Q1 2021 Ballard Power Systems Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Ballard power systems Q quarter, one 2021 net results conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation. There will be an opportunity to ask questions. The joined the question queue. You May Press Star then one on your telephone.
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I would now like to turn the conference over the Guy and Macri director of Investor Relations. Please go ahead.
Thanks, very much and good morning, everyone. Welcome to <unk> first quarter of 2021 financial and operating results conference call.
With us today are Randy Macewen, Ballard's, President and CEO and Paul Dobson of our Chief Financial Officer.
We will be making forward looking statements that are based on management's current expectations beliefs and assumptions concerning future events actual results could be materially different. Please refer to our most recent annual information form and other public filings for a complete disclaimer and related information.
We are going to be changing the structure of the format of our results conference calls beginning with the call today, Randy sports the commentary will be fairly brief focusing on important developments for the indicators of progress in the execution of the company's growth strategy during the quarter.
Randy's comments will then be followed by a few very brief notes from Paul rather than a detailed review of the numbers since those numbers are addressed in our press release and the MD&A.
Our aim with this new approach is to leave more time for the growing list of analysts and investors to ask questions and engage in the dialogue with management so what.
That in mind, I'll turn the call over to Randy.
Thanks, Scott and welcome everyone for today's conference call.
In Q1, Ballard revenue was $17 $6 million consistent with our internal projections and reflecting the muted China market currently awaiting further policy pronouncements.
Gross margin was 15% adjusted EBITDA was negative $14.0 million in cash reserves at the end of the quarter for one point to $7 billion.
So today I want to share with you how excited we are about the growing market opportunities. We have at Ballard supported by a strengthening of policy backdrop and increased customer engagement. We have a clear line of sight on long term growth in our core medium and heavy duty motive applications of bus truck rail and marine.
Yeah.
Activity levels are at record highs across the entire Ballard organization. Indeed on the commercial front, we are witnessing unprecedented customer engagement across all markets.
While we've previously commented on the slowed the pace of conversion of our sales pipeline to purchase orders primarily as a result of the pandemic. We remain highly encouraged highly encouraged with our sales pipeline.
Indeed, our sales pipeline is growing more than 70% over the past five quarters. This reflects the underlying momentum in our business prospects and while the pandemic is still challenging many markets, we see encouraging recovery signs, including strong order conversion over the past months.
Given this backdrop 2021 sets up as an important year marked by increased and accelerated investment ahead of market tipping points.
Bolstered by a fortified balance sheet will deepen our investments in talent technology products advanced manufacturing localization and customer experience.
We're already making solid progress on key strategic deliverables in 2021, including on technology innovation product cost reduction capacity expansion are we tried ballard JV and our relationship with Mala.
Now let me just briefly review of some specific details so far this year.
We are proud to announce during the quarter Ballard industry, leading metric of powering fuel cell electric buses and trucks with over 75 million cumulative kilometers enough. The circle the globe 1870 times.
And the fuel cell electric bus market, we continue to be encouraged with progress in Europe as.
As previously reported we received several purchase orders from our European bus OEM partners during the quarter, specifically from Wright bus and Solaris.
The last year to date in 2021, we've received orders for 135 fuel cell engines for buses in Europe, and we've delivered 69 or about 50% of these engines through Q1 this year.
We're also excited by our work with global bus ventures, the New Zealand to put the first fuel cell electric bus in that country through testing and now into revenue service with Auckland transport.
New Zealand passage of climate change response Amendment Act in 2019, setting that country on a path to net zero emissions by 2050 and also make it one of the few countries to have of zero emission school in shrine did law.
Seeing traction in new geographies, such as New Zealand is a very positive indicator.
In the truck market. Our work is progressing to plan with the way <unk> Ballard joint venture in China, as well as with Molly on the design of the prototype 240 kilowatt engine for heavy duty commercial trucks.
Kitchen to expect this product to be ready for testing by the end of the year.
And yesterday, we announced an exciting strategic partnership with Lin of Maher for the development and sale of fuel cell powertrains and components for class one and two vehicles initially in North America and Europe.
In the starting phase of work under the framework agreement of demonstration platform with the fuel cell powertrain solution will be co developed with Ballard, providing the fuel cell subsystem and Lin of more providing the rolling chassis takes enclosures cradles and the other balance of plant.
Following the successful testing of the demonstration platform Ballard of Linda Moore expect a form of joint venture to salad support fuel cell powertrains for light duty vehicles, including light trucks and commercial vans.
We're thrilled to partner with Lin of Mar, a leading global manufacturer of precision products and powertrain solutions, that's leaning into the future of zero emission mobility.
This collaboration is a natural extension for our existing joint working relationship on the recently announced U P. S delivery vans trial in California for.
Deepening our relationship based on the joint vision to provide zero emission fuel cell powertrains for light duty vehicles, particularly those where fleets require extended duty cycles and rapid refueling the maximize utilization.
I noticed the increased momentum in the rail market in our last conference call, including our ongoing important work with Siemens the power. It's morale commuter train continued commercial operations on the world's first fuel cell tram line operating in Foshan, China since late 2019.
Receipt of a purchase order from our KOL of energy in Scotland and announcement of our collaboration with Canadian Pacific to power of the first fuel cell freight train in North America.
In addition, subsequent to Q1, we also announced that Ballard will be powering of switching locomotives for Sierra Northern railway in Northern California. Another proof point in this rapidly evolving rail market.
In the marine market during Q1, we announced a non binding Mou with global energy ventures in Australia for development of the new fuel cell powered chips called C. H two ship designed to transport 2000 tonnes of compressed green hydrogen.
