follow Tesla into Texas, for example -- into high-density EV areas, or not?
TR: Our supply chain has been largely made up of early-stage, small-volume manufacturers. Now, as we move into higher volume, in some cases those manufacturers want to grow with us, and they'll make the investments in the automation they need to make to grow with us, but in some cases, it's not their business. And whether you're talking about small-scale fabricators or small-scale manufacturers, it's just different.
So we're pushing the supply chain up. And what we've found is, it's not as mature as everybody had hoped. One of the things you see with Tesla, is that they're vertically integrated; they built a lot of their own supply chain. And it's quite a barrier to entry for many other companies who've said, "We're going to compete with Tesla," and very few people have been able to ramp up because the supply chain isn't ready to support them, as Tesla's vertically integrated and builds their own stuff.
In the early days, I thought it was their arrogance --"'It's not invented here" -- but I realized after doing it they had no choice: No one else was building what they needed in the quantities they needed it, so they had to go do it themselves. And the same thing has happened to us: We've had to pull in our own fabrication or manufactured parts because we couldn't get them from other people in the scale we need them. We've had to pull some things in-house.
But now we're starting to see the supply chain scale up; we have more options. Now that we're getting out of what I call manufacturing "no man's land" -- meaning we need more than one or two, but less than 10,000 -- we can talk about thousands rather than tens. But we're still not in the hundreds of thousands; in fact our business of commercial vehicles isn't ever going into the hundreds of thousands or millions of vehicles. So supply chain's still difficult. Some things we're just looking out and saying, "Do we just do it ourselves, do we vertically integrate?" and in fact we've built some of our own components and parts. In other cases we're working with suppliers to try and get them where they need to be, and that's maturing some, but it's a slow pace because people have to buy automation.
It means we're constantly looking for new partners and new people, and I think it builds a new opportunity for some of your readers and your audience. Because it is in transition. If this was just a matter of going to buy from people who've always made it, there's no real opportunity there for new players to innovate and do something new. Now there's a tremendous opportunity for someone to come in and do something new, because a lot of traditional players in Michigan or other places, to your point, don't have the right scale we need: They're either way too big or too small -- or they may be doing it in the wrong place.
The frank truth is that it's hard to get margins manufacturing something in Los Angeles, or the Bay Area, and in the Midwest, to your point, there's a lot of people that just don't want to live there anymore. We think Colorado's in a unique position to bridge that: we still have very inexpensive facility space -- we're in the ex-Hewlett-Packard factory where we're paying a fraction of what a manufacturing facility cost in most of the rest of the U.S. except the Midwest -- yet from a labor standpoint we have a much bigger labor pool that's interested in being here.
So we're in a unique spot -- but again, transitionary. Colorado hasn't been known for automotive manufacturing, and the reason we can innovate in this space is because the big guys can't scale to the right volume, and right headspace, and right people-space to do it. And the guys who are trying to start up in California are really struggling with making costs work in that space.
CW: Will labor align with you in Colorado?
TR: Yes, we feel very good about it. We'll double our workforce this year to next year, growing 100 people, 150 people at a time here, and some of that is direct labor, some of it is not. We're automating -- we're adding automated robotic welding and other aspects to the line that continue to improve our automation -- but so far we've had very good success with direct labor here with the great engineering schools we have, and the fact that engineers like to live in Colorado.
That said, we're not looking to add 30,000 people. We're looking to add hundreds as we grow, and potentially getting to a thousand people in the next several years, but we're not having to recreate a labor pool, we're just leveraging what's here, and we're having very good success.
CW: Obviously you're automating to become a more efficient manufacturer, a better manufacturer, but does automation also help you recruit kids coming out of the R&D ecosystem here? Does it change their perception of manufacturing?
TR: Absolutely. Even the direct-labor folks that come in, the term "gamification" plays. Some of the new automation we're doing, literally there's a projector and almost a game going in the assembly as they're putting together a component.
So there's an amount of catering to the interests of the employees and making this a bit "game-y" as opposed to where it was before where -- where it was dirty, manual labor. This isn't that. It does make it easier to attract the millennials, and I enjoy seeing that, but it's also resulting in a higher-quality product, a more consistent product.
CW: Finally, peek into the future for me. Where does electrification in transportation go from here? Will the major automotive OEMs be able to meet their objectives? And how quickly do other transportation segments go electric.
TR: The first thing I'd tell everybody is that people have to love the product. Even when we started doing it, I'll just be frank, people didn't love the product. There was a lot of compromise on the product side compared to a gasoline vehicle. Range was a compromise, cost was a big compromise, feel of the vehicle was a big compromise. It's difficult to say, "Hey, these things are going to become ubiquitous and everyone's going to have one," when there are so many compromises.
I tell everybody that I wouldn't be in this business if it was just about tree-hugging or sustainability or because I can force a sustainability mandate on a company or the government's forced a carbon mandate. I'm an engineer by trade -- I love a great product, an elegant product; I have no interest in being in a business that's forced on people.
So what's happened in the two years is that the products have crossed over, they're exciting. Your readers who drive a Tesla, or a Chevy Volt -- they're great products. The customers who drive these products, they fundamentally like them. And that's now happening in the commercial vehicle space as well. Our customers like the product better than their gasoline or diesel product -- and their passengers like it better as well.
The second thing that had to happen is that the cost had to come down because everyone has a level at which they're willing to make an investment and the total cost of ownership had to work. As volume has gone up, and the supply chain's matured, our costs have dropped by half of what they were even 18 months ago.
The third thing is infrastructure. When people first bought a Model T, there wasn't a gas station or tire shop on every corner, there wasn't the ecosystem 100 years ago that we take for granted today. I like to read the stories of people with their Model Ts, who couldn't get gasoline anywhere, stopping to put kerosene in the tank. The fact is electric vehicles suffer from the same lack of infrastructure -- but it's now happening and is getting better.
There are a few places where infrastructure doesn't exist. Over the road, over the highway, there's not enough infrastructure. You'll see some niche players there, but the idea of ubiquitous over the road electric trucks is a ways out.
And the same things with airplanes. I love the work, I'm personally interested in it, but it's not next year. Energy density of a battery is still a long way off from where jet fuel is, or diesel fuel, so there are still limits where this doesn't make sense overnight.
So I think we'll see battery electrification and fuel cells take off where there's infrastructure. In other places, it's going to take a while.
CompanyWeek profiled Lightning eMotors in July 2020.
Bart Taylor is publisher of CompanyWeek. Reach him at email@example.com.