Q2 2021 Arrival SA Earnings Presentation
Second quarter 2021 financial results. My name is Medaire, Sony VP of Investor Relations and with me today is Dennis Sadlowski arrivals CEO Avinash rugged boss President, Mike Abelson, CEO of automotive and Tim whole Brown interim CFO before we begin I'd like to remind everyone that.
Certain statements made on this call today are forward looking statements.
These statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs assumptions and information currently available to us.
Although we believe these expectations are reasonable we undertake no obligation to revise any statements to reflect changes that occur after this call.
Ascription of these factors and other risks that could cause actual results to differ materially from these forward looking statements.
Scott in more detail.
Filings with the SEC.
During the call. We also refer to certain non <unk> financial measures.
These should be considered in addition to and not as a substitute for or in isolation from our IRS results.
For further information please refer to our Investor Relations website at investors started rival Dot com.
With that in mind, I'll turn it over to Dennis.
Thank you Natasha and thank everyone for joining our webcast. This morning. The main message today to do what's great for US we increased number of vehicles in Syn <unk> by.
<unk> four times during first half of this year, we received two more orders and we have very strong interest for new micro factory all.
All around the world.
Our main activity just like sales Michael factories procurements are all on track we have very strong evidence that our new method works.
And our customers require more brands of our products based on that we kind of expanded R&D and accelerated Capex fall microseconds. Different example, one of the biggest challenges we faced with to develop new materials and the production process by Department. Our first production line of body parts starting to work.
Because it has already produced more than 500 companies panel a bit the factory.
I would like to use this opportunity to remind the survival is a very unique company. We have invented a new method to design and produce vehicles using micro factories.
And this is something we should never been done before.
Doesn't buy them recently treated.
The future is electric.
And this is something we have believed and been developing for since 2015.
We are on a mission to help clean air, but replacing old vehicles to electric produced by local micro factors. We are focused on commercial vehicles now.
But our method does not limit us only to commercial vehicles.
So we have managed to create best in class electric vehicles, we call them devices on wheel.
They will have competitive pricing with up to 50% lower cost of operations.
This radical new method to design and produce electric vehicles using micro factories.
All of us to avoid Sberbank melding conventions.
Macro factors, a rapidly scalable and low Cogs we.
We are vertically integrated and we have developed in house Tech with a very strong IP portfolio.
We witnessed strong demand for our products.
And we continue to grow our team now we have over 2200 fulltime employees.
All this will make us high margin business enabled by hardware software and next generation robotics, making us one of the largest and fastest growing EV companies globally. This was a brief overview of Q2 results.
Now, let me handover to have enough president of horizon.
Okay.
Thanks Dennis.
In Q2, we have been pushing the accelerator as we get closer to our product launch dates we continued to execute on our business plan and we are especially pleased with the progress we have made on sales since the close of the quarter, We've announced two new orders, which demonstrate the momentum of our sales pipeline. The first order from leaf plan is an initial order for 3000 beds.
Please plan is a leading cause of a service company and will be the preferred leasing partner for our electric beds. The sales agreement is expected to be completed in Q3 of 2021. The second order is from California's Anaheim Transportation network.
<unk>, who recently secured a $2 million grant to replace five of their buses, we've arrival zero emission battery electric buses.
Our first bus order and marks a significant step forward for this vehicle program to add to the two orders that we already have for the event. We have a very strong sales pipeline with LOI is increasing approximately four times since the start of the year to 49000, we have seen a dramatic increase in potential orders from emerging markets, including India and we are pleased to.
<unk> will be opening an R&D center there to meet this demand. This shows the global interest in arrivals local production method and best in class products at competitive prices.
A big driver of the strong demand is the continued push in industry and public policy to transition to Evs I want to highlight the historic use bipartisan infrastructure funding bill that earmarks tens of billions of dollars over the next five years for electrification, we're seeing this trend being replicated in all of our target markets.
At arrival, we're building vehicles any ecosystem around them.
Our strategy is to combine our in house expertise with high quality partnerships that provide a comprehensive mobility solution.
Since Q1, we have announced several partnerships with leaders in their respective fields, including Microsoft with whom we are collaborating on a powerful open data platform as well as Hitachi SCM microelectronics and umbrella.
Arrival automated driving system also completed a live demonstration of the arrival that without a human driver inside performing operations at a fully functioning parcel depot. This shows our progress towards our vehicles being therefore autonomous ready in the future Lastly, I want to discuss not only the strategic and financial impacts of our business.
But also our community impact this is a key pillar of our strategy that will uplift the communities in which we operate this slide shows an independent study of the impact we expect to have in rock Hill alone. We have over 500 direct and indirect jobs created and $159 million added annually for a local economy, we've seen tremendous governor.
Interest in our micro factors and as we scale macro factories across the globe. This becomes a unique advantage of arrivals ability to positively impact local communities and attractive incentives.