This is a fascinating opportunity with the small scale demonstration of the C. H two ship expected to require 10 megawatts of fuel cells and the full scale of ship requiring of propulsion power of approximately 26 megawatts.
In Q1, we also signed a nonbinding Mou with chart industries to develop a liquid hydrogen storage and vaporization solution for heavy duty vehicles, given the high energy density of liquid hydrogen this will be of potentially strong solution to address the greatest range requirements for heavy duty vehicles.
Including coaches long haul trucks rail and marine applications.
In other commercial progress during several during the past several weeks, we announced Ballard membership in the hydro consortium focused on enabling heavy duty mining more mobile equipment to run and renewable hydrogen.
Other key partnerships in the consortium, including mining three in one of E.
As we've noted before off road opportunities, including in mining and construction represent very exciting upside potential for fuel cells moving forward.
On the technology and product development front, we continue to make measured progress on our key development programs, including ongoing work with our wage high Ballard joint venture in China.
We're also tracking ahead of our plan on our three by three fuel cell stack cost reduction program enhanced by breakthrough designs and performance from our new M. The age and bipolar plates continued progress with our supply chain and implementation of advanced manufacturing initiatives.
We're proud to have recently published Ballard's second annual ESG report, demonstrating our strong commitment to transparency reduced emissions investment in our employee value proposition, including diversity and inclusion and strong governance.
As the purpose driven company with a vision to deliver fuel cell power for a sustainable planet, we're making clear progress on our own ESG journey.
We continue to work toward our mission carbon zero 2030 initiative with the goal of achieving carbon neutrality at Ballard by 2030.
As noted in our recent ESG report beyond the progress we've made in reducing our own operational carbon footprint, we completed cradle to Gage G. H D assessments of our key fuel cell products.
The value of a poised with the highly disruptive leading fuel cell technology for large attractive addressable markets. We believe we're set up for a strong long term growth as a result of the accelerated investment we're making this year.
We also continue to assess strategic acquisition opportunities, including opportunities that will reduce customer friction points and simplify customer experience.
Before finishing I'd like to formally introduce Paul Dobson Ballard New CFO.
Paul joined US in late March and has been actively working to fully familiarize himself with the hydrogen and fuel cell industry and with Ballard Polska.
The old skills and experience will serve Ballard well as we seek to scale our business over the coming decade.
With that I'll turn the call over to Paul.
Thanks, Randy and good morning, everyone. It's my pleasure to be with you here. This morning.
The newest member of the bothered leadership team, having joined the company just five weeks ago.
And I can tell you, it's been a busy but incredibly exhilarating and educational experience so far.
A bit about my background.
I grew up in Ontario, Canada, and went to University of Waterloo and Western University.
After graduating from western of work that CIBC for 10 years and different financing business development leadership roles in Canada and the U S.
I'm drawn to new entrepreneurial growth situations and most of my time of CIBC was spent growing cibc's fledgling electronic banking business in Canada, and the U S, which was quite new and growing fast at the Sun.
I, then transitioned to direct energy, which the natural gas electricity and services for homes and businesses throughout Canada and the U S.
That was in the early two thousands when many downstream energy markets, we're starting to deregulate.
And there was a tremendous new market growth opportunities.
I was with direct energy 15 years, including as Chief operating Officer, and Chief Financial Officer based in Houston.
While I was there I helped grow the company both organically and through M&A from about 1 billion in revenue to over 20 billion, becoming one of the largest energy retailers in North America.
Electric energy in 2018 enjoys hydro one of large utility in Ontario initially of CFO, but also subsequently serving as the interim CEO.
In the CEO role I spend a great deal of my time with the capital market institutional investors rating agencies as well as regulators governments policymakers and of course, the great team at hydro one.
As I said earlier I'm, drawing the entrepreneurial growth businesses, but I also want to work with great teams of people with similar values and leadership styles, we're going to make the business successful as a team.
And so when the opportunity of Ballard came along it was exactly what I was looking for I.
I believe that hydrogen is a viable solution to fight climate change and the hydrogen market is poised to take off and become a multibillion dollar global industry.
And of course, the people of Ballard of Pioneer's, well respected thought technology and market leaders in the hydrogen space.
And I can share with you from what I've experienced over the past five weeks from formative conversations with Blue chip customers and partners as well as many inbound calls from industry and the capital markets. There is tremendous global support for the hydrogen industry, which I believe reinforces our multi billion dollar growth forecast of the salt.
Ballard strategy to focus on the heavy duty mobility market the strongly support.
Not only by independent research of my customer and market feedback and.
My opinion, its not a matter of minutes, it's only a matter of when.
My focus here will be on two things, helping barely grow revenues and more and as importantly, scaling the business globally to meet the worldwide demand, while maintaining our leadership position and reputation for safety innovation quality and service I'm committed to making sure Ballard carves out of prominent place in the market and create.
Sustainable long term value for shareholders.
Finally, as many as you know Tony will be retiring at the end of May I'm.
I'm very fortunate the Tony's, leaving the whole finance of the admin function in such good shape.
From what I've seen and heard including from our external auditors. The team here is first class and the business is well control exactly what we need to scale up from growth.
And of course, having $1 2 billion on the balance sheet as is the strong fortified position to work from home. So thank you Tony for the.
Leaving the business and of great position, which makes my job so much easier.
With that let me turn the call back over to the operator for questions.
Thank you.
We will now begin the question and answer session.
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The first question comes from <unk> Satish from Wells Fargo. Please go ahead.
Thanks, Good morning, I guess just the start.
Revenue in the first quarter was down year over year, and I understand theres, a huge sales pipeline here, but I'm just trying to understand for the quarter itself how.
How much of it was you do you think due to some softness in China, while you await policy clarification, or just lingering kind of COVID-19 slowdown or was there some of their driver here.
