Q3 2021 Hyliion Holdings Corp Earnings Call
Good day and thank you for standing by welcome to the Holly on Holdings third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
I ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker. Louis Baltimore. Please go ahead.
Thank you and good morning, everyone welcome to the highly on holdings third quarter 2021 earnings conference call with US today, we have Thomas Healy, our Chief Executive Officer, and Sherri Baker, our Chief Financial Officer.
During today's call, we will make certain forward looking statements regarding our future business expectations, which involve risks and uncertainties.
Forward looking statements are predictions projections and other statements about future events that are based on current expectations and assumptions and as a result are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward looking statements on this call for more information about factors.
That may cause actual results to materially differ from forward looking statements.
Please refer to the press release, we issued yesterday after the market close as well as our filings with the Securities and Exchange Commission.
We're looking statements speak only as of the date. They are made you are cautioned not to put undue reliance on forward looking statements. We undertake no duty to update this information unless required by law.
Before turning the call over to our CEO Thomas Healy, we'd like to share with you a short video about highly on in some of the great progress we've been making.
Okay.
Okay.
Over the past few months, we've seen significant progress in the development of both our hybrid and hyper Truckee RF solutions as we continue to work towards our product milestones. The improved version of our hybrid solution. The hybrid <unk> came to market with system improvements aimed at increasing efficiency and payload.
And enhancing the overall driver experience. We recently delivered our first hybrid E X units to the market, marking a major milestone for our company.
Continuous progress is also being made on the hyper Truckee Iraq.
From given the secretary of energy of riding the truck today dealing the first showcase unit at the Act Expo, where we seen by thousands who are invested in clean energy technology.
But before taking the show on the road, we did an all employee appreciation day, where everyone at our headquarters here in Austin, Texas was able to experience their hard work firsthand and go for rides in the ear acts the excitement and the experience was unforgettable.
And now it's off to start our hyper truck Roadshow, where the valuable feedback we received from our fleet Council members will not only help us continue along our path to commercialization, but towards our goal of changing the world.
Good morning, everyone and welcome to highly on third quarter 2021 earnings call I Hope you enjoyed that short video during the third quarter. We continued to make important progress to advance our mission of bringing electrified.
<unk> solutions to the commercial vehicle space.
Throughout today's call I will highlight some of the major milestones and accomplishments that the team achieved in Q3 as well as some of the challenges and hurdles, we faced including around supply chain before we begin I'd like to highlight two very impressive achievements first we recently unveiled our new iteration of the hyper Truckee Iraq.
And it began showcasing the product with customers on the road.
And secondly, we launched the hybrid <unk> product.
In today's call I'm also going to share a little about a special customer event that we have happening today at Wegmans headquarters with our hyper Truckee Rx.
Looking back on the past year. It was one of the most transformative years for the highly on team as we unveiled and launched multiple product iterations and we've had significant growth in our exceptionally talented team we laid out an updated commercialization plan for our hybrid powertrain back in February of this year and since then we have been executing on.
On that roadmap as we outlined the end result is our improved hybrid <unk> powertrain product that was unveiled at the Act Expo in long Beach, California at the end of August.
We also shared on our last earnings call that we expected to begin recognizing revenue. Once we began to ship. This latest version of our hybrid solution and I'm very proud to announce that we delivered our first hybrid <unk> unit in October, which we expect will start our recognition of revenue before the end of the year.
In the video that we just watched youll see that we captured highly on turning over the keys to Werner one of the leading fleets in the industry, who operate thousands of trucks across the country, marking a very critical milestone for our company.
On the hypertrophic <unk>, our flagship product, which is in the product development phase we put together the hyper truck innovation Council a collaborative group of 11 future focus fleets and technology leaders to work with us to assist in bringing the product to market.
We are working closely with peterbilt to utilize their vehicles for the launch of our powertrain solution and collaborated with them to establish the best chassis specifications that are ideal for the hypertrophy Rx powertrain.
This all culminated in highly on unveiling a hyper Truckee Rx unit at the Act Expo, which was the first time that we publicly showcase this vehicle.
The feedback we received from fleets suppliers and the Investor community was incredibly positive and generated a significant amount of interest in the product.