Our CEO of arrival automotive, Mike Abelson will now give us an update on our program development and Microfracture status Mike.
[music].
On a bus programs, we've decided to build the buses for customer trials in our facility in <unk> in the U K instead of Rock Hill South Carolina.
This enables us to serve the UK trial with first months much more efficiently than shipping buses from Rockville.
The trial buses will be built between Q4.2021 in Q1.2022 with production in two components, including cancer panels and battery modules manufactured with production equipment will start trials in UK pruning rounds in Q4 of 'twenty. One we will then move to public road trials in Q1 of 2022.
By building our trial buses and been very we can ramp up their actual micro factory and focus and unsaleable builds beginning in Q2 of 2022.
This timing will allow us to incorporate any product changes are required as a result of product validation and certification.
This timing is still in line with our original business plan, which you expected shuttle buses only in the second half of 2022 for.
Program program timing is on track with production scheduled for Q3 of next year at our micro pack premium Mr. In the UK. We've already started then testing with UBS utilizing our current prototype fleet on proving ground in the U K, we expect to move to public road trials in Q1 of next year, we don't expect to complete certification type of approval.
Our man in Q2 of next year today I also wanted to announce a number of new variance to our van lineup.
The pictures and videos of our band that you've seen to date all reflect a high route Watkins configuration is used by Etfs will also offer a variant that's 12 inches lowering overall height.
Both these variance will be available in two wheel basis.
I'll also offer a cargo van <unk> in both <unk> the cargo van will be available with traditional rear doors inside cargo doors.
All of the variance I've described are scheduled to enter production before the middle of 2023.
<unk> benefit of our composite panel technologies tooling cost of the specific panels for each of these variance is extremely low the.
The flexibility of our micro factory approach also means we can implement all these variance without modifying the layout or the basic factory equipment and our micro factories.
In our discussions with additional potential van customers, we continue to monitor the interest in the different variance of the van and large band platforms. As we described in our Q1 update call. We put both of these products under the same development team.
Our ability to continuously evaluate demand and adjust production timing and mix for our product variants is another advantage of our micro factory method.
I'd also like to give you a few updates on the progress we're making in developing our micro factors.
Our Rock Hill, South Carolina bus micro factory has over 80% of production equipment ordered or delivery.
Equipment installation is expected to be complete in Q4.2021.
Our Bicester U K band Micro factory has over 75% of production equipment orders are delivered with equipment installation expected to be complete in Q1 of 2022.
Our equipment Capex remains on track to be $50 million or less per micro factory.
With the vast majority of equipment order. We're now very confident we will meet this objective.
Our Charlotte North Carolina band Micro factory will start production in Q4 of next year, we have identified the site and the building is due to be complete in October of this year.
To be clear, we are leasing the site and don't expect to be ordering equipment for the Charlotte Micro factory until early next year.
As discussed in our last update we're pulling ahead equipment spending in our <unk> micro factory in order to install production equipment. There for process Foundation well in advance of production in Q3 next year, we're doing this work and Mr. Rather than rock Hiller, Charlotte <unk> proximity to our R&D facility in London in Bicester, We've now installed the first of our composite production lines.
With appropriate tooling. This line can make parts for any of our products.
First cell in the composite line is an automated kidding yourself. This celtics roles of our comes to material and cuts. It in individual applies to sell uses a robot to then stack supplies one on top of another well dynamically adjusting the fiber orientation each by <unk>.
Picking and placing a applies is done using an arrival developed into factor.
<unk> is controlled by rival software that optimizes the nesting of parts during cutting to minimize waste and also calculates robot trajectories in real time. The composite production line also includes an automated CNC trimming sell for precise post processing machining of the composite parts and an automated binding yourself for the pre treating applying adhesive.
And assembling composite panels.
All stages of the binding process are completed by a single robot by changing the end effectors on the robot we enabled multiple prostitutes to be completed in zanesville, minimizing our capital investment in footprint.
Same time, increasing our flexibility modularity and equipment utilization.
This is the same approach we're taking for technology sells in the General Assembly portion of the micro factory.
On the battery side, it's important to note that we've already produced 1432 high voltage battery modules using our production process. I also wanted to speak briefly on an additional arrival developed technology that underpins our micro factory process.
<unk> mobile robots for March.
We've developed these robots replace the conveyors and automated guided vehicles used in the traditional assembly plants in.
In the micro factory <unk> will carry both parts and vehicles through the assembly process. These robots, operator economists and the micro factory they don't follow a predetermined path or wider in the Florida each.
<unk> incorporates two latter units and <unk> cameras that allow us to accurately map it surroundings.
As you can see in the video they can move in any direction we.
We will also be able to virtually connect two or more <unk> in order to coordinate their movement. We will use this operating mode to move objects that are either too large or too heavy to be handled by a single EMR. The software to control. These robots has also been developed and rival and as part of our micro factory software system <unk> will first be deployed in our band micro.
