• Gerd Hübner

Mia electrifies.

Fox e aufmacherStart-up. Swiss entrepreneur Andreas Kratzer wants to make Fox e-mobility the first pure e-vehicle company in Europe. An ambitious goal, because the market is competitive. To prevail, Kratzer needs investors who believe in his vision.

"I've already had a few ventures in my life," says Andreas Kratzer. This thing with Mia could be my last big adventure. That's why I can't let it end up as a flop." The 60-year-old entrepreneur has a big goal: He wants to help the Mia 2.0 electric vehicle break through in the increasingly competitive e-mobility market. Against Tesla, against Chinese competitors and against the other large, established car companies. A real gamble.

"I think we have two big advantages," says Kratzer. "One is that with Mia we are focusing on the small car segment, where there will be less competition for the foreseeable future. And second, we have a huge head start in development."

That has to do with Mia's history. Because it actually begins more than ten years ago. To be more precise, with Edwin Kohl, a pharmaceutical entrepreneur from the Saarland. At the time, he had the idea of developing an electric car and founded the company Mia Electric in France in June 2010. To implement it, he enlisted Murat Günak, previously head of the design department at Volkswagen.

The two are indeed a congenial team. "They created an efficient mobility concept with a very good energy balance through the central seating position of the driver, the use of sliding doors and the use of very lightweight materials. That was visionary." But the market wasn't ripe at the time. "Ten years ago, there was no charging infrastructure, no subsidies, and batteries were ten times as expensive as they are today." Accordingly, demand for Mia remained manageable.

Even though he had to financially support a complete production and was making huge losses month after month, Edwin Kohl held on to his dream for a long time. By February 2013, however, just around 1500 vehicles had been sold. This meant that the company was far below plan. Therefore, in 2013 Kohl decided to sell his shares in the company to a group of investors, who in turn brought the entire previous development with all patents, prototypes and spare parts into Fox Automotive Switzerland.

There Mia parked and waited until someone restarted the electric motor.

That this could be Andreas Kratzer, the Swiss himself did not suspect at this time. The graduate economist was a consultant at Ernst & Young, specializing in corporate finance, private equity and M&A transactions, and had founded the Swiss finance boutique Azemos Partner AG with partners in 2003. "That was an exciting step into self-employment." Kratzer's job was to look after wealthy clients' assets and build real estate portfolios.

In 2009, in the middle of the financial crisis, he got out of Azemos. "At that time, a Swiss industrial group wanted to set up its production in Eastern Europe, and I was supposed to organize that," he says. It works. But later, the dream job turns into a nightmare. In 2016, the company's majority shareholder and CEO resigns following investigations by the Zurich public prosecutor's office into possible financial crimes.

Suddenly, Kratzer himself is responsible for the company as CEO. "Actually, insolvency was already inevitable at that time, but I had investors who trusted me and wanted their capital back. Besides, I had promised to save the jobs hanging on it."

For Andreas Kratzer, a hard and exhausting time begins. He succeeds in selling parts of the company, saving many jobs and returning at least some of the investors' money. Then, at the beginning of 2018, bankruptcy is opened over the group.

Now Kratzer decides to found his own family office, Across Advisory GmbH, together with his son, in order to provide long-term support for entrepreneurs and projects. This is how he gets in touch with Fox Automotive Switzerland. "Actually, I had only bought a few shares in the company and watched from the sidelines, so to speak. But at some point they asked me how they should proceed with Mia."

In 2017, he begins to look more closely into the subject. And finds it so interesting that he goes from coach to CEO. "For one thing, I think the topic of sustainability and electric mobility is very important, and for another, there are a few exciting aspects about Mia that can help us actually get this done. To get such a vehicle on the road, for example, requires an investment of 300 to 350 million euros. However, around 150 million euros of that had already been provided." A so-called homologation was also already available. Mia 1.0 had road approval and could be built in large-scale production immediately. "That saves development costs and time."

The schedule is correspondingly ambitious. The electric car is to be mass-produced and put on the road as early as 2023. Normally, such a development takes five years. Until then, there is still a lot to do. "For example, new legal requirements are constantly coming in that we have to take into account," explains Kratzer. "In addition - and for this we have again engaged Murat Günak - we want to carry out a kind of facelift on the vehicle, improve the design and adapt it to today's requirements."

But above all, capital is needed. Kratzer estimates the remaining investment requirement, including start-up losses, at around 160 million euros. About half of this is to be raised through outside capital - through loans and the issue of so-called green bonds. The latter is possible because the proceeds ultimately flow into a green project aimed at reducing CO2 emissions.

For the other half, the company needs equity. Therefore, at the end of 2020, the listed shell of Catinum AG will be acquired, renamed Fox e-mobility AG and Fox Automotive Switzerland will then be incorporated into the AG. "This route has saved us a time-consuming and costly IPO and now offers us the opportunity to raise some of the money we need via capital increases," explains Kratzer, who himself holds around five percent of the new company. At the beginning of this year, a first small capital increase was carried out - two million euros to cover running costs. This was followed by the issue of a convertible bond. Further capital measures should, no, must follow.

Andreas Kratzer, who handed over his role as CEO to Philippe Perret in mid-2020, and his fellow board members, who include experienced managers from the automotive and renewable energy sectors, must find new investors and ensure that the old ones continue to follow suit. That's why he never tires of outlining the positive prospects of "Mia reloaded".