This brings us to today since the unveiling we have been planning our customers showcase events to let fleets experienced the vehicle in its current configuration firsthand.
I'm very excited to share that we are taking this journey off today in Rochester, New York at Wegmans headquarters, where we will have many of their drivers and executives getting in the truck for the first time to experience it and stay tuned for media pictures and videos that we'll be sharing.
Weichman as both a current hybrid customer and a hyper truck innovation Council member and as a company that exemplifies the mission of moving to more sustainable transportation methods.
Later this year, we plan to host more fleet Council events at our Austin, Texas headquarters to allow innovation Council members and others to experience the hyper truck firsthand.
Now I'd like to take a few minutes to go into greater detail on the hyper Truckee Rx.
I am pleased to start off by sharing that we have secured a 40 unit reservation for the hyper Truckee Iraq from Monet Transport Monet's, a Texas based carrier company that has been an early adopter of the highly on hybrid solution as some of you may remember.
<unk> transport believes the future of trucking is sustainable.
But in a part of their business model their trucks need to travel hundreds of miles every day, which is where the hyper truckee Rx can offer a low cost low emission and long range electric solution the purchase and sale of the 40 hypertrophic <unk> units are subject to the execution of a final agreement between highly on and Monet transport.
We are thrilled to be continuing and expanding our relationship with the <unk>.
I'd also like to share some exciting updates around successes that we've had from early ride and drive events with the hyper Truckee Rx.
Over the past few weeks, we executed on a select number of ride and drives one of which was with green Paas logistics, a current highly on hyper truck innovation Council member.
Green path is a very unique business model in the trucking industry, where they operate 100% alternative fuel vehicles.
<unk> Leverages <unk> unique value proposition and our shipping for some of the major players in the space, including Amazon UBS and the United States Postal service to name a few.
Green Paas CEO Fury Zody went for a ride in the truck and had fantastic things to say about his experience I'd like to share a quote from him.
Theory said after driving the vehicle at highly on headquarters and going for a ride on the highway I immediately knew this vehicle will change the landscape of trucking as we know it the.
The vehicle is smooth quiet and drove like a passenger car as opposed to the way we know semi trucks today.
After experiencing the vehicle Green path logistics requested to be a leading participant of initial deployments of controlled fleet trials and their operations with green path located in Dallas, Texas. It will allow highly <unk> team to closely monitor these trucks to ensure strong vehicle performance as fleet trials begin.
The feedback from their drivers technicians and management team as well as the learnings we garner in these early trials will be invaluable as we continue down the path to production.
Over the past few quarters, we've had numerous meetings with our hyper truck innovation Council members and others to truly garnered their feedback as we are engineering this product.
These discussions have already proven to be very valuable as some of their feedback because educated us to alter some of our product specifications. One. Great example of this is the announcement that we made a few months ago around having a longer range <unk> version of the product that can achieve 75 miles of full electric drive before the range extender needs to.
Turn on.
This now allows the vehicle to qualify for zero emission vehicle credits.
As we move forward through the development process, we will continue to make additional alterations to the product specs. This conclude features being added to best meet the needs of our fleets and modifications to work within the bounds of our current supply chain base to achieve a safe and reliable product launch.
Post production, we will continue to iterate the product with further enhancements to ensure that we maintain a best in class solution.
While we recently achieved a critical milestone of beginning customers showcase events by year end, we have faced challenges within our supply chain that are impacting our development testing and validation plans.
Similar to others in the automotive industry shortages of semiconductors as well as several other key components are extending our timelines longer than we expected. In addition to supply we have extended our development program to provide for adequate time to design test and validate the system to ensure a reliable launch of the <unk>.
This issue of supply shortages and long lead times has been especially prominent in the trucking industry and one of the impacts has been significantly extended lead times for ordering new trucks. If a truck is ordered through an OEM today. The currently planned delivery date is not until 2023.
These types of supply delays have a direct impact on our timing.
As one example of how the supply chain hurdles have impacted us we planned on beginning winter testing of our production intent designed <unk> in Q1 of 2022, leveraging the last few months of winter.
