Could REE be the next big thing after Mobileye for Israel’s thriving auto-tech sector? Certainly it’s offering the emerging electric vehicle industry an innovative and compelling technology that puts a vehicle’s motor, steering, suspension, drivetrain, sensing, braking and electronics into its wheels. The result is a modular chassis that gives automakers a platform for a wide range of body configurations – four wheels and a flat surface.
REE is in the middle of a funding round that values the company at more than 2 billion shekels ($580 million). TheMarker has learned that Israel’s Meitav Dash investment house has put in 70 million shekels, while ILDC Insurance has agreed to top off a previous 15 million shekel investment in the company with several million shekels more, subject to its investment committee’s final approval.
The valuation REE is getting in the current round reflects a major step forward for the Israeli startup. Its 2018 fundraiser valued the company at a mere 300 million shekels and another at the start of 2019 was at between 400 million and 500 million.
Since then, a technology tie-up with Hino Motors, the truck-making subsidiary of Japan’s Toyota Motors have allowed REE to showcase its technology at the 46th Tokyo Motor Show five weeks ago.
Now REE could be on its way to becoming a unicorn, a startup with a valuation of at least $1 billion. Its main rivals — the U.S. electric vehicle startups Zoox, Rivian and Nuro — are each valued in the billions of dollars.
REE’s story goes back to another startup, called SoftWheel, which was formed in 2011 by REE co-founders Daniel Barel and Ahishay Sardes, today REE’s CEO and chief technology officer, respectively. SoftWheel developed wheels for wheelchairs and bicycles with shock absorbers built directly into their rims. From there, Barel and Sardes took the leap into the electric vehicle industry with REE. Today the Tel Aviv-based company employs 100 people and has 60 patents.
Its technology enables makers of cars, all-terrain vehicles and trucks to build vehicles powered by motors that are located in the wheels. The design reduces the vehicle’s weight, saving energy and extending the range an electric vehicle can travel without charge, to 500 kilometers. It also allows for more space in the vehicle’s passenger compartment.
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A wheel made by REE can accelerate from zero to 100 kph (60 mph) in just three seconds and can reach a speed of 250 kph.
In addition to Israeli investors, REE also boasts an array of partners from the global automotive industry, including Japan’s Mitusbishi and Musashi Seimitsu, a unit of Honda that makes vehicle power trains, as well as the U.S. company American Axle & Manufacturing.
“We can see REE’s technology has huge potential in the autonomous driving world, as it makes the electrification process highly efficient with its new modular platform.” Mitsubishi said in a statement in July, when REE came out of “stealth mode.”
The global electric vehicle market is expected to grow quickly over the next several years and to capture close to one-third of the entire market for automobiles. That means REE has to work quickly to form relationships with the industry’s leading players.
The concept platform incorporating REE and Hino technology, which is designed for trucks of up to four tons, contains autonomous propulsion in six wheels. They are attached to a completely flat, modular chassis.
Israeli institutional investors like the kind that are investing in REE have traditionally shunned the country’s high-tech sector, which has largely relied on foreign capital. But encouraged by the Israel Securities Authority, they are increasingly investing in local startups and closely held tech companies. Today, between 0.25% and 1% of their assets are invested in the sector, an average of 0.5%. Still, that puts them far below the 4%-5% exposure that U.S. institutions have.
“There’s a disconnect between the thriving high-tech industry and the capital market,” ISA Chairwoman Anat Guetta recently told TheMarker in an interview.
“Ninety percent of high-tech investment comes from foreign sources, including that from local venture capital funds, most of whose backers are foreign. At a time when Israeli institutions manage 1.7 trillion shekels, we asked ourselves: ‘If investing in high-tech is so good from a financial point of view, why do institutions choose real estate rather than high-tech?’”
The ISA program to encourage more tech investment, which is being run with the Israel Innovation Authority, covers half the cost of hiring analysts with tech expertise to evaluate companies, mainly growth-stage companies with revenues of $150 million to $200 million.
Critics say Israeli high-tech is already saturated with investment capital. Companies are raising money at inflated valuations and Israeli institutions don’t offer any comparative advantage to startups as investors.
One way or the other, Israeli institutions have been investing cautiously. For example, the Israeli insurance company Phoenix invested in Fiverr, the Israel-based online platform for matching freelancers with customers, before its initial public offering.
As for REE, Guy Mani, Meitav Dash’s investments manager, said: “REE has developed a technology that could generate great value to our clients. We think there is a lot of potential here. We believe that ultimately part of the growth potential for [retirement] savings will come through breakthrough technologies.”