Factories from the above examples I hope you can see that we're making substantial progress in validating our micro factory processes believe me. We're just as proud of whats going on inside of our micro factories as we are of our vehicles on the road I'll now turn it over to our interim CFO, Tim O'brien to go through the financials.
[music].
Thanks, Mike.
Arrivals EBITDA loss for the second quarter of 2021 was 29 million euros by comparison, the EBITDA loss in Q2, 2020 with $16 million.
At 12 million euros.
Also making several adjustments this number as set out in our press release adjusted EBITDA loss for the second quarter of 2021 was 35 million euros.
That's a $12 million in the second quarter 2020 in.
In total <unk> adjusted EBITDA is 62 million euros, we expect our Q2 EBITDA was recorded as can ship of the run rate for the remaining quarters of 2021.
Launch cost this is due to our head count which is now over 2200 employees total capital expenditure for Q2, 2021 was 65 million euros.
This includes cost to really attributable to product development that are capitalized assets under construction, primarily the cost of staff working on development projects. It also includes the cost of assets purchased please go to the program such as prototypes cost relating to the installation of the citizens and cost relating to regular fracturing equipment at a month's refractories.
Total capital expenditure for each one and 2021 is 106 million euros, and we expect total capex spend for <unk> 'twenty 'twenty one to be in the region of 175 to 225 million euros, the increasing capex spend <unk> capex and that pissed electric factory Thats been put forward into <unk>. In addition to Brookfield, which we always planned in 2000.
'twenty one.
We expect total Microfracture capex debates Brookfield asbestos be around 55 million euros in HQ towards 'twenty one with.
<unk> 25 billion euros of this pull forward from 2022 and our original plan.
Secondly, it's due to high production to the investments of around $50 million euros and towards 2021 season.
These are related to one off costs for each vehicle program as we develop a supply chain ahead of first production.
Finally, the remaining 100 million euros, we aim to continue to invest in R&D and age to 2021 variance for better components and better software. This is a choice of spending is head count focus. So we have full flexibility to wrap up content. That's required have we believe net right time to accelerate that growth.
Cash and cash equivalents at the end of Q2.2021 were 445 million euros, a decrease of $71 million on the balance of the city hosted March 'twenty 'twenty, one is 516 million Europe net.
Net cash inflow in Q2 from the exercise of arrivals public warrants was 67 million euros and excluding this cash inflow arrivals net cash spend so for Q2.2021 was 128 million euros.
The 60 million euros is expected to be received into our cash balance from the public warrant redemption process, bringing the total raised from the process to a 117 million euros.
I'll hand back to having that documentation.
[music].
Okay.
Thanks for your time today in conclusion, I would like to summarize governments are pushing EV transition in local production supporting a new method of using micro factories to produce locally we have strong momentum in LOI all around the world driven by both bus and then as we ramp up our micro factories.
And based on sales compensation is requesting new variants, we have seen the potential to capture a greater market opportunity.
[music].
Okay.
Yes.
[music].
At this time I would like to remind everyone to ask a question. Please use the raise hand function located at the bottom of your screen.
Yeah.
Yeah.
Okay.
Probably well we are getting there.
Questions I also wanted to.
You have this opportunity to announce that we.
Getting new CFO, joining us is John wasn't it.
So we will publish person is today about this so team was our interim CFO from very beginning that was the plan.
Found very strong candidate who is joining us from 'twenty sort of almost one I wanted to use the switches to welcome Jerome.
Sure.
And also I would like to thank Tim for you.
Everything he did for so far Cumulus very important part of our team.
The team is continuing to work to be part of the team and the rival focusing what we call strategic finance.
And thank you very much for everything you did so far thanks, Scott. Thanks, guys, it's exciting to have John joining in.
I think he and I have very complementary skill set so we're looking forward to working together going forward.
Yeah.
Excellent well your first question comes from Brian Johnson Barclays. Your line is open.
Yeah.
Okay.
Okay.
Okay.
Okay.
<unk>.
Yes, we can hear you.
Okay. Thanks, I have two sets of questions here are first around the orders and second just around some of the manufacturing progress Youre, making.
Vis vis the orders can you give us a little breakdown in terms of since at the beginning of the year or.
End of last quarter kind of what are the big chunks of or letters of intent all quarters that came in.
Now I will have Kevin asked off with this question sure Bryan So.
Since the start of the year screen with a predominant in the growth in Nevada.
We have.
We're not giving the exact split but.
It's driven by also the order from leaf planned a significant other orders that are coming on that and that's quite well split amongst different industry sectors.
Joe.
Ecommerce parcel delivery post and so that's where a majority of the growth is we still are also growing OLED on the bus you've seen Anaheim just want to remind everybody that we also have a our first public trial coming up in the U K.
And early on when we start that build those vehicles already there'll be more built out of the UK later this year and we'll be running public trials early next year.
And a lot of the growth we've seen on.
