Friday, May 27, 2011

All-electric Arbitrage

Any beat cop will tell you it is a tough job plying the streets, alleys and parking lots on foot.  T3 Motion, Inc. (TMMM:  NYSE Amex) aims to change that with its novel three-wheel electric vehicle  -  the T3 Series Electric Stand-up Vehicle (ESV).  The police departments in New York, Miami and Los Angeles were early adapters.  Just as keen are private security departments for retailers and schools and other large campus owners such as Target, Duke University and Disneyland.

Riders stand on a platform over the rear two-wheel base, giving patrol personnel the advantage of a higher view and a position of authority over crowds.  The T3 is zippy, reaching speeds up to 75 miles per hour.  It can make a tight turn while still giving the rider a secure perch.  More importantly, it exudes authority with trim lines and the iconic look of the traditional black and white police car.

T3 Motion has deployed over 2,500 vehicles in 25 countries around the world.  The company reports a $3.0 million backlog, which is impressive in a weak economy and even weaker local government budgets in the U.S. and around the world.  Low cost of operation has both public and private security departments clamoring to get as many of the T3s as their budgets will allow.  Its lithium polymer batteries are cost effective to charge.  Fewer man-hours are required to cover large areas, providing a quick return on investment. 

Management expects to introduce a consumer hybrid vehicle using the same proprietary power technology in security vehicle.  While still using the three-wheel concept, the R3 is designed to seat two and provide shelter from  the elements.   Since it is classified as a bicycle, the R3 can be placed on the market without the lengthy testing requirements imposed on cars and trucks. 

The T3 Motion management team has been making the round among investors over the past few weeks.  The company completed a public offering of common stock and warrants in early May 2011, raising $11.1 million.  The money is going to be used for expanding production of the T3 security vehicle and expanding the product line with the R3 consumer vehicle.

There is a bit of confusion over the company’s existing common stock trading under the symbol TTTM and the units just sold and trading under the symbol TTTM-U.  The book runner for the deal, Chardon Capital, is mum on when it plans to split the warrants off from unit and let them trade separately.  A bit of arbitrage may be possible if the common stock continues trading at a higher price level than the units.  Each unit consists of one share of common stock and two warrants at different exercise prices and terms.

As compelling as the arbitrage might be at recent prices, TTTM may not be for every investor.  The all-electric vehicle market is cluttered with designs, none of which appear to be making a profit.  T3 posted a loss of $10.2 million on $4.5 million in revenue in the twelve months ending March 2011.  There are still heavy investments to be made in the consumer vehicle design and production.  The sales and marketing platform is still under development.  A tolerance for stock price volatility and a long-term investment horizon will help fortify an investor taking a long position in TTTM or TTTM-U.

We are adding T3 Motion to The Mothers of Invention Index in a new group for Electric Vehicles.  It is a company worth watching.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: