Business Overview and History
ECD Automotive Design, Inc. (NASDAQ: ECDA) is a leader in the custom luxury vehicle restoration and customization industry, specializing in iconic brands such as Land Rover Defenders, Range Rover Classics, Jaguar E-Types, Ford Mustangs, and Toyota FJs. Founded in 2013, the company has established itself as a premier destination for automotive enthusiasts and discerning collectors seeking one-of-a-kind, bespoke creations.
ECD Automotive Design's journey began in 2013 when the company set out to redefine the classic car restoration industry. Recognizing the growing demand for highly customized and personalized vehicles, the founders of ECD envisioned a facility where they could meticulously rebuild and upgrade iconic models, tailoring every aspect to the individual client's preferences.
Since its inception, ECD has focused on producing the most customized Land Rovers with the highest quality of parts and the most skilled labor force. The company primarily earns revenue from the sale of these customized vehicles directly to customers, as well as from providing repair or upgrade services and selling extended warranties.
On December 12, 2023, ECD completed a business combination with EF Hutton Acquisition Corporation I, a special purpose acquisition company (SPAC). As part of the merger, ECD became a wholly-owned subsidiary of the combined company, which was renamed ECD Automotive Design, Inc. This transaction allowed ECD to become a publicly traded company listed on the Nasdaq stock exchange.
Prior to the merger, in October 2023, ECD amended its articles of incorporation to authorize additional shares of common and preferred stock. The company also closed a transaction with Defender SPV LLC, issuing preferred stock and common stock as well as warrants to purchase additional shares.
Throughout its history, ECD has faced some challenges, particularly related to supply chain disruptions and cost increases due to the COVID-19 pandemic in 2020. The company was able to navigate these issues by diversifying its supply routes and implementing strategies to mitigate the impact on its operations.
The company's headquarters, known as the "Rover Dome," is a 100,000-square-foot facility located in Kissimmee, Florida. Here, a team of 89 talented craftsmen and technicians, holding a combined 69 National Institute for ASE and 4 master-level certifications, work tirelessly to bring each client's vision to life. ECD's commitment to quality and attention to detail has earned the company a reputation for delivering exceptional, one-of-a-kind vehicles.
In addition to its domestic operations, ECD leverages its subsidiary, ECD UK, to source and transport over-25-year-old work vehicles from the United Kingdom back to the United States for restoration. This strategic international presence allows the company to expand its reach and access a wider pool of rare and desirable classic vehicles.
Financial Overview
ECD Automotive Design's financial performance has been marked by significant growth in recent years. For the six months ended June 30, 2024, the company reported revenue of $17.18 million, a 161.3% increase compared to the same period in the prior year. However, the company faced a net loss of $2.48 million during this period, primarily due to increased operating expenses related to the company's transition to a public entity.
The company's gross profit margin for the six months ended June 30, 2024, was 30.8%, demonstrating the firm's ability to command premium pricing for its bespoke offerings. ECD's cash position as of June 30, 2024, stood at $5.66 million, with a working capital deficit of approximately $2.4 million.
In the most recent quarter, ECD reported revenue of $8,872,003, representing a significant year-over-year growth of 129.4%. This growth was primarily driven by a 108.9% increase in revenue from vehicle builds, as well as an increase in warranty and other revenue. However, the company reported a net loss of $926,069 compared to a net loss of $36,160 in the prior year quarter, due to higher operating expenses, particularly in general and administrative costs related to being a public company.
The company's operating cash flow (OCF) for the quarter was -$1,209,725, while free cash flow (FCF) stood at -$1,202,355. These negative cash flows were driven by the net loss as well as increases in inventory and decreases in deferred revenue.
ECD operates in one reportable segment focused on the production and sale of custom-built luxury vehicles. The company's primary revenue stream comes from the sale of rebuilt or upgraded Land Rover Defender, Range Rover Classics, Land Rover Series, and Jaguar E-Type vehicles directly to customers. During the six months ended June 30, 2024, build revenue represented 94.3% of total revenue and increased 150.3% to $16.21 million compared to the same period in 2023. This growth was driven by a 52.65% increase in the average selling price per vehicle as well as a 27.1% increase in production volume due to efficiency improvements in the build process.
Gross profit margins in the builds category improved by 870 basis points to 32.08% during the first half of 2024 compared to the same period in 2023, reflecting the higher average selling prices and production efficiencies.
ECD also generates revenue through the sale of extended warranties to customers and by providing repair services. For the six months ended June 30, 2024, warranty and other revenue represented 5.7% of total revenue and increased 875.3% to $973,340 compared to the first half of 2023. The improvement was primarily due to an increase in extended warranty sales as the company's customer base has grown.
Liquidity
In October 2023, the company secured a $15.82 million senior secured convertible note, which provided additional liquidity to support its growth initiatives. However, the company has faced some challenges, including events of default under the convertible note and the company's Series A Convertible Preferred Stock, which the company is currently working to resolve.
