Q3 2021 Electric Last Mile Solutions Inc Earnings Call
Good day welcome to electric last mile Solutions third quarter 2021 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, today's conference is being recorded I would now like to turn the conference over to Sam Lee Director of Investor Relations and Finance. Please go ahead.
Good afternoon, and thank you for joining us for electric last mile solution third quarter 2021 earnings call.
We begin we'd like to remind you that remark made on today's call may include forward looking statements. Please.
These are based on our predictions and expectations as of today.
Looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
For more detailed discussion of the factors that may affect the company's results. Please refer to our earnings release for this quarter.
<unk> most recent at D C filing.
Joining me on the call today are James Taylor C E L L.
Date, and the executive Chairman, Rob song C F O and treasurer and.
And Jonathan about it chief strategy and digital officer.
Management will deliver prepared remarks, and then we will open the line for your question.
Now turn the call over to James.
Thank you Sam and thanks, everyone for joining us today.
I'm so proud of the team we've assembled ounce.
Spike all the challenges and the auto industry this year.
We delivered on our commitments.
We posted a historic third quarter in which we began production at our Mishawaka, Indiana plant.
And posted revenue as we shipped our class one urban delivery vehicles.
And we intend to continue delivering on our commitments by maintaining discipline and our goal setting.
Follow through.
And our transparency going forward.
Today, I'll provide a business update with detail about our urban delivery lunch.
Plans for the addition of our class three urban utility vehicle.
Ah recently announced battery agreement and plans to explore localization of battery Assembly in the U S.
An additional insights into a digital strategy development.
Lastly, I'll turn it over to our CFO, Rob song to discuss our third quarter financials and outlook.
Rob joined the company in April and has worked closely with the company's former Chief Financial Officer Albert Lee.
As part of an intended succession plan.
Rob brings nearly 20 years of diverse financing capital markets experience, including extensive work with Morgan Stanley.
Alphabet and Corepoint legend.
We're pleased to welcome them officially to the call in his new role within a company.
Albert was essential to elms, becoming a public like traded company and expanding its financial operations.
We thank him for his important service I look forward to working with him as he transitions into a senior adviser role with the company.
Okay, let's get started.
As the first publicly listed electric vehicle company initially focus on the class wanted to class Street commercial segments.
We're redefining productivity for commercial vehicle customers and what the industry calls the last mile of delivery.
We found it almost because we saw an opportunity to rapidly deliver sustainable and intelligent mobility solutions for businesses engaged in moving goods and services for their final destinations.
We developed commercial solutions that are profit drivers not cost centers.
We identified an unmet business need.
The last one to class three commercial T V segments.
Where we expect to benefit from several major tailwinds.
These tailwinds by the way seem.
Seem to be blowing harder and harder these days, including.
First enormous demand for commercial vehicles solutions, driven by the rapid increase in e-commerce.
Companies seeking to meet a very aggressive ESG targets.
Governments at all levels that are driving and in some cases mandating.
The adoption of environmentally sustainable solutions.
U S policy movement toward enhanced electric vehicle tax credits, including the recently passed U S infrastructure Bill and.
The pending build back better Bill that includes an expansion of V V tax credits and.
Within the last two weeks, the new global sustainability commitments coming out of the U N C. O P 26 meetings in Glasgow.
This is the perfect storm a positive demand catalysts blowing all in our favor.
To date, there are a few easy options on the market to meet the sudden increase in demand.
Ah urban delivery van it's the first in the class one commercial vehicle segment.
The response to its launch has been tremendous.
Demand is strong for both the urban delivery vehicle already in production as well as planned urban utility vehicles.
Responses not only been strong here in the U S market, but also in Canada.
So we've added a regional headquarters in Montreal Ah materially increases Elms total addressable market.
We see great sales opportunity in Canada, or federal and provincial governments have taken progressive actions to support electric vehicle adoption, including.
Offering government incentives that total up to $8000 Canadian for the purchase or lease of an E V.
Canada has mandated that 100 per cent of car and light truck sales be zero emission vehicles by 2035.
And has experienced an ecommerce boom similar to that in the U S.
Our opportunity here is to move quickly to be the first mover and take advantage of all these Taylor.
Well that addresses demand and now let me turn to supply.
We don't see any other class one commercial E V manufacturers getting an E D portable as quickly as we will.
Well, many new entrants an existing players have announced plans for commercial Levi products.
For most of them they remain plants.
Based on competitor manufacturers announcements, we expect to be the only companies selling commercially. These in the class one space for two to three years.
We also expect to be one of the first E D movers in the class three space with a lunch of the urban utility next year.
The traditional automakers in the class one market have not made any announcements to electrify.
And new E V entrance will launch first and other segments before entering the class one segment.
In addition, they were.
<unk> face regulatory approval hurdles in startup challenges before they reach the market.
Elms key differentiator and enabler continues to be our unique business model.
Our business model is built on capital efficiency.
And our customer focus.
We're already achieving capital efficiency, leveraging our existing U S E V manufacturing plant.
And market proven components.
This allows us to deliver reliable products at an exceptional speed and at a fraction of the cost compared with a traditional automotive business model.
We're also differentiated from other manufacturers by our singular focus on commercial customers needs.
This allows us to provide what we believe will be one of the lowest total cost of ownership.
Up to 35 per cent less than internal combustion engine vehicles.
And as a solution is provider, we're not just delivering the hardware.
But also the customization and digital solutions that enable our customers to increase the productivity of their fleets.
Around air data.
And connectivity solutions will help our customers optimize their fleets sufficiency, resulting in reduced emissions.
Use of EDI charging infrastructures.
Lower vehicle maintenance costs and lesson unscheduled downtime. The result is significant differentiation.
And a competitive advantage realms and.
And we intend to build on it.
One example.
We're we're building on a competitive edge is the launch of R. E V campus program.
We're engaging with colleges and universities to address their sustainability goals and on campus clean transportation needs.
We watched the E V campus program in October to help U S universities forge.
An achievable pathway to a zero emissions future.
We were introducing our easy solutions to a large an untapped market.
It is very supportive of a transition to a clean and sustainable transportation fleet.
Already tested by a half dozen colleges and universities E V campus program allows schools to test free.
Free of charge, an urban delivery van an experienced trial installations of Helms telematics devices in their existing fleets I've also internal combustion engine vehicles.
We see universities using the vans for on campus transportation landscaping maintenance moving and more.
They're seeing opportunity to use our vehicles on data.
To achieve more sustainability and also their financial goals.
And we're seeing opportunity to expand our outreach to other potential quiet such S airports corporate office complexes and an industrial facilities as well as the future on road needs those organizations.
That's why we're really excited about this program.
We estimate all of these campuses together.
Comprise a half million unit market segment.
An excellent opportunity to demonstrate how transitioning fleets large and small almost vehicles and data solutions can help organizations achieve their sustainability goals and lower fleet costs.
It's also an excellent opportunity for them to test our production systems and capabilities on smaller orders.
Refining our processes and protocols before we wrap up to full production capacity.
While allowing us to recoup these early stage costs.
We see R E V campus program.
Affecting positive change on University campuses and producing direct sales for are currently available on campus like vehicles.
We also see it highlighting a variety of ways our vehicles can be put to use to radically improve busy.
Business and environmental results.
As we've said previously we expect to meet our commitment lunch are fully homologate at urban delivery vehicles in December certified for on road use in the U S market.
And begin delivering against the 6000 vehicle for them order commitment we have signed.
[noise] engagement with our customers continues at a rapid pace with customer demos targeting such and customers.
His Fedex and Amazon delivery service partners and on demand cargo van rental companies.
We expect to convert many of these product us into future sales.
In addition to engaging customers directly.
We also continue to work with numerous fleet management companies as an important go to market channel and the commercial vehicle industry.
