Get to Know Your Proxy – Part Three: Thinking About the Future

Feb 27, 2024

Fellow shareholders:

Previously, we covered the basics of our proposed transaction with Xos, and a look at our own financial projections for the combined companies, as detailed in the recently-filed Joint Proxy Statement/Circular (those posts can be found here, the proxy itself can be found here).

The current values of both Xos and EMV, on a standalone basis, are known – because we’re both public companies, you can see the market capitalizations, and calculate the enterprise values, for each.

Of course, our rationale for the transaction means that we’re focused on future value – which is why we spent as much time as we did evaluating what we could expect if we were to contribute our capital resources to Xos’ growing business.

Our financial projections – discussed in the Joint Proxy Statement/Circular, and summarized here – show the potential impact of additional capital delivered to Xos as the company scales to meet demand. And, as the company scales, we believe that the unit economics will improve (bearing in mind that Xos is already manufacturing and selling its vehicles at positive gross margins).

It’s important for shareholders to understand the potential financial performance and value of the combined enterprise with an eye toward the future. Our own forecasts show a company with the potential to grow sales by hundreds of millions of dollars over the next four years, expand margins, and be free cash flow positive in 2027.

Greenhill & Co., EMV’s independent third-party Financial Advisor, has also provided a fairness opinion in connection with the Xos shares to be received by EMV Shareholders in the transaction (the “Consideration Shares”). The following is a summary of the material financial analyses contained in the Opinion (as defined in the Joint Proxy Statement/Circular) as to whether, as of the date of the Opinion and based upon the scope of review and subject to the assumptions, limitations, qualifications, procedures and other factors set out therein, the Consideration Shares to be received by ElectraMeccanica Shareholders pursuant to the transaction is fair, from a financial point of view, to ElectraMeccanica Shareholders.

The full text of the Opinion, setting out the scope of review, assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the Opinion, can be found in Appendix “F” of the Joint Proxy Statement/Circular. We encourage ElectraMeccanica Shareholders to review this information.

Comparable Companies Approach: The value of the Consideration Shares derived from Greenhill’s analyses using the Comparable Companies Approach was $48 – 69 million / $0.39 – 0.57 per ElectraMeccanica Share based on EV/Revenue and $93 – 127 million / $0.76 – 1.04 per ElectraMeccanica Share based on EV/EBITDA, which compares favorably vs. the Wind-Down Value ($49.8 million / $0.41 per ElectraMeccanica Share).
Discounted Cash Flow (“DCF”) Approach: The value of the Consideration Shares derived from Greenhill’s analyses using the DCF Approach was $76 – 104 million / $0.62 – 0.85 per ElectraMeccanica Share, which compares favorably vs. the Wind-Down Value ($49.8 million / $0.41 per ElectraMeccanica Share).

Shareholders will appreciate why we are so supportive of the transaction: we believe Xos will grow from a business perspective, and our shareholders have the opportunity to participate in that projected growth.

Of course, we again encourage our shareholders to review the proxy filing in detail, and to make their own determination as it relates to the opportunities ahead.

We look forward to your support, and be sure to keep current by checking our transaction microsite at: https://xosandemv.com.

Additional Information and Where to Find It

In connection with the proposed transaction, Xos and ElectraMeccanica have filed with the U.S. Securities and Exchange Commission (the “SEC”) a joint preliminary proxy statement, including a preliminary management information circular, and intend to file a definitive proxy statement, including a definitive management information circular, and other relevant documents relating to the proposed transaction. Promptly after filing the joint definitive proxy statement with the SEC, Xos and ElectraMeccanica will mail the joint definitive proxy statement, including management information circular, and a proxy card to Xos’ stockholders and ElectraMeccanica’s shareholders as of the record date established for voting on the matters related to the proposed transaction and any other matters to be voted on at the special meetings of Xos’ stockholders and ElectraMeccanica’s shareholders, respectively. BEFORE MAKING ANY VOTING DECISION, INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENTS AND MANAGEMENT INFORMATION CIRCULARS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO), AS APPLICABLE, AND ANY OTHER DOCUMENTS THAT XOS AND ELECTRAMECCANICA WILL FILE WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, OR INCORPORATE BY REFERENCE IN THE JOINT PROXY STATEMENTS AND MANAGEMENT INFORMATION CIRCULARS, AS APPLICABLE, WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Security holders may obtain free copies of the joint preliminary and definitive proxy statements and management information circulars (including any amendments or supplements thereto) and any other relevant documents filed by Xos and ElectraMeccanica with the SEC in connection with the proposed transaction (when they become available) on the SEC’s website at www.sec.gov, on the Canadian System for Electronic Document Analysis and Retrieval+ website at https://www.sedarplus.ca/, on Xos’ website at www.xostrucks.com, by contacting Xos’ investor relations via email at investors@xostrucks.com, on ElectraMeccanica’s website at https://ir.emvauto.com, or by contacting ElectraMeccanica’s Investor Relations via email at IR@emvauto.com, as applicable.

