Q3 2020 Nikola Corporation Earnings Call

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A brief question and answer session will follow the formal presentation.

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At this time I would now like to turn the conference over to Niko less Chief Legal Officer Britain Worthing. Thank you Britain you may begin.

Thank you and good afternoon, everyone.

Welcome to Eagle a corporation third quarter 2020 earnings call.

With me today is Mark Russell.

Chief Executive officer of Nicola.

Kim Brady Chief Financial Officer, and humor on Ashwell global head of vehicle engineering.

During today's call, we will make certain forward looking statements within the meaning of the federal Securities laws.

Forward looking statements are predictions projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties.

Many factors could cause actual future events to differ materially from the forward looking statements in this communication.

For more information about factors that may cause actual results to materially differ from forward looking statements. Please refer to the earnings press release, we issued today as well as the risk factor section in our current report on form 8-K as amended that we filed with the Securities and Exchange Commission June eight in June 920, 20. In addition.

As to the Companys subsequent filings with the Securities and Exchange Commission.

Forward looking statements speak only as of the date. They are made readers are cautioned not to put undue reliance on forward looking statements with that I'll now hand, the call over to Mark.

Thanks Brendan.

We're pleased to welcome you to Equalise third quarter 2020 earnings call.

Thanks to the continued work of all of our dedicated people in equal and made significant progress this quarter on our previously announced milestones.

On today's call, we'll give you an overview of what we achieved during the quarter, including updates on our manufacturing facilities and on Germany, and Coolidge, Arizona and.

And also give you some context for our other announcements.

Well, if he wants to do something different this quarter, some technical insights into our Nicola tray prototypes, which are being assembled and on Germany at the Echo industrial complex there.

We've asked numerous <unk>, our global head of vehicle engineering for battery electric vehicles.

To give you a short primer on the systems and the groundbreaking equal its ray.

After that Ken will discuss our financial results and then of course, we'll open up the line for <unk>.

Let me start with a brief comment about general motors, there's been a lot of speculation about our ongoing discussions with GM.

The contemplated agreement, which would give Jim an equity stake in equal in exchange for various in kind services is not yet closed.

Discussions do continue.

And we'll give you further updates when appropriate or required.

Next let me update you on our joint venture manufacturing facility within that goes industrial complex in on Germany.

And also on progress with our Greenfield manufacturing facility in Coolidge, Arizona.

Along with our partner back or we've made substantial progress on the refurbishment of the joint venture manufacturing facility.

That will be dedicated to the Niko a tray production and home.

The utility civil work and building infrastructure have been completed including.

Including the manufacturing floor.

Construction of the work sales is currently in process upon completion of the work cells ones to all an automatic guided vehicle line and the heavy duty assembly tools will need there, including in fact drivers and tilting systems and.

And barring further cobot related delays all of this work is on track to be completed and ready for the started production by the end of 2021.

They go broke ground on the construction of our Greenfield manufacturing facility Coolidge, Arizona in July the.

The facilities Master site plan is complete and it's been submitted to and approved by the city of Coolidge.

In August preliminary Earth work began preparing for grading work and utilities SAGD site grading began in October.

Our manufacturing partner.

Walbridge also awarded the initial building subcontracts in October.

Building pad preparation and utility work continues this month and foundations floor slabs in steel erection will follow through December and January.

We continue to submit secondary permits as required and we'd like to especially thank the city of Coolidge's building Department, which has provided excellent and respond to support in helping us stay on schedule.

Manufacturing process engineering schools, you've got underway, including work on key initial equipment, such as frame turning the heavy duty dyno enroll and break test.

Based on our current rate of construction, we think we'll be ready for production trials starting in mid 2021, followed by a ramp up to the startup limited serial production by the end of 2021.

To focus and prioritize all of our work Weve recently aligned our organizational structure to match our key milestones.

Dedicated leaders and teams are now concentrated on executing well defined and critical objectives that will drive us to the started production for the tray battery electric vehicle.

And the continued engineering of our platform for hydrogen fuel cell powered trucks.

We now have a dedicated commercial and technical lead for each of our two primary vehicle programs for class eight battery electric vehicles and class eight fuel cell electric vehicles and the result has been a heightened focus with a robust set of accountabilities.

Sure services, such as business development marketing vehicle design vehicle safety software.

Manufacturing are working closely with both teams to create solutions that meet the respective programs demands.

And dedicated functions such as vehicle engineering have cleared mandates for milestone achievement.

Let's turn now to our recent board and leadership changes.

On September 20.

Trevor Milton approached the board and volunteered to step aside as executive chairman and from the board.

The board accepted his resignation and Steve Gursky, the former Vice Chairman of General Motors and a member of the board was appointed as chairman.