Unlike the relatively simple distribution model of retail sales commercial fleets engaged very differently.
Relationships with large distributors and fmc's as they're called.
Are what are required to be a player and a commercial vehicle business.
The top 10 U S fmc's manage fleets of more than 1.9 million vehicles.
Another essential requirement for success in the commercial vehicle market is establishing critical relationships with Upfitting partners.
We've executed.
More than 20, Nondisclosure agreements and are working with them to develop specific.
Updates for our vehicles covering a broad range of market use cases.
We'll continue to provide updates on updating as we finalize arrangements with our partners.
Demand for our vehicles and solutions remains high and production has so far launched very smoothly.
We want to recognize at the same time.
But we had planned a slow controlled startup to manage normal issues that come up with any new model introduction.
Our experienced team has hundreds of vehicle lunches under its belt.
A slow ramp up is intentional when.
When issues come up our team is able to address them and salt.
However.
Happening globally throughout the industry and as we have discussed.
On our last call our suppliers are experiencing challenges sourcing raw materials and managing COVID-19 disruptions.
We are facing rising transportation and logistics costs.
We ordered more than enough materials or our initial production targets this year and through actually early 2022 spot.
The global shipping containers shortage has significantly increase the cost of moving components.
To our manufacturing facility.
Our spot right shipping costs are running as high as $25000 per container, which is over five times higher than the traditional pre COVID-19 rates.
He was elevated shipping and logistics costs have cut our margins per vehicle from double digits to low single digits.
In light of these unprecedented global supply chain challenges we.
We made the decision to lower our production with 300 to 500 vehicles for the year.
I'm from originally 1000.
We're confident in our team of experienced and skilled professionals are well equipped to manage this short term cost challenge.
After all this the team of pop supply chain and logistics managers engineering and manufacturing professionals.
Sales and dealer network experts that worked with our global supply bass to bring our urban delivery.
To fruition in a short amount of time at far lower costs than any competitor has achieved.
The same team has the necessary skills to manage the current market issues with our short term and long term financial goals and to continually adjust.
And adapt to changing macroeconomic environment.
We also are working closely with our suppliers to ensure timely delivery of parks and sub systems and a firm up.
A production estimate for 2022.
More details will be provided on our next earnings call still I can share that one.
We're finalizing longterm shipping and logistics contracts for 2022 to avoid paying a current spot rates.
We expect to significantly lower our current shipping costs, Rob will expand on this later.
We aim to provide an update on this and early 2022.
In addition, based on historical trends.
Ripping spot rates should soften after the holidays.
Despite the macro headwinds were positive there's an end to these challenges insight for albums.
As we begin to capture market share in both the class one and class III commercially be segments next year.
Something no competitor can yet claim we expect our vehicles to generate meaningful gross profit by.
By the second half of 2022.
[noise] no back to products.
In response to strong customer demand our borders formally approved production of our next vehicle.
The urban utility vehicle.
The board has also directed us to explore opportunities to advance the urban utilities time to market.
Ah current timing is to launch the vehicle in the second half of next year.
Like our urban delivery van urban utility vehicle will be assembled in mishawaka, Indiana.
And is highly customizable.
We anticipate working with partners to update it.
With customized dry boxes, and especially used flatbed in many cases and.
And we expect to be a first mover if not be first mover in this category.
Now, let me switch gears and talk about the battery agreement, we signed and potential localization.
Now Kober, we announced to deal with the C. A T L that secures the battery supply for the urban delivery through 2025.
C. H L is the leading and largest supplier of battery systems globally.
Securing our battery cell impact supply is an important milestone in a tremendous achievement for a company and an extremely challenging supply environment.
You almost battery as the lithium iron phosphate or L. F P chemistry.
This type of battery is rapidly gaining popularity.
Because it's less costly than the other alternatives is viewed as a more stable power source.
And the other chemistries and it doesn't use the scarce and price volatile raw materials Nicola in cobalt.
Given the as attractive qualities and growing demand for all up the batteries from competitors.
We feel especially fortunate to have blocked in our supply from a large and well established battery maker.
We're also collaborating with several potential partners to localize production of our battery packs in the U S.
We can envision several paths to success, including.
Building the battery packs on a manufacturing line in our plant in mishawaka.
In the future we're planning for the localization of about half of our vehicle content, starting with a battery, which alone comprises 30 per cent of the production costs weeks.
We expect localization just significantly reduce our costs overtime.
And other important milestones we open in Asia Pacific Operations Center, or a park in Shanghai and.
An urban mobility lab in San Francisco.
Or a park further expands elms global footprint and will serve as a hub for engineering operations project management and supply chain management.
Cause you know the the industry in Asia has a several year head start on the U S industry.
We will tap into that expertise and the Oems suppliers and talent pool.
Human Shanghai will be fully integrated with the company's global headquarters.
And work to improve supplier engagement increase our speed the market.
And efficiently execute our unique business plan.
We expect a park to exceed 100 employees by the end of the year.
It dissipate the urban mobility lab in San Francisco to benefit from a large pool of talented hardware and software engineers as well as application developers in the Bay area.
The lab will serve as our tech hub.
For exploring and developing innovative electric vehicles solutions that improved fleet productivity and lower total cost of ownership.
The lab is building out our data services and working with technology partnerships that are crucial to.
Two expanding and vehicle technology date.
Data intensive applications in machine learning capabilities.
Does that and we were taking a portfolio approach to building a charging ecosystem.
It serves elms customer's needs.
One example is our partnership with the Vigo.
We're working with either go to develop a bundled turnkey fleet charging program for Helms customers.
We anticipate that are growing charging ecosystem will include additional partners to ease customers transition to our eevees and speed their time to realizing improve productivity.
And lowered fleet costs.
Oh is it tends to continue to discover and develop applications.
Data analytics and telematics the speed our customers achievement.
Of sustainability and financial goals.
Currently almost vehicles launch with unit tracking you'd be charging station locators and telematic capabilities.
As we filled out our elms, Eric Telematic solutions, we anticipate adding pleat utilization predictive maintenance they live.
Every management and advanced driver safety application store vehicles.
So in summary, we're very proud to see our unique business model come to fruition.
Our Eva E V ready plant.
And the market tested components enabled us to get far ahead of a crowded space full of new entrants, while the need for class one and class III commercial eevees is at its greatest.
As a result, we delivered our first urban delivery vans and or engaging potential customers and pilot programs all across the country.
We expect fully certified urban delivery vehicles will be shipped in December.
We've secured our battery supply for urban delivery through 2025 and are pursuing U S localization.
And we reported revenue in the third quarter.
As promised.
I just Wanna repeat that we are now a revenue generating company not a prerevenue company and we will continue to generate revenue.
In response to strong customer demand our board firmly approved production of our second vehicle class Street urban utility and encouraging advancing the time to market.
I look forward to continuing the conversation and updating you on our progress now I'll turn it over to Rob to go through our financials Rob.
Thank you Jane.
Have you been part of the team or the last six months I can tell you. What we are doing key electric lost mall special.
It is a once in a lifetime opportunity to redefine the commercial vehicle market.
I'm very excited to be working with these talented team to date, we have delivered only all commitments and our company will continue to execute against I'll be this time.
Moving forward to the third quarter results.
Kimber 30, the company reported revenue of approximately 136000 on delivery.
Oh the delivery.
Vehicles.
We had a total cash balance including restricted cash.
170.9 million.
For the quarter.
We reported and yet loss of 17.8 million.
Or a loss of 15.
[noise] pushy.
Alrighty expenses were 22.3 million consistent.
$5 6 million of research and development expenses and.
<unk> says catch the Emperor pop expenses.
And 16.7 million.
General and administrative expenses for personnel consulting services and marketing expenses.
We are on track to beat out initial Capex got it.