Yeah Puneet. Thanks for the question I think it's a combination of a couple of factors. One is that we did of course see really over the last five five quarters or so for quarters, we've seen the slowdown in China of waiting policy pronouncements, and we're expecting to see some developments on that front in the in the coming months.
That's part of it and of course last year. If you look at Q1, there was no impact from COVID-19, obviously in Q1, we saw that occurring later in the year of Q2 through Q4 and last year. In Q1, we did have a fairly large shipments of two hour wage high Ballard joint venture of of kits. So you know I think it was probably in the eight.
Typically a typically strong Q1, if you look at our business historically almost every year. The first half is a slower pace typically around $35 40 per cent of our business and typically about 60 per cent or so in the second half of the year. So you.
You know clearly it's softer than the street would have liked but it was actually consistent with our own internal expectations for our plan for 2021.
Okay got it and then the second question here, you're making good progress with decarbonization on rail with Canadian Pacific MCR of nor then do you see opportunities to start to you know maybe announced the more JV for rail in Europe, and how would you compare the two markets the U S and in Europe are in.
Turns of rail and an opportunity to decarbonize.
Really glad you asked the question about rail. This is a market that has really surprised us to the upside here in the last six months. So very good progress. So let me just provide some context before I get into the details. So you kind of look at the hydrogen Council estimates are there's an expectation that in 2030, 10% of all new <unk>.
Range in key markets will be fuel cells.
Now I wanted to share a little bit of what we've done historically, so we started about four years ago in China with C. R. R. C, which is the largest manufacturer of rolling stock in the World. We now have from December 2019, as you move forward the world's first fuel cell tram line in operations. So five trains.
The operating in the on the.
The gathering line in the city of for Sean in Guangdong Province.
I had an opportunity to ride that tram early this year, it's a quite an experience. So that's very good data point of lot of learning that came for Ballard in terms of our rail codes and standards shock and vibration and noise pack.
Packaging et cetera, we we've taken a lot of that learning of course and applied it to our work that we're doing with Siemens for the morale train in the European market and we expect that Mario trained to be formally launch. This year. It's a very intriguing platform because it's kind of the first fuel cell kind of purpose fuel cell design platform.
So I think it's going to be the most compelling solution in Europe for fuel cell train and it's interesting. If you look at the China experience and the and the experience with Siemens now in Europe, you know a lot of learning there it was really about markets, where you're moving people.
What we see in North America is something quite different what we're seeing here now our markets to move freight so delivery of goods and it's interesting. If you look at the profile of freight delivery on on railways, you're typically talking about very long very heavy trains of long long routes with lots of cargo and these are.
Fixed routes that have strategically located are fueling stations currently.
And you know I think if you look at the zero emission options available only one less than 1% of the rail lines in North America today, our electrified so what what you're looking at is either two options. One is when you look at electrifying rail lines with overhead catenary wires at very high cost for.
Or alternatively are as the only zero emission of options I think that's economically viable and you can look at the incremental cost of of hydrogen locomotives.
And I think the you know as you kind of look at that dynamic you know.
If you think about back in the rail industry of the 19 fifties. The dominant theme there was the transition from the <unk> engines to diesel I think in the 2000 Twenty's in 2030 is the dominant storyline in the North American rail market will be the transition from diesel locomotives the hydrogen fuel cell locomotives now the signal.
For a project we have here at this time is with C. P. C. P has 1200 locomotives in North America those locomotives come up for refurbishment of recall basically every 15 years. So their modernize every 15 years.
What we see as an opportunity with <unk> 1300 locomotives is an opportunity to go through this pilot program, which will get implemented by the end of 2022 and opportunity to validate the the.
The value proposition of zero emission locomotives with hydrogen and fuel cells and then it starts to see them, replacing their existing diesel line haul locomotives overtime as these locomotives come up for refurbishment and modernization. So that's just C. P. With 1300, the 40000 of these locomotives.
<unk> in North America.
And we've recently announced as well a per.
Project with Sierra Nevada for a switch of locomotive in California. So there is a market. We're very excited about and a market that I think as you look out to 'twenty 30 to 2040 in that time range, we will see very high penetration in some of the commuter rail markets as well as the delivery of freight.
Great. Thank you.
Yeah.
The next question comes from Aaron Macneil with the T. D Securities. Please go ahead.
Hey, good morning, all thanks for taking my questions in the quarter. There was a nice uptick in press releases order flow and other announcements sort of surprised to see only.
11, 8 million of new orders in the backlog I think you did a good job of addressing it in your prepared remarks, but it got me thinking about materiality it's.
Net loss for me that a lot of the announcements in the quarter like your alliance of one of our longer term strategic value, but maybe you could walk us through a couple of examples of the press releases from the first quarter.
And you know kind of mechanical.
For perspective, what the near term order profile might look like from a dollar perspective with the longer term strategic value to ballard might be and for the longer term stuff. Maybe you could also characterized the materiality of the timing is what future orders might look like ultimately what I'm trying to get a sense of is when I see at Ballard press release going forward.
Maybe give me the tools to to look at how to interpret the press release from the materiality perspective.
Yeah, Eric Thanks for that comment I think of a fair comment.
In some cases some of the details aren't known yet in terms of how it will roll out in terms of volumes and market adoption and I think we still need to take a step back and acknowledge and understand that these markets of bus truck rail and marine are still going through transition very early stage of market adoption today, we have.
About 3400 buses and commercial trucks in the field.
As I mentioned earlier with over 75 million kilometers.
That's about 3300 more than we had say four years ago, but it's still the first second of the 24 hour a day in terms of market adoption.
