Q3 2021 Livent Corp Earnings Call

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Today's discussion will include forward looking statements that are subject to various risks and uncertainties concerning specific factors, including but not limited to those factors identified in our release and in our filings with the Securities Exchange Commission.

Information presented represents our best judgment based on today's information.

Actual results May vary based upon these risks and uncertainties.

Today's discussion will include references to various non-GAAP financial metrics.

Definitions of these terms as well as a reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP are provided on our Investor relations website and with that I'll turn the call over to Paul.

Thank you Dan and good evening, everyone. We.

We have a number of important topics to discuss today, we reported our third quarter results with both revenue and adjusted EBITDA in line with the second quarter, although the underlying business conditions were much stronger in Q3 compared to Q2.

<unk> achieved higher realized pricing, but this was offset by lower delivered volumes and higher costs, both of which which were a direct result of those supply chain disruptions and operating interruptions in the quarter.

Neither of these issues reduced our total LTE is available for customers.

And we expect to recover the revenue lost due to lower delivered volumes in the upcoming quarters.

We will also go into the operational decisions <unk> made in the third quarter.

That will provide the company with more opportunities to take advantage of current higher pricing conditions in the fourth quarter and into 2022.

Given how we are entering the final quarter, we are further increasing our revenue and adjusted EBITDA guidance for the full year of 2021.

And raw material inflation in our business.

Including solvent and Leach Yamato feedstock for our PC OEM business.

We also incurred higher operating costs, which are lower and less predictable production in China.

We were impacted by unscheduled power cuts imposed by governmental authorities on the industrial Park, we operate.

With government imposed shutdowns have in fact that many of these from provinces and industries beyond just battery materials.

Our second technical factor that impacted our results for the decision to prioritize higher lithium chloride production in Argentina in the quarter.

As we accelerated the fulfillment of some legacy supply contracts.

This added operational costs that typically would be would have been spread more evenly throughout the year.

Finally, like almost everyone, who will be product around the globe.

Appearance higher shipping and logistic costs.

And some of the labor disruptions.

The issues. We face include the difficulty in securing available product containers and transportation either by Volvo truck.

This meant we either did not deliver the problems in the quarter as expected or we had to incur higher cost to airfreight materials, which with some key customers.

Taken together, a large portion of the higher cost should be consider more temporary in nature, although how long the costs will persist is difficult to predict.

During the quarter <unk> prioritized fulfilling a large portion of its remaining 2021 full year volume commitments to customers.

This commitment was reflected a lower price environment and to base market as they were made prior to 2021.

In a market with consistently high as rising prices and strong demand.

Many customers were eager to take product earlier than originally planned.

And alive, and therefore choose to prioritize these customers in the quarter.

This means that when we ended the fourth quarter with far more available volume to sell through the current price environment than we had in the first three quarters.

Yeah, I dropped site and carbonate.

We have is our ability to continue to support our customer base in times like to be and also by a region are experiencing.

Some type of destruction.

Looking forward Latin has the option to hold inventory to support the future hydroxide production and help smooth out supply chain challenges.

Or to self covering lungs more sinister glee.

Given the current pricing for priority in China cabinet sales in the fourth quarter Brubeck higher margins are contracted hydroxide sales.

We expect this volume.

We expect these will continue to be an area of incremental proclivity for lighting in the future, especially as we bring our first expansion online and just over a year from now.

For these reasons, we will see on slide five the lighting is increasingly full year two.

21 guidance for both revenue and adjusted EBITDA.

As market conditions, and the company's financial performance conference continue to strengthen.

Guidance for revenue is now projected to be in the range of 392 $410 million up $20 million at the meeting.

Adjusted EBITDA is expected to be $62 million to $72 million, which is 34% higher at the mood point than a regional guidance at the start of the year.

At least once the new revenue guidance and slide nearly 40%.

Year over year growth, we've adjusted EBITDA, roughly three times higher than last year's results.

