Q2 2021 Ballard Power Systems Inc Earnings Call
Thank you for standing by that sort of the contract operator welcome to the Ballard power systems second quarter 2021 result conference call.
The remainder all participants are in listen only mode of the content is being reported.
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I would now like to turn of the contract over the gate Charlton Vice President Investor Relations. Please go ahead.
Good morning, welcome to the Ballard of second quarter 2021 right now it's only the operating results conference call My.
My name is the teacher Olson and I'm delighted to have recently joined to the Ballard power team Who's the Vice President of Investor Relations I look forward to speaking with many of you joining the call today and over the coming weeks and months.
With us on today's call are Randy Macewen, Ballard's, President and CEO and Al Thompson, 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.
He is referring to of our most recent annual information form and other public filings for our complete disclaimer and related information I'll now turn the call over to Randy.
Thanks, Kate and welcome to the Ballard team and I'd like to thank Guy macaroni for his many years of valued service and wish him the very best in his planned retirement.
I'd also like to offer a warm welcome to additional new members of our leadership team, including winded down Chief people Officer, Mike Cubic's, Vice President strategy and corporate development.
As announced yesterday I'm also pleased to welcome the new member to our board of Directors Herbert Neil Hauser.
Hubert us brings a strong background in industrial manufacturing, including commercial vehicles construction machinery agricultural machine machinery in powertrain technologies I look forward to the insight and counsel to support Ballard strategic objectives and drive long term shareholder value.
Welcome everyone to today's conference call.
In Q2 about revenue was $25 million and over 40 per cent increase from Q1 and flat compared to the second quarter last year gross margin was 15% adjusted EBITDA was negative $19.7 million of cash reserves at the end of the quarter were 1 point to $4 billion.
We received $26 million of new orders in the quarter up over 100% from Q1 looking at the first half of the year orders were also up over 40% from H 1 last year.
The net order backlog of approximately $113 million shows modest quarter over quarter growth.
The second quarter and first half of it this year of Highlander, our ability to navigate the challenging environment amidst widespread disruption in global supply chains early in the pandemic, we worked with key suppliers to ensure long term agreements and extend the purchase order coverage, allowing our suppliers to secure raw materials early.
Before many of the 2021 shortages began to impact of supplies.
<unk> tuning maintaining dual sourcing in different continents, and increasing safety stocks on critical and long lead materials has allowed us to navigate short term disruptions over the last 18 months.
Close relationships with our suppliers continue to enable us to be nimble throughout the pandemic, let me the disruption to our customers.
Throughout 2020 and into 2021 we'd continue to invest in people and technology to increase our research product development commercialization activities and customer experience cash.
Cash operating costs for the second quarter with 21 were $21 million, reflecting our increased investment, including our increased investments in the fuel cell technologies systems engineering and product development and designed for EMEA plates stacks and modules for bus truck rail and marine.
These investments enable us to maintain our technological leadership, while reducing product costs as global momentum in the hydrogen markets to take hold.
This is exemplified by the recent substantial completion of our MAA production capacity expansion in Burnaby.
Which positions us to support the growth of customer deployment and cost reduction.
We remain ahead of schedule of schedule in realizing our 3 by 3 stock cost reduction targets for 2021.
We expect to provide a more fulsome update on the progress of our cost reduction program at the end of the year.
Now in the fuel cell electric bus market momentum continues notable new orders, including an exciting order from Tata Motors, the largest bus company, India for 15 of our 18 of our 8 generation fuel cell modules to power 15 buses in Delhi.
We also received follow on purchase orders from Soliris is the power of 13 buses in Frankfurt, Germany and from new Flyer for modules to power 20 buses at AC Transit in Oakland, California.
These orders show further expansion in this key market segment and further validate our technology leadership, our fuel cell products are proven durable reliable and increasingly cost competitive.
In the truck market, our joint development program with Molly is progressing well. We've now completed the first built for the 240 kilowatt engine. This new engine is being developed for the European heavy duty truck market and we're on track the on track to ship. This engine and have it ready for additional testing by the end of the year.
While the policy update from China, It's still to come we continue to achieve important technical milestones in stack and module developments at our wage hike Ballard joint venture.
As of the end of June there are over 3300 fuel cell electric vehicles deployed in China powered by Ballard technology, and nearing 80 million kilometers of travel distance.
On our Q4 and Q1 conference calls I discussed the increased momentum in the rail market, including our project for freight locomotives to the CP in North America, and our ongoing work with Siemens in Europe.
As a reminder, part of our technology solutions business model is to work with customers during early adoption and transitioning these customers in the power product customers over time.
A recent order from Siemens is of Great example of this we're now seeing the progress made through our technology solutions engagement translate into purchase orders for the next phase of commercialization.
Our 200 kilowatt real module development program for.
The Siemens of Mario a plus.
Plus age trade has been underway for 3 years and will be starting now deployment in the upcoming operational try in Bavaria, Germany the.
The Siemens morale plus H platform is a modular commuter train designed to operate on non electrified rail lines at speeds of up to 160 kilometers per hour over a range of up to 800 kilometers.
We've designed our fuel cell modules for this platform to meet the onerous rail Cogent standards and these modules are mounted on the roof of the train.
We believe our collaboration with Siemens and others in Europe have us well positioned for expected growth in the zero emission rail market as highlighted in the recent fit for 55 program announced by the EU.
Now in the Marine market, we continue to see strong interest in our F. C wave product. This is the market, we're very excited about and see lots of opportunity.
We're making initial deliveries in 2021 to early customers in various marine market segments.
The backup and stationary power opportunities are also gaining traction as exemplified by our recent announcement with fusion fuel on the HD <unk> project in Portugal.
This project will utilize our 200 kilowatt F C wave system in conjunction with concentrated PV solar to generate clean hydrogen and zero emission power.
The FC wave was originally designed for marine applications, but the maritime power profile is similar to that of many stationary power generation applications.
As a result, the FC wave is in the ideal candidates for stationary power applications due to its large output capabilities, leading safety standards and zero emission profile.
While backup power and stationary power of means of modest portion of our overall revenue, we're seeing significant year over year of growth.
The power revenues were up 125% over last year predominantly in the European markets, we anticipate seeing future growth in large stationary power market segments across certain target geographic markets.