Unfortunately, the delayed delivery of components prohibits us from being able to start our previously planned winter testing, thus pushing out the start of testing to the beginning months are the following winter.
In order to best mitigate these issues going forward. We currently have on order all of the development trucks and long lead time components that we need for 2022 and are working to secure supply for the 2023 calendar year.
Despite supply shortages and delays extending our development schedule, we will not sacrifice on bringing your reliable system to market as we learned with our hybrid product. It is critical to test the product through all season, especially given the extreme winter conditions, many of our potential fleet customers face on a day to day basis.
With that said, we want to share today, a 12 month breakdown of what is ahead for the <unk> development as well as other critical milestones that follow.
From the many discussions we've had with our supply base. We are confident that this 12 month look forward will be achievable.
First our initial demonstration units one of which is that wegmans today will be used to showcase our products and ride along events with fleet Council members and other interested parties beginning now through the first half of 2022.
Next set of vehicles, which we will start building in early 2022 will serve two primary purposes first we will use the majority of these vehicles for design verification and rigorous over the road product testing inclusive of summer and winter testing will also use a number of these vehicles for a controlled <unk>.
<unk> into fleet operations in the second half of 2022, as we highlighted earlier with Green path logistics.
These vehicles will still be owned by highly on but will allow us to garner real world feedback from fleets.
Our target is to achieve up to a million miles of testing and validation on Rx trucks prior to the start up production.
After 2022, we will still have a few important milestones remaining prior to the start up production.
The first is that we will take any of the learnings from the testing and validation or on road miles and incorporate them into one further design iteration of the product next we will obtain final certification needed from carb, the EPA and itself.
While completing these we will continue to deploy trials and low volumes of units into fleet operations as we gear up for the start of production in the beginning to recognize revenue on these systems.
As we get more clarity on the status of our supply base and we get closer to these milestones we will provide greater clarity on anticipated timing.
Turning now to our hybrid <unk> powertrain solution.
As mentioned before we have begun shipping our hybrid <unk> system.
Although the product is launched we are still facing supply shortages and we are seeing this impact on a daily basis. We currently have trucks at our headquarters, which has incomplete system installed on them because we are waiting some components. We've also experienced some fleets who have placed orders with us are not able to obtain the new trucks from the Oems.
Due to long lead times and this too has pushed our installed timing for some of these trucks out until next year.
As we head into 2022, we plan on providing details on our next earnings call as to our hybrid product expectations for the following 12 months in light of recent changes within the competitive landscape. We are assessing the potential demand impact for our hybrid X product offering as some of you may be aware Cummins recently.
We announced a new natural gas engine for trucks, which will improve the power deficit that was typically experience with previous natural gas engines. This will directly compete with our power assist functionality of the hybrid <unk> solution as we have been meeting with more and more potential customers. We've heard two consistent messages around a strong interest.
Towards the Rx first fleets like how the success of the <unk> is not based on terrain, whereas the hybrid product only delivers the best benefits to fleets and specific trade conditions.
Second we increasingly see fleets gravitate towards the hyper Truckee Rx solution as it offers the benefits of being a fully electric drive truck, especially with all of the climate change initiatives and the current political environment towards full electric vehicles.
However, some fleets still see the hybrid as a great way to start their electrification journey.
As highly on works to deliver its products to market and navigate the supply chain challenges in today's world, we have been adding experienced talent to all levels of our organization.
During the third quarter, we welcomed a total of 49 new employees to the highly on team.
Last month, we announced that we hired Shiva Juris Swamy as our vice President of Engineering Shiver brings nearly 20 years of diverse global experience at companies like General Electric Daimler trucks and comments. He has a track record of successfully leading large technology focused teams and product development lifecycle.
And project management.
Garrett highly on he will oversee our engineering teams focused across the development spectrum from powertrain and battery innovation to controls and software systems implementation with.
With shippers primary focused on commercialization this frees up Patrick <unk>, our Chief Technology officer to continue to develop highly on forward looking product strategies.
In addition, we have recently added Joshua Robbins as our Vice President of fleet sales to further accelerate our commercialization efforts Joshua comes to US with nearly 10 years of sales experience at Ryder, where he was a key contributor to their natural gas initiative.
