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Making A Bullish Case For UQM, Last Man Standing In Electric Traction

Recent deals with a Chinese bus Group and a mining equipment manufacturer appear to be very promising.

Targeting higher-margin niche markets is a good strategy for a small player like UQM.

UQM is one of the few remaining exchange-listed electric propulsion specialists and could be an interesting acquisition target.

There has been much negative publicity in recent months about UQM Technologies (NYSEMKT:UQM). Former CEO Eric Ridenour was fired in July leading to an obligatory payment of $460,410 - quite a large sum for a little company. The latest quarterly financial statements have been rather disappointing with rising losses and dwindling capital resources.

No wonder many investors are betting on bankruptcy. As of October 30th, there was short interest totalling 2,224,578 shares.

In spite of such headwinds, I believe UQM can have a sound future. Below, I present my analysis of one of the few remaining independent electric propulsion systems specialists. With a focus on the recent China deals I argue that the value of UQM could be much higher than the current market capitalization.

Most of the data included below is taken from the latest Q2/2016 earnings call and the UQM website, if not otherwise indicated.

UQM is one of several pioneers that turned the vision of electric vehicle propulsion to reality. Although their technology had been far from cutting edge for many years, they acquired much relevant know-how about the design and engineering of a complete electric drivetrain.

After the financial crisis they were lucky to benefit from an e-mobility government program and received a $27.1m grant. UQM used the money to build a state-of-the-art 130,000 sq. foot facility and to receive ISO/TS 16949 certification, which is required by many potential customers.

When the program terminated, UQM adapted its focus towards R&D initiatives in order to improve its product portfolio.

At June 30, 2015, Cash and cash equivalents were $5.6m and working capital was $13.8m. A quarter later, UQM ended the quarter with $4.0m cash, working capital of $11.6m, and no debt. Quarterly net loss was $2.4m or $0.06 per common share. At the end of October, UQM raised net proceeds of $5.8m, which helps them to maintain liquidity until the company gets on a profitable path and push forward with its China expansion.

The China contract might be even better than the management thinks

Just a few weeks ago, UQM stopped being a penny-stock for a short period of time. The reason was...