Last month, we announced the appointment of two new Independent Board members, Steve Shindler, who is also elected to take Steve Girl She's place as chair of the audit Committee.

And Bruce Smith, who is our newest independent director.

Well, Stephen Bruce are seasoned leaders and we welcome their experience and perspective as we continue to execute on our priorities.

And finally before I turn it over to Ron Let me give you just a brief legal and regulatory update.

Nicola proactively contacted embraced the FCC during the quarter regarding our concerns pertaining to a report published by a short seller.

Our council has been in close contact with the FCC.

And the department of Justice and we are fully cooperating with both in their request for information and documents.

We remain focused on achieving our stated milestones and continuing to drive our business forward and create value for our shareholders.

With that I'll turn it over to Mike he'll give you some insight into the exciting technology employed in our new battery electric trade prototypes.

Uh huh.

Thank you Mark.

Nicola has accelerated the development of the trade at six by two prototypes for the U.S. market by working with Echo in on Germany, Entre Coolidge, Arizona manufacturing sales team is fully operational.

Nicholas trade back it's part of our portfolio plus zero emissions class eight trucks that meet that distribution and delivery applications ossified at short to medium haul.

And Nick let Trey pets heavy duty truck elements, our lepage summed up production escalate platform in partnership with E backup.

This includes the chassis elements such as the high strength steel ladder frame.

With multi lake link rear suspension on the solid axle with electronically controlled air Springs, and 17 inch air disc brakes.

All integrated with the state of the art Bosch electro hydraulic steering system.

Nicholas technology focus on developing electric vehicle propulsion architecture, including the high voltage battery system.

Hectic tripe axle vehicle thermal management vehicle controls and human machine interface, including infotainment.

Nicholas has engineered bespoke 800 volts propulsion architecture for the classic battery electric electric truck and.

Assisting off 720 kilowatt hour multi pack battery system integrated with a 480 kilowatt continuous hunt 1020 kilowatt peak single speed P. M. S M dual motor drive electric axle.

The system is capable of handling 82000 pounds girls combined equal weight with a projected range of 250 to 300 miles.

Up to a maximum speed 75 miles per hour.

He'll start up to 17% great with 1800, Nutini has a peak torque at the motors.

The 800 volt system inclusive of an active liquid cooled 720 kilowatt hour multi pack battery is a unique architectural approach in managing large amounts of onboard battery <unk> energy for an all electric class eight truck is.

It is a modular approach for the parallel design up nine packs.

Each of the multi packs is that system voltage and managed in parallel far redundancy and safety with a sophisticated vehicle controls architecture integrated into the battery management system.

These packs are engineered for durable heavy duty truck missions.

Such that they are I P. Six seven and IP six nine k. for environmental tightness and thermal conditioning to handle both extreme hot and cold climates there.

There are also structurally integrated into truck chassis with a battery mask contributes a dynamic stickiness characteristics, while still enabling configuration flexibility for onboard battery energy for potential there.

Yes.

Nikolay engineered and integrate the thermal architecture smart vehicle controls and 18 life for the class eight truck associated with performance management.

Range optimization and features and functions, including stability control features like ABS electronic stability control and electronic controlled air suspension they'll benefit.

He teaches the human machine interface include Keith.

Keyless entry Black cloud assignment, but it's integrated into a user's smartphone.

Telematics connected to the cloud commercial truck navigation over.

Over the air update and Big data management.

Asset metric after metric encryption scheme per vehicle communication.

The Assembly progress continues for the first five prototypes being built in on Germany.

Since most of the country assistance, a heavily integrated using Nicholas proprietary controlled software.

Commissioning of the second Nicolet, Trey will progress at a much faster pace than the first struck at the software will have gone through debugging that first competed vehicle and can be slashed onto a second complete a truck.

Our target completion of assembly for the remaining four prototype trucks is by Q4 2020.

We anticipate the commissioning phase to be completed prior to hold track validation kick off by the end of Q1, Twentytwenty, one or the start of Q2 plus 2021.

Validation of a consistent durability testing the paulson insurance break testing hot and cold weather testing range testing high mileage accumulation with payloads and regulatory compliance.

We anticipate testing and proving ground tracks during the first half of Twentytwenty one.

Eventually transitioning to testing on the final routes on select roadways that is expected in the second half Twentytwenty one.

I'll now hand, it over to Kim to discuss Nicholas.

Third quarter financial results.

Thank you and Ron I would now like to provide a review of our public market activity.

And third quarter financial results.

On July 22nd we got announced the redemption of public warrants.

We completed the one that redemption process on a cash basis on August 21st.

As a result of the award redemption 22 million 877806 warrants were exercised into common shares resulting in an additional 263 million of cash to the balance sheet.

Focusing on the results in the third quarter net loss was 117.5 million.