So you know I do think that we're what we're seeing is the number of pilot projects, which is different than demonstration projects. In my opinion, we're not talking about validating technology anymore, we're talking about validating economic value propositions and making sure that our packaging is correct for these different opportunities. So as an example, the <unk>.
Relationship with Mali is really about packaging of 240 kilowatt engine with a lot of input from Molly on things like cooling on things like optimization of D. C. D C and burgers looking at the entire powertrain solution in.
And that that's going to take some time before it hits volume. So I think we'll be looking to see that 200 kilowatt 240 kilowatt engine demonstrated the later this year with Mali.
If we look at the.
Some of the programs with CP as I mentioned you. Your question was about some of the announcements in the quarter of course, you know what.
Do you think about C. P. Again. This is a demonstration pilot project that will be 2022, when youll see just getting some feedback from the customer on the demonstration. So we are talking about programs that will take some time here I think we've been communicating this really for a number of years. If you look at the regulatory environment and the policy framework.
And when things like zero emission vehicles in different markets, including California, and Europe and China.
The fact, including in different markets bus truck rail and Marine we do see 2023 and 2020 for US those first years for significant market adoption and then a very steep growth curve of occurring through the 2030.
So I think I think your comments of fair, one Aaron and as we look at our future announcements, we'll try to try and off for some additional tools where people can understand what does that mean for market adoption of timing in some cases some of our counterparties understandably are a little reluctant to get ahead of their skis and set market X.
<unk> too far.
And so I think that's just the reality of where we are in the marketplace today, but you know it terms of order book, Yes, Theres been slow conversion of the order sales pipeline to the order book over the last year, we saw a very significant step change in the last 30 days on that front. So we're pretty excited about that and we do.
Expect to see of very high level of conversion throughout 2021, and the early early 2022.
And maybe I didn't want to ask on specific companies.
The the details you may not want to get into but it takes EPS. Since you brought it up like is there of backlog impact based on that announcement for that one demonstration unit or I was just for.
From a purely mechanical perspective, like if I compare right for us the 50 order announcement, what does that mean for the backlog and then the CPR from it as an example of what does that mean for the yeah. I mean C. P was basically one two megawatts of fuel cell engines that we got the first order for it right.
Yes that goes into backlog when we get the debt goes into order book.
But it's really not reflective of what we're talking about in terms of the long term opportunity.
Of course, no understood and then just final question for me.
Mentioned in the press release your debt in your prepared remarks of you're tracking ahead of the three by three of cost reduction program.
You mentioned in the prepared remarks, you know breakthroughs in the guy and supply chain improvements et cetera.
But how are you measuring your progress internally and can you give us a specific example, or two of <unk>.
Of the timelines shifted since the last described the program in detail at the analyst day.
Sure Great question Erinn. So if you look at our our goal we have of corporate goals for 2021 to achieve a X percent cost reduction for our fuel cell stack in our three by three program.
We have already in Q1 exceeded our full year goal.
For that cost reduction program and a lot of extraordinary work. That's happened late last year and early in Q1, that's helped achieve that already so when I say, we're tracking ahead of our program I.
I think we're going to see something like X.
You know I don't want to provide visibility on that because it impacts potentially selling price dynamics as well, but the.
The the the 70% three by three program.
Were certainly well ahead of that and we will see almost the lion's share of that achieved in 2021.
Okay, Great. That's all for me and I'll turn it over thanks.
Yes. Thank you.
The next question comes from Greg Watson Koski with Weber Research. Please go ahead.
Hey, good morning, guys. Thanks for taking our questions.
I just wanted to kind of.
Piggyback off the last one in and just talk.
Talk more about the the.
Pipeline and conversion to backlog in order book and if we just look at kind of the top of the pipeline and.
Conversions over the next couple of months.
The kind of expect that to be I'm, not asking for amounts, but maybe percentage of of how much could potentially hit the 2021 numbers versus you know looking at 2022 and beyond is it like a.
Could it be like a 50 50 of or is it more like a 90 10 per cent a.
'twenty 'twenty two and beyond.
Yeah, I I think we will have some some limited impact to our 2021 in terms of conversion of the sales pipeline. The order book if you look at the.
Conversion time, and then you look at the delivery time.
You know it does take a number of quarters typically it's driven in large part by supply chain as well as in large part by the timing from order and when the customer actually needs. The product of lot of these projects, including for example bus programs.
The they arent they arent.
Asking they don't submit an order and then ask for the product delivered three or four weeks from now right. They're typically looking at a number of quarters out. So I would say your your 90 10 is probably a better guide rather than the 50 50.
Okay got it.
And then for the next one on the wage for our JV I'm on.
On the last call you said that the JV could potentially reach breakeven by the second half this year of potentially beginning of 2022 is that still the goal or have you know the the policy delays in China kind of pushing that timeline further into 2022.
Yeah, I think that's a fair comment of the policy delays have frankly been unexpected but on the policy front, we actually had a pretty important I would say start to the year in China on the policy front right. So you've had the the 14th five year plan was approved in March and in the plan the environment has a very significant for.
And the shift really is going from clean up to decarbonization they call. It green of ecology and now we've got these.
The important milestones of our goals for carbon peak 2030, and carbon neutrality 2060.
And then since that time, you've had two important announcements I'm not sure. If if you're fully aware of these one of them is the ministry of Science and Technology announced the hydrogen Society program in Shandong Province, We think this will be of major boom for the Shandong province of fuel cell opportunities, which will of course helped the <unk> Ballard joint venture which is located.
<unk> in Shandong.
And also the national fuel cell technology Innovation center was awarded to wage hike.
On April 18th So this is a very another important development in that market.
On the deployment front in China, you're also seeing about 3400 buses and trucks from Ballard in that market right now with over 70 million kilometers. So that's a more recent number than the number we provided on our overall global installed base of 75.
