Q1 2022 Lion Electric Co Earnings Call
As you all know.
We are fortunate to have a very robust supply chain tailored to our electric vehicles in which we have been operating for years and this has been a key element in Lyon, maintaining a decent level of production. Despite the perfect storm, where we went through.
We continued to build our inventory for critical components, such as motors and batteries as these usually require a longer lead time and are less subject to supplier redundancy.
With more than 3000 batteries, and 500 motors and inventory and more orders coming in at attractive prices for the remainder of the year, we are significantly reducing the potential risk of manufacturing delays.
Considering the current environment, we believe this to be the right approach to Derisk, our ramp up in vehicle production and deliveries even if we have to carry this inventory on our balance sheet.
With respect to the other components, although the supply chain is still quite fragile.
We are seeing clear signs of improvement.
Lead time for the delivery of most components, although still longer than usual is now stable.
One of our objectives is to continue to improve our supply chain.
For both the short and long term, we continue to focus on multi sourcing to ensure we have different options for the majority of our parts today.
Today, we source from over 500 suppliers most of them being in North America in line with our strategy to develop a strong local EV supply chain.
Our supply chain management is a key pillar in our growth strategy.
We are pleased to have all your Dr. Judd Kenny.
As senior Vice president of procurement and supply chain.
Longtime executive of Alstom, Bombardier transportation than Pratt <unk> Whitney Jud has more than 20 years experience in supply chain management.
<unk> is leading the development and implementation of best practices across our supply chain as we focus on ramping up production, while lowering unit cost.
With respect to orders.
<unk> book amounts to 2422 vehicles, consisting of 286 trucks and 2136 buses.
This represents a total order value of $600 million and.
And about 40% of these vehicles are deliverable in 2022.
We are very pleased by the continued strength of the school bus market, where the transition to EV is happening faster than expected.
As you saw by our recent announcements we are seeing more repeat and larger orders from our customers as they transition from initial orders to larger scale fleet electrification.
Order momentum in school buses in Canada is clearly supported by strong legislative tailwind, which I will discuss in a minute.
We expect to experience, an even bigger impact in the United States, especially now that the specifics of the initial funding under the Epa's 5 billion dollar Clean School bus program became available last week.
I will discuss this in greater detail later, but clearly the funding available for electric school buses under this $5 billion program should expedite school bus electrification in the U S and our product offering is perfectly suited for this program.
In the truck market.
We continue to have promising dialogue with potential customers as our electric trucks are becoming more and more available.
Large fleets are testing, our vehicles and visiting our plants, which we're confident will translate into tangible orders.
We also like the momentum we are experiencing with truck up centers.
As demonstrated by recent announcements with industrial leaders such as Morgan truck body.
Thermo King not by Cm truck beds and transit.
Similar to what we have done with the Mers for the electric ambulance. These partnerships demonstrate the flexibility of our class five to class eight purpose built electric trucks that can easily adapt to Amy applications.
<unk> partnerships fit perfectly in our channel sales model, where we can leverage the existing relationships and volumes I've established a fitters to accelerate our market penetration.
Speaking of the class eight truck, we will soon finalize and start the testing of our alliance with an objective to deliver customer units by the end of the year.
Based on our current discussions with customers, we expect a very high demand for this vehicle considering our estimate that 45% of the class eight tractor trailer trucks in North America are currently operating under the urban the range we offer.
Now turning to our two new manufacturing facilities.
Pictures of the Joliet plant and the Lion campus are available on slides eight and nine of the deck as you can see we continue to make great progress at both locations.
And Julien we have started receiving and installing equipment for the school bus production line such as overhead cranes.
While we are finalizing the construction of the interior of the building we are on track.
To start commercial production of buses in the second half of this year, which will enable us to keep up with the increased demand for our electric school buses.
Equipment for truck production will be received later during the year and production should start late this year early next year.
We remain fully focused on setting up our working stations for our buses trucks and chassis and continue to build our local team.
As of today about 25 plant managers and supervisors have already been hired and we are also very active in the recruitment of our manufacturing employees.
We expect a total workforce of about 500 employees in Joliet by the end of the year.
Let's now turn to the Lion campus for which pictures are available on slide nine of the Q1 deck.
As of today as you can see we have fully completed the sales transfer for the battery plant building and approximately 40% of the building shell is being mounted.