On buses being in the U K Europe U S. But we've also seen some additional interest ball bottleneck.
Correct.
Little bit of color here is that.
I actually ask a few more trying to find the right term for this type of documents were signed and of course, it's not exactly a lot of investments actually well developed relation with our customers, it's not like a <unk>.
Linker or the message from our website.
Sales team working with those customers to understand the specifications.
It's a signed document so it's.
What paper with the science.
Both companies so it's it's.
So we see them as well.
While the weather is important because.
It feels like.
All customers understand that electric vehicles, given where those advantages not only comes from the push from government, but because they see that they can save a lot of them their operation.
Essentially.
Helping them to be more profitable businesses.
And.
The sentiment is that theyre going to be a limitation for the <unk>.
Supply, so and that's why the base customers securing their volumes for the future to be sure that they will get those vehicles.
Yes, I think we mentioned in the last call.
<unk> is not an initiative.
Let's move on to the second question and not to sound like I'm interviewing their manufacturing manager startup on micro Avalanche, but yes, certainly good progress in the micro factor, particularly the paddle can you give us an example.
Our problems slash iterative learning and that came up during the quarter as you are producing those panels.
What the issue was what the constraint how the team attacked that just to kind of get a little bit under the hood or behind the scenes on what's going on in the factories.
Ryan.
If you if you don't mind I would like to before you answer directly that question I want to do.
I mentioned that in my part of the speech was that one of our biggest challenge was up actually everything was relates to body panels.
Like basis, very new technology.
We didn't want to use.
<unk> and <unk>.
Painting, because this is the very expensive vessel Capex, that's defined your size of the factories and the like.
Actually this defined the business model for the automotive companies.
And this was one of our biggest.
Enabler for micro factories.
And are working with the fabric is a one visit so fabric is the extremely complex major to work with and we were showing videos today that we've found the finished so we created our own.
Gripper dwarf, especially with fabric and with Tesla that very well because I'm really pleased to say that in Q2, we managed to produce.
Sorry in the.
At least half of the year for the first six months, we mentioned opinions 500.
Parts using our production line.
And we see that.
Deposits were stable, so which is that we have a very very.
We're very pleased but.
Also I would like to remind you that we are on this challenge we are ready for.
More than six years, so it's not something which happens like immediately now we tried many many things. So we've had the time before too many.
Many things in the find what works so well lets say that now we're very pleased with the results.
Mike.
I was going to use exactly the same example, dentists because handling fabric sounds easy, but it's actually very difficult.
For <unk>. So we looked at a number of different technologies for the end effector and settled on one that as Dennis said now is working very well with the production equipment. So I think that's the only one example of the sorts of issues, we've been working through with the production equipment investor.
Okay. Thanks.
Hi.
Your next question comes from Jeff Osborne at Cowen Jeff Your line is open.
Yeah. Good morning, Thanks for all the detail on the call a couple of questions on my end just great to see the progress on the automation is there any change in your thinking.
On the throughput I think originally you were targeting 10000 bands.
<unk> thousand buses a year.
In your initial work is with the in particular on the composite side and any changes to that thought process.
No no changes at all Jeff, we still anticipate 10000 vans a year on two shifts on 1000 buses per year on two shifts.
Got it that's helpful and then can.
Can you give us an update I think last quarter, you made reference to a facility in Spain.
Sort of an undetermined time.
Thats been nailed down I Didnt see it mentioned today as to what youre going to be producing and win.
So we didn't announce timing today.
<unk> committed to for micro factories next year.
We continue to look at other potential locations as we look at locations, we looked at both demand and whatever government incentives are available and.
And again, because we can roll out Mike factories, so quickly.
Don't have to make a decision.
Even now on where exactly that fourth micro factory will be next year. So it will be a band micro factory, but we havent announced timing.
Got it and then maybe for Avinash or you might could you touch on India and the scope of the development Center complements what's in the U K and Russia for Europe today.
Absolutely Jeff.
Our product development R&D Center, that's looking at a variance of our products.
Let's say suits the.
Emerging markets, who have a different price point different spec and Thats, where the engineering efforts will be spent.
As you know we are.
Already aiming to be price competitive with diesel and we think we can potentially go even lower than our current.
Bond positions in those markets and so that's really driven by a really significant demand.
Not just in India, but in market similar to India that required us products.
Hence the R&D center over there.
Yes.
Okay go ahead, I'm, sorry, I would like to add here is that I think the Indian market is extremely important.
Unique market in terms of site from one side, but from other side.
Pricing for the products.
Steve allocation for their product is very much different to what we used to see in Europe, and United States and.
For us it's extremely important.
Stop is of course this enables us to create.
Vehicles, which can be successful in the countries like in Asia and.
India.
So it's for US, it's a big big step.
And another very important part of this story.
I've seen many companies score announcing their plans.
Like new EV companies or the OLED companies, they're normally because of their methods.