Or 2021, as well as out unusual operating expenses guidance.
This is primarily due to the close inefficient relationship we have without key supplies and he was asked to reduce our engineering design and testing expenditure as we remain on track to deliver a fully certified urban delivery vehicle on time and below budget.
For the full year 2021, we are revising I'll projected total operating expense to be in the range of 60 million to 70 million.
We estimate total capex for the for the 2021 to be in the range of 20 million to 25 million will have a unique business model that allows us to hold on investment level lower than other E. B companies leveraging he be ready production plant improving components.
Finally, we are pleased to deliver on that promise or revenue in the quarter.
2022 is going to be very exciting and we look forward to delivering the next major revenue Marston I put a company.
We'll be providing production colleagues.
<unk> cool.
This concludes our prepared remarks will now open online for questions.
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And we do have a question from the line of 10 I was with Wedbush Securities. Please go ahead and mine is open.
Yeah. Thanks.
Thanks, Jim team.
So.
Comes up you know obviously.
I understand why you're cutting production can be <unk> from a cost perspective, but.
There's been no changes in terms of like the factory build out like just getting everything assembled guys wouldn't like that that continues to be exactly on track right.
That's correct because there's no restriction in let's say our production capabilities Plaid stuffed up People's and hired Capex is finished installations lines running here you're exactly right. Then the issue was getting parts to the back door.
But no issue in the plant.
Yeah, Okay. So.
She wishes walk through our customer you know that was preordered.
Expecting to get it you know where this year and obviously you cut production. So like how you think about this for like next year I cause. It just is it warm wishes pent up as we go into 22 in terms of just go and orders production.
Yeah, I think if I got your question right, it's kind of call. It a slide where the the customers that we're looking at them for late this quarter, what we're gonna just slide those orders and honor them in the first quarter and I think you're well aware that you know the backdrop of this is a lot of customers that have been expecting their other commercial vehicles for the.
Patricia manufacturers of all of them put it.
Spot, where they've had to delay their orders that received their orders and pushed those back also well into next year some of them into the summer so.
From a customer standpoint, this is consistent or what's going on in the industry, but our particular case, we've just split them into the first quarter.
Okay and you just final like pollen so just.
When were you thinking about like a quote unquote pipeline or <unk>, what you're seeing in terms of backlog and more and more orders like could you just compare.
Mmm.
Qualitatively today versus let's say three months go now that you've gone through different safety production, you know you're much more advanced and where you were especially through six months ago.
Well I think I'll start anecdotally to Dan at you know by now from three or four months ago with that so many more pilot drives test drive demo drives you know face to face with customers at the plant in their locations in various different.
Different use cases, as you know and some of those both also the urban delivery as well as the urban utility so they're seeing our portfolio come at them as well. So you know, we we decided to just cut off let's say the preorders when we're sitting at that 45000 number and focus on moving our preorders too.
Final orders going through the bottom of the funnel and execution of these drives the demos in pilot. So I'd say anecdotally. The demand is overwhelming I was just at the ready married this week with Iran. Alright, a sales and you know they're quotes are all in a category of look just I'm gonna sell everything you have given me hurry up so the man is.
As good as I'd say or better than way sauce, six months ago, but from an order standpoint with the Marian group already committing to 6000 of our first 8000, and then a firm purchase order of the first thousand you know we got her head down to just fulfil lows and and do.
Conversions, let's say from interest in two full P. R. But we're not taking any new orders unless they're actual orders and P. O S.
Great. Thanks.
Our next question is from Mike Whiskey with da Davidson. Please go ahead.
Hey, good afternoon guys.
Can you give us <unk> hey, there can you give me a second overview of the types of customers that the dealer partners have have marked down as open as the first takers of your of your <unk> of your vehicles. I mean, you have to ask the name of the names, but what what kinds of poems are they large sweet small please believe me vocational.
And how confident are you that those that that first thousand will turn into the 5000 by the end of February.
Yeah. So I think the the actual customers. They said it would have put a gun names. We can lead you to fill in the blanks pretty easily but the most the biggest and obvious as the delivery companies. The package delivery companies and I think as you were Mike a lot of that is in these private owners that have small fleets and are the individuals.
Service providers for the big package carrying companies.
There's rental companies that you can again fill in the blank of the names that the rent these box trucks and a small vans and locations.
There's the service industries are seeing really strong interest from say telephone.
Companies service companies that come to your house to do installations, and repairs and that kind of category and of course. This is obvious but the state. It for the other listers is where the range and the vehicle is less than sort of this you know 40 to 50 miles that we've talked about we were seeing that reinforced that a range of 100 hundred and 10 is more than adequate.
For their usages, there's medical delivery companies, who large medical supply companies that have you know headquarters in his own like the southeast and deliver products, whether it's drugs are there individuals supplies. The large hospital groups already mentioned of course with our campus program. These university complexes, where it isn't just one campus.
<unk> can be part of the 20 or 30 campuses inside their overall umbrella.
Cities, just throw out city in Miami that want very aggressive goals.
Airport complexes that are trying to accommodate the transformation.
Into the mobility world. So it's all of those are different industries that are taking us on.
And just to reinforce it I think the overall efforts there, they're seeing out of Washington, and the industry picking up on volumes are special success. All these things are contributing to the to the mindset of these fleet owners being more and more I'm used to the idea that this is happening it's only a matter of when and you know they've gotta, they've gotta get on with the program.
Get moving quickly and and adoptees on the other hand, there's a lot of education, you know to be done with these owners as we go to the fleets and do our demos for many of them of course is the first time they've been in an electric vehicle, so bringing them to the charging solutions, bringing them to telematic solutions and bringing them. Our vehicles is all part of the the.
Final conversion to a sale.
Got it.
What kind of moving on a quick question about your carpet and costs shopping expenses Dion D. N S. Your name.
Is the one night that we saw this quarter.
Ah relatively solids I made going forward or was it an unusual cause we know decide one time testing cost is going to get things finalized here.
[noise] [noise] Hey, Mike This is Rob here, so the run right run right that we should expect going forward.
It's going to be lower than what you. What you saw this quarter and that's because as you know we are going through the development process of home obligating and certify the vehicle for on road use so going forward a lot of the testing cause engineering costs and prototype costs will not be in al financial statements.
Okay.
Maybe one last one for me on the <unk> on the supply chain challenges that you <unk> have you have you seen <unk>.
More detail on that is it that you.
Could get the chassis or the components bun from childhood don't Wanna pay the freight.
It just doesn't make sense when the Dolphins 10 standpoint or is it just challenging to find those any other complaints sent to Indiana recorded some of the details behind why is <unk> is charged with Ya.
I think it's.
To to put that more in the category of the one that you mentioned is more availability of containers and getting the parts here rather than the costs, even with the elevated costs were down to single digit.
<unk>, so, we're not losing money or or a negative cash flow, we're not paying money to produce those vehicles, but in reality. It's just the difficulty of them secure in containers securing boats and then getting them across to our plants and this is just one supplier if you take that across our entire supply bass and see that we have to solve that equation not just once or two.
Twice, but through all of that supply of community.
The challenge we've run into.
Okay I'll leave it there thanks, so much guys.
Thanks, Mike.
Our next question is from Greg Lewis with B T. O G. Please go ahead your line is open.
Yeah. Thank you and good afternoon. Good evening, everybody. Yeah, you know hey, congratulations I mean, it's been impressed with you guys have been able to deal with it any short term short time, yeah, I I did want to talk a little bit more about how we should be thinking about the game you're a S. P. He's going.
Forward I mean, you know you guys have done a lot over the last few quarters, but a lot has changed in the market over the last few quarters right inflation is becoming a household name you've touched on supply chain steel prices is there any way to think about maybe like a milk up in your I S PS and 22 and in the <unk>.
23.