The Opinion was provided solely for the use and benefit of the ElectraMeccanica Board (in its capacity as such) in its consideration of the Arrangement and may not be used or relied upon by any other person. The Opinion does not address the relative merits of the transactions contemplated by the Arrangement Agreement as compared to any alternative transaction or opportunity that might be available to ElectraMeccanica, nor does it address the underlying business decision by ElectraMeccanica to engage in the Arrangement or the terms of the Arrangement Agreement or the documents referred to therein. The Opinion does not constitute a recommendation as to how any ElectraMeccanica Shareholder should vote or act on the Arrangement or any matter related thereto. The summary herein is qualified in its entirety by reference to the full text of the Opinion. The Opinion is not a formal valuation under applicable Canadian securities laws.

Participants in the Solicitation

Xos and its directors and certain of its executive officers, consisting of Stuart Bernstein, Burt Jordan, Alice K. Jackson, George N. Mattson and Ed Rapp, who are the non-employee members of the board of directors of Xos, Dakota Semler, Chief Executive Officer and a director of Xos, Giordano Sordoni, Chief Operating Officer and a director of Xos, Liana Pogosyan, Vice President of Finance and Acting Chief Financial Officer of Xos, and Christen Romero, General Counsel of Xos, are participants in the solicitation of proxies from the stockholders of Xos in connection with matters related to the proposed transaction and any other matters to be voted on at the special meeting of stockholders of Xos. Information regarding Xos’ directors and certain of its executive officers, including a description of their direct or indirect interests, by security holdings or otherwise, can be found under the captions “Security Ownership of Certain Beneficial Owners and Management,” “Executive Compensation-Outstanding Equity Awards at 2022 Fiscal Year-End,” and “Executive Compensation-Director Compensation” contained in Xos’ definitive proxy statement on Schedule 14A for its 2023 annual meeting of the stockholders (the “2023 Xos Proxy Statement”), which was filed with the SEC on April 20, 2023. To the extent that Xos’ directors and executive officers and their respective affiliates have acquired or disposed of security holdings since the applicable “as of” date disclosed in the 2023 Xos Proxy Statement, such transactions have been or will be reflected on Statements of Changes in Beneficial Ownership on Form 4 filed with the SEC. Other information regarding the participants in the proxy solicitation and a description of their interests will be contained in the joint preliminary and definitive proxy statements and management information circulars for Xos’ special meeting of stockholders and other relevant materials to be filed with the SEC in respect of the proposed transaction when they become available.

ElectraMeccanica and its directors and certain of its executive officers, consisting of Luisa Ingargiola, Dietmar Ostermann, Michael Richardson, Steven Sanders, David Shemmans and Joanne Yan, who are the non-employee members of the board of directors of ElectraMeccanica, Susan Docherty, Chief Executive Officer, Interim Chief Operating Officer and a director of ElectraMeccanica, Kim Brink, Chief Revenue Officer of ElectraMeccanica, Michael Bridge, General Counsel and Secretary of ElectraMeccanica, and Stephen Johnston, Chief Financial Officer of ElectraMeccanica, are participants in the solicitation of proxies from the shareholders of ElectraMeccanica in connection with matters related to the proposed transaction and any other matters to be voted on at the special meeting of the shareholders of ElectraMeccanica. Information regarding ElectraMeccanica’s directors and certain of its executive officers, including a description of their direct or indirect interests, by security holdings or otherwise, can be found under the captions “Security Ownership of Certain Beneficial Owners and Management,” “Executive Compensation,” and “Director Compensation” contained in ElectraMeccanica’s definitive proxy statement on Schedule 14A for its 2023 annual general meeting of shareholders (the “2023 ElectraMeccanica Proxy Statement”), which was filed with the SEC and applicable Canadian securities regulatory authorities on November 22, 2023. To the extent that ElectraMeccanica’s directors and executive officers and their respective affiliates have acquired or disposed of security holdings since the applicable “as of” date disclosed in the 2023 ElectraMeccanica Proxy Statement, such transactions have been or will be reflected on Statements of Changes in Beneficial Ownership on Form 4 filed with the SEC, including the Form 4s filed with the SEC on March 24, 2023 with respect to Michael Bridge, and on January 5, 2024 with respect to Stephen Johnston. Other information regarding the participants in the proxy solicitation and a description of their interests will be contained in the joint preliminary and definitive proxy statements and management information circulars for ElectraMeccanica’s special meeting of shareholders and any other relevant materials to be filed with the SEC and applicable Canadian securities regulatory authorities in respect of the proposed transaction when they become available.