I just want to highlight just on the joint venture I'd say there are three key things that had been going on there one is really kind of optimizing and improving the yield improvements as we're waiting for.
Of the market to the to get uncoiled there.
And then the second is the module development activity, so and making sure we have the portfolio of modules to satisfy the different market requirements for Boston commercial truck, including different market segments, but a lot of work being done on balance of plant components by the way <unk> Ballard joint venture, including significant work on cost reduction.
And then the last one is just the market and customer engagement side. So notwithstanding a stalled market kind of awaiting the announcement of the hydro cluster program, we are seeing significant customer activity and engagement from the vehicle Oems.
Getting new platform.
Platform certified testing and engagement with end users. So there's a lot of work going on in the background of it I think it's going to be very helpful. As the up.
Policy kind of gets announced and clarified here over the coming months. So I think your assessment of the move out was the delayed delayed the policy landscape is a fair one.
Okay. Thanks, Randy.
Thanks, Craig.
The next question comes from Rupert <unk> with National Bank. Please go ahead.
Refer to mirror the National Bank Your line is live.
Sorry about that.
Good morning, everyone.
All right.
You mentioned potential for clarification in the coming months on the of the hydrogel subsidy.
And in China.
The specific visibility on when we could get more a more detail on the program and to your knowledge of any of the demonstration regions in China being the outskirt or indicated for for the cluster of program.
Yeah route for a great question. So what's happened is there's been another iteration of the process, if you will where.
It looks like there are five clusters that will be awarded the Shanghai cluster, the Beijing cluster of the Guangdong cluster the whole day cluster in the Henan cluster. So those five clusters, we're required to resubmit some paperwork.
As of April 30th So that's just occurred.
And Neil I think there is additional progress have been made over the next 60 90 days with the National government in the each of these five clusters working through it so it hasn't been announced publicly yet, but that's our understanding of what's going on in the China market for those clusters.
And in which regions in China can you participate you mentioned of course that are that way China based in Shandong, but are you able to participate.
Participate meaningfully in these other areas.
We feel like we have a good opportunities, particularly in the Shanghai, Guangdong and Hunan clusters.
Yeah.
And just finally on net.
Any more color on how the subsidies could be delivered or will they be primarily to the of.
Of the vehicle and infrastructure companies or cause some of that capital actually go directly to the other manufacturers as well.
Yeah, So it's a a points based formula with the.
Funding going to different parts of the value chain I do see that the vehicle manufacturers will.
Likely be participating in that subsidy scheme.
Not just end users.
Alright, thanks very much.
Thank you.
Yeah.
The next question comes from Rob Brown with Lake Street Capital markets. Please go ahead.
Good morning.
Got.
Just wanted to follow up a little bit more on the sales pipeline could you kind of characterize the that's the market for maybe just the ones that you see first in terms of the pipeline strengthening and how you see that playing out over the next couple of years.
Yeah. Good morning, Rob. Thanks for the question I think you know what we're seeing in the last the quarter.
Quarter pretty consistent with the previous quarter as well as the sales pipeline is actually tracking fairly well to what our goals were as a company for market diversification. So typically we're looking at China of roughly 40% EU, roughly 40% and the rest of World, primarily California and North America.
20%.
As you look at the market applications I think we're seeing new markets coming into the sales pipeline. So bos is clearly the are the dominant share at this time is the more mature market.
Truck activity is increasing.
Rail of course in marine.
We believe those markets those two markets will surprise to the upside over the next number of years.
But we're also seeing some additional of off road markets are starting to play of.
I'd say of more substantive contributor to the sales pipeline, which is very encouraging so things like mining construction market opportunities and we're seeing some new geographies outside of China.
Europe, and North America, starting to play a key component of the sales pipeline as well.
Okay. Thank you and the and then on the on the one of them. Our announcement just wanted to clarify how you see that playing out in terms of any mention of the JV for a platform for fuel cells could you maybe give us a little color on how that kind of develops in your book.
At this point.
Yeah. So the the key here is really that of.
Of course, everyone will understand little more is a very significant tier one supplier to the automotive space strong relationships for these classes of of vehicles as we're looking at light duty vehicles, and our collaboration with <unk> Uh Huh.
The high precision manufacturer of high volume manufacturer bring a lot of capability and supply chain muscle to the table.
So this is a compelling opportunity for us as we look at that market opportunity what we've seen is that.
Many of the platforms, where you'd want to have a fuel cell vehicle in light duty for example, cargo vans. There just haven't been OEM stepping into that market quite yet and the vision here is to get ahead of that and to offer a fuel cell powertrain.
The system that can be marketed.
You know in the series production of actually two.
Two of the vehicle Oems in a plug and play type format and so I think as we look at the this market opportunity. We're seeing two phases of activity with <unk>. The first is developing this platform together.
And Ballard will primarily be responsible for the development of the fuel cell system and.
And <unk> has the scope of moving from the fuel cell system to the powertrain, including the storage tanks and the DC DC converter and some other key components.
And have you if you look at what.
What lindmark contemplating here, it's initially validating that the system going through testing our engagement with customers and then ultimately Ballard and little more moving to a joint venture where.
Where we design and manufacture our respective components and use the joint venture as of sales vehicle to the channel that are little more already has strong engagement with so this is the the two phases of activity. It's obviously early in the in the in the relationship and this is a follow on from the work we're doing with Lin of Maher.
For UBS delivery vans in California, where we've already established a very strong working relationship. So lots more to be worked on in the coming months in coming years, but we're very excited about the opportunity for them. What I think is one of the leading players that's leaning forward on the future of mobility.