[noise], yeah, well, it's I got a few moving parts you know at the high level of Greg you could say look we've got nobody no. Other competition this segment.
And what appears to be demand way in excess of supply and then if you switch over to the other traditional suppliers, they're very short and just to throw more gas on the fire. We've got Nissan backing out of the market, leaving a big void. So all that traditional logic would say that there's plenty of upside pricing opportunity.
So.
Is where are finalizing the contracts with the current conversions of these early customers one and we don't want to be too greedy, we would still want to stick to our principles of making it for the fleets you know a total cost of ownership savings, 35%, but also landing you know kind of on the traditional ice vehicles after incentive.
So you know assuming that these bills go through and some of those incentives get increase that's certainly going to give us upside pricing opportunity to still land at par with a gas vehicle and also just from pure supply and demand we've been testing that water. We put a couple thousand more on our first shipments of these first thousand vehicles.
So far had no pushback. So yeah. We are testing the waters, we just don't want to again get the get too crazy here and and push for too much upside and push ourselves out where I'm on a fleet owners do the math that were out of whack on the T. C L.
Oh understood that the Amish does that's good to hear and then and then I mean, clearly you know it looks like you guys really hit a sweet spot here with the class. One delivery then you know as as we think about you know the utility vehicle the company is planning.
Roll out I guess you know late next year. Early 2023 is is there <unk> is the company kind of expecting a similar dynamical or or does that space, maybe a little bit more crowded kind of curious on your thoughts about that.
Yeah, well if you look at yeah, first I'm, just making a minor correction or at putting out an exact date, yet, but we had said second half of 22 and as I said in my comments, where it now based on these early exposures. We've had when we announced the vehicle and that have gone around with the early test drives we had a lot of pressure from Ah.
Customers in large fleets to move that urban utility as early as possible because I'd like to get their hands also on that so it will definitely be in 2022, not twenty-three as you mentioned.
But as it regards to that vehicle if you see the configuration, Greg If you go online and look at it it's kind of a unique configuration.
So called low cab forward and that there is no other announcements again, just like the class one of vehicles coming similar to that you've got Ford and G. M coming out with bright drop any transit that are talking about moving kind of up into that space as they do today with their cab chassis, but with significantly large.
Engines, and then you know do a wheels and axles and things like that to try to get into the class reinforce space. So.
Now again I didn't say, we will be the only one you know to be that definitive but from what we can see so far there's no like the like products that are coming in in that segment. We've got a potentially arrival in Peru coming down from that class III space, but most of all we've seen if more the vans and walk in.
Vans as opposed to say box trucks like you'd see with a U haul writer or Penske in these kinds of user so [noise].
And I'm not gonna go as far as saying, there's nobody but in the specific application. We're looking at I think we're still going to be one of the few if not the only one in that segment.
Okay. Okay. So thank you all very much for the time.
Good Thanks, Greg.
Our next question is from Jeff Osborne was Cowen and company. Please go ahead do you like to open.
Yeah. Good evening as a couple of questions I was wondering if we can walk through what's left on the obligation process to hit that for December what have you done so far and what's still needs to be bingo.
Yeah, I think so.
Well as you can tell us it's November and December is not that far away. So we've got a pretty good line of sight and as we've gone through before this is a you know a series of engineering tests that we go through a course to verify that we're meeting the F. M. B a standards and so some of those are done you know virtually in in the math tools some of them a lot of them have already been.
Completed in have a prototype tool. So the last step we have is what we really call verification testing huh, we've seen them already passed the tests those already happened and but now we just have to make sure that those or call it repeated or verified or confirmed off production tools production parts and the same configure.
<unk> so.
Were highly confident these are gonna pass cause we've already seen them pass once they just have to pass off this last generation of hopeful parts that are coming from our assembly. The lines. So those are the tests that we have lined up in the.
First couple of weeks of December and as those progressively passed then we'll be in a fully fully certified situation to ship in December.
Got it that's great to hear and just maybe for yourself or Rob as it relates to the three to 500 deliveries for the quarter, what those always seem to be there I'm I'm obligated and so should we think about the average price that you had this quarter being you know twenty-seven care so being consistent in Q4, and then back to more normalised levels.
<unk> 2020 or 2022.
Hi, Jeff This is rocky the three to 500 production vehicles that we've indicated for 2021, it's actually going to be a mix of E. D campus vehicles as well as the 40 home Watergate and on road vehicles. So the process assumption should be a blended of 27000.
And at 34500, and we have for the on road vehicles.
Got it.
And then my last question is just I think you folks had a social media post on the fifth of November that had Ah aerial shot of your lot that had quite a few bands out. There can you just give us any sense of what you've seen in October and November in terms of like weekly build rates.
Wasn't a lot on the call as it relates to sort of the staffing and throughput levels. There was a lot of.
Issues around inputs and costs and whatnot, but anything is to the staff and the job that they're doing it would be helpful to understand.
Yeah, I think it's probably easier just to come into the current dense just to say that are build right next week would be about 40. So that the aerial shot you had it was a large piece of the around 100 that we've got and play or on the way out the door.
And but right now we've got the sufficient team. It's about 45 50 people that are in place to be able to build our current rate of about 40, a week going into the end of the year will wrap that workforce up to just a little bit less than 100 by the time, we hit the Christmas new years.
100 people.
It's great to hear thanks much.
Okay like a joke.
And you have a question from Shrek <unk> with Jeffries. Please go ahead you lines open.
Thanks, So if we could just go back to the the urban.
Urban utility vehicle I'll, just kind of wanted to get a sense for some of the milestones that we should be on the lookout for whether it be testing phases, a supply agreements things of that nature as we look into next year.
Sure well just to set the stage.
The requirements that say milestones as you called it quite a bit different than they were for the urban.
Delivery given us a class three vehicle safety.
Safety requirements MBS, that's all of that is much less than it is for the class ones and twos. So we have a less costs less timing and less complexity for us to go through the different hurdles and milestones to hit started production we still have.
To do some of the retooling some similarities for instance, just one example would be the Headlamps, where you have to have Headlamps are compliant with the U S regulations that has nothing to do with crash, but as far as air bags, seatbelts and things like that it's a very different approval process. So we have similar gates locking up her battery supply with incremental volume we.
Have the early tooling changes that make us U S compliant on some things that we've all kicked off this just started months ago and then it really just be that the plant trials. The the old plants go through and then final certification, so a pretty I'd say generic or or normal process. The highlight as much.
Shorter and much lower cost than it was for the urban delivery.
Alright, I appreciate that and then the only other thing I had to look at what is the idea of the freight logistics costs, just trying to get one more handle that for a second is the idea of.
<unk>.
Walking in some of that for 2022, what should we kind of be projecting as far as thoughts on how that's going to impact the margins from what we have talked about you know as we went through the process of the original launch the idea of double digit margins.
It's going to be a longer term playbook is that something that we were thinking of a high single digits.
Near term and then eventually as we kind of are more normal.
To achieve those a double digit or is it maybe even sooner than that.
[noise], yeah, it's raw P. So regarding right cause if you think about what the current spot right is about 25000 and what contract prices typically which is about 60% of spot right. Assure me, we can achieve that type of a disc.
Account going for in 2022.
Now, we equate to about $10000 per container.
Lower than what we're currently paying so that equates to if we are only American, whereas if where I've been able to put two vehicles.
A container that's about $5000 savings per vehicle, if you apply that to the 34000.
P P.
Probably generating 15% after if you've been saying gross margin.
On our products.
And we expect to be able to get within that range by the second half of 2022, Schumi, we're able to locking contracts at that right.
Very helpful. Thank you so much.
And that concludes the questions.
Today's calls concluded we thank you for your participation and that's how you. Please disconnect Carolina.
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Good day.
Welcome to electric last mile Solutions third quarter 2021 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator.