And on a non-GAAP basis.

Adjusted EBITDA totaled negative 58.8 million.

Adjusted EBITDA excludes 52.2 million and stock based compensation.

1.5 billion in depreciation and amortization.

And 5.2 million in regulatory and legal matters.

Which represents legal advisory and other professional service fees incurred in connection with these shorts Ellie short seller analyst report from September 2020.

Research and development expenses were 51.5 million.

Including 4.6 million of stock based compensation expense.

R&D expenses consist primarily of costs incurred in the development of Nicholas Beth.

And fuel cell electric vehicle trucks.

This cost include the following.

Our staff cost for in House Engineering and research function it.

Expenses related to materials supplies and third party services.

Fees paid to third parties or outside the Feldman.

Is that go in kind services for vehicle integration [noise] product validation and engineering support.

And depreciation for our R&D facilities and prototyping equipment.

We expect our research and development cost to increase for the foreseeable future to achieve our technology and product road map.

During the third quarter of 2020, we incurred approximately 65.8 million of SGN expenses.

Of which 47.6 million.

Stock based compensation.

SGN expenses consist mainly of the follow on cost.

Personnel related expenses for corporate departments.

Professional fees related to legal accounting and financial advisory.

Public company costs, such as insurance I see see peace and compliance.

We expect our SGN expenses to increase for the foreseeable future as we scale headcount with the growth of our business and as a result of operating as a public company.

Oh total head count now exceeds 429 and is growing at a majored but steady pace as we continue to build our team.

By the end of 2020, we anticipate our head count won't be more than 530.

Turning to the balance sheet.

We ended third quarter with approximately 908 million of cash and cash equivalents.

Excluding <unk>.

<unk> 10 million of restricted cash.

Restricted cash is inclusive of customer deposits associated with the new club Badger.

Cash collateralized nation of our equipment term loan.

And the required deposits to you know land holdings.

For the construction of the Coolidge, Arizona manufacturing facility.

We currently have no debt outstanding aside from 4.1 million equipment loans fully secured by the restricted cash on our balance sheet.

Our capital expenditures totaled 15.2 million year to date and 8.9 million during the third quarter.

Capital expenditures are complies mostly of investments in R&D equipment.

Weighted average shares outstanding for the third quarter was 377.660 million 477.

GAAP net loss per share for the third quarter was 31 cents and non-GAAP net loss per share was 16 cents.

Non-GAAP net loss per share excludes stock based compensation.

And the regulatory and legal matters previously mentioned.

As a pre revenue company.

We believe the best way to Valuate Nicolas resolved.

It's to track our progress.

Toward achieving an ounce milestones.

We remain committed to our goal of announcing collaboration partners.

Lacked for city procurement and hydrogen fueling stations.

In addition, during the fourth quarter of 2020, we expect to make continued progress toward.

The assembly of remaining trade bad and construction of the Coolidge, Arizona facility.

Management is laser focused on privatizing programs and aligning resources to achieve these milestones.

And laid the groundwork toward becoming a leader in the zero emission transportation industry.

This concludes our prepared remarks, we will now open the line for questions.

Operator.

Thank you at this time, we'll be conducting a question exercise [laughter], if you'd like to ask a question. Please press star one on your telephone keypad occur.

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Our first question today is from Jeff Osborne of Cowen. Please proceed with your question.

Hey, good afternoon, guys. Thanks for all the detail just a couple of questions on my end Mark I was wondering if you could go through you.

Prior to G.M. coming into the Fray as a battery and fuel cell supply a supplier what what the original plan was and what the fallback plan would be in the event that that supply agreement doesn't go.

Go forward and I'm talking more for the class C program as opposed to the Badger.

Sure Jeff.

The base plan that we are going into production with for the Nicola tray about battery electric vehicle.

Is a battery pack that we have designed and engineered.

And which contains a battery module.

Designed and engineered by room you know.

Which contain cells from a Korean supplier.

And that's what we will be going into production with a next year.

The agreement with GM was going to give us options for the next generation of our vehicle.

Which would be based on a non cylindrical sell GM is is developing an LTM battery system. That's based on Poucher large format sales.

Now would have given us another option force or generation two of our vehicles.

But it was our primary path is the fact that we've already developed in which we are going into production with now.

So Jim was just going to give us an additional option.

For our next generation vehicles, especially in the event that that technology is able to hit its targets in terms of performance and cost.

Which are very aggressive much and we've heard which we hope to hit and that's one of the reasons were interested in doing a deal.

That makes sense and can you just touch on as it relates to the fuel cell development program.

With their JV with Honda in the event that you don't use them at all what the what the plan was there.

Yeah, Jeff it's almost the same story so our base plan is to go into production with a few also that we have developed in collaboration with bosh over a number of years.