We are also forward most of the foundations for the innovation Center and we will now maintain the sales structure.
In parallel to the construction of our battery plant.
We have substantially completed the development of our proprietary battery modules and battery packs.
The Assembly line production of our batteries is also advancing on schedule.
Our prototype module line has been installed at Jr. Automation facility in Michigan.
And we are pleased to announce that we have produced our first prototype battery pack, which is currently being tested and exercise we will of course repeat many times during the next few months.
You can see a picture of just prototype pack on page nine of the Q1 deck.
Simultaneously, we are testing our commercial production line, which will first be installed and commission at Jr. Automation facility.
And then transferred to our own battery plant.
Startup of battery production in Mirabel is planned for the second half of this year.
Let me now spend a minute on our existing manufacturing plants near Montreal as you know as we continue to progress on vehicle development as well as on our Johnny a plant online campus, which I. Just discussed we are also ramping up production at our two existing sites near Montreal I am very pleased.
With the progress we're making on this front and despite the supply chain crisis. We are facing we expect deduction and vehicle deliveries to continue to increase over the coming quarters.
We are in fact investing millions of dollars to increase our production cadence as you can see in our cost of goods sold in our Q1 financial statements.
While these investments obviously impact our short term gross margin and overall profitability, including in Q1, we are very confident that these investments will pay off in the near future as we continue to ramp up production to deliver on our growing order book.
Let's now discuss the strong tailwind we are seeing in the movement towards fleet electrification more than ever we can feel that the wind of electrification is blowing at full speed as demonstrated by numerous announcements of highly attractive funding programs and legislation supporting transport electrification.
Let me touch on a few examples starting in the United States first details of the first round of funding under the Epa's 5 billion dollar Clean School bus program were released last week.
Under this program.
Priority districts can receive up to $375000 in funding per electric school bus, which can represent up to 100% of our all electric school bus price while other eligible districts can receive up to $250000 for electric bus, thus largely aligning the price.
Of our electric bus to that of a conventional one.
This is excellent news for Lion.
Given our leadership in the industry, our first mover advantage, our close relationships with the largest operators in school districts and of course, our upcoming Joliet plant, where we will manufacturer made in America electric vehicles, starting in the second half of this year.
No. Other OEM is better positioned than alliance to assess school bus operators in school districts and leveraging this unprecedented 5 billion dollar funding package.
Also.
In addition to last year's announcement by the city of New York that at World Electrify, 100% of at School bus fleet by 2035.
New York Governor Hawk Hall recently announced that the state of New York look to follow the same path and committed $1 billion to support <unk> adoption in infrastructure.
The objective is for the 50000 school buses on the road and the state to be zero emission by 2035 with a requirement that all new school bus purchases be electric starting in 2027.
In the same breath, Boston Mayor also announced the plan to replace over 700 school buses with electric alternatives by 2030.
I would also like to highlight our recently announced Mou with the U S Department of energy to accelerate the use of electric vehicles such hours 12.
<unk> balanced their renewable power grid through vehicle to everything technology.
Have been involved with several <unk> projects throughout the years.
And are very proud to be the only school bus manufacturer to be asked to take part in this project.
Final point on the U S market.
We are pleased to announce that in March.
We submitted our first application for credits on there the advanced clean truck program in the United States. The <unk> clean truck program is a credit in deficit program, which requires the sale of zero emission or near zero emission medium and heavy duty trucks.
As a dedicated zero emission medium and heavy duty trucks manufacturer, we were eligible to start earning credits under the program with our 2021 models.
We will be able to monetize the credits that we earn under this program by selling them to manufacturers in deficit.
Several states in the United States have already adopted the <unk> rule and currently include California, Oregon, Washington, New Jersey, New York and Massachusetts.
As more states adopt this bact room, and we continue to grow our production and sales. These credits at the potential to represent a significant source of revenue for lion.
In Canada there.
The recently announced budgets at both the federal and provincial levels also allocated significant amounts to EV adoption.
The Canadian Federal government committed to investing $547 $5 million over the next four years to launch a new purchase incentive program for medium and heavy duty zero emission vehicles, while Quebec bonafide, its environmental trucking program and is now allocating up to 175000.
For electric trucks.
There is also a 15% verification for made in Quebec trucks, which brings the maximum grant amount to over $200000 in the case of our line of trucks.