Josh will spearhead our fleet engagements and discussions as we are now moving the hybrid product into commercialization and we are embarking on the hyper Truckee Rx roadshow to garner interest and commitments from fleet.
In addition to all these talented new employees, we have added over the past year. We also recently added two impressive and accomplished individuals to our board of directors former U S Secretary of transportation and Secretary of Labor Helane Chow brings us her extensive knowledge of transportation and infrastructure and.
And after a career spanning nearly four decades in the ever evolving automotive industry and most recently as the CTO of Delphi technologies marry guest Stansky brings experience in development and commercialization of innovative solutions.
I want to give these two along with all the new members of the highly on family a warm welcome.
We often receive questions from the financial community surrounding what we call the customer journey I'd like to take a moment to share with you. The feedback that we've received from fleets and the discussions we've had surrounding the purchase decision process.
We believe the most effective way to generate interest in and orders of our product is just show it to fleets and ultimately let them experience the benefit themselves. We did this with our hybrid product getting dozens of these vehicles on the road in pre revenue stage and logging millions of miles with.
With the hyper Truckee Rx, we hear similar feedback as mostly to want the chance to experience. The positive features of the powertrain before committing to a binding order of any real significance.
Most fleets will choose to test with single units running through multiple applications in trains to better understand how our solutions will work within their fleets.
With all of these factors in mind, we believe the product Roadshow, we are doing right now providing fleets with in depth demonstrations of our powertrain is a critically important initial step on this customer journey, we expect demand and product orders to increase as we get more fleets additional hands on exposure to our powertrains.
As potential fleet customers evaluate all of the various trucking de carbonization options in development now it is our goal to provide a powertrain that will grow and evolve as infrastructure and fueling solutions become more readily available.
As a reminder, while our initial focus for the hyper Truckee Rx is powered through natural gas, we have laid out a path towards both a fueling gnostic solution as well as a path towards a hydrogen fuel cell solution.
With this product roadmap. We believe this allows fleets to expand their electrification adoption as the infrastructure is being built over time. However, it remains our goal to get our products on the road as quickly and safely as possible to begin this customer journey and adoption lifecycle.
With that I'd like to turn it over to Sherri to discuss some updates on the financial side, along with an update on our headquarters expansion project.
Thank you Thomas and good morning, everyone, let's start with our results for the third quarter of 2021.
Our team continues to invest in R&D as we execute against our product development roadmap.
<unk> spending was $18 2 million, an increase of $4 8 million sequentially and $15 $2 million year over year.
SG&A spending was centered around the continued build out of necessary infrastructure to advance our commercialization initiatives operational capabilities and the addition of talent to accomplish these goals.
For the quarter SG&A spend was $8 7 million a decrease of $1 4 million sequentially and an increase of $6 $5 million year over year.
The sequential decrease is driven by a reduction in incentive compensation expense, partially offset by the increase in our employee base overall highly <unk> reported a net loss of $26 6 million compared to a net loss of $23 2 million in Q2, and a net loss of $9 1 million in front of me.
Year ago.
We now expect our total operating expenses for 2021 to be approximately $110 million to $120 million as compared to the $130 million to $140 million guidance. We provided on our second quarter conference call back in August.
The reduction is driven primarily by the timing delay of truck purchases highlighted early in the call and a reduction of people related expenses.
Turning to our capital structure and balance sheet. We ended the third quarter 2021 with over $588 million available to fund our current commercialization plans.
This is divided into $289 5 million in cash and cash equivalents on our balance sheet short term investments of $144 5 million and long term investments of $155 million or short term and long term investments are high quality credit instruments with no maturities beyond 36.
Six months and a weighted average maturity of 14 months across our portfolio.
We expect to begin generating revenue on the hybrid E X gene as we will deliver in the fourth quarter, but as previously mentioned do not expect the results to be immaterial for the fiscal year.
With respect to the previously announced expansion of our headquarters we are underway with the facility remodel we decided to eliminate the previously planned tariffs and our 120000 square foot facility and instead, we plan to rent an additional 25000 square feet for our testing and validation labs and it building adjacent to our headquarters.