In addition to further improve our global for 2021 as fully discussed with respect climbing to see even greater benefit as we finalize our leaders customer commitments of 2022 and beyond.

This is due to the large portion of our volumes there are available to me, the new or expanded commitments and 22.

Which is 100% of our volume commitments be made based on the price environment where scene in 2021.

In Europe year over year sales growth with over 50% in September with penetration rates, reaching new highs and in the U S. We've seen a number of new targets announced for leading Oems along with new battery partnerships and large capital commitments for localized production.

The positive trend behind.

Demand for lithium ion batteries do not end with electric vehicles, we continued to see increased demand expectations for other areas of energy storage, including light commercial vehicles ebay stay.

Station and storage and mobile devices.

This energy storage demand growth has pulled through meaningful demand growth and baffies capo materials that ambassador materials.

The increase in lithium demand has been cleaning both lithium hydroxide and lithium carbonate.

With low usable inventory available in the market whether that is finished lithium chemicals are all spodumene based feedstock, we've seen shop lifting price increases across all product and the growing Chinese non-contract of market.

Published lithium prices, both inside and outside of China continue to move higher and we're seeing some of its improvement reflected in the latest contracted prices as well.

The entire lithium market is tight today and the strengthening demand picture combined with the non linear nature of capacity additions will likely result in further periods of tightness in the future. However.

Maintenance conversion capacity.

Energy consumption restricts and restrictions that have resulted in periodic production shutdowns and higher operating costs.

While it is hard to determine how long some of these operating and logistical pressures will remain higher cost of lithium production are likely to remain the most in our industry, particularly for those producers that are not fully integrated back into our cost competitive resource.

More fundamentally though we're seeing the challenges of operating production assets in China today.

Although <unk> has been impacted in this regard like many of its peers, we are uniquely positioned with our operational flexibility of producing different lithium products and having an operational footprint, both inside and outside of China.

We also benefit from a more predictable cost structure, given our fully integrated operations.

Automotive Oems and battery producers want greater security of supply and the input cost predictability that comes from not relying on volatile spot market prices in order to do this they are realizing the need for fully integrated suppliers with a global footprint to be a core part of their volume needs enhancing.

Firsthand the challenges of relying on new entrants or unproven Greenfield development projects.

It will be impossible to exclude China from battery supply chain, given how much battery cathode on lithium conversion capacity is located there but over time, we expect a more complete battery infrastructure to develop in other parts of the world in part as a result of the disruption we are seeing today.

Actually there's a greater understanding that the low market prices seen over the last few years.

Sufficient to incentivize reliable long term lithium capacity growth in the third.

Multiyear commitments, which provide guaranteed minimum financial returns are required at least through a path of the OEM procurement portfolio.

<unk> is one of the few lithium producers with these global integrated multi product capabilities and the ability to offer and deliver multiyear fixed price supply arrangements.

I want to conclude by providing a few specific business updates for live and on slide seven.

Although we are not yet providing 2022 financial guidance. There are a few key points, we can provide about the upcoming year.

We expect average realized prices to be notably higher year over year, and we have already agreed to new or expanded lithium hydroxide commitments with several leading Oems and battery producers at prices that are more reflective of current market conditions.

License expected future hydroxide revenues will likely be derived from two separate approaches to the market.

<unk> plans to maintain a large portion of volumes under multi year fixed price take or pay commitments with a small number of customers.

These should provide a base of stability and predictability around returns on its capital investments.

<unk> comes to make firm annual volume only commitments on the remaining smaller portion of its hydroxide volumes with periodic price reviews that allow for exposure to directional movement in market prices. We expect most of our hydroxide customers to transact with us on this basis.

With respect to lithium carbonate, we have not made any meaningful volume or pricing commitments and do not expect to do so for 2022.

We will continue to be opportunistic with regard to our participation in the lithium carbonate market.

This includes selling lithium carbonate to a small number of existing hydroxide customers as we have done in the past.

For our remaining key lithium products, including butyl lithium we plan to continue committing volumes to our existing base of customers, but we'll likely see more entry year price discussions taking place than we have seen historically.