Please press Star Zero as a reminder, today's conference is being recorded I would now like to turn the conference over to Sam Lee Director of Investor Relations and Finance. Please go ahead.
Good afternoon, and thank you for joining us for electric last mile solutions third quarter 2021 earnings call before we begin we'd like to remind you that remarks made on today's call may include forward looking statements.
These are based on our predictions and expectations as of today.
Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today.
For more detailed discussion of the factors that may affect the company's results. Please refer to our earnings release for this quarter and most recent SEC filings.
Joining me on the call today are James Taylor CEO.
Dayton Little Executive Chairman, Rob song CFO and Treasurer.
Jonathan about it chief strategy and digital officer.
Management will deliver prepared remarks, and then we will open the line for your questions.
Now I'll turn the call over to Jamie.
Thank you Sam and thanks, everyone for joining us today.
I'm so proud of the team we've assembled at elements.
Despite all the challenges in the auto industry this year.
We delivered on our commitments.
We posted the historic third quarter in which we began production at our Mishawaka, Indiana plant and hosted revenue as we shipped our class one urban delivery vehicles.
And we intend to continue delivering on our commitments by maintaining discipline in our golf setting.
Our follow through <unk>.
And our transparency going forward.
Today, I'll provide a business update with detail about our urban delivery lunch.
Plans for the addition of our class three urban utility vehicle.
Our recently announced battery agreement and plans to explore localization of battery Assembly in the U S.
An additional insights into our digital strategy development.
Lastly, I'll turn it over to our CFO, Rob song to discuss our third quarter financials and outlook.
Rob joined the company in April and has worked closely with the Companys former Chief Financial Officer Albert Lee.
As part of an intended succession plan.
Rob brings nearly 20 years of diverse financing capital markets experience.
Including extensive work with Morgan Stanley alphabet, and core point lodging.
We're pleased to welcome them officially to the call in his new role within the company.
Albert was essential to albums, becoming a public traded company and expanding its financial operations.
We thank him for his important service and look forward to working with him as he transitions into a senior advisor role with the company.
Okay, let's get started.
As the first publicly listed electric vehicle company initially focused on the class one to class III commercial segments.
We're redefining productivity for commercial vehicle customers and what the industry calls the last mile of delivery.
We founded elements, because we saw an opportunity to rapidly deliver sustainable and intelligent mobility solutions for businesses engaged in moving goods and services to their final destinations.
We developed a commercial solutions that our profit drivers not cost centers.
We identified an unmet business need.
Class one to class III commercial EV segments.
Or we expect to benefit from several major tailwind.
These tail wins by the way seem.
Seemed to be blowing harder and harder these days, including.
First enormous demand for commercial vehicle solutions, driven by the rapid increase in e-commerce.
Companies seeking to meet our very aggressive ESG targets.
Governments at all levels that are driving and in some cases mandating.
The adoption of environmentally sustainable solutions.
U S policy movement toward enhanced electric vehicle tax credits, including the recently passed U S infrastructure Bill and.
Pending build back better Bill that includes an expansion of EV tax credits and.
But then the last two weeks the new global sustainability commitments coming out of the U N C. O P 26 meetings in Glasgow.
This is the perfect storm of positive demand catalysts blowing all in our favor.
To date, there are a few E D options on the market to meet the sudden increase in demand.
Our urban delivery van is the first in the class one commercial vehicle segment.
The response to its launch has been tremendous.
Demand is strong for both the urban delivery vehicles already in production as well as a planned urban utility vehicle.
Your sponsors not only been strong here in the U S market, but also in Canada.
So we've added a regional headquarters in Montreal and materially increases <unk> total addressable market.
We see a great sales opportunity in Canada, where federal and provincial governments have taken progressive actions to support electric vehicle adoption, including.
Operating government incentives that total up to $8000 Canadian for the purchase or lease of an EV.
Canada is mandated that a 100% of car and light truck sales being zero emission vehicles by 2035.
And as experienced in ecommerce boom similar to that in the U S.
Our opportunity here is to move quickly to be the first mover and take advantage of all these tailwind.
Well that addresses demand and now let me turn to supply.
We don't see any other class one commercial EV manufacturers getting an easy foothold as quickly as we will.
While many new entrants and existing players have announced plans for a commercial EV products.
Are most of them they remain plants.
Based on competitor manufacturers announcements, we expect to be the only company selling commercially. These in the class one space for two to three years.
We also expect to be one of the first movers in the class III space with the launch of the urban utility next year.
The traditional automakers in the class one market have not made any announcements electrify.
And new entrants will launch first in other segments before entering the class one segment.
In addition, they will face regulatory approval hurdles and startup challenges before they reach the market.
<unk> key differentiator and enabler continues to be our unique business model.
Our business model is built on capital efficiency.
And our customer focus.
We're already achieving capital efficiency by leveraging our existing U S E V manufacturing plant.
And market proven components.
This allows us to deliver reliable products at an exceptional speed and at a fraction of the cost compared with the traditional automotive business model.
We're also differentiated from other manufacturers by our singular focus on commercial customers' needs.
This allows us to provide what we believe will be one of the lowest total cost of ownership.
Up to 35% less in internal combustion engine vehicles.
And as a solutions provider not just delivering the hardware.
But also the customization.
In digital solutions that enable our customers to increase the productivity of their fleets.
Our albums Air data.
And connectivity solutions will help our customers optimize their fleets sufficiency, resulting in reduced emissions.
Best use of EV charging infrastructures.
Our vehicle maintenance costs and lesson unscheduled downtime. The result is significant differentiation.
And a competitive advantage for elms.
And we intend to build on it.
One example.
We're building on our competitive edge is the launch of our E V campus program.
We're engaging with colleges and universities to address their sustainability goals.
And on campus clean transportation needs.
We watched the easy campus program in October to help U S universities forge and achievable pathway to a zero emissions future.
We are introducing our EV solutions to a large and untapped market.
It is very supportive of a transition to a clean and sustainable transportation fleet.
Already tested by a half dozen colleges and universities EV campus program allows schools to test.
Free of charge and urban delivery van and experienced trial installations of <unk> telematics devices in their existing fleets of also internal combustion engine vehicles.
We see universities using the vans for on campus transportation landscaping maintenance moving and more.
They're seeing opportunity to use our vehicles and data to.
To achieve more sustainability and also their financial goals.
And we're seeing opportunity to expand our outreach to other potential clients such as airports.
Corporate office complexes, and an industrial facilities as well as the future on ROE needs of those organizations.
That's why we're really excited about this program.
We estimate all of these campuses together.
Comprised of half million unit market segment.
An excellent opportunity to demonstrate how transitioning fleets large and small to almost vehicles and data solutions can help organizations achieve their sustainability goals.
And lower fleet costs.
It's also an excellent opportunity for hours to test our production systems and capabilities.
<unk> on smaller orders.
Refining our processes and protocols before we ramp up to full production capacity.
While allowing us to recoup these early stage costs.
We see our EV campus program.
Effecting positive change on University campuses and producing direct sales for our currently available on campus fleet vehicles.
We also see it highlighting a variety of ways our vehicles can be put to use to radically improve.
Business and environmental results.
As we've said previously we expect to meet our commitment of lunch are fully I'm obligated urban delivery vehicles and December certified for on road use in the U S market.
And begin delivering against the 6000 vehicle firm order commitment we have signed.
Engagement with our customers continues at a rapid pace with customer demos targeting such end customers.
Is fedex and Amazon delivery service partners and on demand cargo van rental companies.
We expect to convert many of these product tests into future sales.
In addition to engaging customers directly.
We also continue to work with numerous fleet management companies as an important go to market channel and the commercial vehicle industry.
Unlike the relatively simple distribution model a retail sales.
Commercial fleets engaged very differently.