And that's been especially engineered and and.

Designed to be used and heavy duty truck heavy duty vehicle.

The hypertext system from General Motors is.

Also an impressive fuel cell system, but right now it's engineered for passenger cars like most fuel cell systems are too so.

So.

And then the deal with GM that would give us again a backup plan.

That we could use for a future generations of our vehicles using.

Using that technology, which tests very impressively by the way we're impressed with it with the hypertext system.

And in our testing and.

And so we'd love to have that as an option for our vehicles. In addition to the the system, we developed with Bosch, but the base plan is to use the system. We've already developed and we are engineering into our production vehicles for the fuel cells.

System.

Got it and then just two other quick ones. It was unclear with it the tree that you have the picture of is that operational today. You mentioned you alluded to test track work for torque isn't actually moving.

Yes. It has been on the test track, it's been on the dyno.

It's a it's in commissioning.

That's great to hear and my last question.

For either of you is just as it relates to the stations can you remind us with the order that you place right. After going public you know what the timing is.

The build out of the stations I recognize that you alluded to or you know kind of reiterating that you'll have partners announced by year end, if I heard Kim correctly, and then electricity agreements, which will be certainly helpful to understand the economics of it but can you just talk about what the timing is of that equipment showing up and when you would have your first station.

Under construction.

We placed those orders.

So that they would have enough lead time now to deliver them in time to be installed in the first station next year and then stations come online after that.

We ordered enough electrolyzer equipment.

Which is the most expensive single most expensive part of the station.

And we weren't enough of that equipment to build up to five stations of eight tons capacity each item of daily a hydrogen production each.

So we did that to make sure that we were ahead of the curve on that on the lead time to make sure we could get underway.

And time to hit our milestone that we have in the timeline that we previously published which is us breaking ground for the first station next year.

Excellent. Thank you that's all I had.

The next question is from Paul Coster of JP Morgan. Please proceed with your question.

Yeah. Thanks for taking my question, then know relates its Jim I promise smoke, but I'll start off with a.

Are you still committed to closing do.

Early December and can you contextualize. The your comments that were reported I think than the financial times round. The Badger initiative, what message do you want to convey to shareholders regarding the the desirability of proceeding with that initiative.

Oh, Paul Unfortunately, I can't give any more color than we've already given you its.

I think it goes without saying that we're interested in doing the deal with what Jim If we can get it if we can get it done.

And we'll give you updates when when and as needed.

And then with regard to the Badger work, we've just been very consistent when we announced the Badger. We said, we'd like we would do that with a partner.

Jim as you know the GM dealing anticipates being that partner.

And that's all we can report at this point.

Okay, then Nick or the Bachelor initiative, entitled some $700 million up to $700 million of investment in fiscal two G. M. A you know I mean, some of us looking and saying well you know maybe it's better not to proceed with that can you just kind of give us some sense of.

The the the nature of the spend with the G.M. do plus a batch of plus the badger versus non GM scenario, what kind of timeline and its you know how how long does the cash loss before but how far do you get down the road map.

Absolutely.

Hi, this scenario.

How quickly.

[noise] [noise], Paul a quick question.

As you know and we have talked about this previously with respect to GM transaction, it's something that we are still in the works and we feel confident that we will get.

Greater clarity here in the next couple of weeks, but until then that is going to be difficult in terms of sharing with you any additional the people, but you're right to the extent that we move forward with the Badger there is corresponding capital commitments as we kind of think about that you know ultimately there are number of perhaps considerations.

A potential that we could discuss with GM and potentially.

Have to lay some of those commitments.

But to the extent that we.

We have to move forward.

Then of course, then we have to think about our capital expenditures closely to give you some context as we think about into 2022.

2021, and consider all of our priorities with respect to neglect trade balance as well as Nick Clegg tray fuel cell free you up as for less U.S. It is important that we prioritized our capital expenditures as well as operating expenditures and right now looking at our cash position we feel.

Pretty confident that we'll be able to meet all of our operating commitments as well as capex with respect to our ongoing programs now in our estimation of that cash balance, we're not including anything late to the batter. However, we believe that base I think existing cash that we have that.

We should have adequate cash flow and still could and next year with $300 million or more cash on the balance sheet.

Understanding.

That you know as as we talked about.

Last quarter that at some point, we will consider going out to market and raising potential additional equity and we always have suggested that we will do that likely a year in advance of when we have to me that cash and so we yeah. If we exclude cash need for Capex really.

Only to the Badger, we think we will need people out to market. Some time, you know potentially middle of next year, but once again this really depends on the market condition and when we think we'll be optimal time and when we can actually minimize any dilution in terms of our shares.

[laughter] can you just clarify the 300 million a year end cash balance is.

Including the batches the expenditure all excluding the Badger expects revenue excluding the extra week.