"The most important point is: unlike ten years ago, the time is now ripe for electric mobility." Indeed, the market for electric vehicles is booming. Global sales climbed by around one million to 3.24 million in the pandemic year 2020. At the same time, the topic is gaining momentum in Europe in particular. According to estimates by the Boston Consulting Group, a good one in four new vehicles on the old continent will be battery-powered only by 2030. Given that around twelve million vehicles were sold in Europe last year, that would be three million electric cars in 2030.

"The pandemic has ensured that many people have become more environmentally aware. Suddenly the issues of mobility, transport - how does someone get from A to B - as well as their own carbon footprint have come to the fore."

In this respect, Mia obviously has good cards. Its distinguishing feature is that over 95 percent of the parts used can be recycled. This improves the CO2 footprint over the car's service life, which has repeatedly come in for criticism in the case of electric cars. In addition, the car is a small car, designed for city driving, and so light that a small and lightweight battery with 25 kWh of power is enough for a range of 200 kilometers. Last but not least, the car should be available from 16000 euros including VAT. "So we have hardly any competition in this market segment.And because the profit margins on small vehicles are comparatively low, not many new competitors are likely to try to enter the market."

What sounds like an advantage, however, is also a burden. Because management only calculates on a gross margin of around five percent per vehicle sold, the company has to produce very leanly. An interesting change in recent years could help with that. "Because of the sales problems that some large carmakers had in 2018 and 2019, many of them brought production back in-house from contract manufacturers like VDL Netcar and Valmet Automotive."

As a result, capacity is now free there. "Since such partners have a lot of know-how and very good quality assurance, we decided not to set up expensive production ourselves, but to outsource it." There will be variants and accessories, with the makers of the Mia relying on high-quality standard components from the supplier industry for the vehicle parts.

Alternative propulsion technologies such as hydrogen could pose another threat. "Whether electromobility is the solution forever, I don't know either, of course," Andreas Kratzer admits. "But I do know that there is no sufficient charging infrastructure for hydrogen and we are still very far away from competitive prices here."

For Mia, he and his colleagues have done the math: With hydrogen propulsion, the price would currently be more than twice as high. The advantage of the greater range of a hydrogen battery - albeit a much heavier one - would in any case mainly benefit buses or trucks. "For us, the focus is on urban traffic, where a driver might cover an average of 50 or 60 kilometers a day at most."

In addition to private individuals, Kratzer also counts small businesses such as craft enterprises among potential buyers. "That's where the car is an important cost factor. And since electric vehicles have almost no wear and tear, maintenance is very inexpensive. In addition, the Mia 2.0 has a lot of space for transport and is therefore also an option for logistics companies that can no longer even get into many city centres. This could be the solution for the last mile."

In 2023, when production starts, about 50000 units should be sold, after that 100000 units per year each. If the company manages to realize only half of this plan, sales would be well above about 800 million euros as early as 2024, assuming a selling price of 16000 euros. According to analysts' estimates, pre-tax profits would then be around 40 million euros. In addition, there would be two other potential sources of revenue. First, the car could be licensed in other regions of the world, in the US or in Japan. And second, the company would receive CO2 emission certificates for each vehicle sold, since electric cars are considered emission-free.

The case of Fiat Chrysler shows how interesting this business is. The car company is buying CO2 credits worth around €1.8 billion from Tesla until 2022 in order to escape the EU fines it would otherwise face. Tesla, in turn, turned a profit for the first time last year as a result. "If we achieve 500 to 1000 euros per vehicle like this, the gross margin could rise to ten percent," Andreas Kratzer reflects, concluding, "Mia would then be a pretty successful business and the crowning glory of my professional life." ®

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// How to invest in Mia.

At the stock market launch, Fox e-mobility's share price initially shot up steeply to 4.38 euros. In the meantime, the initial euphoria has disappeared. In mid-May, the share was only quoted at 1.00 euros.

In the spring, a small capital increase was carried out in which the company's executive bodies subscribed for shares at two euros per share. At the end of April, the company agreed a growth financing with the London-based asset manager Atlas Capital Markets (ACM). It provides for the issue of a mandatory convertible bond in the amount of 25 million euros. Fox can call this sum over the next three years, whereby the investor must convert the convertible bond into shares. In addition, it was agreed that ACM still has the right to subscribe to further share certificates of the company at 2.50 euros until the end of 2022 to the extent of 30 percent of the converted shares. However, he does not have to exercise the option.

There is, however, a flaw in this construction. The conversion price per share is 95 percent of the market price on the five consecutive trading days before Fox issues an exercise notice.

There is, therefore, an incentive for ACM to depress the company's stock price during the relevant period in order to obtain the shares as cheaply as possible. Because this is now likely to weigh on the price of the comparatively market-beating stock for some time, the deal did not go down well with investors either. After the announcement, the share price dropped significantly.

However, for risk-tolerant investors with staying power, this construction could also be an opportunity. Like ACM, they can also invest on favorable terms. After all, Fox is currently valued at only around €77 million. This level is well below the development costs that were put into the previous vehicle.

Of course, questions remain: Can the vehicle be adapted to new technologies? Will it find a market in its niche? Can a renowned production partner be found? And above all: Will Fox e-mobility find investors who are prepared to go along with at least one more major capital increase?

It is definitely worthwhile for investors to keep an eye on the stock (ISIN: DE000A2NB551). If Andreas Kratzer's plan works, the share price could multiply. In the worst case, however, a total loss is also possible.

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Author: Gerd Hübner