In our mining applications Anglo American the world's largest platinum miner in the strategic investor in Ballard recently provided an update on their ongoing fuel cell mining haul truck per project.
Angola has been performing bench testing on H 100 kilowatt fuel cell modules since early last year and now plans to begin onsite testing in Q4 on Komatsu trucks at the South African mines.
40 truck rollout is targeted to start in 2020 for an additional 470 kilowatt modules are on order for further bench testing on next generation trucks.
Such projects illustrate our ability to leverage our core competencies and leading fuel cell technologies across an increasing variety of verticals.
While the balance of plant varies based on application. We're building the revenue scaffolding to sell into multiple markets, whether technological capabilities, including Emea's fleets stacks and module design as the foundation of.
Our leading technology, coupled with our ability of increased volume and drive down cost results and resiliency and diversification across geographies market segments and customers. This is increasingly important as a global demand and outlook for hydrogen applications rapidly grows.
As of recently disclosed by the hydrogen Council and the July update since February there's been a 60 per cent increase in the announcements of large scale hydrogen projects, bringing the global total to 359 the.
Total investment into these projects and along the value chain is approximately 500 billion through 2030 of which roughly a third of these are investments are considered mature the.
The hygiene Council reported the estimated investment in hydrogen projects is increasing by $1 billion every week.
The momentum of the Decarbonization is clearly accelerating globally, including in the key markets of Europe U S and China.
As reflected in our H, 1 revenue mix and our Q2 order inflow Europe is coming on very strong.
This is the market, we're excited about and investing in.
Europe remains the leader in the adoption of hydrogen Decarbonize energy mobility and industry accounted for more than 50 per cent of announced projects an estimated investment of <unk>.
Last month, the European Commission Commission announced the FID for 55 package proposing measures to reduce greenhouse gas emissions by 55% by 2030 from 1990 levels as well as the winding of framework for carbon neutral Europe by 2050.
This package offers a significant boost of the European hydrogen industry through of 50% target on the share of renewable hydrogen consumption concrete and ambitious targets for maritime hydrogen use and expansion of hydrogen refueling stations along core networks.
In particular, the transport sector legislation will push for faster decarbonization supporting even more opportunity for Ballard Ballard already maintains over 80% market share in the hydrogen fuel cell buses in the European market.
These programs further accelerate hydrogen development across our verticals of bus truck rail and marine.
In the U K of strong market for Ballard the British government has expanded upon their existing plan to stop the sale of internal combustion engine passenger vehicles by 2030 to now stop the sale of all internal combustion engine vehicles, including commercial transport by 2040.
This updated Decarbonization plan also includes targets for other modes of transportation, including net zero rail transport by 2050.
In the United States or been too significant federal announcements affecting the clean energy landscape in the past months the.
The first is the proposed 550 billion bipartisan infrastructure, Bill, which specifically calls out $9 billion per clean hydrogen and electrical other development and 39 billion to modernize public transit.
This transit funding would include replacing thousands of vehicles with zero emission models and invest an additional 66 billion in passenger and freight rail.
If passed this would be the largest federal investment in public transit in history and the largest in passenger rail since the creation of Amtrak 50 years ago newer.
Numerous grant funded opportunities in zero emission trucking maritime rail and power generation sectors, all expected over the coming year.
The cost trajectory for hydrogen as a transportation transportation fuel looks particularly encouraging as the U S Department of energy has kicked off its hydrogen Earth shot initiative.
Aiming to lower the cost of renewable hydrogen production by 80% to $1 per kilogram by 2030.
The second announcement came yesterday president of Baidu signed an executive order with the goal to make 50% of new vehicles sold by 2030 zero emission and to raise fuel economy standards over the next 5 years. This announcement together with support from Detroit automakers and on the back of the infrastructure built illustrates.
As to the direction and speed in which the U S market is moving toward a zero emission economy.
Further in California, where Ballard maintained leading market share in the fuel cell electric buses the state announced the $2 billion incentive and it's 2021 'twenty 'twenty 2 budget for zero emission vehicles and infrastructure. This is the largest single annual appropriation for clean transportation incentives and California's.
History.
Moving next to China, I recently had an opportunity of visit China, meaning with wage high key stakeholders supply chain partners and policymakers.
I also attended the 6 international hydrogen fuel cell vehicle Congress held in Shanghai, 1 of the largest hydrogen fuel cell conferences held annually.
I observed of rapidly developing fuel cell supply chain in China.
And while the continued policy delays have been disappointing the long term vision is clear China plans to be of hydrogen leader with a stated goal of 1 million fuel cell electric vehicles in 2000 hydrogen refueling stations by 2030.
Hydrogen is expected to comprise 10% of energy share by 2050 to support China's climate targets of peak carbon by 2030 and net zero by 2060.
Interestingly Sinopec the state owned energy Giant has also announced 1000 HRS by 2025, showing great promise in support for hydrogen mobility deployment.
On the corporate development front, we're being thoughtful and disciplined in our approach to capital deployment and have identified several opportunities with potential to accelerate hydrogen fuel cell adoption <unk>.
Expand our capabilities.
Reduce customer friction points and improved customer experience. We're in active discussions with a number of these opportunities and will share more detail if and when we conclude definitive agreements.
The policy of momentum in cross sector of investment is creating an attractive environment with compelling long term opportunity for Ballard.
For the second half of the year, there are a number of potential catalysts for Ballard, including additional supportive policy announcements continued progress on technology and products, including cost reduction new and follow on orders from customers and continued expansion and diversification across our target market segments and geographies.
Fees were.
Well positioned as companies states of nations work to Decarbonize and realize a clean hydrogen future.
With that I'll turn the call back over to the operator for questions.
Okay.
Thank you moving.
Now begin the question and answer session to join the question queue in the main press Star then 1 on the telephone keypad your welfare of talent acknowledging a request. If you are using a speakerphone. Please pick up your handset before pressing any key to withdraw your question. Please press Star then 2 well pads.
The moment of callers join the queue.
The first question comes from Aaron Macneil with TD Securities. Please go ahead.
Good morning, all of them congrats on the new role T.
Randy you touched on it in your prepared remarks.
Can you give us a sense of how competitive than your typical a typical new order is particularly for 1 like Tata, which was the new customer the.