Gotcha. Thanks to 2022. This is a trend to meeting all of our Capex needs for Nicola Trey Bath as well less nicolet trade fuel cell as well as capex that we need for hydrogen stations as well as all the operating expenses and when its cover so under that scenario you don't need to come back.

Capital markets in 21 unless circumstances permit.

Make it worthwhile go.

Got you and then last question customer orders, we haven't seen any additional ones since the refuse truck a deal.

Are you intentionally sort of holding back there or has the whole sort of false associated with the founder or sort of just a tender offer period and maybe.

Maybe just talk to us a little bit about that dynamic.

Sure Paul that.

The interest in and the need for our our vehicles has never been higher.

The the number of.

HM jurisdictions that are going to require zero emission vehicles in some way shape or form.

Goes up and has not gone down.

The whole time I've been watching it for many years now, though the number of jurisdictions that have outright bans or phase outs or targets for getting rid of fossil fuel vehicles increases pretty much every time period.

And that's not I don't see that going away and with the with the results of the election, the United States. This week I think that can only accelerate so.

The need for and the demand for these vehicles has never been higher.

As we've said many times that we welcome everybody enter the space because we think it's going to take the effort of many.

Capable and competent players to meet the needs of the commercial transportation market as it transitions from fossil fuels to commission so.

That's not a demand problem.

We're just being very careful and very selective about who we partner with.

On the customer front, we consider our launch customers to be partners and that's why we've been very careful in selecting them.

And as you can see and as you've seen in the past where their hands or bush. They do become our partners. They help us in many ways.

With our business plan and model.

So you're not actively seeking new customers at the moment.

No. We have we have lots of customer conversations going on all I'm, saying is that we're very very careful about who we could we make a hard contract with.

Okay, you'll see us continue to be very careful and deliberate about that.

Thank you very much.

The next question is from Emmanuel Rosner of Deutsche Bank. Please proceed with your question.

Hey that is going on for a menu while I have a couple of questions to follow up on some of the stuff said earlier.

Can you just go over what milestones we can expect before year end I think in the past you know you indicated a.

A tree order you indicated a hydrogen partner just want to check are there should we still expect those things before year end, what is the kind of been pushed out and what kind of latest thinking there.

We're still targeting those those dates we would like to have a.

An additional customer agreement announced by the end of the year and we would like to have a collaboration on the on the station infrastructure hydrogen side announced by the end of the year. Those are still good targets for US we think.

Things got slowed down here, just a little bit recently.

Yeah, we had some travel the guy interrupted because of the increasing cobot restrictions in Europe.

So we've had just a little bit of a of a slowdown in terms of being able to travel and things like that but at this point, we're still trying to get those deals done and ready for announcement by the by the end of the calendar year. If we didn't get them done before new years day, I would anticipate they would not slipped very far into the first of the year.

Got it and I specifically on the the hydrogen partner can you go over what exactly you're sort of looking for what I think there was that there was something rumored in the press report on the press one month ago.

Is is the thinking there you know you have about three or four types of partners and and that's the way you kind of want to go or is it still be involved.

That's that's still how we see that there was some of the.

Different players we've talked to now for some time I have had conversations with us for some time bring different things to the table you have people that are operating existing networks of hydro of fossil fuel stations for for heavy trucks and the U.S. in Europe, they have locations already.

Which are helpful.

You have people in the electricity space utilities electricity traders renewable energy.

Partners, which we already have one we have a significant investment from harnois, which is one of the world's largest solar panel providers and makes solar arrays.

That's one of the reasons, they're involved with us.

And you have people who.

Already in the hydrogen space industrial gas players and others, who are already producing and distributing hydrogen.

For existing market uses who who would like to be in this in this space as well.

And then you have you know the integrated energy majors, who who usually have their fingers and pretty much all of those things.

At the same time so yeah.

We will I believe that before we are done and building out our network of of hydrogen fueling stations in our supply chain that we will have done some some deals with pretty much.

All of the above.

I expect that we will be doing business with people in each one of those segments before we're done and what we announced first will depend on on which one makes the most sense to to start with.

Great appreciate the color.

The next question is from Joseph Spak of RBC capital markets. Please proceed with your question.

I. Thank you very much good afternoon, Mark just wanted just want to follow up on on sort of the I commented the infrastructure partner and maybe somebody with other partners.

So this is all due to travel and you know some other logistical issues. There has there been any ah as far as he said there hasn't been any change in either caution from partners or perceived change and negotiate existing given some of the noise around around the company.

Well, obviously, everybody read the news and you know people can correct.

Curt could read the shorts, our report like anybody else, but the people that we're talking to strategically I don't think were distracted by that and generally yes.

I'm sure there are exceptions to that.