Relationships with large distributors in fmc's as they're called.
Or what are required to be a player in the commercial vehicle business.
The top 10 U S fmc's manage fleets of more than one 9 million vehicles.
Another essential requirement for success in the commercial vehicle market is establishing critical relationships with upsetting partners.
We have executed.
More than 20, Nondisclosure agreements and are working with them to develop specific.
Updates for our vehicles covering a broad range of market use cases.
We'll continue to provide updates on updating as we finalize arrangements with our partners.
Demand for vehicles and solutions remains high and production has so far launched very smoothly.
We want to recognize at the same time.
But we had planned a slow controlled startup to manage normal issues that come up with any new model introduction.
Our experienced team has hundreds of vehicle launches under its belt.
A slow ramp up is intentional.
When issues come up our team is able to address them and salt.
However, as it happened in globally throughout the industry and as we have discussed on our last call. Our suppliers are experiencing challenges sourcing raw materials and managing COVID-19 disruptions.
We are facing rising transportation and logistics costs.
We ordered more than enough materials or our initial production targets this year and through actually early 2022.
The global shipping container shortage has significantly increased the cost of moving components.
So our manufacturing facility.
Our spot rate shipping costs are running as high as $25000 per container, which is over five times higher than the traditional pre COVID-19 rates.
These elevated shipping and logistics costs have cut our margins per vehicle from double digits to low single digits.
In light of these unprecedented global supply chain challenges.
We made the decision to lower our production the 300 to 500 vehicles for the year.
From originally 1000.
We're confident our team of experienced and skilled professionals are well equipped to manage this short term cost challenge.
After all it's the team of top supply chain and logistics managers engineering and manufacturing professionals.
Sales and dealer network experts that worked with our global supply base to bring our urban delivery.
To fruition in a short amount of time at far lower costs than any competitor hasn't changed.
This same team has the necessary skills to manage the current market issues with our short term and long term financial goals and to continually adjust and adapt to changing macroeconomic environment.
We also are working closely with our suppliers to ensure timely delivery of parts and subsystems and the firm up.
Our production estimate for 2022.
Details will be provided on our next earnings call still I can share that one.
We're finalizing long term shipping and logistics contracts for 2022 to avoid paying the current spot rates.
We expect to significantly lower.
Current shipping costs, Rob will expand on this later.
And we aim to provide an update on this in early 2022.
In addition, based on historical trends shipping spot rates should soften after the holidays.
Despite the macro headwinds we're positive there is an end to these challenges insight for albums.
As we begin to capture market share in both the class one and class III commercially be segments next year.
No competitor can yet claim we expect our vehicles to generate meaningful gross profit.
By the second half of 2022.
Now back to product.
In response to strong customer demand our board has formally approved production of our next vehicle.
Urban utility vehicle.
The board is also directed us to explore opportunities to advance the urban utilities time to market.
Our current timing is to launch the vehicle in the second half of next year.
Like our urban delivery ban urban utility vehicles will be assembled in mishawaka, Indiana and.
And is highly customizable.
We anticipate working with partners to up fit it with.
With customized dry boxes, and especially use flatbed in many cases.
And we expect to be a first mover if not the first mover in this category.
Now, let me switch gears and talk about the battery agreement, we signed in potential localization.
In October we announced the deal with C. A T L.
It secures the battery supply for the urban delivery through 2025.
DHL is the leading and largest supplier of battery systems globally.
Securing our battery cell and pack supply is an important milestone and a tremendous achievement for our company in an extremely challenging supply environment.
You're almost battery is the lithium iron phosphate or L. F P chemistry.
This type of battery is rapidly gaining popularity.
Cause it's less costly than the other alternatives is viewed as a more stable power source than any other chemistries and it doesn't use the scarce and price volatile raw materials nickel and cobalt.
Given the attractive qualities and growing demand for LSP batteries from competitors.
We feel especially fortunate to have blocked in our supply from a large and well established battery maker.
We're also collaborating with several potential partners to localized production of our battery packs in the U S.
We can envision several paths to success, including.
Building the battery packs on a manufacturing line in our plant in mishawaka.
In the future we are planning for the localization of about half of our vehicle content, starting with a battery, which alone comprises 30% of the production costs.
Expect localization to significantly reduce our costs over time.
In other important milestones, we opened in Asia Pacific Operations Center, or a park in Shanghai and.
Mobility lab in San Francisco.
Our APAC further expands our global footprint and will serve as a hub for engineering operations project management and supply chain management.
You know the EV industry in Asia has a several year head start on the U S industry.
We will tap into that expertise and the Oems are suppliers and talent pool.
Came in Shanghai will be fully integrated with the company's global headquarters.
It worked to improve supplier engagement increase our speed to market.
And efficiently execute our unique business plan.
We expect a path to exceed a 100 employees by the end of the year.
We anticipate the urban mobility lab in San Francisco to benefit from a large pool of talented hardware and software engineers as well as application developers in the Bay area.
The lab will serve as our tech hub.
We're exploring and developing innovative electric vehicle solutions that improve fleet productivity and lower total cost of ownership.
The lab is building out our data services and working with technology partnerships that are crucial.
Two expanding in vehicle technology.
Intensive applications and machine learning capabilities.
To that end, we're taking a portfolio approach to building a charging ecosystem.
It serves elms customers' needs.
One example is our partnership with the V go where.
We're working with E V go to develop a bundled turnkey fleet charging program for our customers.
We anticipate that our growing charging ecosystem will include additional partners to ease customers transition to our E vs and speed their time to realizing improved productivity.
And lowered fleet costs.
Homestead tends to continue to discover and develop applications.
Data analytics, and telematics that speed our customers achievement.
Our sustainability and financial goals.
I almost vehicles launch with unit tracking EV charging station locators.
<unk> telematics capabilities.
As we build out our elms, Eric Telematics solutions, we anticipate adding fleet utilization predictive maintenance delivery management and advanced driver safety applications to our vehicles.
So in summary, we're very proud to see our unique business model come to fruition.
Our Eva E V ready plant and the market tested components enabled us to get far ahead of a crowded space full of new entrants, while the need for class one and class III commercial Evs is at its greatest.
As a result, we delivered our first urban delivery vans and are engaging potential customers and pilot programs all across the country.
We expect fully certified urban delivery vehicles will be shipped in December.
We've secured our battery supply.
Our urban delivery through 2025 and are pursuing U S localization.
And we reported revenue in the third quarter.
As promised.
I just wonder if heat that we are now a revenue generating company not a pre revenue company and we will continue to generate revenue.
In response to strong customer demand our board firmly approved production of our second vehicle class III urban utility.
And encouraging advancing the time to market.
I look forward to continuing the conversation and updating you on our progress now I'll turn it over to Rob to go through our financials Rob.
Thank you Jamie.
Have you been part of the team or the last six months I can show you. What we are doing key electric last mile Special Indeed.
It is a once in a lifetime opportunity to redefine the commercial vehicle market.
I'm very excited to be working with this talented team to date, we have delivered on our commitments and are confident we will continue to execute against our business plan.
Moving forward to the third quarter results.
Timber 30, the company reported revenue of approximately 836000.
Oh, okay.
Vehicles.
We had a total cash balance including restricted cash.
Well the 179 million.
For the quarter.
We reported a net loss of $17 8 million.
Or a loss of 15 cents per share.
Operating expenses were $22 3 million.
<unk> of $5 6 million for research and development expenses.
In developed sepsis testing and prototype expenses.
And $16 7 million of general and administrative expenses for personnel.
Holding services and marketing expenses.
We are on track to beat our initial Capex guidance.
For 2020, one as well as now initial operating expenses guidance.
This is primarily due to the close inefficient relationship we have without key suppliers.
It was asked to reduce engineering design and testing expenditure as we remain on track to deliver fully certified urban delivery vehicle on time and below budget.