We believe the funds raised from license equity issuance in June along with improving cash flow generation and access to our existing credit facilities will provide sufficient funding for these projects and while we are not providing further capital guidance. At this time, you should expect 2022 capital spending to be higher than 2021 and understand that we will look to act.

Salaries, the timing of our expenses wherever we can.

As announced in a separate press release earlier this week <unk> announced the light of expression for its proprietary lithium metal product.

<unk> is a unique principal formulation of lithium metal and other specialty materials that improves the performance of lithium ion batteries reduces manufacturing costs enable the next generation of battery technology, all while enhancing safety and sustainability.

<unk> long term customers continue to look to us to create a sustainable solutions that improve battery performance safety and manufacturing efficiency.

Initial also in battery producer interest in this innovative product has been promising and we look forward to sharing further details on our progress in the coming quarters.

Finally, <unk> continues to make progress on important sustainability initiatives that will help us to achieve a 2013 2014 sustainability goals.

This includes work on process efficiency and renewable energy projects further analysis of the company's climate change risks and opportunities and alignment with the widely recognized PTSD framework.

I'm getting a little bit more color around your comments about what sounds like structurally tighter aspects of the hydroxide portion of the market.

Juxtaposed against your your at least near term pivot to supply more carbonate. So so I guess, we could conclude then that the lean towards greater.

Carbonate volumes as temporary can you just comment on on how long you see.

Tactical shift.

So in the quarter.

Yeah, the pop out of the company.

Those on the phone call if there's really been imposed on us by the fact that we would be.

We will post to reduce production of lithium hydroxide from that company in China.

So we frankly have extra carbonate.

I think in conversations with customers has always been.

Fluid and that they know that we do have carbonite, sometimes and so many customers have asked us what if you can't supply them with the hydroxide, which I understand that you can't shut down can use assignment with company and so thats, what we will be doing is truly optimistic we are.

Not yet alone in carbonate, we still need all the company for commitments that we've made in hydroxide that doesn't mean, we don't have sometimes the ability to move some take advantage of some carbonate situations and we will do that but I certainly don't expect in 2022 that we will suddenly become a law for lithium carbonate.

Tim hydroxide historically recognize that there is not the same diversity of supply and therefore, achieving security supply is pretty informal I don't think thats really changed.

Though is going to be anywhere near the breath of qualified hydroxide producers out there.

You will see the company, but the company is frankly, just much easier to produce and it's much easier.

So to produce at a battery grade.

You do get moments like today with carbonate pricing, which is much more volatile.

Those outperformed lithium hydroxide pricing for periods of time and there's no reason why that Couldnt continue for a while especially as many Oems are shifting over to covenant based fastest release part of that fleet.

Pete that's been talked about a lot, but again, it's an interesting dilemma for anybody which is.

How far do you go in one technology over another one interesting feature.

Everybody suddenly deciding that he is an important part of that portfolio is just starting to see what the actual total customer feedback to me now is approaching the high nickel MCM metric. So while people ran away from nickel and the high cost of nickel NMC and batteries, but not been hit by the big price increase and covenant that thats seen and it's all China carbonate prices all the rfps.

Made by Chinese battery makers so.

It's not an easy question to answer because I think in the long run there will be fewer lithium hydroxide producers I think they will be slightly more concentrated in that customer relationships and I think overall, the economics will be more favorable than carbonate because of price predictability over time.

Thank you we have our next question coming from the line of Stephen Richardson with Evercore ISI. Your line is open.

Thank you.

Paul I really appreciate some of the color around 2022, you provided.

We will go back on a on a pretty basic.

Question about the underlying earnings power cash flow generation potential of <unk>.

If we know.

If we just take 2018 as a baseline.

I put all those pieces together.

To achieve 2018 financial performance with the current footprint is by no means an achievable where the pricing is going today and what pricing looks like for next year.