But generally people are focused on the long term opportunity and the structural change and the global energy markets that this possibly represents and probably represents.

And so that the only thing slowing us down I think at this point.

It is the logistics that we're talking about here.

Which are not and I'm not I don't want to mean to imply that that's massively slowed us down I'm, just saying that things are and we thought things would continue to loosen up in terms of travel and logistics him and that it's that's not happening at the moment as you know yeah. So that one is there to assisted but that's again, that's also a distraction and we buy.

I'll leave that to the strategic reasons for us to be able to do these things is again stronger than ever. So that's why we're confident you're going to see us announce a something on this front and that will not as I just mentioned that will not be though the the last one either that was to be the first.

And Joel as Mark talked about to give you some additional insight its not simply matter of entering into a contract. This is all about is that the right location is at the right price when we think about electricity, Kerman from a single location perspective to potentially even much.

Later in terms of potential collaboration and so.

We suggested that all the discussions that we've had a prior to the end and broke report is continuing after and it's just a matter of in terms of when we can strike right deals that make sense for both parties and so all those discussions are going of course, it's going slow.

So then we anticipated partially due to covet as well as we are hearing your end and sometimes that tend to slow down specially when you have.

Holidays, but we're very much focused on.

Complementing what we have committed.

By year end, if not into Q1.

Hi, Thanks for all the color.

The the battery electric architecture system slide on slide two you should.

Is that how we should also expect the.

Call Division of Labour once the trade is made and in college me with the possible exception of a different bad relationship and and how would that chart look like on a on hydrogen version of the truck recognizing that you obviously, we need to do.

So.

I'll, just say in general Joe that.

Our long term goal is to have a supply chain for north American trucks that is as much north American as we can practically make it.

And then the supply chain for European trucks would be as much European as we can practically make it obviously, we're not going to start out that way.

We've got a disproportionate amount of the bill of materials that comes from Europe to start with since we started with a.

Bill of materials that have echo have put together before we did the deal.

And.

But for the pause that we're engineering and providing you know the key.

Parts of the electric vehicle and the software.

That those parts will be you know is more some more straight forward in terms of establishing supply chains that matched the geography in which to the truck is intended to be sold.

The fuel cell truck well well look.

[noise] somewhat similar with the addition of the fuel cell system.

The.

Mhm thermal on there.

Yeah, we got them on there so that they will have very similar actually.

But we'll have a fuel cell system and maybe a couple of other minor differences.

Where nicola will be the primary eylea, primarily responsible party.

Hi, Thank you for that.

For me it.

Is.

So it sounds like I'm kind of curious by the end of the year or some more in the first quarter 21, but you know it also sounds like these are still.

Correct me, if I'm wrong, but it sounds like there is still sort of more of your your internal testing and validation before they are sent to customers. So can you just update US again on when you expect customers to start to get some test vehicles and how long do you anticipate them needing to you know incorporating into their fleet doing their own testing to see I mean, it to see how much it costs to operate.

Before you know they they go ahead and with the larger orders to be fulfilled.

You are correct. These these are five production prototypes, they will not be sold and.

I won't be on the road for customer use will be using them for testing and validation only add.

Next year, we'll be able to be we will be building a further prototypes some of which will go on the road for road testing and will be used in customer fleets.

And then next fall we will be producing.

For regular customer sales so.

At the end of 2021.

And with that we will be shipping.

Units from serial production into regular customer fleets.

And again one of our focus.

One of our reason for focus on a specific launch customers is to try to limit the number of customers that we are doing this work with.

You know, we don't want we don't want to get involved in a huge number.

As customers with a small number of trucks with each we'd like to concentrate as much as we practically can.

With with launch customers, we're gonna who are collaborating with us.

On the on the vehicle design and the testing and the validation.

Oh, God hearing back and forth correct.

Correct, Yeah absolutely.

Okay, and I guess, just again, how like you know as as you know we all know the commercial truck purchases is one of economics and cost of ownership. So you know how how long do they really need to do these initial.

Initial customer trials, you make Anita Anita last before they get some good data.

Well in some of the data.

Next I will take some time to be accumulated in terms of yeah end.

End of life health for the battery.

And things like that we simulate that of course, and we'll do accelerated testing, but as as everybody knows for example, with with Tesla batteries. It wasn't until they were out there for seven years that you knew how good they were I think in the 70 years and of course, they turned out to be really good as everybody else.

And and since we're basing our batteries on the same base. So we hope that we get the same result, but on actual experience will prove that out.

But we're sure we share test data with with our target customers, we share a lot of the information that we have been weak and they.

Frankly have shared data back and we get a lot of great data from our partners and our customers and then we think we're sharing data with them because we're working on this as a team.

And we believe that they'll get enough data and information for them to commit to volumes of trucks.