Thanks for the questions and looking.
So the answers on our <unk>.
How many competitors of bidding or your Montreal as price competitively.
It's driven competitors offering discounts to build the references are you changing are charging a premium and relying on reputation.
I know you can't get into specifics, but the pricing dynamic for us is sort of of black box and I'd just be curious to get any thoughts that you could share.
Sure Aaron and thanks for the question and most of your comments are applicable.
You know what we've seen is the change in the competitive landscape over the last number of years right and so if you go back 5 years ago. The 1 we would have been a handful of companies very small handful of competing for these type of opportunities like TADA as an illustrative example.
And.
You know what's happened of course over the last number of years is that we have.
Much larger companies that have seen our strategy of looking at the medium and heavy duty motive markets of bus truck rail and marine where the value proposition for fuel cells are strongest and so it's a more competitive landscape, but what's critically important understand whether its charter soliris van Who'll Wright bus new Flyer Etsy.
Cetera.
Their logo was around the front of these buses and they care about safety they care about reliability. They care about durability. We're now approaching 100 million kilometers of in revenue service, which is a massive differentiator for ballard compared to any other company in the fuel cell industry that focus on these heavy duty motive markets.
So 1 of the thing that's critically important to us we're really focused on as our tagline here for life implies the lifecycle for our customers and making sure that.
We're thinking about long term durability.
And the cost for our customer not just upfront capital costs, but over the lifecycle of that deployment. So there are a number of factors that go into winning a customer like charter certainly the technology the product offering the fit of that product for there in terms of power output of <unk>.
Temperature.
Ease of integration.
There are a number of variables there, but reliability durability and proven technology is of major calling card for Ballard and we play that as you would expect of that being said your point on pricing is important we are seeing.
Other companies, who are earlier to the game, who aren't on AEP generation of product.
Trying to win early deployment opportunities in <unk>.
Pricing aggressively.
That's a factor we have to.
Take into account and that's why we have our.
3.
<unk> 3 by 3 program to cost reduce Ballard stacks and modules.
Over that 3 year time horizon by 70%. So we won't don't want to just rest on our technology advantages, but we're looking at cost reduction as a major advantage going forward and the 1 last point I'd. Just highlight are and is this business model, we have where we sell in the multiple end markets. We think is very attractive.
You know a lot of leverage with the same core competencies same technology and the substantive part of the same bill of materials for modules across bus truck rail and marine and increasingly off road and stationary power applications. What that means is that beyond the technology advantages, we have as we sell across a number of verticals, we expect to have a of.
Volume and therefore, a cost advantage as well.
Got it.
That's helpful.
I'm, hoping that you can also give us a bit more details on the up.
David timeline for the subsidies in China, obviously, like let's not get into the picking a date or anything like that but I guess what might be more interesting is if you can give us a sense of the mechanics of what might occur when that announcement was made both of the JV level and then out of the Ballard level of for instance.
Because of the JV have orders in hand contingent on the finalization of the subsidies or will it start to build inventories.
Yeah.
What's the utilization of the JV level today versus what do you think it might look like subsequently like any any sort of.
Goalposts would be interesting yeah. So some of the context on the JV of course is that we've done a lot of work on optimizing our production processes.
Learned a lot over the last year, that's quite helpful, particularly on the plate production side, we've seen a lot of efficiency and yield improvements that are very compelling.
That's on the production side of production utilization is very low right now as you would expect.
And of course this is a facility that's I believe the largest facility to produce fuel cell stacks and modules in the world for these heavy duty motive applications. So over 2 gigawatts of production capacity.
The 20000 vehicles annually that this facility can support it's quite an impressive facility.
So you know operating at very low utilization currently.
And then when you look at it.
Actual activities as as the entire China market has been waiting for policy clarity, we've done a lot of work of the joint venture on next generation module design.
And the increasing the breadth of the portfolios of different power outputs of <unk> brought a lot of capability to bear here in terms of understanding the market requirements there.
And their experts obviously of diesel engine design and so together, it's a very powerful combination with Ballard fuel cell capabilities and wage highs engine design and supply chain muscle. So theres been a lot of work done on cost reduction for balance of plant components over the last year and a half that's very compelling.
And then on the customer side.
A number of customers continue to clock of kilometers as they validate the reliability and validate the.
The durability of of our products in their applications.
We're talking about here are some of the largest bus Oems in China, and some of the largest truck Oems in China that now have a new platforms with the latest generation of of which I've Ballard stacks and modules.
On test in the field.
So that's a important important developments there we don't have the contingent order book to answer your question directly at the JV I think customers really want to understand how the point systems and in various demonstration regions of will get finalized and what that means.
But what I think is very encouraging beyond the national policy appointing demonstration regions is the recent announcement in Shandong province for the hydrogen Society program.
And this is a program that's very much focused on the deployment of fuel cell trucks and buses and hydrogen refueling station infrastructure in Shandong Province of course, that's where the <unk> Ballard joint venture is located so we believe that we have a very strong position as that project starts to scale up and we're already seeing activity from.
The JV with the customers are for that program.
Understood.
Paul I don't know how on the line here, so I'll jump back in the queue. Thanks for the great. Thanks Darren.
Yeah.
The next question comes from Mac whale with <unk> Securities. Please go ahead.
Hi, Good morning, I thought Randy I would which gets to the Gore agreement can you speak a little bit about the trend behind that so of what the interest is from GOR of because of course surprisingly to me with the membrane, but it hasn't been in the MBA program can you speak to whether we should view this debt.
The sign of your of leadership in that area of just can you speak to the nature of that collaboration.
So you know we've been working with Gore materials for a long time GOR is obviously a leader for membranes.
They have.
All involved there a recipe and they are processing in their capacity over the last number of years and I think they'll continue to be a leader at the membrane level for a very long time.
And so we're very pleased with the deepening collaboration we have with Gore Theres lots of work underway as we look at a collaboration that will continue to improve.
The performance of membranes thinner membranes higher performance lower cost.
The better utilization et cetera. So we're very excited about the activity we have underway with gore not just as the supplier, but really is a a partner that's looking at the long term landscape for membranes in the fuel cell applications, particularly for heavy duty mobility, where membrane durability is critically important.