Still in Canada, British Columbia expanded its Lcs program in January to enable owners of electric vehicles charging infrastructure to also arent Lcs credits.
Now lets CFS credits earn by operating lie on trucks and school buses can represent a very material source of revenue for our customers that could significantly improve the <unk> advantage of our vehicles related to the diesel ones.
Speaking of which.
The current environment and upward pressure on crude oil prices are clearly favoring the switch to electric vehicles.
As you can see on page 11 of our deck, increasing the price of diesel fuel from $3 50 per gallon. The price. We previously used in our tcl calculations to $5 per gallon.
<unk> the estimated benefits of our line, 635% and reduces the payback period to five years said differently.
Our Alliance X track allows customers to have a significant amount on the total cost of ownership of the vehicle.
Even without taking into account the various subsidies that are available today.
With that let me now I'll turn the call over to Nicholas.
Who will comment on our financial results.
Thank you Mark before we jump into Q&A, Let me give you a quick overview of Q1 2022 results.
We were pleased with our Q1 2022 performance as we posted record quarterly vehicle deliveries and the history of our company with 84 vehicles delivery with.
We posted revenues of $22 6 million in Q1 up $16 4 million as compared to $6 2 million last year and we're pleased to deliver 84 vehicles at 72 buses and 12 trucks, a significant increase as compared to the 24 vehicles delivered in the same period last year.
80 of the Q1 2022 deliveries took place in Canada and four in the United States.
Of note the school bus unit mix for the quarter as well as discounted pricing on certain trucks that were sold in the context of new product launch pricing impacted the average selling price per unit.
Q1, 2022 revenue generated from sales of Alliant energy and aftermarket parts were higher than in Q1, 2021, but slightly lower than in Q4 2021.
Our gross loss amounted to 0.9 million as compared to $1 8 million in Q1 2021.
Cost of goods sold include multimillion dollar investment aimed at continuing to ramp up production.
Said differently <unk>.
These include costs that do not yet contribute to the top line.
Gross margin was also impacted by lower average selling prices per vehicle compared to Q4 2021, driven by specific unit mix for the quarter.
Although we are pleased with Q1 deliveries in the current circumstances. The number of units delivered remained significantly below what we believe we can achieve with our current resources and manufacturing ramp up investment.
We however remain very encouraged by the unit level economics, and taking all this into consideration we firmly believe that in the long run the line model scales, very well and can generate attractive gross margin as we produce and sell more vehicle and expand on our vertical integration strategy such as the Lion battery.
Our own battery plants.
Continuing with administrative expenses, they amounted to $11 million, including $2 8 million in noncash share based compensation, an increase of $4 7 million as compared to $6 3 million in Q1, 2021, and a modest increase as compared to Q4 2021, excluding share based compensation.
This was mainly the result of an increase in expenses, reflecting volume status as a public company and the expansion the lion's head office capability in anticipation of an expected increase in business activity.
Selling expenses amounted to $5 4 million, including $1 million in noncash share based compensation and increased $1 million as compared to $4 4 million last year.
The increase was primarily due to light and expanding its sales force in anticipation of the ramp up of production capacity.
And an increase in expenses as a result of the opening and operation.
Your incentives.
Now turning to adjusted EBITDA, which was negative $11 3 million for Q1.
EBITDA for the quarter was impacted by the gross margin and so far a lesser extent by a small sequential increase in SG&A.
Let's now discuss cash flow.
Cash flow from operations for Q1 was negative $34 million inclusive of $21 million of changes in working capital as we continue to invest in working capital specifically inventory and prepared for a continued increase in production.
We also invested $15 million in R&D and $35 million in Capex. Those amounts include $14 million for the Joliet plant and $17 million for the line Kevin.
We expect Capex to continue to increase in the coming quarters as we progress with the construction of both plants.
Last but not least let me speak to select balance sheet items and liquidity.
We ended Q1 with $155 million in cash in addition to Untap government loan facilities for approximately $80 million for the lighter capex, 30% of which is forgivable.
We also have access to a committed revolving credit facility in the maximum principal of about $200 million.
Altogether, we have access to liquidity of up to $435 million.
In terms of the capital needs for our project, we estimate the remaining $280 million to be spent on our two growth projects in order to reach full completion of both the innovation center and the Georgia plant.