This allows us to better accomplish our goals of expanding our installed capacity and battery production capability, all while supporting our growing employee base.
Lastly, as we move forward into 2022, we expect to begin providing updates on both the key commercialization milestones and timelines, we laid out earlier on the call as well as our expectations around spend and capital allocation for this fiscal year, we look forward to sharing our plans with you on our next call in February.
Now concludes our prepared remarks, and now I would like to turn the call back over to the operator to open the lineup for questions.
At this time, if you would like to ask a question press star one on your telephone keypad again that is star and the number one please limit yourself to one question and one follow up question.
Your first question is from the line of Andreas.
<unk> with Cantor Fitzgerald.
Hi, Good morning can you guys hear me.
Yes, good morning, Andreas Hi.
Hi, good morning, congrats on the quarter.
Just a couple of questions for me first I know this one is a bit tricky, but do you have any visibility as to when the supply chain disruptions might improve.
Yeah, No. That's a great question I mean, I think you saw its highlight that throughout today's call is theres a lot of uncertainties in supply base. If you order a new truck right now, it's not going to be out till 2023.
We're working on frankly on a daily basis with our suppliers working on ensuring that we have the supply we need to get through the validation process. As we laid out we are hopeful that we're going to start to see improvements here, but what we did today as we've laid out a 12 month timeline that even with the supply hurdles that were seeing right now we're confident that we can achieve those.
Because we've already got those components on order and we're working with those suppliers. So fingers crossed we're going to see improvements, but that's why we've kind of limited to a 12 month view right now.
Awesome that's very.
Helpful. Appreciate it and maybe lastly, just regarding the 40.
Unit, New reservation that you mentioned here I'm, just trying to kind of better understand that so it looks like it's still subject to a final agreement and so I guess my question is do you any idea of when that might be and also when we could see that translate into revenues.
Yes, I would equate this to very similar to the debt more.
Our reservation that they place for 300 units not too long ago, where these fleets really want to go and they can actually be able to experience the truck before they move into firm binding commitments. So that's why it's structured as a reservation now with that said today marks a pretty important day in that journey, because it's the kickoff of our roadshow.
We're over the weeks and months ahead. Our goal is to really have fleets to be able to experience the hyper truck.
Got a truck up in Rochester, New York right now with Wegmans kicking that journey off and we see it as the feedback from fleets as they want to get in the truck and see how it performs see the benefits that they're going to be able to receive from it before they move into binding commitments and so that's why we've structured as a reservation.
Got it that's very helpful. Thanks very much.
Your next question is from the line of Brian Johnson with Barclays.
Hello.
Can you just kind of clarify what you said about the hybrid E X.
Yes, you are getting some early sales, but you kind of hinted that and look it's not a big change in that thesis we knew the hyper truck was sort of the long term future, but could you maybe clarify what youre seeing there and if it is because of the new Cummins engine why doesn't that detract from the attractiveness of the hyper truck as well.
Yeah, Great question. So two parts first I'll cover the hybrid and then hyper truck afterwards, so with the hybrid.
We see it as the there have been some announcements recently that have just changed the landscape like Cummins came out with their announcement as well as we've been having more and more meetings with fleets both talking about the hybrid and the Rx product. So with the Cummins announcement, the new engine that theyre coming out with it's a natural gas engine that will overcome some of that.
Power deficit, that's normally experience with natural gas now that's still a big question Mark as to the details around the engine. It's an early announcement it hasnt been released yet in the market. So that's why we wanted to express on today's call that we're going to step back and just look at how might that impact our volume ramp up of the hybrid product.
And then the second part of that is as we've been having meetings with fleets.
We've seen an overwhelmingly positive response towards specifically the <unk> and fleets really liking. The fact that it's not touring dependent unlike the hybrid product.
And it moves them into a full battery electric vehicle or be EV within a range extender onboard. So so from that standpoint, we're also having discussions with fleets right now to really gauge their adoption plans and the roadmap for them then the second part of your question of does this affect the hyper truck I don't believe it does and the real reason for.