Okay, great. Thanks, Thanks for the color I'll turn it over.
Thanks, Rob.
The next question comes from P. J <unk> with Citi. Please go ahead.
Hi, Good morning, Randy It's Eric Petrie on for P. J.
Theres been some mention of hydrogen and the bite in the infrastructure build but really the focus of things on.
E V for mobility, so is that a small step back for the hydrogen economy.
Yeah, Great question, Eric I think what we've seen is that there are two key themes at the moment that we think really helped the hydrogen and fuel cell opportunity in the U S market.
One is decarbonization and <unk> getting back near the Paris climate Accord, obviously and looking at net carbon zero by 2050, that's a major initiative the only way the only way to achieve that is to include hydrogen in my opinion, you cannot achieve the Paris climate accord objectives, but for the inclusion of.
Region is a key part of the Decarbonization strategy. The second as you point out of his infrastructure and what we see is this convergence of hydrogen and infrastructure of decarbonization, and an infrastructure, leading to an environment, where well see battery electric vehicles.
Working in the use cases and opportunities where they have the compelling.
Response.
And likewise fuel cell electric vehicles.
Seeing success in the markets, where fuel cell electric vehicles have a strong value proposition.
I'll just highlight again, if you look at the California market as an illustrative example, I think of what Youll see eventually across the U S is in California for buses all New transit buses. Let me say this again, all new transit buses must be zero emission by 2029 and 50% of.
Must be zero emission not low emission by 2025, so the very clear pathway of not important policy, making state on zero emission vehicles in buses. Similarly on the truck side, we've got the clean trucks standard that was passed last year and that clean trucks standard is effectively by 2020 for a certain portion of all.
All of trucks of all classes must be zero emission starting in 2024 and scaling up to very high penetration by 2035, and 100% by 2045 and so what we see of the policy of shaping the in California on zero emission buses and trucks will be key drivers we believe.
<unk> not just in California, but as other markets look to adopt similar type of de carbonization of mobility.
Our policy, where fuel cells will play I think the dominant share of rule, particularly in these heavy trucks.
Great. Thank you and then when you take a look at some of these.
The deals in the announcements with one of the Mara hydrogen Heidrick consortium charting the streams you know how do you see of the timeline or which is most of the advanced in terms of a.
Translation into orders as well as earnings.
Yeah pretty clear on that front and anything to do with bus is earlier and.
Will translate to larger orders initially truck will come second.
The call lists are stacked or you know revenue scaling effect, where the bus market starts to grow significantly on top of that the truck market starts to see penetration and then grow significantly as those two markets growth the rail market will add and those those three markets growth than the marine market will add on top of it.
And we see those four markets aggregating to a vote of 130 billion dollar revenue opportunity by 2030.
And I do believe adoption will be in that sequence bus truck rail and marine.
Thank you.
Thanks, Eric.
The next question comes from Michael Glen with Raymond James. Please go ahead.
Hi, good morning, Thanks for thanks for taking the question Randy can you talk about the evolving competitive dynamic in the industry.
Nearly we're seeing quite of few announcements take place from peers in the fuel cell space are you are you seeing any changes take place.
In terms of your positioning versus others in the market and how do you see that if all of it.
Yeah, Michael Thanks for the question I think it has been an evolving competitive dynamics and I think it's going to continue to evolve over the next number of years as well I think the next 24 months, there's a race to provide leading technology that has the performance durability reliability safety efficiency.
Et cetera that meets the market requirements and in.
In my opinion cost reduction will be of key key part of that as well.
As I look at the dynamics you know what what's really happened over the last few years as we now are seeing mobility heavyweights moving into the space. So recently for example, you saw a Bosch announce the 1 billion dollar investment.
You know in the in the fuel cell space over the coming decade and of course, that's exactly what we're doing at Ballard right. We have over $1 billion of cash in and we plan to invest in talent and technology.
<unk> technology and products.
So it is gonna be a competitive space I think what I've seen is that over the last three months.
Compared to the last time, we talked our competitive position has only strengthened.
And I say that because the 75 million kilometers.
And the validation of our technology working in the field is critically important a lot of the customers.
Really wanted to make sure that as they deploy safety quality reliability are critically important their badges on the front of these trucks or buses rail and marine and.
And so it's critically important for them to make sure. They have a partner that is relatively speaking low risk. So you know as you look at the the positioning we have and there is a war on talent in the in the fuel cell industry right now we have it here at Ballard and.
And so we're in very good position from a talent perspective.
You know we're on the 13th generation of fuel cell stack and the eighth generation of fuel cell engine and were working on the next generations of of course.
So we continue to innovate on that front.
I don't think anyone's, even close to those levels of generation of product.
And of course this is for the heavy duty motive market not the passenger car market, where Hyundai and Toyota I think have advantages there and.
And then I think if you look at some of the collaborations that we've announced here. It's just another you know whether its CP rail and the rail marketer of Sierra Nevada.
Whether it's the continued work with with Wright bus and Soliris in Europe is illustrative examples.
As you look at some of the marine opportunities we're seeing.
We're making progress in each of those for verticals of of bus truck rail and marine with named companies.
That are in this for the long term these arent.
These are all projects designed to move to scaling in the long term. So I do think the market is going to continue to be competitive I think technology product cost performance are all going to be critical and that's what we're focused on here.
Thanks, and just on commercial trucks. So you you talked about being ready.
Ready for testing by the end of the CR does this mean you will have a pilot out there.
In say early 'twenty, two and what would be realistic to think of though from an actual commercial product perspective, when what when what an OEM be able to actually buy your module your solution.
Yeah, Michael we're not quite there yet in terms of.