For the full year 2021.
Our projected total operating expense to be in the range of 60 million to $70 million.
We estimate total capex for the full year 2021 to be in the range of 20 million to $25 million will have a unique business model that allows us to hold our investment level lower than other EV companies by leveraging our E V ready production plant and proven components.
Finally, we are pleased to deliver on our promise of revenue in the quarter.
'twenty two is going to be very exciting and we look forward to delivering the next major revenue milestone for the company.
We will be providing production colleagues our next earnings call.
This concludes our prepared remarks, we'll now open the line for questions operator.
Thank you she liked to register a question. Please press the one followed by the four on your telephone you will hear a three pronged took another general question. If your question has been answered and you would like to Australia Registrational. Please press the one followed by the three.
If you are using a speaker phone. Please lift your handset before entering your request once again, that's one for trust or for a question and.
We do have a question from the line of Dan Ives with Wedbush Securities. Please go ahead. Your line is open.
Yeah. Thanks.
Jim and team.
So in terms of you know, obviously I understand why you're cutting production from our COO.
Cost perspective, but.
Theres been no changes in terms of like the factory build out like just getting everything assemble our guys want like that that continues to be exactly on track right.
That's correct yeah, there's no.
Restriction in let's say our production capabilities plant staffed up people been hired Capex is finished installations lines running here, you're exactly right Dan the issue is getting parts to the back door.
But no issue in the plant.
Yeah, Okay. So.
So we're just walk through like a customer that was preordered.
Expect them to get it.
For this year and obviously you cut production. So like how you think about this for like next year I guess it just is it more ambitious pent up as we go.
Go into 'twenty two in terms of just filling orders production.
Yeah, I think if I got your question right, it's kind of call it a slide where the.
The customers that we're looking at them for late this quarter, what we're gonna just slide those orders and honor them in the first quarter and I think you're well aware that you know the backdrop of this is a lot of customers that haven't been expecting there other commercial vehicles from the traditional manufacturers of all of that and put it in.
Spot, where they've had to delay their orders not receive their orders and pushed those back also well into next year some of them into the summer. So you know.
From a customer standpoint, you know this is consistent with what's going on in the industry, but our particular case, we've just split them into the first quarter.
Okay, just final like Poland. So just when we think about like a quote unquote pipeline or just what you're seeing in terms of backlog and more and more orders, but can you just compare.
No.
Qualitatively today versus let's say three months ago, now that you've gotten through different safety production.
Much more advanced than where you were especially through six months ago.
Well I think I'll start anecdotally did you know Dan that you know by now from three or four months ago. We've had so many more pilot drives test drives demo drives you know face to face with customers at the plant and their locations and various.
Different use cases, as you know and some of those both also the urban delivery as well as the urban utilities, so they're seeing our portfolio come at them as well so you know where.
We decided to just cut off let's say the preorders when we're sitting at that 45000 number and focus on moving our preorders to final orders going through the bottom of the funnel and execution of these drives with demos and pilot. So I'd say anecdotally. The demand is so overwhelming I was just at Randy married.
Weak with a run rate of sales and you know their quotes are all in a category of luck just I'm gonna sell everything you gives me hurry up so the man is as good as I'd say, we're better than we saw six months ago, but from an order standpoint with the the Marianne group already committing to 6000 of our first 8000 and then.
A firm purchase order of the first thousand Oh, we got our head down to just fulfill loads and and do.
Conversions, let's say from interest and two full P. R. But we're not taking any new orders unless they're actual orders in P. O S.
Great. Thanks.
Yeah.
Our next question is from Mike Liskey with D. A Davidson. Please go ahead.
Hey, good afternoon guys.
Can you give us.
Hey, there can you give us like an overview of the types of customers does your dealer partners have markdown as opposed to first takers of your of your.
Of your vehicles.
My name any names, but but what kinds of folks are they large small clean living in vocational.
And how confident are you that those that that first thousand will turn into the 5000 by the end of February.
February.
Yeah. So I think they are the actual customers. They say would have put again names. We can lead you to a fill in the blanks pretty easily but the most the biggest and obvious as the delivery companies the package delivery companies and I think as you're aware Mike a lot of that is in these private owners that have small fleets and are the individual service.
<unk> for the big package carrying companies. There's rental companies that are you can again filling the blank of the names that are rent. These box trucks and a small vans and locations are theres a service industries are seeing really strong interest from say telephone.
Companies service companies that come to your house to do installations, and repairs and that kind of category and of course. This is obvious but the stated for the other listeners is where the range and the vehicle is a less than sort of this you know 40 to 50 miles that we've talked about we were seeing that reinforced that a range of 100 hundred tenants more than.
Quit for their usage is theres medical delivery companies to large medical supply companies that have headquarters in a zone like the south east and deliver products, whether it's drugs are there individual supplies. The large hospital groups already mentioned of course with our campus program. These university complex as well.
It isn't just one campus you know can be part of a 20 or 30 campuses inside their overall umbrella.
Cities, So just to throw out city and Miami that are want very aggressive goals airport.
Airport complexes that are trying to accommodate the transformation.
Into the mobility world. So it's all of those are different industries that are taking this on.
And just to reinforce that I think the overall efforts there are they're seeing out of Washington, the industry picking up volumes of course tussle success. All of these things are contributing to that does the mindset at least fleet owners being more and more.
I'm used to the idea that this is happening it's only a matter of when.
You know they've got to get they've got to get on with the program and get moving quickly and and adopt this on the other hand theres a lot of education to be done with these owners as we go to the fleets and do our demos for many of them of course is the first time they've been in an electric vehicle, so bringing them to the charging solutions, bringing them the telematic solutions and break.
Them our vehicles is all part of the day.
Our final conversion to a sale.
Got it.
And then kind of moving on a quick question about your operating costs and expenses, the R&D and SG&A.
Is the run rate that we saw this quarter.
Hum relatively solid run rate going forward or were there any unusual, especially on the R&D side, one time testing costs and things hip and spine lives here.
Hey, Mike This is Rob here.
The run rate the run rate that we should expect going forward.
He's going to be lower than what you see what you saw this quarter and that's because as you know we are going through the development process.
Alleghany and certify that a vehicle for on road use so going forward a lot of the testing cost engineering cost and prototype costs would not be in our financial statements.
Okay.
Maybe a last one for me on the on the supply chain challenges.
Have you seen.
Tell on that is it that you have.
I'd get the chassis or the components from China, but don't want to pay the freight.
It doesn't make sense from the adult use 10 standpoint or is it just challenging to find those or any other components.
Cynthia Indiana.
What are some of the details behind why is why you're seeing these challenges here.
I think it's a pivot.
To put that more in the category of Bob. The one that you mentioned is more availability of containers and getting the parts here rather than the costs, even with the elevated costs were down to single digit.
Margins, so, we're not losing money or or a negative cash flow, we're not paying money to produce those vehicles, but in reality. It's just the difficulty of them securing containers us securing boats and then getting them across to our plants and is it just you know one supplier if you take that across our entire supply base and see that we have to solve that equation and not just once or.
Twice, but through all of that supply community you know that's the challenge we run into.
Okay I'll leave it there thanks, so much guys.
Thanks, Mike.
Our next question is from Greg Lewis with <unk>. Please go ahead your line's open.
Yeah, Hey, Thank you and good afternoon. Good evening, everybody, Yeah, Yeah, Hey, congratulations I mean, it's been impressive what you guys have been able to deal with any short term short time.
Yeah, I I did want to talk a little bit more about how.
How we should be thinking about your asp's going forward. I mean, you know you guys have done a lot over the last few quarters, but a lot has changed in the market over the last few quarters right inflation is becoming a household name you've touched on supply chain. The oil prices is there any way to think about.