In conclusion, we believe that we have a solid balance sheet, which provides us with significant runway and flexibility as we continue to focus on achieving our growth project and ramping up our production.
That said, we will remain very focused on the management of our cash resources, we will be very vigilant and always assess our options in regards to sources of capital.
The last point I would like to make is that as construction of the Lions campus is advancing we have retained financial advisors to explore a sale leaseback of the battery pack.
Should we close this transaction, we expect the capital outlay for the construction of the building to decrease.
With that I will turn the call back to Mark.
Thanks Nicholas.
Before we open the lines for questions. Let me mention again that we expect production and deliveries to continue to increase throughout the rest of the year also we remain on track to start manufacturing U S build vehicles and lie in batteries in the second half of this year.
Finally, we are uniquely positioned to benefit from unprecedented government funding in both the U S and Canada and this should have a major impact on our already growing Peel book as you can see we are.
More ready than anyone else to maintain and grow our leadership position in the EV market.
Operator, we will now open the line for questions.
I just wanted to participants to know that we would appreciate tissue put limits to the number of questions asked so that's it.
You got to allow others to ask their questions and of course, you can go back into queue. If you have any follow up questions.
Thank you if anyone would like to register a question. Please press star followed by one on your Tencent Kiehn pad.
If you would like to withdraw your question. Please press star bulk tea and when preparing to ask you. A question. Please ensure you're on mute. It lately. So that stocks went up by one on your telephone keypad to register a question.
Yes.
Our first question is from Ben Korea.
Correa from Desjardins capital markets. Meanwhile, Your line is open. Please go ahead.
Yes, thank you very much and good morning, everyone.
One of them.
In your presentation you note some improvement in the supply chain.
Could you just provide some color about your <unk>.
Bulk delivery and expectation for Q2 and the full year.
You mentioned about 40% of your backlog is deliverable in 2022 should we assume about 900000 deliveries for the full year.
Hey, good morning, good morning, good morning, Yes.
We did.
80 484 deliveries.
In Q1 of this year and as you just said I mean, we're expecting that same kind of growth.
For the second quarter, and we're seeing growth for the rest of the year.
The Big difference and then on the supply chain with what we saw in the in the past.
<unk> is basically longer lead longer lead times, so longer lead times that I said about two months.
And our last.
Our last call and now we're saying it's between two and three months.
Obviously this is reflecting also.
And the investments, we're making in the indenture.
On the on the balance sheet.
What is becoming a lot better that way is that the kind of crisis that we were seeing on a regular basis.
Our seems to disappear right now so it seems that with the close dialogue, we have with all of the suppliers.
We can work with them and basically make sure that we will have all of the components on the timely manner. So that being said, though everything is not being resolved. So we see that until the end of the year and probably you know.
<unk> 2023, as well I mean, those supply chain challenges will will remain but obviously they are becoming less and less an impact to our operations. So that's very good news to ramp up so I will not comment on the number of deliveries, we will be making would be for the whole year, but it's looking very good and we see.
Q2 will be better than Q1, and we're expecting that same kind of growth for the for the remainder of the year as well.
Okay and looking at your gross margin.
They get it in the quarter, although you mentioned color about the higher overhead fixed cost and also launch prices that were made.
How should we be thinking about your gross margin going forward.
Okay.
Hey, good morning, guys before.
Pass it to Nick maybe just one comment I mean, what we're very pleased to see right now is the.
The good very good material margin that we have so we have a very healthy material margin and Thats, probably you know the beginning when you want to show a good gross margin in your financial statements and we've been seeing in the information from companies, we're competing with and we saw some.
You know that their bill of materials, where like higher than they are selling prices and it's absolutely not the case of clients. So it is a sustainable.
Healthy material margin that we're having right now.
Yeah, we made millions of dollars of investments in and basically our labor and overhead as well and so when were seeing labor we're speaking.
Labor.
Have the people to do two thirds of our 2500 units manufacturing capacity, we have right now in Montreal. So obviously, that's a major investment when you're when you're making like 80% 85 units in the or 84 units in <unk>.
Order so major investments in labor, but also a major investment on everything else like we do have the equipment for the 2500 units, we do have the space as well and we do.
Indirect costs as well and all of the indirect labor. So the team of people is there and ready to do those 2500 units right now and when we're saying, we're making millions of investments in our manufacturing capacity and this is obviously hitting the gross margin.