Identifying line of pilot will be on road and when the will be available for selling we do think that 2023 is the timeframe. When we expect to see kind of a you know Ernest market adoption of this product it could be 'twenty 'twenty four.
That's the the timeline, we're looking at but in terms of piloting and pre series production et cetera.
There's a lot of work that will happen in 2021, and 2022 on that front and you'll just have to provide more visibility as we meet some of those milestones. We don't want to get ahead of our skis on on the announcing things early.
Okay. Thanks for taking the questions sure. Thanks.
The next question comes from Christopher Souther with B Riley. Please go ahead.
Hey, guys. Thanks for taking my question here I'm, just trying to touch on the the wage high visibility again here I think the long term opportunity there is pretty Perry, but.
The kind of below activity, we saw in the first quarter I just wanted to get a sense of the until we get maybe some of the cluster of announcements over the next 60 90 day.
Do you expect the kind of just kind of a lot of activity. We saw in the first quarter to be pretty consistent until you know some kind of policy announcement comes you understand there have been a couple.
Incrementally positive things around the five year plan in Shandong Province, but you know it is the cluster of kind of the key thing you think of the Oems are waiting for and you know it.
If we do get an announcement on it.
90 days on that.
Is that kind of translate into fourth quarter revenue or.
Early next year, starting to kind of ramp up I just wanted to get a better idea of the visibility you guys are starting to hopefully see there.
Yeah, I mean, I think I would just characterize the market is in some ways frozen over the last number of quarters as we've been waiting for these policy clarifications and I think youre right that will continue until those announcements occur. So if it takes longer than 60 90 days it takes longer.
I think we will we likely see is that the impact will be.
Disproportionately weighted for 2022.
Okay got it and then the European bus opportunities appear to be accelerating based on some of the order flow can you give a sense of what the mix in the backlog is with those three key customers there.
Yes, I think Theres about 60 70 modules that we currently have in the in the order book backlog for delivery of most of them hopefully for this year.
In some cases will be dependent on the end users and when they want to take delivery of these buses we have seen delays over the last number of quarters on this market segment in terms of customers taking product with COVID-19 challenges out there are locations. So.
Hopefully that doesn't impact later this year and what we will see more importantly, though I think is that what we're seeing behind that behind that order book the sales pipeline for buses is very very encouraging.
I think the European bus market is going to show very strong growth for fuel cells and for Ballard.
I think we'll see a lot of.
Perhaps more important than orders converting to revenue in 2021, we're going to see sales pipeline converting to orders and I think that that to me is the more interesting dynamic.
Okay, and then just on the.
Reduced scope with Audi.
It is this kind of current run rate you saw them. This quarter of good baseline we should use throughout the year for technology solutions or are any of the recent announcements with you know when tomorrow charter multiple rail customers likely to have a T. S opportunities do you think.
Yes, so what we're seeing is we're actually investing more in our own corporate balance sheet on some of the strategic programs to make sure. We have a full IP rights and and are able to prioritize the investment spend I do think what you've seen in terms of Q1 cadence is be fairly consistent through the rest of the year on that Audi program.
Okay.
Okay.
Any other kind of programs out there that we should kind of flag that might be kind of on the cost for them you know it's kind of.
The overall kind of revenue rate probably pretty consistent.
Yeah, I would I would use kind of the Q1 revenue rate is and look at that over the course of the rest of the year that being said you know.
There are a number of exciting opportunities in the sales pipeline that could have some fairly significant implications going forward.
Okay. That's helpful. I'll hop in the queue. Thanks, guys, yes. Thank you so much.
The next question comes from Pearce Hammond with Simmons Energy. Please go ahead.
Good morning, and thanks for taking my questions and the helpful color on the call here of my.
My first question pertains to the cost reductions of true.
That you highlighted earlier of the three by three plan.
So congrats there, but just curious when do you expect that to start to flow through.
Gross margin in and seeing some improvement there.
Yeah. Great question, you know the three by three planned still has more work to do in terms of.
Translating some of the development changes into manufacturing.
With new with new product you, obviously have to sequence the customers onto that new products. So there is some work to do so I would look at 2022 is the timeline when we'll start to see some of that gross margin pick up.
Okay, Great and then my follow up.
You've talked about and you highlighted in the release of the potential for acquisitions as you look at the ecosystem to where you can help reduce customer friction points.
How are the opportunities looking now or are there a good number or the.
Price at a more rich level of given the equities have been coming down here recently in the in the sector is it getting more interesting just like a quick update on what Youre seeing on the acquisition from two to strengthen the company.
Yeah, Hi appears it's Paul here of since Ive been here for passport.
There's been a tremendous amount of of activity and looking at different opportunities.
Corporate development.
Theres different different products.
Different markets and looking both downstream and upstream across the whole ecosystem.
To help expand our capability.
So theres different files that we're actively working I'm not sure when we'll actually see one come through it could be this year could be could be 2022.
We've also.
<unk> hired a new VP of business development.
It's got a very strong background in M&A and who is also helping us out of the coming up the speed on all of the different models. So we're putting a lot more emphasis on the scenario.
And like I said expect to see something probably either later this year or into 2022.
Okay. Thank you very much Paul.
Thanks Bruce.
The next question comes from Jonathan Lamers with BMO capital markets. Please go ahead.
Thanks for taking my question.
On the lithium are demonstration partnership.
What products with the joint venture potentially produce.
Is it the interchangeable chassis with the fuel cell system.
Including stock supply by Ballard.
Yes, hi, Jonathan Thanks for the question, what we're expecting is that most of the product that will be produced will be the respective scope of work done individually at Ballard and Lin of Maher for our respective supply scope.
Then we would see the integration of that product likely at the JV and I think you know.
The inner interchangeable chassis that you're referring to is the likely point I think there's still a lot of work to do.