Normally a huge investment in the huge factory and that's why it's like takes many many years and opening new countries has always been a huge challenge.
I would say that we probably have like.
And of course, if our method it's enabled us to.
Our activities in many countries.
Much easier than other companies in our position probably I would probably use it when it's a position answer.
Rio.
Global player in the east in this way. So this just opens.
A real market opportunity for us so that we know that.
Vault is not organized in the way that one vehicle can work everywhere in the world.
And the ability to create new variants, which are suitable for particular markets is extremely important in our method is exactly was designed for that and with our advantages compared to other companies.
And I would add just I think it's important if brew just remind everybody of the modular nature of the.
The vehicles that we built and the vertical integration and because that's all our own IP and allows us to adjust and create new variance much more rapidly than the traditional industry would be able to do so.
In line with what we want to do and Decentralize micro factory is all around the world.
Perfect Thats all I had thank you.
Thanks Ralph.
Your next question comes from Rob Salmon at Wolf, Rob Your line is open.
Okay.
Hi.
Right.
Okay.
Sorry about that can you hear me now.
Thank you Ken.
Well one of the big factors tenants with automotive production as well as the broader economy, it's been inflation and an inflation environment can you give us an update in terms of your thoughts with regards to the expected bomb and and if this is having any impact on the gross margins you expect your vehicles to produce we look out.
Okay.
But we'll probably have a bigger.
Pick a big this is a we definitely this year.
Changes in the cost of motto and the liquid machine the dominion priced prices growing very much compared to what it was but if you seen percentage.
Steel grew much more than that.
Aluminum, so which makes for us I believe that be better.
Situation compared to other companies who are adopting them.
Steel, but button.
I would say that overall, if you take what the mix of the metal and other things because we obviously, we're gonna vehicle born with very complex.
Element and some parts are becoming more expensive some parts where sami.
So from the information we have right now we don't we don't see.
So we are targeting our profitability the way we were planning because we still can also do it with the pricing as well so we will and that's quite important format or is that.
Yes.
In our mission, we say that we know affordable electric vehicles. So it means that we expect of our pricing isn't going to be more competitive compared to other traditional players who are putting the electric vehicles on the market.
And because of that we have a flexibility to control our margins. So we are not.
Pushed from from from thoughtful pricing, so we still have room there.
Thanks, that's helpful and kind of earlier in the presentation and kind of one of the announcements earlier.
Earlier in the quarter was about autonomous.
Testing that Youre doing with <unk> could you talk a little bit about your internal targets for autonomous driving and <unk>.
Obviously, there are several players that are kind of going down this path.
Can you talk us kind of what you feel arrival is doing differently.
With regard to autonomous.
Amount of resources that you're committing.
Yeah, Rob I think.
Yes.
Yes upfront it's important we're not we're not committing resources like competitors like cruise and <unk> in this particular space for full driverless autonomy. While we're doing is we're creating a autonomous platform that we call out vehicles device on the wheels and they autonomous ready.
And so that means we have a team that looks at full autonomy and depth of autonomous which I'll cover in a SEC and figures out what's the software architecture and hardware components that need to be in the vehicles. So for example, we have a unified compute platform in a vehicle, which uses blade architecture as the hardware requirements for autonomy chain.
As we are able to upgrade the hardware in our vehicles. Accordingly, so essentially autonomous ready you can add different census to it and it's all sort of plug and play.
In terms of our initial rollout of autonomous features it's around the advanced driver safety systems.
And we are as mentioned what you saw in that in that press release is that we're also working on full depo autonomous operation and Thats, where our team is focused on in terms of product launch and Thats because of depots are an area, where you can have safety issues and it's also more efficient to run.
Autonomy and so that's a benefit for the operator and the safety of the people and the depth of themselves. So our vans will be equipped with technology for that and we'll roll that out over time.
Well the problem.
Now I'd like to rephrase that our first focus is before the person who can bring the value now we don't need to wait until the regulation will change and allowed those vehicles everywhere and as soon as we can get the values of that.
Technologist the image.
And this is very very important so it means that.
Actually what I'm seeing any other products, which are coming on the market in this category I'm talking about Vance events.
Or buffers, we never see them even.
And idea that those vehicles are appointed with Dominion for them. So what is important about our vehicles is that theyre fully drive of our systems with the compute platform inside and the cameras and other sensors are already integrated and utilizing those.
Sensors and all this.
Technologies for the corporations, where we're getting Britain with value immediately.
Bob.
It may but it also means which we like Muni books is to say is that when.
The regulation will allow to have upon with vans on the streets like everywhere or in the place where we like our customers are starting to operate.
Our ego extremely easy.
It's extremely easy to integrate autonomous technologies from other players within our vehicles.
What is important to say about autonomous technologies they normally.
That's super hyper local right. So that's the.
The bottom part of the story because when.
Even the guys like bandwidth grading the audience. It starts to work with a very particular market.