While in Q1, but that's going to keep hitting the gross margin for the next quarter as well that's exactly what we mean, so Nick if you want to add anything.
I think you covered it well the only thing I would reiterate that.
What's important there are costs hitting the P&L today that are not contributing to the top line as mark detailed and.
Most important is that the model scales economic model scales well the unit level economics are we believe very attractive as we.
<unk> continue to grow we expect to see significant improvements in gross margins.
Okay. That's my two thank you very much or deployment, all trying to get back into queue.
Thank you.
Thank you. Our next question is from Jed <unk> from Canaccord Genuity jet. Your line is open. Please go ahead.
Hi, Thanks, Thanks for taking my question.
I guess my two are related.
The first is.
Asps look like they're coming down.
And I'm wondering why that is given how favorable the.
The subsidy.
Situation is for your your products and then do you see that stabilizing and I have one follow up.
Yes, maybe I can take those on hydro good to speak to you look the ASB.
It's really a factor of unit mix for the quarter. So it really is.
Certainly no decrease.
For the given mix that we sold for.
The year, but it is a matter of mix versus the previous quarter.
<unk>.
We highlighted in the disclosure.
Slight decrease as well just on a sequential basis in terms of the Alliant energy and part sales, which.
Probably make the.
The implied ASP did.
Difference higher than it actually is but bottom line.
The unit is a matter of unit mix I would also say I want to come back to the point.
The incremental margin or the materials margin.
Each of these sales for the unit mix was also very healthy and so.
Do you expect something similar in terms of unit mix.
The coming quarter, but again.
It scales well from a gross margin.
Got it so suffice to say, particularly on the buses with such with up to 100%.
Subsidized.
There will be a stable.
Asps.
In that and I do have.
And then my follow up question is.
Related to the.
The schedule of the warrant conversion from Amazon.
Is that on a.
A regimented basis and I ask this because there is no. There is another company I cover that had a similar.
Recognize them in Amazon.
The company there.
And given the.
Subsidies combined with the warrants.
<unk> seems like Theyre getting.
<unk> a free vehicles. So why would you pay force conversion occur of that sooner, which would help your cash needs too.
Yes.
Yes, Jim.
In terms of the warrants with Amazon is that so if you recall they have access to 35 million shares of warrant of Lion when fully invested $5 million of that is invested and the remaining 30 in order to effect is related to spend.
The in order for the whole 30 million shares that.
It would need to spend $1 $1 billion on our.
On our product.
Yes.
As they spend essentially.
Look we're we.
Obviously agreed that it's an attractive proposition in so many ways and were.
But that said our disclosure around Amazon will be.
Big orders, if and when they happen.
Warrants vesting and so ill leave it at that as it relates to the potential.
Great. Thanks, guys.
Thank you Jeff.
Thank you. Our next question is from Brian Johnson from Barclays. Brian . Your line is open. Please go ahead.
Thank you I had two related questions.
It's not lost on most bev investors that battery mineral prices are spiking and cell manufacturers are beginning to flow those through the costs. So I think two questions kind of one.
Have you seen any impact well one is giving you quoted.
And buses.
Is there a risk to the unit economics and thank you for the comments earlier on that.
As the mineral stay where they are or you're well covered at least on the order book for pricing and then too.
Given not just battery costs, but a lot of other materials are inflating.
Given your long backlog how are you working with your customers on price or price spans our price index going forward.
Yes, so a couple of things, Brian and good to see.
First on the batteries and Youll recall that we have over 3000 BMW batteries.
And the inventory today, and we have significant orders coming through the year coming through the rest of the year.
<unk> are part of a.
Purchase commitment that was made certain while ago and certainly prior to the spikes in pricing. So we feel that the pricing we have.
Yes.
It's quite attractive relative to what else, we're seeing currently and and covers us very well for us.
A chunk of the order. It's also important to keep in mind that we are working eventually to transition most of our own batteries and despite the increase in materials, which translate of course and higher sale prices.
The benefits of vertical integration of not also paying margins to third parties.
At the pack level are such that we review in the coming years, an important decrease in the cost of our battery now as it relates to.
Inflation on the rest of the bill of materials. So far I mean, there is obviously inflationary pressure so far it's been well contained in great part because we have overstock a number of supply at the same time as we are.