Eminently achievable I think it really boils down to is where does the pricing actually go to in 2022 and how much of that given the way we are structuring our business around more frequent.

Pricing conversations with customers how much we can capture journey.

I appreciate that.

Maybe as a quick follow up I mean, you did mention in terms of Capex and the expectation that 2020, capex will be a little bit higher.

Acknowledging that you're progressing in the expense in Argentina.

As you mentioned opportunities to accelerate I think was the word that you.

You use what could those look like on the margin in terms of what are the opportunities to kind of accelerate a little bit as it is at Bessemer is in Argentina is it both maybe you could just help us size that a little bit yes.

Yes.

The opportunity to accelerate its small I mean, it's weeks, maybe a month or two quicker for each of the projects that on all of them and daily could come in a little bit quicker.

<unk>.

But it's not going to make a massive difference.

And in 2022.

I'd be really surprised if we.

Meaningful moved out of the total LTE by accelerating any of the projects right now.

Yeah.

Thank you we have our next question coming from the line of P. J <unk> with Citi. Your line is open.

Hey, Paul good afternoon.

Yes.

You know.

Or the battery companies or more importantly, the auto companies.

Are they willing to pay more for lithium as.

Prices spike or the other.

Chip shortages for auto companies and lower profitability as a result, making any of those conversations difficult.

So it's an interesting analysis I mean, because if you step back and look at the earnings performance of the battery companies. The vast majority of them are doing unbelievably well.

Now and then.

Perhaps the biggest reason for that is structurally they pass the cost of raw materials and so they're taking advantage of the scaling their operations getting scale benefits to drive higher profitability. So all the batch of material costs are going onto the Oems the OEM. So.

While we have the most pricing power.

As I'm sure you've seen many of them increasing that.

The way that they can grow back to apply to me in the future.

Diet as I mentioned multiyear contracts it because take copay commitments I think with choirs economics that is sufficient or does the incentive I am support expansions.

That makes sense. Thank you and then I know Paul you have aspirations of having some production out of Argentina outside of Argentina.

With an upcycle ahead of us and let him that seems like the case.

And many junior the company is still out there.

If you worry at all banker had you know is this the right time to make a move quite any of the junior companies.

Been that bank at 10 years ago P. J I I learned a lot [laughter].

Yeah. It is and it's an interesting interesting question because you know.

The famous I guess my bank App I come again on the famous stores around most mining companies, particularly as they only go buying things on their expensive when the price of them goes up outcomes M&A activity in the mining industry, though what resolve not largely has never ended well, having said that I do think they're awesome.

And the opportunities were clear.

Clearly as a as a junior developer your confidence in delivering a project.

You know, it's probably not as great as mine is.

When we when we line up and what he wished congested view of some of these resources is the risk to me might seem a little lower than it does to Ah.

An inexperienced mining team.

Noon, yet to look around the world and see how many of these of how many chemical conversion plans are struggling to get up and running either because they can't get the bill to build them and they don't operate properly. So I think it will create opportunities for those of us that actually have.

Playing a bit about what's going on in the four cuisine of a lot lower cost for the kitchen to three you can help me figure that out.

Yeah, but I think some of it we mentioned higher costs in Q3 that we don't expect to repeat in queue for I think we've also mentioned the shift towards covenant, which is just rented much higher margin Abdullah revenue Tonight, It's a long haul profitability than what we saw earlier in the early in the in the vast majority.

All good satisfying contracts that were commitments made typically may 2020, and so they were priced at 2020th if you go back and look away.

More than October November December last year, just didn't price environment, and and most of those contracts not all of them, but most of them didn't have annual ability to check back in and revisit those prices.

Instead, a much much higher than that.

Thank you we have our next question coming from the line of Greg Cole with Piper Sandler Your line is open.

Hey, Paul J Burrito, good afternoon, and thanks for taking the questions.

First question on the hydroxide plant in China do you think thats running at maybe I don't know three days a week for just a few hours a day or I'm, just trying to understand like the utilization going on there and then on top of that have you had any conversations with the government on windows power issues or electricity issues could get alleviated to continue.