Upfront just like the announced deals that we have are from volume well I think you'll see more and more deals like that going forward, we will give trucks to customers for test purposes.

But that but our priority is going to be on our launch customers.

Thank you very much for the information.

The next question is from Daniel Ives of Wedbush Securities. Please proceed with your question.

Yes, and thanks for all the the insight.

The questions. So my question first day in for Mark.

Well when we look back the last few months, what's been the biggest challenge for you and the team.

Does it seem to be the overcome a lot there, but I'm just I'll start there.

[laughter] well are our biggest challenge is good at reading the world that fossil fuels [laughter] when it when it comes down to actual logistics.

People people, who have never done something like that like this don't understand.

What it entails.

Were were disrupting a.

Vehicle industry that have been integrated and perfected over a century.

And you know that the own facility, where we are building. These trucks was building heavy trucks over 100 years ago.

And they've been building for that location powered by fossil fuels for a century and they've got really really good at it.

And now we're asking them to build the heavy trucks with a completely different design you know they've got their motive forces kirker are completely different system.

And it is this is a lot of work it requires tremendous amounts of engineering tremendous amounts of testing and validation tremendous amounts of of verification and simulation and.

Our just so grateful that we have such strong partners, who have worked with us to get us to this point and we are grateful to our team who does do an incredible job. We have an incredible team of people that have come to us from all over the world and from all the other.

Established players who have come here with one single purpose and that's to rid the world of fossil fuels.

That's that's the passion that motivates Nicola people is we have a mission.

And if we're successful in sick and you know if it's if we succeed we're going to help the world solve one of the most difficult challenges for emissions and that's how do you get heavy stuff long distances.

Commercial transportation is one of the toughest things to to solve for zero emission and that's what it was all about battery electric trucks for short range fuel cell electric trucks long range and we think we can cover that whole ground, but one of the few people have a plan for both.

You know I bring in Ontario, and the state in terms of the amount of effort that we put in to realign the organization as Mark talked about in the last.

Four to six weeks of course, we've had some distraction.

And when to recognize that but at the same time I think because of that we have been able to strengthen our board as well less we have been able to focus and realign.

And we established priority with respect to neglect trade that as well as timeline for Nick lightweight fuel cell for Europe, as well as the U.S. and so we want to fully recognize the efforts that team has gone through to really focus and prioritize and that's really important because of that I think we'll be able to access.

Calibrate in terms of execution.

No. Thanks for the answer.

Are you from a partner perspective are you hearing from partners that maybe you weren't expecting to hear from in terms of looking to partner Nicola is that is that a trend and obviously, you're gonna be selective, but no difference where the areas in.

In terms of the push versus pull you are you starting to hear from more and more partners.

Wanted to be a part of his vision well into hydrogen fuel cells out of next years. Thanks.

Well I think we have heard from a few people that we haven't heard from before.

At this point I'd be surprised if if that circle expands dramatically because at this 0.1 of the one of the.

Side effects of the last few.

You interesting month is that everybody we ever run into as heard a nickel or now [laughter] everybody knows who we are leased so.

We and that has brought some things.

I think some people got aware of us that weren't aware of us and that has led to a few conversations that we weren't having before but we were we were very focused on talking to everybody in the space. You know who is willing to talk to us from the beginning and so we feel like we have pretty good conversations with everybody that.

Could reasonably be a partner with us and.

And we are grateful for the conversations and we're more interested in partnering with people where it makes sense for both of us.

Thank you again.

The next question is from Hilary Cauley of JMP Securities. Please proceed with your question.

Hello, Thanks for taking my question I wanted to first got follow up on one of the earlier comments about the supply chain and just any any additional context again can get for timing on when you expect to be able to ask question lot of those materials domestically versus kind of continuing to implement these.

And are these conversations there kind of already ongoing or is the focus to kind of focus on on getting this up and running and then focusing.

So [noise].

Hillary the that's a good question.

The.

Bill of materials for the tray.

It is on a line basis.

His more than 80% more than 90%.

Probably about 90% to 95% over 90% of the bill of materials by line item for the tray.

His his stock from the parts been at.

Iveco and CNH.

So because we're not we're not innovating tires and wheels and frames and Alan and.

Cabs cab frame body in white add we're not innovating the parts of the truck.

Other than the we're trying to make sure everything is good as we can make it and that's one of the blessings of partnering with have echoed by the way the WRECO as way was only introduced in July of 19, it's one of the newest diesel vehicles in the world. So we had a very new recently validated platform to pick from.

But more than 80% of the value of the vehicle comes in the less than 10% of the bill of materials that Nikolay is engineering and taking the lead on that.

The battery the the axles the motors the Inverters.

Control systems the software this.

The thermal systems.

The parts of the vehicle that make it an electric vehicle.