I also want to highlight there are other membrane suppliers that we have a collaboration of partnerships and supply arrangements with including China domestic suppliers that have emerged over the last number of years.
We've worked over about a 4 year period with 1 company in particular and have worked with them too.
Really validate their material with a number of iterations during that 4 year period, helping them with their specifications.
So that there is a another option that's domestic for the China market.
Seeing very strong.
Technical results as well as cost opportunities for that membrane as well so.
I don't I won't comment on <unk> positioning in the NDA I will say Ballard is very strongly position of the MAA and we appreciate the relationship we have with Gore as a key supplier for memory.
Okay.
Switching then to the minimum or initiative and it's pretty early stage right now you're working on the powertrain sort of prototype out at the end of the year what would what is the timing on the testing of that and then any decision on a JV with is that like a 2022 decision point or.
Would it be earlier or later than that.
Yeah, Matt Great question. So there are a number of work streams going on in parallel with Linde Omar 1 relates to the commercialization discussions.
In terms of business model I E a business plan and the JV the <unk>.
Second of relates to.
Collaboration on the product architecture, including the integration of our modules are stacks into balance of plant components.
Modular design and powertrain integration, including storage a.
Lamar has a lot of capabilities here and a lot of investments they've been making over the last number of years and I think are well positioned particularly for utility.
Vehicles in certain vehicles in the light duty car and van sector, where we see high utilization rates and.
And of course, our high power density stack is well positioned for that market after a long investment cycle with without either.
And then the third is really about.
On the customer side.
And where do we see adoption and penetration and so those of the 3 work streams going on in parallel.
And I just wanted to comment that little more is the great International player a tier 1 supplier in all automotive sectors, but well positioned in these light duty car market, where we see vans and utility vehicles seeing adoption for fuel cell vehicles and their conviction level and.
<unk> on this I think is very very solid.
Okay.
Just my last question, if I could just throw 1 more in there on the pad of order 15 units.
The great start on that is that when you look at there. Our plan is that more of like a band cool kind of program, where you see around a million and half every couple of quarters or is it more like REIT class, where there is more of like $2 million of quarter, just trying to get an idea of how to how to model that over the next day.
The 12 months.
Yeah. So I think like over the next 6 to 12 months I wouldn't assume additional orders from Tata what we're looking at here is those 15 buses going into deployment in a pilot program in the greater New Delhi region area of Delhi region area. So.
That's the.
The there'll be some time to validate those new modules or taking our latest generation modules. We had of prior experience with charter on previous generation product and so we're now moving to the the latest generation product in a much larger pilot program.
Now you compared it to for example, some of the European bus Oems I would actually Mac compare it more strongly with the Chinese bus Oems because the size of the Indian market is substantive.
Compared to North America, and Europe, and what we see is the very large Indian market that is now really over the last 6 months kind of awaken.
To the hydrogen opportunity in and of serious way. So we we think India will be of very large market long term for hydrogen and particularly for mobility.
Obviously, the local air emissions, along with climate change are big drivers in India.
Okay. That's helpful Randy because.
As I pointed out it's the it's a big market. So it's I guess your comment it's really ease of hockey there is the legitimate hockey stick there like in China, and it's the question of getting seeding the market and then once they're comfortable you'll see it sort of.
The uptick in growth.
Yeah Yeah.
Yeah.
For us, we're really pleased to be working with Todd of particularly the number 1 bus OEM in a large market.
Great. Thanks, Thanks, Eddie.
Thanks Mac.
The next question comes from Michael Glen with Raymond James. Please go ahead.
Good morning.
Randy you talked about some capital deployment, you made some pretty broad statements there of Boe.
You have identified several opportunities you're in active discussions with a number of parties I'm. Just curious if you could just perhaps dig into that a little bit more are we or is this.
The M&A is the M O M. O use is it partnerships like just trying to assess in more detail, what we might be thinking about here.
Yeah, Hi, Michael It's Paul Dobson's years, Southern Cal the on the capital deployment front, we are very active.
Both on the on the M&A front end, but the commercial discussions with the number of large.
Large players on the M&A front, what we talked about before really what our strategy is aimed at is accelerating.
Deployment of customer adoption and.
And expanding our capability and really looking at that.
In the key markets, So Europe, and say is the big growing.
Growing market lots of support in Europe, and so looking too.
Let's see how we can expand our capability there.
And then also in China.
Looking to.
Perhaps expand our manufacturing capability.
If I were to supply of the JV and the Chinese market so low.
Those are some of the things that work when I'm looking at.
And then on the partnership side of it you know again looking at key geographies.
Andy mentioned, India.
Other.
That is the God is the massive market and when I first joined a few months ago. It wasn't yeah I think it had been on the radar, but more on the periphery, but now with the squarely.
In our sites and some interesting discussions going on there.
As well as with other players in Europe.
Well, so so there's lots going on in that space.
We are quite active.
We hope to make some announcements this year, but cant promise that obviously, but we are in some advanced discussions with some some pretty interesting opportunities.
Okay.
That's great insight and just circling back to the the cost the customer or the competition question from earlier.
When youre involved in of customer engagement and I would suspect most of these customers are also looking at battery electrics solutions for their for the fleets as well I'm just trying to assess like how much of that how much of a competitive angle or competitive dynamic is emerging with respect of hydrogen versus battery electric.
When when customers are looking at.
These type of solutions.
Yeah, Michael in the bus market in particular, you know there are a number of battery electric Oems that are are showing good progress in that market.
So that's the competitive market, but what we do see is it really very much of function of the transit operator, what their roots are in there and the duty cycles for those routes and then therefore, what powertrain technology can meet the requirements for that fleet and so that's how.
I would say that market is being characterized in terms of the competitive dynamics in my opinion of what we're seeing is more transit operators looking at hydrogen today than were doing so a year ago and we've seen a number of instances, where we've seen follow on orders from transit authority.
<unk> net of deployed Ballard fuel cell engines in buses over.
Over many years and are scaling up their fleets and give you. Many examples of North America and Europe like that.
And what we're now seeing is that their experiences have.
Have been socialized with other transit authorities, who are now open to this opportunity.
And as the mandate for zero emission buses gross stronger in the U S in Europe and in China. This is a very large attractive market.