Seeing inflationary pressure. We're also working on our cost out program that's related to scale up its related to design and certain element and so those two are.
Mitigating each other significantly we our intention obviously is to continue to bring the cost of the vehicle down.
And in the long term bring vehicle pricing down but to be very clear.
Should the inflationary pressure be such debt.
It requires an increase of our vehicle prices in line with inflation. There is nothing that prevents us from doing that.
Okay. Thanks.
Sure.
Thank you. Our next question is from <unk> <unk> from National Bank. Your line is open. Please go ahead.
Good morning, everyone.
With regard to stability.
<unk> chain.
With some stability in the supply chain now are there any specific bottlenecks for production you can identify or or do you still have many issues in flux and related to that is it possible with <unk>.
Improvements in supply chain, you could see a step change to production rather than a more gradual steady improvement.
Yes.
Yes, well Rupert that's that's a good question and obviously, we're trying to deliver.
But along those although.
Although the orders I mean, our customers are requesting them, which is.
Which is which is great well it needs to be needs to be kind of gradual.
You cannot just turn the switch on and like just.
Triple.
<unk>.
The number of units you can you can manufacturer I mean, it's a supply chain that were.
500 suppliers and.
The less critical components are let's say as critical as you know the critical components like the EV components, such as batteries and motors and all of that so we are we have an approach where we built the foundation, we built everything and from month to month, we are increasing.
The manufacturing space to be at a very high level before before along so well known that not easy like to do like a major step all of US all of a sudden I'm sorry, but.
Kind of gradual but when we're seeing gradual it could be kind of a very speedy increase as well and this is what we're shooting for as I said earlier I mean, we see that Q2.
We're expecting that same kind of growth that we saw in Q1, but then obviously, we're shooting for Q3 and Q4 to grow.
At the much higher your pace as possible.
Alright, great. Thank you and then another dynamic here look at the difference between orders and deliveries.
In Canada, we had deliveries to the U S down a bit this quarter can you talk about this dynamic and maybe how much of your order book is in the U S. How important is it.
For your product to be made in the U S to get U S sales and could we see a step change in in your U S business.
Joliet picks up.
Yes.
Yes, let me start on this one.
On the bus side.
What happened.
When the bite and government came in.
Power basically everybody was expecting you there will be subsidies.
As announced last week and so it seems like the market was kind of on a whole.
For about a year so there was.
Getting new orders in the last year, I mean, what's quite challenging on the U S side, because everybody was expecting.
This $500 billion deployment to take.
To happen and so the news that happened last week with this $500 million, which is the first tranche is.
Is great and so this $5 billion is going to be deployed over the next few years and this is a great news and now we see that this momentum is.
He is going back and as you know we're the clear leader in electrics will buses in North America and right now I mean, obviously.
We are in very close dialogue with the largest operators and also with the school districts to.
To capture.
As much as possible of this $500 million. So we will see.
In my opinion, obviously.
Orders from U S operators.
Really increase going forward, so that was a great great news last week that.
We've been waiting waiting for for a long long time that being said, though on the Canadian side, its still going very well I mean, these ETF is taking place.
Right now and.
So this is we see a lot of momentum on the Canadian side. Its still so it seems like the school bus market as I was saying earlier. This morning is kind of the electric school bus.
Kind of going even faster than what we were we were expecting all of that truck side.
Well the truck side in general not only in the U S, but has been slower than than expected. It seems I mean.
That probably within the last year or maybe within the last 18 months as well the market with kind of focused on something else. So those truck operators.
That was doing the.
Let's say the last mile for example, we're having great results there.
But at the same time, the whole world with focus with those crisis.
The prices with Covid and then.
The supply chain crisis, obviously as that was partly coming from that and the war kicked him right. After so this market was very it seemed like focus on something else and now we're seeing very good signs.
The dialogues, we're having with the truck operators that this is coming back. So it has been slower than expected, but keep in mind that the truck market is 10 times bigger than the bus market and the U S market is 10 times bigger than the Canadian market, So with everything I'm, saying, we're seeing that the U S market I think is going to be very promising either.
For the <unk>.
And also for both.
For the bus as well.
And it seems that finally, the truck market is catching up.
Right now, which is great and then.
All of your question was about the made in America.
Buses and trucks.
Honestly I think that's going to help.