These documents are available free of charge from the sources described in the preceding section titled “Additional Information and Where to Find It.”

Non-Solicitation

This communication will not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor will there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

Safe Harbor Statement

This communication includes “forward-looking statements” within the meaning of U.S. federal securities laws and applicable Canadian securities laws. These forward-looking statements are subject to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words or expressions such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “may,” “will,” “projects,” “could,” “should,” “would,” “seek,” “forecast,” or other similar expressions. Forward-looking statements represent current judgments about possible future events, including, but not limited to statements regarding expectations or forecasts of business, operations, financial performance, prospects, and other plans, intentions, expectations, estimates, and beliefs relating to the proposed transaction between ElectraMeccanica and Xos, such as statements regarding the combined operations and prospects of ElectraMeccanica and Xos, the current and projected market, growth opportunities and synergies for the combined company, federal and state regulatory tailwinds, expectations and intentions provided by ElectraMeccanica to Xos, the expected cash balance of ElectraMeccanica at the time of the closing of the proposed transaction, expectations regarding Xos’ ability to leverage ElectraMeccanica’s assets, the expected composition of the management and the board of directors of the combined company, gross margin and future profitability expectations, and the timing and completion of the proposed transaction, including the satisfaction or waiver of all the required conditions thereto. These forward-looking statements are based upon the current beliefs and expectations of the management of ElectraMeccanica and Xos and are subject to known and unknown risks and uncertainties. Factors that could cause actual events to differ include, but are not limited to:

the ability of the combined company to further penetrate the U.S. market;
the total addressable market of Xos’ business;
general economic conditions in the markets where Xos operates;
the expected timing of any regulatory approvals relating to the proposed transaction, the businesses of ElectraMeccanica and Xos and of the combined company and product launches of such businesses and companies;
non-performance of third-party vendors and contractors;
risks related to the combined company’s ability to successfully sell its products and the market reception to and performance of its products;
ElectraMeccanica’s, Xos’, and the combined company’s compliance with, and changes to, applicable laws and regulations;
ElectraMeccanica’s, Xos’, and the combined company’s limited operating history;
the combined company’s ability to manage growth;
the combined company’s ability to obtain additional financing;
the combined company’s ability to expand product offerings;
the combined company’s ability to compete with others in its industry;
the combined company’s ability to protect its intellectual property;
ElectraMeccanica’s, Xos’, and the combined company’s ability to defend against legal proceedings;
the combined company’s success in retaining or recruiting, or changes required in, its officers, key employees or directors;
the combined company’s ability to achieve the expected benefits from the proposed transaction within the expected time frames or at all;
the incurrence of unexpected costs, liabilities or delays relating to the proposed transaction;
the satisfaction (or waiver) of closing conditions to the consummation of the proposed transaction, including with respect to the approval of Xos’ stockholders and ElectraMeccanica’s shareholders;
the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the definitive arrangement agreement;
the effect of the announcement or pendency of the transaction on the combined company’s business relationships, operating results and business generally; and
other economic, business, competitive, and regulatory factors affecting the businesses of the companies generally, including but not limited to those set forth in ElectraMeccanica’s filings with the SEC, including in the “Risk Factors” section of ElectraMeccanica’s Annual Report on Form 10-K filed with the SEC on April 17, 2023, ElectraMeccanica’s Quarterly Report on Form 10-Q filed with the SEC on November 3, 2023 and any subsequent SEC filings, and those set forth in Xos’ filings with the SEC, including in the “Risk Factors” section of Xos’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 and any subsequent SEC filings. These documents with respect to ElectraMeccanica can be accessed on ElectraMeccanica’s website at https://ir.emvauto.com/filings/sec-filings/default.aspx and these documents with respect to Xos can be accessed on Xos’ web page at https://www.xostrucks.com/investor-overview/ by clicking on the link “SEC Filings.”

Readers are cautioned not to place undue reliance on forward-looking statements. It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of ElectraMeccanica, Xos or the combined company. Forward-looking statements speak only as of the date they are made, and ElectraMeccanica, Xos and the combined company undertake no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events, or other factors that affect the subject of these statements, except where they are expressly required to do so by law.