Operating the plant at a higher utilization rate.

Yes. The second one is a hard one because nobody really knows.

Any cases, driven by factors that are easy to predict.

While over the policy remains in place I think it's likely that there will be disruptions. It's just hard to know how long we're on whether you'll be susceptible to them.

Really really quickly it's a small product today and it's likely to be small for the next few years, but I certainly think it's going to become whether it's our technology of somebody else's technology increasingly comments accretive EBITDA when.

When you do previously a.

You do need a safe process that you can plug and play directly into what we're doing today and thats, what we have we can.

Today a.

Way of.

Generally speaking for most battery producers is actually quite easy for them to do so I do have pretty high hopes for that product.

Thank you we have our next question coming from the line of Christopher Parkinson with Mizuho. Your line is open.

Hi, This is Harris fein on for Chris Thanks for taking my question.

You mentioned this.

In your prepared remarks, even though lithium prices are high right now Youre also seeing input cost inflation you're seeing.

Hi, spodumene cost tool controls in China logistics.

So I'm curious.

Whether or not you are seeing any.

Potential for non integrated producers in China to potentially exit the market or for capacity to come out of the market over.

Maybe a longer period of time.

Yes.

I don't know is what I see though mostly.

With regards to future business in conversations that we're having absolutely. The conversation is a more constructive one now about what it means to commit to each other when it comes to supply of.

Particularly in I go outside I actually I'm not convinced that let the company will will be quite so easy.

Easy for people to reform that view on eyelids Tobago deeper market I didn't listen my drug side.

Given the challenges of qualification that we've seen out I think we actually are able to see the app.

And can we have our next question coming from the line of Kevin Mccarthy with further calls me search your line is open.

Good evening, Paul in your prepared remarks, she talked about two different contract paradigms and I guess my question would be what what percentage of your production for 2022 would you intend to sell into the multi year fixed price contract category attend.

Like that would be a majority but.

Can you provide a little bit more color as to what that split might be.

In hydroxide, it's going to be way north of 50%, but less than 80% is going to be in that kind of range of hydroxide I think as I said, if you had a total LTE basis, it's probably between 50 and 60% also because when you fight Dream Covenant refactoring pupil lithium.

Ah the.

Molecules, but we saw it and arrange for the hydroxide business, it's meaningful to push that business will will be sold that way.

That's very helpful. And then secondly is there any update on your investment and the mascot as I recall they were working towards an optimization study that was that.

It was expected.

I guess around now or by year end 2021, any any incremental thoughts on the path forward there.

Yeah.

As we mentioned before and he correct we have some important final.

Decisions and.

Coming in a way in the next few weeks and we'd certainly expect that by the next time you sit down and then this call with you guys. I Hope, we can talk a little bit more about what it is but it is it is.

So far so good we're happy with what we would say it has challenges developing any of these shows in a new part of the world.

Different shades of time at the White people typically mind spot you mean, it's not it's not to be Smith, I think thinking about the infrastructure issues that people start to realize a building chemical plants.

Also create some interesting issues, but the all surmountable that none of them all challenge just a copy of a common so we feel pretty good about about what package.

Thank you we have our next question coming from the line of Mike Harrison, We'd seaport. Your line is open.

Hi, good evening.

Was wondering if you could talk a little bit more detail about these changes in customer mix. It sounds like you have some legacy contracts that you were trying to get out of the way during the first part of this year. So that you have better exposure to higher prices late in the year. My question is.

Do we still have some overhang from these legacy contracts as we get into 2022 23 and beyond or are a lot of them rolling off at this point.

One on.

100% of our 2022 volumes, regardless of product will be.

The pricing will be say, even now in this market on next year in terms of what the market is so we have no legacy carrying forward into into the future at all.

Alright, and then a question for you Berto I'm curious when you stop capitalizing the interest.

That's that's coming off these bonds right now and and what does the interest expense look like want to have to start accounting for that and the piano.