I think thats really going to help you.
I know you've been thinking like this for a while also the discussions we have and we feel the same way.
We I mean, this is really going to expedite ourselves on the on the U S site and the good news is that we will be starting this maybe very shortly second half of this year, we're starting with the buses and then we will follow up with the truck so to your point.
We feel that this is going to be like a stepping stone for us on the U S site without a doubt.
Great. Thank you for the color.
Thank you.
Thank you. Our next question is from Mark Neville from Scotiabank Mark. Your line is open. Please go ahead.
Yeah.
Hey, good morning, Thanks for the time.
Good morning, Mark maybe this first good morning, maybe just first on the backlog when you say, 40% are deliverable in 2022.
What exactly does that mean and I guess my question is the chunk of those deliveries to slip into 2023 is there any penalty of risks to the line.
Yes, the 40% of deliverable that means that the customers I mean, they want them.
We would like them in 2022.
So which is good news because we do have the orders and as per our agreement.
They could take them in 2022. So this is what it means basically youre working those products.
Very good close dialogues with all of our customers. The do you understand the challenges we're going through with the.
The supply chain.
Honestly and two years.
To your point I mean is there any orders we can lose if there is any there very minor there are some data with some.
The subsidies but.
It's kind of.
It's kind of minor so I will say, we don't want to lose any orders but.
I will say, it's not material if there are any penalties netting.
Theres no way off the Mark.
Okay.
Maybe just on the Capex.
I think you said $280 million to complete your two project.
Is my math right that roughly $165 this year.
It's a little bit over 180 would be this year.
Okay.
And in terms of the government support they were getting for aligning campus and $80 million.
I'm just curious how exactly does that work I mean is that fully available now or is it sort of based on the number of people you hire I'm just sort of curious how.
Sort of broad strokes, how do you get access to that broad.
Broad stroke of it's related to the spend.
The innovation center.
Not the innovation Alliance campus altogether.
No more complicated than just that but by and large it's.
Margining on that spend if you will.
And there is.
The two agreements are different but some of them are limited in the number of draws we can make and so we do expect the first draw to occur in Q2, and it's going to be gradual as we spend more on that.
That project being obviously, the cap et cetera.
Great. Okay. Thanks for the time I appreciate it.
Thank you.
Thank you. Our next question is from Mike <unk> from Raymond James Your line is open. Please go ahead.
Hey, good morning.
Just to just to start circling to the EPA.
Program that that's in place is there a made in the USA aspect to this program with the school buses.
Look I'd say, it's our understanding that there will be in any case for us it will be and so the intention is to build everything that we sell out of this program out of the target.
And does that have any potential implications for.
The battery modules as well going over at the border.
No we don't believe that in fact, we.
We think we're in a unique spot here, because we control what goes into the.
At that meeting.
Cells, we source to sell we produce a battery.
We don't see many C.
See any school bus Oems.
Out there that are doing that obviously.
There isn't right now a source of.
Local sales.
But let's put it this way we think our battery will be the most north American there certainly and Ken can be it can be also built eventually with U S source.
When those are about.
Okay, and then on the $200 million facility.
Can you describe the covenants or.
Any sort of usage dynamic, we should think about with respect to that $200 million facility.
Yes.
Call It an ABL facility.
It really is meant to scale up with.
Working cap.
Based on inventory based on receivables.
There are.
No I would say no significant or no financial covenants.
Until there is a spring when the facility is close to being full.
Full margin are fully used and so it does provide with not only attractive pricing, but quite a bit of flexibility.
It's well suited to our model, which is still working capital intensive and so.
Certainly like the instrument.
Okay. Thanks for taking the questions.
Thank you.
Thank you. Our next question is from Jonathan <unk> from BMO capital markets. Jonathan Your line is open. Please go ahead.
Good morning.
Good morning, guys consider partnerships good morning on the truck up fitter partnerships that have been announced recently.
How are you thinking about the development timelines for those.
And when could we see more trucks on offer.
Potentially supporting stronger orders.
Yes, well this is happening right now Jonathan.
When we meet you announcements I mean, we are basically at our truck.
With the.
The outfitters equipment install.
Installed on top of that so we're talking about Morgan Thermo King.
<unk> truck beds, and we did one with transit as well. So we have those five truck operators and the equipment is.
He is working very well.