Like a buildup in your Asp's in 'twenty, two and into 'twenty three.
Yeah.
Yeah, well, it's I've got a few moving parts.
At the high level, Greg you could say look we've got that nobody else no other competition in that segment and.
It appears to be demand way in excess of supply and then if you switch over to the other traditional suppliers, they're very short.
And just to throw more gas on the fire, we've got a nissan backing out of the market, leaving a big void. So all of that traditional logic would say that theres plenty of upside pricing opportunity. So.
And as we're finalizing the contracts with the current conversions of these early customers, one and we don't want to be too greedy.
We still want to stick to our principles of making it for the fleets and total cost of ownership savings, 35%, but also landing now kind of on the traditional ice vehicles after incentives so.
Assuming that these bills go through and some of those incentives get increase that's certainly going to give us upside pricing opportunity to still land at par with a gas vehicle and also just from a pure supply and demand. We've been testing that why are we put a couple of thousand more on our first shipments of these first thousand vehicles, so far had no.
Oh pushback. So yeah, we are testing the waters, we just.
I wanted to again and get the get too crazy here and push for too much upside and push ourselves out where and when our fleet owners do the math that were out of whack on the T. C L.
Yeah.
Understood that.
So that's good to hear and then and then I mean, clearly you know it looks like you guys really hit a sweet spot here with the class one delivery than you know.
As we think about you know the utility vehicle. The company is planning to roll out I guess you know late next year early 2023. It is there.
Is the company kind of expecting a similar dynamic or or does that space, maybe a little bit more crowded kind of curious on your thoughts about that.
Yeah, well if you look at yeah first just make the minor correction. We're at are putting out an exact date, yet, but we had said second half of 'twenty, two and as I said in my comments, where it now based on.
These early exposures, we've had when we announced the vehicle and then have gone around but the early test drives we've got a lot of pressure.
From our customers and large fleets to move that urban utility as early as possible because they like to get their hands also on that so it will definitely be in 2022 'twenty three as you mentioned.
But as it regards to that vehicle if you see the configuration, Greg If you go online and look at it its a kind of a unique configuration.
So called low path forward and that our there is no other announcements again, just like the class one of vehicles coming similar to that.
Got Ford and GM coming out with bright drop any transit that are talking about moving kind of up into that space as they do today with their cab chassis, but what is you know significantly large engines, and then do a wheels and axles and things like that to try to get into the class III and floor space. So right now again I didn't say we.
We'll be the only one to be that definitive but from what we can see so far there's no like the like products that are coming in in that segment, they've got a potentially <unk> arrival in Peru coming down from that class III space, but most of it we've seen it more the vans and walk in vans as opposed to say box.
Like you'd see with the U haul rider or Penske and these kinds of.
He was there so.
And I'm not going to go as far as saying Theres nobody but in this specific application and we're looking at I think we're still going to be one of the few if not the only one in that segment.
Okay. Okay. So thank you all very much for the time.
Good Thanks, Greg.
Our next question is from Jeff Osborne with Cowen and company. Please go ahead. Your line is open.
Yeah. Good evening, a couple of questions I was wondering if we could walk through what's left on the Homologation process to hit that for December what have you done so far and what's still needs to be paying down.
Yeah. Thanks, Jeff.
As you can tell US you know it's November and December is not that far away. So we got a pretty good line of sight.
And as we've gone through before this is say a series of engineering tests that we go through of course to verify that we're meeting the F. N B S standards and so some of those are done virtually and are in the Mac tools. Some of them a lot of them have already been completed in a huff a prototype tool. So the last step we have is what we really call very.
Vacation testing, we've seen them already passed the test that's already happened.
And but now we just have to make sure that those are call it repeated or verified or confirmed off production tools production parts in the same configuration. So.
We're highly confident these are gonna paas, because we've already seen them paas. Once they just have to pass off this last generation of the parts that are coming from our assembly lines. So those are the tests that we have lined up in the.
First couple of weeks of December and as those progressively passed then we'll be in a fully fully certified situations to ship in December.
Got it that's great to hear and just maybe for yourself or Rob as it relates to the three to 500 deliveries for the quarter were those all I assume be there I'm I'm obligated and so should we think about the average price that you had this quarter being 27, K or so being consistent in Q4, and then back to more normalized levels.
For 2020 or 2022.
Hi, Jeff This is rocky the three to 500 production vehicles that we've indicated for 2021 it's actually going to be a mix of EV campus vehicles as well as the 40 home auto gated on road vehicles. So the process assumption should be a blended of 27000.
And the 34500 that we have for the on road vehicles.
Got it.
And then my last question is just I think you folks had a social media post on the fifth of November that had a aerial shot of your lot that had quite a few vans out. There can you just give us any sense of what you've seen in October and November in terms of like weekly build rates.
There wasn't a lot on the call as it relates to sort of the staffing and throughput levels. There was a lot of.
Issues around inputs in cost and whatnot, but anything as to the staff and the job that theyre doing would be helpful to understand.
Yeah, I think it's probably easier just to come in to the current that's just to say that the build rate next week will be about 40, so that that aerials shot you had it was a large piece of the round 100 that we've got in play or on the way out the door.
But right now we've got a sufficient team. It's about 45 50 people that are in place to be able to build our current rate of about 40, a week going into the end of the year will wrap that workforce up to just a little bit less than 100 by the time, we hit the Christmas New year's.
100 people.
It's great to hear thanks, so much.
Okay. Thank you Jonathan.
And you have a question from <unk> Patel with Jefferies. Please go ahead. Your line is open.
Thanks, if we could just go back to the the urban.
Urban utility vehicle I'll, just kind of wanted to get a sense for some of the milestones that we should be on the lookout for whether it be a testing phases, our supply agreements things of that nature as we look into next year.
Sure well just to set the stage.
As the requirements that say milestones.
You called it a quite a bit different than they were for the urban.
Delivery given that it's a class III vehicles, the safety requirements F N B S. That's all.
All of that is a much less than it is for the class ones and twos. So we have a yeah less cost less timing and less complexity for us to go through the different hurdles and milestones to hit startup production, we still have.
To do some of the retooling some similarities for instance, just one example would be the Headlamps, where you'll have to have headlamps are compliant with the U S regulations that has nothing to do with crash, but as far as airbags seatbelts and things like that it's a very different approval process. So we have similar gates locking up or battery supply with incremental volume.
Have the early tooling changes that make us U S compliant on some things that we've all kicked off this has started months ago and then it really just be that the plant trials. The old plants go through and then a final certification so a pretty I'd say generic or our normal process the highlight as much.
Shorter and much lower cost than it was for the urban delivery.
Alright, I appreciate that and then.
The only other thing I had.
Look at what's just the idea of the freight and logistics costs, just trying to get one more handle that for a second is the idea of a locking in some of that for 2022.
What should we kind of be projecting as far as thoughts on how that's going to impact the margins from what we had talked about you know as we went through the process of the original launch the idea of double digit margins.
It's going to be a longer term playbook is that something that we're thinking of a high single digits.
Near term and then eventually as we kind of progress into a more normalized area.
Achieve those double digits or is it maybe even sooner than that.
Yeah, it's Rob he start we've gotten freight costs. If you think about what the current spot rate is about 25000 and what contract prices typically are which is about 60% of spot rate excuse me, we can't achieve that type of a discount.
Going forward in 2022 that would equate to about $10000 per container.
Lower than what we're currently paying so that equates to if we not only American, whereas if we arent able to put two vehicles.
A container that's about a $5000 savings per vehicle, if you apply that to the 34000 MSRP.
You're probably generating 15% up to 15% gross margin.
One of our products.
And we expect to be able to get within that range by the second half of 2022 assuming we are able to lock in contracts at that rate.
Very helpful. Thank you so much.
Okay.
And that concludes the questions.
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