Well the kept quiet interest you associated with it.

Our capital spending and as long as we're going to continue to invest.

Expansions.

Returning to comply with interest because they are essentially supporting the cut backs that would work.

Thank you we have our next question coming from the line of Alex Yeah for him up with.

Keybanc even line is open.

Thank you good evening, everyone. Paul you mentioned the challenges that we weren't friends.

Are seeing in getting their hydroxides specifications.

He elaborate on that and maybe tell us how competitive landscape illness higher end hydroxide market for you play has that changed at all these you more entrance divorce successful.

I think the new entrants that have been successful are lousy existing the existing successful producer, though add more capacity I mean, that's generally has been successful I think that that is it I don't know.

Think that's been Ah.

Three new entrants get into the hydroxide marketed in any kind of scale who's been able to get qualified that I'm aware of in a perfect visibility at that but.

But some hydroxide floating around that is.

Lower standards required for in certain markets, but that's not why we typically played in a small typically a growth market in the same way.

The challenges that they had.

One or 222 areas. The first challenge I have had as maybe they have a legacy plants. That's happened to me I go check, but they want them both to make Patrick eight so they can't actually it is structurally indicate cannot do it so as a way to Japan, new capacity on an order to the accident.

To produce today's policy I got to be kidding, all came hydro type of quite today and on a different level than it was even a year.

[noise] ago, maybe we call about this time last year, we took some band time in North America today have to upgrade that facility, that's got to be kind of a levels.

Of specifications and even that when we talk to many of our customers today like cable required small on that small capital for us to continue to improve our product. We can we make the best hydroxide in the business at spelling of not have anybody we haven't been to a qualified with but it's more and more difficult to do so the second issue they run into.

Ben Franklin nothing up to build a new client.

In a timely way or in a successful way. So a couple of very well known examples of that in our industry.

Hello.

These are meaningful meaningful besides pilots, but just on April pricey produce Patrick waited with some hydroxide.

Thank you Paul.

And can we have our next question coming from the line of David that goes on my talent. Your line is open.

Alright, good evening, Paul I'm, everyone. Thanks for taking my questions Tonight.

Pleasure.

I'm curious just to follow up a bit on line of X from the printed let's see a metal you know you talked about obviously, the the the opportunity for carbon in hydroxide and contracts this year.

Uhm.

Are you are you receiving contracts already specifically for for live X or are you going to be with holding some of your.

Some of your own upstream supply in order to sort of create this market and lead some of your customers.

So.

To step back a little and maybe help me think about that.

In the context of war pre litigation actually of January is pretty Asian does not G. E use a huge amount with them actually relatively very small <expletive> with him on all designed to do is to make more of a lifting minds that are in the battery available. After that first chance cause you don't lose both of my arms.

The first time the batteries is Charleston, so it actually makes a huge difference to available lithium in the bathroom without actually adding alot.

The value in it is less about an hour, let's see my bills and but actually the delivery method.

Public with him many years now people trying to solve all the info. Your account. So I'll just have to make a info small enough that I had to make it stable enough and then had to actually integrate into manufacturing process Nobody's crack that code in fact that we never believe anybody at the world and so ours is a process and a system that allows you to get with the metal.

Directly into the Ano.

It means that we don't just charge for the lithium be having the lithium available isn't.

And it's interesting we do get some customers.

Mr quota lithium metal in the future that clearly have plans to put a good date themselves, but it's likely that our product.

The economic argument behind is less of athletic content and more of a performance benefits it brings and the ease of implementation into existing battery processes.

And I appreciate that colorful it's very helpful.

Just the last one for me.

Certainly you've talked about the past the importance of scale and the mask, obviously represent some resource upside there's resource upside.

XLR hombre as well as you think about the rest of the market we've seen a number of nonproducing projects, particularly.

And Argentina.

Some other Brian projects in South America being acquired you know for all equity.

Is that is that something that we should expect that you're actively involved in canvassing is there an empathy, especially given your vertical integration to try to go out there and signed.