That's the part that nickel is specializing in and takes the lead on him and our partnership with of Echo.

So the existing building materials was very European focused because of Echo has no north American manufacturing presence.

The the rest of the other but the products are a mix because we'll we've been willing to partner with anybody in the World, who who we think is world class and is interested and sees the future. The same way that we do and that's something that's what led to our collaborations with Bosch with mall on thermal with Meritor.

And wabco and people like that.

That's a mixed bag and what we're trying to do as we said is domestically both supply chain. So the parts that are currently sourced in the United States. For example, our batteries are sourced from the United States right now.

We would like to get a European sales.

Supply chain established as soon as practical.

And for the parts that are coming from Europe.

Which is a a lot of the existing building materials. For example, we want we would like to get a domesticated supply chain established as soon as practical we anticipate for some of those things that can happen fairly quickly and for some of those things. They think it will take you know.

Up to up to several years frankly for some of some of the parts. So.

It'll it'll be.

A very varying answer depending on the park. Some quickly some will take months I mean on a few might even take a few years to get completely domestic.

In terms of process, we have sourcing council on a weekly basis between the battle and Nicola to review those parts.

Internally sourced and the goal would be by sometime towards the end of 2021 in early 2022 majority of the parts could that localized but as mark indicated some components may take longer and this is all about looking at volume.

And and potential impact on bomb and to the extent that some parts will take longer is simply because based on volume and type of part that he may make sense to continue to import from Europe, a little longer than simply trying to localize it over next year and half, but ultimately it will happen.

Is that we want to get to a position where we have the localization of all components.

Okay, Great and just kind of wondering obviously a lot of interest in the fuel cell, Chuck and and quite impressive backlog. There I was wondering if you could share any thoughts in tightening and when we might start to see some of those people that are converting to binding like oh, okay. Thank you.

[noise]. It's another good question Hilary Thank you.

The focus has been on.

Getting orders fixed.

And from a.

When they when they are in the one year window. So when we're 12 months from production.

We're looking to have had.

Firm commitments in place.

That's kind of a rolling target we have now that's going to vary either way of course from time to time, but.

But as we reached one year from production, we would like to have large customers in place.

And so one year from production for the fuel cell truck will be in.

2022.

Fuel cell trial goes into production in 2003.

And so in 2020, but I hope we can do this faster than then and this but I.

We would be targeting to have a hard contract in place with a launch customer a year out from production.

The next question is from Paavo Makarov of Raymond James. Please proceed with your question.

Thanks for taking the question, let me take a step back I get your reference the election, a few minutes ago and you know obviously given given your comments about decarbonization.

Let me just ask what do you what would you like to see from the Biden administration, assuming you know not a whole lot perhaps can get through the Senate if any.

Any executive actions that you would be encouraged by.

Well, we expect the divide administration to be more aggressive than the Trump administration on this on these matters.

And in the event that the you know the Senate falls to two Democratic control then you've got the possibility of something like the green new deal, which.

Which of course makes the whole country look more like California.

All of those things will be positive for the demand profile for our products and for our business model.

And prevail I.

I think we talked about this with.

With the Biden administration that we Rick.

Restoration of Paris Accord, and we would expect much greater participation by federal government with respect to.

Green Energy I think they look at that as a center piece in terms of creating new jobs and we think that's important to the extent that the perspective is that you can we know fossil fuel and create high paying jobs with green energy. This is going to be an important transition specially into you.

Yes, there have been lots of focus and less emphasis on the Trump administration, but we think that will definitely change and so it's going to be good for Nicola.

One more policy question. This one about Europe as part of the European climate law, which which is due to be approved next month.

There's some really aggressive electrolyzer targets I think 40000 megawatts by the end of this decade.

Hi, yes in that context would you consider expanding your targets for.

Fueling station construction in Europe, which historically have been pretty pretty small.

Yeah again, one of the reasons that we are planning to construct a.

Fewer stations in Europe is because we believe in Europe, they will be of of average larger size.

You had that the volume on the trunk roots in Europe is higher comparatively to the youth and took in the U.S.

We also see the increase of the government led action in Europe or the comparative.

Greater government action in Europe, compared United States.

And there are some very impressive large scale green electricity electricity.

Electrolyzer.

Hydrogen production projects underway in Europe, some of them very impressive.

And which we are following along in talks with a we would like to be involved in those things and we encourage them and.

We want to do our part to accelerate the rollout.

Some of these infrastructure projects, we think it will help facilitate the building of the network that we're undertaking there.

And that.

All parties and people who want to get involved in this would be welcome from our perspective.

Helps helps to save the planet.

Thanks very much.

There are no additional questions at this time.

This will conclude today's conference you may disconnect. Your lines. Thank you for your participation.

Thank you.

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