Doesn't necessary mean that it works in the other markets, where you have snow or.
Rain or different weather conditions and other things.
So we believe that we will start to see that in each region that we're going to be leaders for the autonomous technologists.
And we are ready for integration so that we can take the autonomous technology to integrate with other vehicles, because arguable radio ratings personal hardware.
Platform Yeah.
That's the platform.
And that's kind of a nice segue into the potential recurring revenue streams could you give us an update in terms of your your thoughts kind of post launch with regard Q.
These potential recurring revenue is whether we're talking about fleet management.
Other SaaS type solutions.
Nothing too.
Announced specifically, but we believe that there is significant future upside potential in the business right now.
The model is very much on the on the sales of the vehicles themselves, but to your point.
A significant portion we've mentioned before the majority of our staff 90 Center engineers half of software. So when you think about what that means for SaaS.
There's tremendous opportunity for our fleet management tools and vehicle health predictive monitoring to basically move to.
Recurring revenue, but I would also say that.
Our components are modular in nature as opportunities that we've discussed autonomy and I think that's it.
Even with the vehicle the fact that it's upgradable and if price points. When you think about factoring in the total cost of operations you can see.
Our business model from Australian fleet as a service mobility as a service. So this vertical integration of tech of the vertically integrated business models I would say it gives us a.
Significant avenues for us to go but the team is very important the team is heavily focused right now on.
On our key task, which is getting.
Getting the Boston event to our customers over the next six to 12 months.
And.
Just want to use as opposed to remind that we have quite be part of our executive team coming from different industries, where the product for telecom, where the recurring revenue is the PREPA so in the.
So, let's say, let's say fell bread and butter. So we exactly know what is recurrent revenue liquid burying power ourselves for that.
And just one kind of spend 30 seconds on this point is that.
And I want a car, which we do it together with Uber is extremely important product now.
Now there are no vehicles, especially made for this sector.
And if you start to think about it but they even simple things like Keith like how you distribute the keys.
Physical keys is already become important so RV vehicles are <unk> right. So.
The fact that you can start the vehicle using the app or.
Like I said look.
Different type of authorization is also part of the story. So we in terms of technologies.
And our hardware, we do everything to be constant ready for recurring revenue using our products.
But we don't factor with our business plan I mean, so the cost.
With the high level of uncertainty and we didn't want to put this uncertainty in our business plan and for algorithms.
I appreciate the thoughts guys.
Thanks, Rob.
Your next question comes from Alex Potter with Piper Sandler Alex Your line is open.
Alexia on the future.
Great guys can you hear me yes.
Okay excellent.
So I guess my first question is around supply chain any risks.
You've highlighted this I think several months ago. When we were having our first discussions if you were talking about some of the gating factors that might keep you from hitting your milestones and obviously there is some things that you can control some things that are.
It's going to be up tier suppliers to make sure they are pulling their weight.
Around battery cell supply or any anything else that you would highlight is progressing better than or worse than expected.
And our Alex.
Yeah, I would say ironically, the biggest impact for us from the chip shortage has been a delay in getting laptops for new employees.
As we outlined last quarter.
Our volumes are still relatively low certainly by industry standards in this year.
We don't start ramping up to production volumes.
Until the latter half of next year, So I really don't see any.
Any evidence of the chip shortage will have an impact.
Any of our operations here.
This year and early next year.
On the battery cell side, we continue to work with LG, We announced last quarter, we've already got a five year agreement in place with them with cells that we.
That covers our initial production ramp up so on the sell side, we really don't see any risk either.
Okay great.
Alex.
To give a bit of color. Obviously, we always have some situations where something didn't arrive immediately now like we planned but one week later or earlier.
Earlier too because we have many firsts, we are managing and whatnot.
But nothing we can raise the roadblocks I mean, something which can greatly critical.
No impact on our programs.
Okay, and you mentioned that agreement with LG that covers everything in your ramp bands buses.
Okay.
We're using the same <unk>.
<unk> architecture for all our vehicles.
Actually I would like to use this opportunity when you touch that that point to raise the point again is that if you take bus production.
We.
Normally even like Super Big bottom of infection in the world, They're talking about like 10000 buses a year like so it's a super big because the market is the majority of the small players.
Assuming that this company goes to buy electric Motors for example, the Baidu the producer of the commodity that we buy in 10, thousands monitors a year. So it's very small volume for.
Tier one tier two tier companies.
That's one of the reason why.
Buses are expensive. So the person you almost can count all of this bothers us that low volume production products.
We managed to create a system, where we re using all our components from the van which must produce product inside out was just an example.
Even steering wheel.
In our boss is exactly the same as in Alabama, which was never been done in industry before because normally for the bus you need to have a bigger diameter of the steering wheel was talks on them. Other things. So this carry a camera or kind of model allows us to.
Make our buses are much more cost efficient than other players in the another example is up a motor from demand exactly same water exactly faultless same model for motors goes to the bus. So it means that in terms of volumes of the motor we are not talking about on the bus volumes, we're talking about all of our products, including batteries as well.