That is because the hyper truck is an electric vehicle versus the new Cummins engine is still going to be a conventional internal combustion engine driven vehicles and the benefits. The hyper truck adds is.
Full electric mode, So that Theyre zero tailpipe emissions to go into ports in cities as well as the other fact that it allows us to qualify for <unk> I'm.
I am sorry Z credits.
Which a normal natural gas truck would not be able to.
Okay, and so it's but just maybe why it has been a cummins RMG truck.
Obviously, we've seen Nat gas engine affect the hybrid.
Sure. So one of the value propositions of hybrid is being able to take that product and put it on a conventional natural gas truck and it adds extra horsepower to the vehicle and then it was basically taking a natural gas truck and making a perform more like a diesel truck does.
With the announcement of Cummins doing a larger natural gas engine their goal behind that was to offset that deficit of power between a diesel and a conventional natural gas truck, which is one of the value propositions. We were going after with our hybrid now the reason we haven't added more specificity to it is because it is still just in early <unk>.
<unk> fleets.
Our assessing it they're looking at the details around it are still very unknown, but we wanted to address it because we know it is a new product that's going to be coming to market at some point.
Okay, and then a final question, which is coming a lot up for this fact classes 2020 'twenty to 'twenty one.
It looks like your cash balance and the burn rate set you into 'twenty three if not beyond.
Could you share it may be comment on how you're thinking about that.
Absolutely. So just to reiterate as we were talking earlier on the call. So our total liquidity is getting really close to $600 million, which is a very very strong position to be sitting on so we are currently very confident in our ability and our cash position to hit our milestones that we outlined today and right now we're actually doing our 2000.
22 budget build so once we come back on our call in February I'll be able to give you a little bit better insight into exactly what that burn rate is going to look like for 'twenty, two as well as what we expect our volume ramp to look like on the hybrid product.
Okay. Thanks.
The next question is from the line of Bill Peterson with Jpmorgan.
Yes, hi, good morning, Thanks for taking the questions.
I guess with all the supply constraints, which you're not alone in everybody's been talking about it.
It seems like an initial window to maybe make a beachhead here in 2022 has gone I.
I guess when we looked at 2023, what do you what do you think your key sort of Differentiators.
Differentiators will be relative to other fleets I mean other.
There are other competitors I mean, certainly some of the larger guys seem to be maybe further along the supply chain issues, maybe there'll be kind of threw it in the first half early second half, where obviously youre, saying you can't get trucks till 2023.
Many of the new debt new interest as well that are also trying to address low and zero carbon. So I guess, if we think I think in the 'twenty three 'twenty 'twenty four time frame what would be some key reasons fleets are going to go with highly and Where's your.
I mean, the cost of ownership advantages other advantages versus some of your other competitors out there.
Yeah, Great question, and one thing I just want to clarify first as.
We were expressed on the call that if you just go in place a new truck order.
We wouldn't get delivered until 2023 right now we've already had trucks on order for a little while now.
And we've already got the build slots that we need for 2022 locked in so.
We kind of saw this coming to some degree but at the same point.
The supply efforts are or the supply chain is still even delaying some of those build slots, but with all that being said going to your question or the latter part of it around what's the competitive advantage and also how do we kind of get a jumpstart on this so that we're ahead of some of the others in the space I think the first thing is going to be infrastructure. So some of them.
Competitors out there, whether youre doing a hydrogen fuel cell truck or youre doing a BV truck you not only need to design and develop and start production of the vehicle, but then you need to go out and build the infrastructure for those fleets that want to be able to adopt it. That's a problem that highly on doesn't face rates of natural gas infrastructure is already out there. So as soon as the vehicle moves into production.
We already have stations.
Seven over 700 public stations in North America for natural gas that fleets can just tap right into and start utilizing and then the other big parts of the value proposition is obviously, the low cost of ownership using a very low fuel compared to even the cost of electricity and especially compared to the cost of of hydrogen.
And and.
Then the other thing to note is just the range of the vehicle. This is something that we hear from fleets consistently is b E. V vehicles are limited to short ranges and if you want to address the trucking challenge your truck needs to be able to travel hundreds of miles a day, sometimes five or 600 miles in a day and with the hyper truck.