And then as you move to the truck market.
I would say that <unk>.
Except for very short duration trips you know kind of the last mile smaller trucks, what youre seeing in in my opinion and in many cases is that hydro is the predominant discussion point with battery of secondary consideration in most of the truck market opportunities we're seeing.
So.
More of the.
Fuel cell dominant opportunity as you move to the heavier trucks.
Okay.
Thanks, Randy Thanks for taking the questions great. Thanks, Michael.
The next question comes from Craig Irwin with Roth Capital Partners. Please go ahead.
Oh, Hi, good morning, and thanks for taking my questions.
So Randy you know I've, followed Ballard for E ons right I mean, it's a couple of decades now at the beginning of Ballard had some incredibly interesting and important joint ventures.
Collaborations with the the biggest.
Name brand Oems truck producers in Europe.
And you know.
I guess I guess Audi VW is the last 1 to really be spending money with your visibly.
These other companies have been decidedly quiet around fuel cells.
In the last 2 years.
Given your experience with them and you know you have deep knowledge of their needs of their long term requirements is it possible that you pick up 1 of these are you know.
Really top class tier 1 Oems again, either for our commercial vehicle program or to support the trucking program and is that something debt credibly isn't in the offering.
For the next year or 2 or should we look at it more players more of like Molly it's.
It's to underpin the future development.
Yes, Great question, Craig and Youre right. The many years ago of course, both Daimler and Ford where shareholders of Ballard.
And of course, we had a long standing and continue to have the longstanding relationship with the.
The previously VW and now the Audi brand in the VW group and.
And you know what I'd say on the commercial vehicle market is you have Daimler and Volvo obviously in their joint venture.
And they're looking at the deployment of fuel cell commercial trucks as they say in the in the second half of the.
The the decades, so 2025 through 2030.
So they've clearly of our making significant investment, but it will take some time.
In terms of securing customers large Oems.
Our plan is to do this with Mali.
They have not just the leading fuel cell module as the belt debt with male but also the number of balance of plant components that go beyond the module and integrate in the powertrain and are optimized and so this is a a plan for from Ballard like we have done in China with weight shy.
You go with the tier 1.
Supplier level with a compelling package to the vehicle Oems to <unk>.
Help simplify our customer adoption of removing customer friction points.
It will take time for the Ballard male product to go through development testing.
Field trials et cetera, and so I think it will take a few years before we see the Oems in any large quantities of purchasing that product is the 1 to be very transparent on the on the sequencing of that but I do view on the commercial vehicle side, a number of Oems as potential customers.
<unk> for Ballard and male as we move forward together.
Thank you for that thank you. So my my second question, it's really a question that I've been getting from investors from clients.
People want to know why Ballard hasn't been more aggressive.
Particularly on the hydrogen strategy side right. There is the expectation of.
The low carbon fuel standard adoption across the United States at least in another 24 states over the next over the next several years.
They're all sort of in some stage of adoption and that should provide access to supporting rich subsidies.
For yourselves, given the green hydrogen superior.
Ironman footprint economics et cetera.
And your underlying some of those numbers in the fund out of the you call the prepared remarks.
<unk> is our hydrogen strategy to facilitate customer adoption something that you would look to deploy your cash or is this the priority for Ballard right now or do you see this as something that's the best handled by other partners out there in the market like you know like an air of the key you know, it's 1 of the global suppliers of high.
And today.
Yes. Thanks for the question, Greg and you know as we look at supply of energy supply of fuel.
We really do think that the long term winners in that market will be companies that have scale and capacity and strong balance sheet, we don't ever see Ballard being a supplier of of fuel where customers pay on a per drink basis, and Ballard is the financial sponsor effectively for.
Of that.
So we do believe that the large energy companies like shell light hotel.
And even a broader.
Satellite <unk>.
And then the industrial gas companies Lin day early keyed air products. These companies are expert at engineering procurement construction they are expert at.
The station design.
And the various technologies that go into station design their expert of transporting.
Liquid fuels <unk> fuels.
And of course, they have balance sheet strength and while we have.
The significant balance sheet strength here on a relative basis in the fuel cell industry.
It's a shallow pool compared to the type of capital you need so we do think that shell's beep.
Totals allergies et cetera, and then the industrial gas companies will be the long term providers of hydrogen fuel.
And you know you need to be in that game in volume with very significant capabilities in capital. So now that being said our customers need hydrogen.
Many of our customers are already used to procuring diesel fuel.
And so.
The way, we don't need to supply the hydrogen from Ballard, but we of course of partnering with many companies. So we can help simplify the experience.
And the customers and so we have strong collaborations with providers of equipment, and obviously with providers of hydrogen fuel and as infrastructure gets built out and you think about the projects. We're focused on where we're looking at return debase centralized depot refueling where the barriers.
The entry on hydrogen refueling our lowest.
We're able to bring partners to bear on these type of projects.
Thank you and then last question, if I may sort of a big picture question.
You know China is always unpredictable, particularly for for western companies in western of executives.
I guess, it's been of roughly 60 per cent of revenue of over the last couple of years would you expect China to still be to continue to be the the majority of revenue over the next few years or is the activity youre seeing in Europe, and North America indicative of that.
You know 1 of these other global markets or possibly India could surpass China as a focus of activity for Ballard.
Yes, great Great question, and so part of our business model of course is to be selling into multiple verticals in key geographies.
With the strong customer set so we're not dependent on any 1 market.
<unk> geography of customer and if you look at the revenue actually for H, 1 of 2021, 50% of our revenue came from Europe.
Last year, it was 50% from China.
And if you look at our order book and we don't disclose our order book by geography, but very strong take up almost 70%.
From Europe, and North America.
So what we're seeing of course is that as the China policy has stalled our China revenues have declined.
But Europe and that's the overall revenue then is kind of masking the growth that we're seeing in Europe and in North America as well as some of the other market segments.
Heavy duty motive will be our largest market application and we will see that split up between China, Europe, and other markets, including North America over time, and I agree with your India and other markets will start to see traction into so what I'd say is we like this model of.
So that if there are any stores we've seen this in the solar industry, we've seen it in the wind industry, where during early adoption periods, various geographies have stronger years and weaker years and so we like this resiliency we have in our model, but I do expect China to be a major contributor to revenue as the policy.