So this is very important part of our design philosophy and I believe it's very strong advantages for us because if you take given the published players I don't know like SD Wan like a conventional Marcellus for example, you don't see much carryover parts from the passenger of Mr display.
Most of the bonds right, so it's totally different products.
And this is the case for every every other company in the industry.
So this is a achieved a very strong competitive advantage for us.
Yes that makes sense.
Okay. Good thats helpful.
Last question I had just a.
Elaborating on India and emerging markets overall, I mean, you mentioned.
You generally don't see.
Some of the higher Ed It's Europe.
European or American OEM is participating in some of those markets because like you mentioned, it's sort of a blood bath when it comes to pricing.
The components on the vehicle I mean, you can see very clear D content versus what you have in Europe and the U S. So how will your vehicles be different in India or any other emerging market versus how they are in the U S and Europe, and if theyre not much different than.
Why will pricing be different.
So I mean, I think you can say, it's all smiling and because again, we think this is a unique opportunity first.
The one thing that everybody is under the same impact as has the effect of climate change right. So regardless of.
Of the products in which companies aware.
We as a society definitely need a zero emission vehicles, all around the world and so be a failure, if we create a two tier market.
We're only part of the world can move to electrification so.
So the market is that and Alex to your point.
It's a bloodbath, but it's also a huge opportunity. This is an underserved segment never had the.
The expectation at noon.
So when you have a sort of step change in industry. It allows for innovation.
Go and capture part of that market share. So we can bring local production for our micro factories.
In the case of India, and some of these larger emerging market countries supply chain Theres significant portion already being purchased from there. So for US when you think about the cost of our body panels. The shed use of the components that Dennis mentioned earlier, we really think that we can bring vehicles and does.
Forget electric vehicles already.
Tracking towards price competitiveness with with diesel in the established markets. So we think there's an opportunity to move that even lower and also there is things that you can do with the business case when the residual value is.
We're not going to disclose what the residual value is but when you think about the upgrade ability of the vehicles there.
There's opportunities there to capture a market that no one's been able to so we are extremely excited about <unk> prove that I mean, we have already got.
Demand and otherwise from India.
We've given early indications of the vehicles. So we are extremely excited about that opportunity like I said no one's touching it and we think it's a it's a great example of our rivals difference differentiation.
I also would like to add a different angle here.
We already have their procurement center in India, So, which aligning the local supply chain for our global products as well.
And we understand very well like how this market works today there.
And the answer there is.
And opportunities so everything we can develop the media, which is much much cheaper and in Europe, we can actually because of our modular nature of our product we can reduce those components in our European and American version. So it means that actually making the product for India, great for us and Costa.
Optimization opportunity for all our vehicles, which will allow us to increase our profitability on the products.
Products in other markets.
Yeah.
Okay, great very helpful. Thanks, guys.
Thanks Al.
Your last question comes from Michael <unk> with Baron Barrick Michael.
Your line is open.
Hi can you hear me.
Great. Thanks.
Thanks for taking my question. So I guess, just going back to some of the topics you touched on already.
Sort of the pricing of the vehicle my understanding is you use a lot of aluminum which is quite expensive.
The composite materials, but I think are more expensive than traditional steel, but correct me if I'm wrong.
No I understand that you get scale on the component side, because you can leverage leverage it across your vehicle platforms, but I have to imagine your competitors, saying the buses like the OID or Utah, and similarly, you get that kind of scale given their established players.
I guess, what else gives you that sort of price advantage outside of purely scale on the component side.
Yes look.
We tried to answer this question so the first of all.
When you're using the revenue we need to remember that the minimum as much light of them.
<unk> significant in terms of weight, we using much less weight.
More expensive material, but lets wait so which is compensating this difference not fully but the allot.
And the reason why we went like with Dominion.
Growth is because it allows us the name of micro factories from one side and from other sites.
<unk> also allows.
<unk> allows us to spend much less on the capex of the tooling. So of course, we're using extrusion center.
Some others technology allows us to.
Make it much much cheaper in terms of.
Upfront tunic and Russell.
Dave.
Composite materials very similar stories that even the material itself is.
Now what is interesting because the numbers I was using before it I'm not valid anymore.
Still became much more expensive. So previously it was 700 doors.
Cost per tonne for the steel now its almost 1700.
And the our composite materials to support kind of numbers. So we're using very cheap materials, which is polypropylene.
While fiber where the price of those material sigh around Europe.
Per kilogram so.
No.
Components are.
Cheaper I'm, sorry, a lighter so weird.
The interest rate, we are almost twice lighter than the steel body sukuk.
So combination of the less weight.
And actually.
Prices didn't grow for the composite service Oh.
Same way is for the steel a lot of like make this up.
Model much more.
But.
So we're getting advantages here.