To understand.
I understand the most effective way to structure this from a efficiency perspective.
What we're trying to do of course is avoid unnecessary capex spending on facilities et cetera, and trying to utilize the existing capacity that we have both at lynam oriented Ballard.
Great and two of Aaron's earlier question about quantification I realize the.
Sensitivities around the this question, but are you able to provide us with any sense of how large a.
The market for commercial pickups, and vans powered by fuel cells could be you know I'm kind of of imagining that there could be of chassis plant with volumes in the thousands in the and this could result in revenue in the tens of millions of potentially for Ballard.
A decade out.
Yeah, I would think that there is a multiple of that.
I think Jonathan that number is quite light so.
You look at the.
This opportunity of light duty vehicles will initially focus on cargo vans and applications, where we see a taxi fleets and other opportunities.
We are looking at fleets, where you have high utilization.
This opportunity, though will enable us to have an offering for the passenger car market long term as well. So obviously, a very large addressable market and one that minimize the very well positioned in.
Thank you.
And just to circle up on China.
What would be the earliest the joint venture could need more.
EMEA isn't the kits at this point is it fair to say that that's a 2022 dynamic at this point before we see another order.
Yeah, I would think 2022 is the clearly the safe bet and if there's upside.
Might be some opportunity later this year, it's all going to be dependent on how the existing inventory gets released.
As the policy landscape changes and we moved from from waiting to execution.
Thanks, and on the three by three cost reduction program. If you have already achieved your full year of 21 target does that shift the.
The prior timeline for I believe it was 70% reduction in stock costs by 2020 for as it is it fair to say you can now hit that by 'twenty.
I think that's a fair assumption, we'll have to look at that carefully the the it's not just the work that's done in 2021.
Some of it it would be time based in 2022 as well.
There are three different phases of our packages of work, we're doing with different time horizons. The the package of work for 2021.
That cost reduction where is that as I mentioned certainly tracking ahead against Theres more work to do in 2022 in order to wring out that full 70% of where we're sitting today I expect us to achieve a number higher than the 70% cost reduction and likely will be able to pull that time in but it might only be a quarter.
For or something like that.
Okay.
On the on rail Randy I appreciate your efforts working directly with the rail operators.
But as Ballard also.
Engaging in any activities with the rail Oems of the Caterpillar was in the web text of the world.
Yeah.
Yeah. So there are three or four key rail Oems and.
I would say until recently they've been fairly quiet on this file.
That's changed significantly over the last few months and some of these announcements have really caught the attention and so there.
There are.
Activities underway right now and I think there'll be more developments on that front in the next 12 to 24 months.
If I may ask one more question.
On the heavy duty truck market.
At the Tam that Ballard has identified I think roughly three quarters of that is medium and heavy duty trucks globally. So it's pretty significant.
In battery electric trucks are an emerging.
Competitive alternative for.
For example, there was an academic study of recently that argue the payload.
It's not impacted by the battery as much as we previously thought Randy I believe you have a view on this issue you know have there been any real technology developments recently that of <unk>.
Change the window of opportunity for fuel cell trucks from the long haul market or does that continue to to tell.
It looked like a great opportunity.
Yeah, I think it is a fantastic opportunity and I don't see today or in the near future at all any changes in battery technology that will help it.
You know expand its addressable market from light duty into the into really heavy duty applications.
I think this is a market that is very clearly going to be fuel cells.
Okay, I really look forward to the prototype.
Thanks for taking my questions. Thank you Jonathan.
The next question comes from the Macmurray whale with the Cormack Securities. Please go ahead.
Hi, Randy I'm just wondering if.
You've shipped a lot of the equipment a lot of work in progress or components to China in advance of the rollout or is there of risk in.
In the high end this you've been continuing to change the module technology.
And work on various initiatives is there of risk that that work in progress needs to be replaced before it actually gets shipped of modules like us or is there a worry at all of that that the write off coming associated with that.
Yeah, that's certainly not in our plans and if you look at the activity levels, we have at the <unk> Ballard joint venture with the customer base.
We are seeing the engagement around the existing product we have there haven't been discussions with the end customers about looking at next generation.
But that's.
That's always a theoretical risk I suppose Mac.
Okay.
When you're in in terms of the launch when you get the announcements.
When they're made public.
Do you foresee an actual sort of ramp up and presumably there's not a ramp up of a step up in demand because or at least in shipments because presumably there's some pent up demand because of that you continue to do the work with the customers, presumably you should be able to ship.
Lot more product.
He was the original plan, which would have I would imagine with a smoother ramp can you speak to the dynamics of how you can sort of hit the ground running when it is turned on.
Yeah, I think this is a a coil that spring loaded and ready to unravel.
I do think though we'll have to wait and see what the final policy arrangements are and what kind of behavior. That's in sense of.
Our expectation is the kind of the first to post type of approach where higher points will be awarded for projects first in the field and if thats. The case that would certainly see a lot of pressure on customers getting products out as soon as possible, but we'll have to see what the behavior.
How the policy the ended up being shaped and what behavior of that that implies.
Okay and then just my last question is just a clarification the b.
The technology that would go into the Lynn of Maher.
The initiative.
That is directly related to the work you did with Audi I would imagine is that fair.
There's a lot of learnings obviously on the high power density high performance stack for that market application and of course, we have rights to that stack, including for the passenger car market. So yeah that will be a safe assumption.
Great. Thanks, Randy.
Thanks, Matt.
This concludes the question and answer session I would like to turn the conference back over to Randy Macewen, the CEO for any closing remarks.
Great. Thank you for joining us today, Paul and I look forward to speaking with you in August when we'll discuss results for Q2 2021. Thanks again.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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