As of June 30, 2024, ECD had $11.55 million in convertible note debt and $3.89 million in lease liabilities, resulting in a high debt/equity ratio. The company's current ratio stood at 0.869, while its quick ratio was 0.330, indicating potential liquidity challenges.
To improve its liquidity position, ECD entered into a $1.5 million floor plan financing agreement in May 2024 to facilitate the purchase of used and trade-in vehicles. Additionally, the company's cash flow management has been supported by customer deposits, which totaled $7.12 million as of June 30, 2024.
Operational Highlights and Expansion
ECD Automotive Design has consistently expanded its product offerings to meet the evolving needs of its client base. In 2022, the company introduced the Jaguar E-Type to its lineup, which has proven to be a high-margin addition. More recently, in April 2024, the company acquired the assets of BNMC Continuation Cars LLC, enabling it to leverage the production of Mustangs in 2024 and 2025. This acquisition included the "Brand New Muscle Car" trademark, allowing ECD to expand its product offerings to include the production of customized Ford Mustangs in addition to its traditional Land Rover and Jaguar vehicles.
To enhance its operational efficiency and production capabilities, ECD opened a new 100,000-square-foot manufacturing facility in Kissimmee, Florida, in 2021. This state-of-the-art facility has allowed the company to increase its production by approximately 20% in 2023, utilizing a single shift. Additionally, ECD plans to add a 10,000-square-foot space in the second half of 2024 to accommodate the storage of delivery-ready vehicles and base vehicles shipped from ECD UK.
Recognizing the increasing demand for immediately available restored vehicles, ECD has also introduced a "built-for-inventory" model, allocating a small percentage of its production line to building limited-production-run vehicles that are ready for delivery. This initiative aims to provide clients with an alternative to the company's traditional custom build process.
Expansion into Retail and Strategic Partnerships
In a strategic move to enhance its customer experience and expand its retail presence, ECD Automotive Design announced in late 2024 that it had entered into a partnership with One Drivers Club in West Palm Beach, Florida. This collaboration will see ECD opening a 4,800-square-foot showroom and design center, allowing clients to personalize their custom vehicles in an immersive and luxurious setting.
Furthermore, the company has been actively exploring collaborative opportunities with high-end luxury brands, offering joint marketing campaigns and exclusive product placements featuring its one-of-one vehicles. This initiative aims to leverage ECD's reputation for craftsmanship and exclusivity to reach a discerning, affluent audience.
Risks and Challenges
While ECD Automotive Design has achieved remarkable success in the custom luxury vehicle restoration market, the company faces several risks and challenges that investors should consider:
1. Reliance on a limited number of large customers: A significant portion of ECD's revenue is derived from a small number of high-net-worth individuals, making the company vulnerable to changes in their spending patterns or preferences.
2. Regulatory and legal risks: As with any automotive manufacturer, ECD is subject to various regulatory and legal requirements, which could impact its operations and financial performance.
3. Supply chain disruptions: The company's business model is dependent on the availability of rare and hard-to-find classic vehicle components, which could be disrupted by global supply chain issues or other external factors.
4. Potential economic downturns: The luxury automotive market is susceptible to economic fluctuations, and a prolonged economic downturn could adversely affect ECD's financial performance.
5. Intensifying competition: The custom luxury vehicle restoration market is becoming increasingly competitive, with new players entering the space and established players expanding their offerings.
6. Liquidity challenges: The company's current and quick ratios indicate potential liquidity issues, which could affect its ability to meet short-term obligations and fund growth initiatives.
7. High debt levels: ECD's significant convertible note debt and lease liabilities result in a high debt/equity ratio, which could limit financial flexibility and increase interest expenses.
Outlook and Conclusion
ECD Automotive Design's dedication to craftsmanship, innovation, and customer satisfaction has positioned the company as a leading player in the custom luxury vehicle restoration industry. With its expanded product offerings, enhanced operational capabilities, and strategic retail and brand partnerships, ECD is well-positioned to capitalize on the growing demand for bespoke, high-end automotive experiences.
The company's strong revenue growth, particularly in its core builds segment, demonstrates the increasing appeal of its customized vehicles. The introduction of new product lines, such as the Ford Mustang, and the expansion of its warranty and repair services, provide additional avenues for growth and diversification of revenue streams.
However, ECD must navigate the risks and challenges inherent to its industry, including customer concentration, regulatory compliance, supply chain disruptions, and intensifying competition. The company's financial position, particularly its liquidity and debt levels, will require careful management to ensure sustainable growth and profitability.
Investors should closely monitor ECD's ability to manage these factors and continue delivering exceptional, one-of-a-kind vehicles to its discerning clientele. The company's success in improving operational efficiencies, expanding its product lineup, and enhancing its retail presence will be crucial in driving long-term value creation.
Overall, ECD Automotive Design's unique business model, focus on quality, and commitment to innovation make it a compelling investment opportunity for those seeking exposure to the niche but lucrative custom luxury vehicle restoration market. As the company continues to execute its growth strategy and address its financial challenges, it has the potential to solidify its position as a leader in the high-end automotive customization industry.