The fleets will be able to experience of over 1000 miles of range per refuel, which we see as a huge competitive advantage for us.
Okay.
Fair enough I guess.
Say that natural gas pricing, who knows what that's going to look like in a year or so.
David maybe a demerit on your side.
Point taken.
I guess.
Obviously, we have some new policy of the infrastructure Bill and sort of some cases favors hydrogen and electric but I think in Europe, you actually has several countries and favorable public policy support realizing that gives you your hands full with U S customers.
You've talked about maybe the potential in the past for Europe. What is your latest thoughts there or is this something that's going to wait until beyond 2023.
Yeah, So interest in Europe is there.
There, there's obviously a very strong push towards moving to cleaner fuel solutions in Europe like there is in the U S. But I would argue it's potentially even stronger over in Europe, and the fleets interest in adopting it.
Is very heavy on the European side, but one of the things that we are staying very focused on and we don't want to sway from is we need to launch this product in the U S. First that's our backyard. It's a market that we know in depth and really really well and we already have all those fleet relations built out that we need to get started and then once we have that in place then we would look to <unk>.
And overseas and it's definitely something that we're excited about we just want to make sure that we go execute properly and efficiently and address the market. The U S market first and then look to in overseas market and one thing just because you brought up an interesting point about natural gas pricing.
We're still seeing fleets are getting really really positive pricing with natural gas across the U S and there are even able to lock in multiyear contracts with the fuel provider for fuel pricing and I was just done a call recently, where we were talking about how fuel pricing in certain parts of the country can be less than our lesson or.
Equal to one dollar per per gallon equivalent for the fuel so that is far stronger than where diesel is today and.
You have been stronger than than where hydrogen is.
Yeah. Thanks for that additional color that's pretty interesting. Thank you.
As a reminder, if you would like to ask a question press star one on your telephone keypad again that is star and the number one. Your next question is from the line of Mark Delaney with Goldman Sachs.
Yes, good morning, and thanks for taking the question first on the <unk>. So just curious if you could share a little bit more insights on what you're hearing from the.
The fleets around how they're Wayne sort of the various alternatives and with a longer range.
Variant.
The larger battery.
You talked about that opening up some additional.
Credits cure.
Curious what that May mean for some of the payload benefits that the company has talked about.
Weighing less than traditional badge I mean are there still payroll gains in <unk>.
Considering shorter range variance and maybe still having some more.
A lot of benefits.
Yeah, Great point, so just to remind anyone of a.
A few months ago, we announced that we would have a 75 mile electric range version of the hybrid trucks. So that version would be able to qualify for 75% of <unk> credit.
Which we see as a huge win rate because now you're going after the same exact credits that battery electric trucks or fuel cell trucks are going after.
In terms of your question, though of how how does that work from a fleet standpoint. Our plan is to have multiple sizes of the battery pack. So that if a fleet doesn't need that longer as EV or <unk>.
<unk> range and doesn't need those credits then they can go with a smaller pack experience a smaller lighter battery solution and less expensive battery solution versus if a fleet does want to go after those the credits we have that option as well. So so we've kind of broken it down where we think we can achieve kind of best of both worlds.
Sir.
Okay. That's helpful and then a follow up on the.
The hybrid product, especially with some of the additional comments today, but maybe you could talk about how much incremental expense from here there may be for highway on to continue to offer that.
<unk> now that Youre at a point, where you can recognize revenue I imagine a lot of investment has gone into it I'm not sure how much.
How much of the expenses.
Terms of R&D and sales and things like that or it would be shared across the <unk> and the hybrid and so maybe you can continue to do both or.
Is this one that requires a lot of standalone investment even from here and.
Maybe we need to recalibrate, our expectations around the hybrid.
Going forward. Thanks.
Yes, so the on the hybrid with us actually putting our our new version of the hybrid into market.
Essentially incur the bulk of the R&D expense to get that that product commercially viable. So it would be I would say minimal additional investment on the R&D side. So the bulk of what Youll see going forward on the R&D is really going to be more hyper truck driven all that said.
