The planned merger between Exro Technologies Inc. (EXRO-T) and SEA Electric is a sign of Exro’s faith in the electric vehicle (EV) market’s promise on the commercial side, according to a shareholder letter from Exro’s CEO Sue Ozdemir.

The Calgary-based designer and manufacturer of power-control electronics announced in late January plans to acquire Torrance, Calif.-based SEA Electric. In a letter to Exro shareholders published Wednesday, Ozdemir elaborated on the reasoning for the deal that values SEA Electric at $402 million.

Saying the commercial vehicle sector is indicating “high market-readiness for electrification” compared to passenger vehicles, Ozdemir believes regulations and environmental mandates will accelerate fleet electrification starting this year.

“Our decision to merge with SEA Electric reflects a strategic choice that capitalizes on the market transitions around us.”

Update on the SEA Electric acquisition

The merger is said to mark “a significant leap forward in our mission to drive the global transition of commercial vehicles to electric mobility.”

Exro’s target of making over $200 million in revenue in 2024 is reliant on its acquisition of EV technology companies like SEA Electric, the letter states. Exro’s Coil Driver, an EV traction inverter that optimizes electric motor performance, will be placed alongside SEA Electric’s SEA-Drive vehicle control unit in Exro’s propulsion technology.

The propulsion technology will be provided to commercial EV players, creating a model that has low capital expenditures, she continued. Combined with its strong book order, it will guide the company’s business model to electrify the commercial EV space, Ozdemir said.

The merger is designed to synergize both companies’ propulsion technologies while streamlining revenue and cost structures to pave a path to profitability within 12 months of closing the acquisition, Ozdemir said.

Exro has filed a supplement to its base shelf prospectus on SEDAR to include information related to SEA Electric, according to the letter. Ozdemir said the company is on track for a special shareholder meeting on April 4, 2024 to discuss the merger.

Exro’s technology to date

After certification of its Cell Driver energy storage system by global safety science company UL was delayed, Exro says it has now completed the testing program to receive the validation. The UL certification is anticipated by mid-Q2 2024, as Exro continues its plan to drive revenue from Cell Driver technology.

As for Coil Driver, Ozdemir plans to unveil data about its performance and highway efficiency when paired with a rare-earth-free induction motor. At the Advanced e-Motor Technology Conference in Munich this week, Exro’s CTO Eric Hustedt will be showcasing data that Ozdemir claims will demonstrate Coil Driver with an induction motor performs better than a Chevy Bolt, Tesla Model Y and commercial trucks with motors that have rare earth permanent magnets.

Its initiative to integrate Coil Driver into Linamar’s e-axle is progressing on-schedule, Ozdemir said, with the focus placed on completing a medium-duty commercial truck demonstration vehicle for delivery in Q2 2024.

Coil Driver deliveries have been made to HB4 for commissioning the launch of electric light duty vehicles; high voltage deliveries to Giaffone in Brazil for commissioning on delivery trucks; and to Vicinity Motor Corp. for airport shuttle buses in Canada and the U.S.

Exro’s read on the EV market

As Ozdemir told Sustainable Biz Canada in an interview in February, the EV market is facing challenges.

In the letter, she referred to the headwinds as a market correction based on investor caution for EV original equipment manufacturers (OEMs), the passenger EV sector dragging down the industry as a whole, and macroeconomic factors such as rising interest rates and inflation.

Despite the troubles, she said Exro is managing a stock performance in the middle tier of its small- and mid-cap EV technology peers. Progress toward Exro’s pilot with a global automotive OEM for an in-vehicle demonstration later this year is on track.

Exro’s merger with SEA Electric addresses some of these concerns by diversifying the company across the passenger and commercial EV sectors, Ozdemir said. She also previously told Sustainable Biz Canada the acquisition allows Exro to “take advantage of contracts that are already placed on (SEA Electric).”

Ozdemir also expects interest rates to ease over the year, possibly raising consumer sentiment for EVs.

The company’s priorities moving forward will be establishing blue chip customer partnerships, technology development and market expansion, Ozdemir concluded.