Alrighty shapes.
And we start really striving towards that million fuel cell vehicles by 2030.
Great. Thanks for taking my questions.
It's great to see the heavy duty revenue picking up there so congrats.
Thanks, Craig.
Okay.
The next question comes from <unk> Satish with Wells Fargo. Please go ahead.
Thanks, Good morning, there's been some reports of the city clusters in China that have been selected for the pilot programs and recognizing that nothing is finalized as of yet, but I guess conceptually what would happen if the way chi of JV.
And its province of dislocated and it is not in 1 of these clusters, how would that impact the JV if it wasn't the city cluster of it would it would it make a difference.
Yeah, I don't think we ever really had strong expectations at Shandong Province would be included in the first batch of of the city clusters.
Other markets that are.
Large cities like Shanghai for example, in Beijing, where you always are going to expect to see them included and our early work in China in Guangdong Province at Ballard.
It.
Has the number of vehicles and in Guangdong Province, So those 3 will certainly be I think the highest priority 3.
There is likely 5 that will be announced but we'll have to see how it plays out of course some of the customers we're working with.
And some of the supply chain partners. We have are in some of those other clusters as well. So we know we expect to sell across China.
Clusters in the cities or debt.
Demonstration regions outside of cluster of demonstration regions and in Shandong Province, and I think over time Youll see that the cluster regions will expand and overtime of course subsidies will relax and the market will need to compete with economics and that's really the long term market we're focused on.
Okay great.
And then just switching gears I wanted to ask about gross margins. They were kind of flatten in Q2 with the first quarter.
Were there any transitory or supply chain or any of any type of costs that hit you this quarter.
That could reverse over the balance of the year, where do you see margins tracking for the balance of the year.
Yeah.
And as part of your fleet.
Yeah, we did see we did see some some impacts.
And the gross margin so 1 of the things Randy mentioned, we've talked about in the remarks was around the supply chain. So the team's done a really good job in securing supplies and getting those onboard.
As we're going through the Covid environment.
We have seen some impact and platinum prices as platinum went from I think last year $850, an ounce 200 or so.
So we did see some of those costs come through.
We've also been.
Investing quite a bit and people in the amount of quite a few.
People in our advanced manufacturing group.
And in other areas as well working on product development R&D.
Launching products and our cost reduction programs and so those those fixed costs coming some of those fixed costs coming through our margins.
We're also there.
So we our cost base now we think we're at where we thought we would be at this point in the year and so we expect that to be maintained going forward.
We'll have to see where commodity prices get too.
And and see what could be passed through to customers, but right now we don't.
Some contracts, we have the ability to pass those costs through the customers' promotional of them we don't.
So we'll be looking at ways to mitigate that risk going forward.
Great. Thank you.
The next question comes from Rob Brown with Lake Street Capital markets. Please go ahead.
Good morning.
Good morning, Rob.
Just wanted to follow up on the on the rail market development, you had a nice order from Siemens there how do you see that market developing is that of the private project debt that will take time to turn into follow on orders or how do you sort of see that market developing.
Yes. Thanks for the question of course, the rail market is a market that we're excited about of 1 we believe will surprise.
To the upside and the Siemens opportunity is really 1 where we are we're thinking that.
There will be a couple of phases to this so we've gone through the product development phase and successfully worked on a module that meets the onerous rail codes and standards and.
It can be integrated in packaged appropriately and meet the requirements. This Mario plus H platform.
What were expecting as the demonstration pilot in the Bavaria region, and then that will be a 30 month trial and the.
Then what we're expecting is.
Basically.
From 2023 to 2024 vs.
The initial trains being put in the passenger service what I can say is that Siemens is quoting this train.
In a number of projects and we so I think what we'll likely see is 2024 is kind of when lift off will occur in terms of sales of additional units in quantity to the European market. So there's still more work to do and we're focused on that but the.
The relatively modest order inflow over the next couple of years as we validate this on rail.
Okay.
Okay, great. Thank you for the color I'll turn it over.
Great.
The next question comes from Jonathan Lamers with BMO capital markets. Please go ahead.
Good morning, Randy you mentioned targeting near term diversification across target markets and geographies.
Can you give us a hint of the product areas or customer markets, the followed might be looking to diversify into.
Yes, so what we're seeing again is the additional verticals, where the technology can have play and I think some of these markets like some of the off road markets, whether it's construction equipment or mining applications.
There are large markets and they're markets, where we believe fuel cells are the only viable technology for decarbonization.
So theres a lot of work going on a lot of interest there from mining companies and.
Equipment.
Manufacturers of construction and mining equipment.
Stationary power is the market, where we're seeing lots of interest in a number of different market segments. So.
It's not just backup power of where we're seeing the increased demand in Europe, but.
Stationary power applications with renewables, where there's very large opportunities.
And then as we look of datacenter applications, we're seeing a lot of interest in those segments in terms of geographies. We've already commented on India. I think there are other markets like Australia.
And.
Some markets in the Middle East, where we're seeing.
Increasing interest for our fuel cell solutions.
Thanks.
So on the VAT on the fusion of fuel order.
Do you believe that the module was designed for the marine market will be cost competitive in the stationary power market.
I just have a few questions on license or a segment of the European stationary power market or certain customers that Ballard infusion of people are targeting for these.
As Ballard marketing its modules to other electrolyzed suppliers could you just talk to us about the market opportunity.
The D C because it's kind of interesting that.
This is opening up an electrolyzed.
Yes, so on the marine market first of all of this FC wave were seeing a lot of interest in ferries and tugs and work boats and cruise applications and so this product was designed with the marine market in mind and what we see is that that module has a lot of.
Applicability for other market opportunities, including stationary power, but we're also seeing even the bill of materials for example, in our marine market product and our rail market product.
The 70 or 80% of the bill of materials is fairly similar so we have some really good opportunity across multiple end markets.
In terms of the application of the module for stationary power.
I do think it's going to be cost competitive.
As compared to other fuel cell solutions.
When I look at the design and how that design can fit into the applications.
We're seeing that the.
A lot of customers are looking at not just the upfront capital costs, but the long term operating costs and we've designed the module.