What things normally this is that is not available the people when they're counting the part the accounting what steel.
Tomato or still too competitive but in our case, we don't use the paint shops developing another technologists in the assembly lines. If you can if you combine all those things together.
With the cost of equipment for the Capex. So the picture stuff to look in different ways. So if you take a total cost of the body.
Including all of the processes.
So this picture stopped all differently.
And so.
So it's not enough just on the lies the cost of steel compared to possibly minimum so you need to see what the full picture here.
And but coming back to the components of that but my topic. One actually that was my point is that even something like your tone, which produces 10000 vehicles. There was 10000 buses like a year.
It is a component that's very small volume so they cannot get right pricing on that.
We are getting this because first of all we are vertically integrated.
So it means that we have.
Is that the pain.
Margins on tooling cost are not like other kind of things two tier one companies.
We are we keeping it for ourselves.
And.
So we.
Now he details what is the cost of our competitors on the bus and we know that many of our components are radically cheaper.
Because of that.
Understood I appreciate the answer very detail one last follow up here just in terms of.
The way you manufacture the manufacturing process right I understand its sort of a cell based manufacturing process, it's very modular, but you're also making your own components. So a lot of your own components internally. So are those being produced in the same factories that you produce in the vehicles and then how do you sort of sort out the timing of assembling the components versus manufacturing of components to that everything lines up and run smoothly.
Yeah look.
So.
In terms of components, we only assemble battery boxes.
Part of our micro factory operations, so sales are coming through the factory and Victor Workover assemble that.
But now all other components like inventors for motors and other things become ready parts to the factories and we are using.
Tier two tier three partners, who are doing this we.
We have a service agreements with them, where they produce for us based on our specifications.
Engineered so then.
They just described like approach car will work with the components in terms of.
Logistics and the supply chain.
We need to remind you that because the borrower.
Cell based manufacturing we are not we don't need to be just in time model. So.
We don't have a conveyor line, where you need to be just in time, so we deliver parts to the.
Our factor.
Factories.
In the beginning of the ship and the even if the parser.
Coming back two or three hours later, it still doesn't make impact on our operations in the factory.
And but we also have a three PL operators with the partners in particular countries, where do operating so we do buffering, we're creating buffers over the.
One of our components that they can be shipped to the right micro factory in the country to produce vehicles.
So.
And of course, we build our factories normally in the big metropolitan areas with Big cities, where the logistics the very well developed.
So think about it.
Any type of deliveries happening in the cities.
Because of our components are majority of our components are done and the way that you can.
Then the analogy here if I can do give us like a very simple how I received my parcel from a model like a.
Every day I mean, because of the packaging of course.
While the size or weight of those component there are done and the way that it's very easy to handle them.
And one important point.
One nuance to your question Michael when we designed the components. They are in sync with the micro factory size. We showed in the video we do all of the software and the cells, we understand what that operation needs to be in each cell and set of components actually designed in a very specific grid architecture. So that we know that the micro factory can build.
If our internal system says a coffee built then we simplified our components and redesign and that simplicity, which takes a long time to engineer.
It enables us to know that the micro factory can build the product.
Without with our components alongside supply parts.
Understood. Thank you and just one quick one.
Award basically.
I guess I assume you would do localized manufacturing for wherever Youre basically addressing demand does that mean youre going to build a micro factory outlet to address.
Demand in Anaheim.
It means that that'll be one of the places we look for one of our next micro factories, but we're not announcing anything today.
Yes.
Just have a good question.
Just to give you the right feeling about it the thing is the game.
Understanding our distributor network means that we have a flexibility obviously, if we don't see enough volume particular region. There is no need for us to build a macro factor. There we are using the other manufacturers in the country, but when we see that demand is growing in a particular region. So we opened those micro factors. So this flexibility is a part of our.
Business model.
The this is very very important the groups like we avoiding this with the addition of our need to invest billions of dollars in the factory and then wait like two or three more years until you will get <unk>.
Foucault full full capacity. So all this time, while you are not on full capacity. The company is losing money in our case.
Look we are optimizing that.
More.
Based on the job.
Yes, we're really bullish I mean, it's $50 million in Capex for micro factory, we've shown some of the demand that we're getting.
<unk>.
In the medium term, we expect micro factories.
Every major city. So I think there's a there's a huge scaling opportunity our micro factory scan in parallel I think that's an important point too right.
Don't have to wait three or four years to get the factory ready spend billions of dollars.
As we see demand such as Anaheim, and and others. We can put a micro factory down really quickly.
That really is an agile and unique aspects of arrival that no one else in the industry.
Understood. Thank you guys.
Thanks.
Yeah.
Okay I think.
That's the close of west someone's going to put up a slide thanks. So.
I was wondering remind everybody why rivals different as we as we end the call. Thank you everyone.
Thank you.
Yes.
Okay.
This concludes today's call you may now disconnect.
Okay.
Yeah.
Okay.
Hi.