More perhaps advanced development resource that's out there right now.

It's it's very high on our objectives is how do we grow more quickly how do we get bigger what is the best way to do that which one create the most value for shareholders, which creates the most value for our customers I think the one thing. We do know is that Satan still is not an option same spill and just being the size of the odds doesn't that doesn't work.

So we certainly.

We certainly have to solve that album for sure.

And can we have our next question coming from the line of masking, Yeah with Bank of America.

Okay.

[laughter]. Thanks.

Hi, I was wondering if you could talk a little bit more about the battery storage.

Capacity phenomenon touched on a call a little bit I know you gave some.

Some nice stats around that but how does that.

Change the Ark of the theme of demand.

And buying patterns I guess, let's think about it in a.

Alma is world, where you have a.

Ah demand function on a vehicle level, but obviously that might be different.

When a battery plants starts up and when that does this this large.

Yeah, I guess I'll start then I guess this isn't on the back of his are cool off period hair or do we just seem more battery plants coming along Snyder catch up it from there I guess.

The way the databases of being billed there's clearly an expectation that there's going to be exponential growth clearly continuing and required bachelors, whether it's b E vs or whatever it's full I mean.

And in fact, I think if you if.

If I look at some of the consultants out there they they produce some interesting, but ultimately theoretical exercise or if all of the Bachelor plants today, we're up and running at 100% capacity.

Bathroom or tables with a commandment.

And we know what that building them in and out five is how much would they demand and in every case is two to three times, what actual day mandates today and that sort of reflects that.

What we tend to find is a couple of things during the startup yesterday runup Lola capacity. They are typically still proving themselves. They typically have a very high wastage. So they use mo lithium and each battery. Then then they will do when they are up and running and running stable. So you have this kind of off when they start to eat more lithium occurred.

And then slowly but surely become more efficient until they get COVID-19 puts us out of the theoretical.

Lithium consumption per gigawatt hour. So clearly building mastic capability is one thing, but but in the end you gotta run them and you've got to find somewhere to put the Baptist when the bill otherwise that will stop.

And that's why we talked about battery installations being so important having the battery made is one thing, but having it and then put into use is what really create the demand for the next factory to be billed for next Gigafactory took the bill and therefore starts to pull all the bathroom materials through.

Okay.

If you think about just the cost inflation year over year.

And it's obvious.

Simpson, a reagent stuff like that are moving up but [noise].

What do we think on percent inflation for 2022, and then kind of longer term.

Yes.

You know my general assumptions for inflation, although settled digits, but clearly.

Clearly the demand pull on some of these products is growing just as fast or perhaps maybe described just as fast as the last name of demand itself and so should we think about it cost inflation has a higher higher number than that just given.

Everything that's going on.

I think.

It's a little difficult to answer that because if you think about what I, what we need to direct costs.

It it's energy costs.

It is and.

In some cases, it's Sullivan some reagents in many cases, we pass those costs on and so we don't so we certainly carry some of that cost and our organization.

Shipping and logistics costs, and it's hard to know how long. These costs remain elevated I mean, clearly we can we can manage that by simply taking longer to deliver product are carrying more inventory. So that we we don't have to increase material that we are fine with along the supply change because of the way we built the business, but that will have a capital cost clearly kind of art.

Sorry.

It's hard for me to answer that question for everybody else because everybody else has a different cost structures with an industry. There's no doubt that if he minds bugging me concentrate the cost of production is about five times what he was.

Just wanted to be concentrating way, maybe as much as five times, what he was a year ago.

Again, I am I am I'm, not close enough to that market to know whether or not whether it's gonna stay forever.

Thank you there are no further questions at this time I will now turn the call back over to dangle around him for any closing remarks.

That's all the time that we have for the call today, but we will be available following the call to address any additional questions. You may have thanks, everyone and have a good evening.

This concludes their lives then corporation third quarter 2021 earnings release conference call. Thank you.

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Uh-huh.

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