For the marine market, where you get high utilization and a lot of other stationary power fuel cell technology out there like back of power have low utilization. So some of the differentiation we have for our product is the durability and the design of those products for markets where durability.
As important and now looking at stationary power like the Electrolyze of connection you referred to or.
Markets, where you have high utilization you know think about for example, the mining site, where you have the ability to have solar or wind as your renewable input haven't electrolyze of their produce hydrogen that hydrogen can be used for mining vehicles.
But it can also be used to provide.
When the wind isn't blowing and when the Sun isn't shying pre.
Primary power back to the base requirements at that mining site.
So that's an illustrative example, but there are a lot of kind of micro grid opportunities that we see and of course, we are working with many electrolyze. Your companies, maybe the leading electrolyze of companies on a number of projects.
Okay, and 1 follow up on China.
Do you believe that we will see an overarching national policy implementation of announcements.
Or will we just continue to see a series of regional policies.
Sort of suddenly implementing the national policy.
I'm just curious whether you can comment on the debt.
The clarity of that your customers are looking for.
I think China beyond the demonstration program that's been discussed about.
It is really looking at announcing its hydrogen strategy. So its roadmap very similar to what other countries have done.
So that would be a more comprehensive outlook on how hydrogen will play out across industry energy mobility and.
The connection between renewable energy.
Which is an abundance of course in China and very high penetration.
Expected in the future and the role that hydrogen complaint there. So we do expect to see a broader hydrogen strategy.
That is launched in China, I won't even speculate on the timing.
Because we've gotten the policy.
The timing wrong.
So, but we do expect to see that that will occur.
Okay, but that's not what your customers need to see at this stage to start ramping up production is that correct.
Yeah, I know that's not a condition precedent for the type of growth, we're expecting with the regional of deployments in the demonstration regions as well.
Okay. Thanks for your comments.
Thank you.
The next question comes from Rupert <unk> with National Bank. Please go ahead.
Hey, good morning, everyone.
Good morning Rupert.
Andy you gave us some comments on the supply chain and product development activities that we try and Linda Moore.
We get further into your partnerships with willing tomorrow and Molly do you see them as silos or are you going to see some cross pollination between the the programs to accelerate development.
Yeah, Great question, I think there's a lot of.
The leverage that we will see with the work we're doing in China with way shy in the supply chain there.
Of the work, we're doing with Molly Molly certainly looking at a number of key balance of plant components that go inside of our module as well as.
Some powertrain components and the ability for us to use those components not just with the male product but across geographic markets.
And different verticals and similarly, with Lindmark <unk> working on a very intriguing.
Conformable storage solution potentially of that has.
A lot of creativity and innovation.
And so if that cease commercialization of the ability to use that in markets beyond what we've contemplated with Lin of Maher is quite.
Quite compelling as well so we do see opportunity with our 3 industrialization partners way shy Molly and Lin of Maher.
To use their expertise their components in all verticals likely and in all geographies.
And they're all relatively comfortable working together all day.
Yeah, I don't I don't know that the net.
The suddenly be working together, it's more of the ability for us to take our for example of moly component and integrate that into our China solution. We're working on for example for the for the rail market or take a little more storage solution, let's say and integrate that into a product for the marine market. So the emphasis of number of different ways. We can think.
About using the components and the powertrain integration capabilities that may be applicable to other markets.
Great. Thanks, Thanks for the color of kind of given the time all the labor there great. Thanks Robert.
The next question comes from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you and good morning, everyone you Randy just you know.
I'm, sorry, I agree of China, again, and again for you but low.
The does the China policy, you know from your perspective in fuel sales.
Heavy subsidies et cetera, and that is the factor that's preventing.
The market for moving independently in bringing these cleaner vehicles to the market.
The strength of I understand you know you know obviously there are maybe cost issues.
But.
Given the sort of the environment of benefits et cetera, all of Lucas.
Yes.
Given the market sort of moving dependent the little faster.
The policy level.
Stuff comes into play.
So thanks for the question and you.
You know we have to understand of course, China is a command economy.
And it's driven by a policy.
And when policy statements are made.
Commercial enterprises Cascade under that and move forward based on the policy statements and we have to understand that fuel cell technology.
In most applications is not cost competitive today, we've outlined this before that the roadmap for cost competitiveness on a total cost of ownership for bus truck rail and Marine we're looking at applications between 2023, and 2027.2028 timeframe, where we see that TCE of crossover.
Against incumbent diesel technology of course, interestingly the cost of carbon continues to go up as well and so that's a real wildcard that could accelerate the timeline for <unk> comparative so what we see of course and we saw this with solar and wind in batteries is typically mark.
Ill provide some initial support.
In early adoption, where you've got low volume and high cost and as the.
The policy supports initial adoption and volume increases and costs come down then the policies relax and decrease over time, so we're expecting to see something similar to that in China and so yes. The market is waiting for that policy support in China.
And then we'll start to see.
Volume deployed cost come down and policy will become less important as we've seen in other.
The industries. So that's the dynamic there I think the other dynamic is of course, the buildout of hydrogen refueling stations.
Even for centralized depot refueling like buses and commercial trucks.
That is critically important and China I think has a real advantage compared to other countries in terms of deploying capital and putting a lot of muscle behind these type of.
The infrastructure Buildout, which other jurisdictions maybe.
Maybe more challenged with different stakeholders involved in seeing that getting realized so I think China has the ability to move very fast once the policy framework is in place.
Understood and then on the stationary power side, Greg It seems like that's the market that is maybe ready to go and barrels of June sales et cetera.
Michael grid of production and you know all of the other sort of obligations around stationary power.
What are we doing form of business development perspective to sort of you get a bigger share in that space.
You know even from an R&D perspective, you know what kind of resources on the new sort of of playing to maybe create a bigger presence on.
On the stationary power side.
Yes, it's a good question and it really we are of course seeing leverage off of the work, we're doing in our technology and products, including the ability to use those products in a number of stationary power market applications. We have increased our business development activities globally. So in China in Europe in <unk>.
North America and in other markets as well we've brought on additional resources.
And Theres a lot of active discussions underway with the different companies in the value chain.
And some of them quite large scale companies that are looking to really game change de carbonization and stationary power market segment. So still too early for us to comment on the progress we're making there on the on the business development side, but we'd hope to be able to provide more visibility later this year, but we're making the investments we need to bolt on.