We'll still be in the very early stages of hybrid shipments so as with any natural product to launch when you are in lower volumes youre going to see higher cost, but that is something that we are working very diligently with our supply base to as we're getting into a higher ramp up from a volume perspective that we should be seeing better pricing.
From a component perspective, and also a better improvement in the margin so that would be something we would expect going forward.
Thank you.
The next question comes from the line of Noel Parks with two only brothers.
And Mr. Parts. Please make sure your line is not muted.
Oh, Hi can you hear me now.
Yes, we can.
Sorry about that.
I was wondering you know.
As you're interacting with customers over time I'm, just curious how mindful are the.
The.
Upcoming hybrid customers.
The hybrid truck.
Being on the Horizon, and I guess I'm wondering in particular.
As you talk with and I'm sure you have some that are very interested in first of hybrid and then the hybrid truck.
If somebody.
Is then later a heightened customer are we talking about.
Like a reduced piloting period likely for for their adoption of hypertrophic.
I'm, just sort of a head start that.
The gap or are they really two entirely separate adoption piloting problems.
No I think there is definitely overlap there and just to put some examples to it like we mentioned we're up at Wegmans today, a wegmans was a very early adopter of hybrid but the event that we're putting on at Weichman today is around the hyper truck.
Mentioned Monet's reservation I brought up Denmark reservation, both of them are hybrid customers as well as you know theyre, putting in reservations for the hyper trucks. So I see the hybrid is a very strong way for highly on to be able to start building a relationship with these fleets and let them actually start experiencing some of our solutions in their operations.
<unk>, let them see the benefit of it and then the hyper truck is an additional product offering that we see that that fleets that are already working with US would also move into it also goes the other way, though of with Warner who we just showcased handing over the keys to them on the hybrid solution. They started as a hyper truck innovation Council member.
First and then it moved into well why don't we adopt a hybrid solution into your operation. So it goes to fold in while we're while we're on that I do want to just take an opportunity on the call today and you just share like a little of the experience thus far of some of the fleets driving the hybrid truck.
I mentioned furious quote earlier about how it is it is a surreal experience going from a conventional vehicle jumping into the hyper truck. It's quiet. It's smooth the acceleration is powerful I think we're going to see that drivers are going to gravitate to really wanting to be behind the wheel of our hyper truck solution of an electric.
Vehicle, because it's just a game changer in terms of how the vehicle actually operates.
Got it got it and.
And just.
Curious on the supply chain front obviously.
An issue.
Ben.
Up to the entire industry.
As far as looking ahead to.
Manufacturing capacity.
Yeah.
When you experience some of the.
And availability of components and so forth.
Does it does it materially impacts sort of.
Your ability to get access to them.
Third party resources.
Rod centers and so forth is that scheduling.
Scheduling very sensitive to what's happening to you on the supply chain or is it just.
Sort of ongoing revision process.
People to basically roll with.
The progress as it happens.
Yes.
Not seen the impact on as you're referring to like the mud centers or kind of suppliers or vendors working with us to assist us like we have not really run into issues on that side. What it really is just one is that component that youre that you need it when is it going to show up on the loading dock.
Put an example, too we experienced when we were looking for one component and it was nearly a very close to a year long lead time to get that component. Obviously when that happened then we had our supply team go look for what alternative solutions could we use so that we don't experience that long of a lead time, but those are some of the things that we're facing and I think frankly, everyone in this industry.
He is facing is the supply network is constrained right now and it's just unbelievably long lead times to get components and that's had some direct impacts on our development timing. We gave the example today around winter testing, we were planning on getting that kicked off this winter. Unfortunately, now thats going to need to wait until next winter just because we don't have that.
<unk> to go test, which is unfortunate, but it's part of just the reality of where we're at with the supply chain the supply base right now.
Fair enough. Thanks, a lot.
There are no further questions at this time I will now turn the call back over to Thomas for closing remarks.
Well. Thank you everyone. I appreciate you joining our third quarter earnings call lots of exciting developments happening are highly on we're thrilled that the roadshow is getting kicked off and we now actually have people experiencing the hybrid truck and.
And I hope everyone has a wonderful rest of the year and we'll talk again on our next earnings call.
This concludes today's conference call you may now disconnect.
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