The technology as well as on <unk>.
Customer engagement to move the yardsticks.
On the Street, that's all day and thank you Randy Thank you.
The next question comes from Craig Shere with Tuohy Brothers. Please go ahead.
Alright, thanks for taking the questions.
Randy and I apologize I'm not sure I agree.
Reconcile answers to a couple of questions.
Regarding hydrogen fuel supply.
It sounds like the response to 1 was the we need to leave this up to the Big boys of the integrated energy conglomerates industrial gas companies.
That would be the main supplier and relied upon by then.
And another question it sounded like some turnkey Ballard Electrolyze your application opportunities could have meaningful kind of turnkey. All quick you know our adoption of the opportunities for end customers. So other than of.
And of course, some of that related to the fusion fuel and other opportunities.
Can you kind of help me understand how to triangulate all of those yeah, Craig Yeah, Great question, and we should be very clear about this is the difference between designing and manufacturing of equipment that you sell versus being a supplier of hydrogen and what were describing before was the opportunity for Ballard, particularly with our <unk> fuel cell <unk>.
The abilities to potentially look at Perm electrolyze or a.
<unk> downstream, so not being a supplier of hydrogen but of supplier of <unk> equipment.
So we don't discount that opportunity that's certainly an opportunity that we have a high level of interest in but we wouldn't be.
Looking to sell hydrogen.
As of captive supplier of La as an energy company.
Is that helpful.
Okay, that's helpful, but nonetheless.
The end user buys the.
The Oh fuel cell equipment, the and buys the Electrolyze yours, they have all they need to make the package work right.
So what youll see typically as end users like of transit authority, which say 2 shell we'd like to have a fueling station built shell will then go to intellectual Iser company, if they want onsite hydrogen production by the Elektra Liza.
Put in place the.
Our compression and chillers and storage and dispensing equipment own and operate that asset and sell the hydrogen fuel to that transit operator.
So we would be okay being a provider of electrolyze of equipment in that model I, just described but we wouldn't be in the role of shell, where we design and build of turnkey fueling station and operate that station selling fuel. The appreciate the difference there.
Yes.
You get the sort of double dip, you'll you'll support both the Electrolyze yours and and of course the equipment that's fueling up.
Exactly we have the ability in that case in that.
Yeah.
The illustrative example of where if we were had electrolyze, where you're selling we'd have the ability to sell that equipment plus the ability to sell the fuel cell modules into the vehicle debt are consuming the hydrogen.
Right.
And last question any.
Any thoughts before we get clarity on China regulation above.
All of the ability to break out of this kind of 100 million dollar of annualized revenue run rate we've been out for a couple of years now.
And any of any thoughts about timing of the cash flow breakeven.
Yes, I mean, we don't provide guidance on our current year revenue let alone.
Our views on when we'll see cash flow breakeven, what we do see of course is that as you look at the.
Deployments of buses in China in Europe in North America, starting to scale, particularly you think about 2024 and 2025.
The objectives for zero emission buses in different markets as the see the progress we go through on the commercial truck side with <unk> Ballard joint venture in China with Moly in Europe as illustrative examples and get to commercialization of of modules into trucks and on roads and as you see the rail programs start.
The move from the pilot projects to deployments and as you see marine applications stimuli of doing that this is the 2020 for 2025 to 30 ramp that we've talked about with all of these verticals across the 3 key geographies and potentially more really contributing so we've always.
Said that the growth rate, we will see a very steep curve as you kind of get to the 2024 of 2025 timeframe and between now and then we expect to see good growth by traditional industry standards, but not necessarily the the hockey stick effect, you'll see after that.
Understood. Thank you.
Yes.
The next question comes from Chris Souther with B Riley. Please go ahead.
Hey, guys.
Thanks for taking my question here, maybe just the within the European bus space would you be able the frame.
Or kind of give an outlook on the NIM.
<unk> of buses in the backlog today and the <unk>.
You are in that 12 month backlog and delivery cadence for this year versus some of the visibility of you've got for next year, just hoping to kind of nail down the cadence that we're looking at in our all of the orders to date under GAAP to our earlier programs.
I'm trying to get the sense of the timeline for that next program batch of out of Europe.
So we're expecting to see some very important developments on the European bus.
Support scheme.
I think later this year will certainly before December works or perhaps in the early December timeframe, we're expecting to see kind of the next major announcement on the support of post Jive.
And and pretty significant scale.
For Europe, So we're pretty excited about that.
And you kind of look at the near term in terms of the order intake a big part of our order intake relates to in the first half of the year did relate to buses in Europe, we expect that trend to continue we have a number of <unk>.
Bus Oems that were working with in Europe, So Wright bus Soliris van who will ADL.
These are all <unk>.
Active in the market and winning projects in the marketing in key cities that are really starting to see scaling effect occurring in those cities and some of the sales pipeline suggests to me. We're now looking at over the next number of years thousands of buses that will be.
You signed up the in the marketplace in Europe for fuel cell deployment.
Oh, that's great to hear and maybe I'll turn it back to India, and Tata the opportunity there, but it talks about the momentum for clean hydrogen there of the blade in the.
The market size, which is obviously very attractive is that 1 where you know if that were to take off.
Market, where JV or local production with the preferential father's day.
Mark do you think you'd sourced from either China. The JV of your North America, or Europe overtime, I, just wanted to get a sense of.
Kind of the larger strategy there if that's the market you think is going to kind of take off yet somewhat of the China potential.
Yes, Chris that's a great question, I think India like China like Japan.
And certain other markets as the.
Very unique market and the.
The the.
Companies that are present, there and have strong position there.
And have capabilities, there can bring a lot of value to bear and so we are considering a larger strategy in China that could involve a more comprehensive relationship with the key Indian partner, we'll see how that market development of business development activity shapes over the next 12 months.
That's great to hear thanks, guys.
Great. Thank you.
This concludes the question and answer session I would like to turn the conference back over to Randy Macewen CEO for any closing remarks.
And thanks to everyone for joining us today, all Kate and I look forward to speaking with you in November when we will discuss results for Q3.2021. Thanks again.
This concludes today's conference call you may do.
Connect your lines. Thank you for participating and have a pleasant day.
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