With with our talks and those were with alliance six.
But there could be some usage underlying on the lionsgate as well.
And also just a reminder, Jonathan that same thing is happening with the refuse trucks.
As well so the refuse truck the first ones will be delivered very very shortly and same thing I mean, we've been working for years to make sure that the batteries are installed in a way that the.
The outfitters could install their equipment.
Without adding to modify what they are what they are doing so it's almost a plug and play for them because of all the work that's being done within the last few years and I think this is something that well obviously, that's a major benefit of the purpose built.
Electric trucks.
Doing but this is a major advantage that those up fitters are enjoying right now.
Thanks.
And in the context of the new.
EPA funding to school district customers.
Which is quite positive.
Would you have an update on lions.
Market share in <unk>.
Zero emission school bus market.
For 2021.
Yes, but by our estimates we're the number one player in the <unk>.
The electric space, we looked at.
Registration would be I'd say by a certain margin the largest player.
<unk> been selling as you know on both sides of the border and feel that we're very well positioned from a product from a credibility salesforce standpoint in order to tap into that program.
Thank you for your comments.
Thank you. Thank you.
Okay.
Thank you. Our next question is from Neiman setting from Tien Bank NIM and your line is open. Please go ahead.
Hi, good morning, everyone.
Good morning so.
Yes, so I think mark mentioned that.
If there is a ramp up it's going to be a gradual one I'm just wondering if let's say the supply chain issues.
Ah subside there not there how long would you would it.
Take you to sort of get to that three two third of the capacity is it like five months six months or is it a longer period for you to ramp that up.
Yes, well thats a good thats a core.
The question on human so.
With all the supply chain challenges it will take it will take.
A few months.
To run that up because we do have the people.
Yes.
Which is you know obviously a major challenge for most of the ore.
Most manufacturing company, we do have two thirds of the people.
Right now and also we do and the manufacturing equipment.
So we do have the manufacturing capacity to do this as we speak and the only reason, we're not able to do that right now is because of the supply chain issues. So it was not because of the supply chain issues. It will be in a few months.
Okay, No that's fair.
And maybe just the second one can you provide some additional sort of color about.
On your potential legal sales pipeline, right now and how that sparing versus last quarter.
Yes.
Yeah can you repeat the question on vehicle sales mind pipeline pipeline.
Yes.
Maybe I'll take this one.
And there's a bit of feedback on your line the women, but we.
Look we're very pleased with the dialogue with the <unk>.
Our companies as we mentioned we look forward to this.
Converting into purchase orders and we talked about the strong momentum in the school bus space with us at ETF with the EPA program among just.
Some of the mid <unk>.
Very attractive program that are out there.
We report, though is really the purchase order book and we aim to be very disciplined about how we go about this so we're not going to comment on specific numbers as it relates to the.
Selling activities in the.
Pipeline, but let's say, we feel very good and we see strong momentum.
Sure.
Okay. Thanks for taking my question I'll get back in the queue. Thank you.
Thank you.
Thank you.
Our last question from Ben Law as a follow up your line is open. Please go ahead.
Yes, thank you very much.
So could you maybe provide some color about the potential behind the sale of zero emission what it could represent over the next two or three years.
Sure.
Are you talking about credit specifically.
Yeah, Yeah exactly exactly.
Yes, yes, so look the.
Under the vacuum truck program and as a reminder, this is a program where.
Number of states.
I think it was 16 at first it signed an Mou to follow suit to follow California's leadership around making zero emissions setting specific ratios of zero emission.
Vehicle sales, including medium and heavy duty throughout the year is leading.
Specific objectives in 2035 in 2040, and under which there would be.
Credit for defined system, whereby if you don't meet these ratios you need to pay a fine.
Or purchase of credit and then if you exceed those ratios IEP sell more evs than is required to.
Talking about the Oems here, then you would get a credit and you can sell those credits now these specific ratios don't kick in before 2024.
But the accumulation of credit has started we have sold a little bit over 40 vehicles in those given the states.
Last year and we are in the process of qualifying those sale.
And so we're very early in this process, but it's obviously very encouraging for us that we're already.
<unk>.
Accumulating those credits.
Have a good sense of the market price of those credits just yet so I won't provide a specific estimate but as you know other.
EV Oems have done very well with those credits that can be a very attractive source of revenue and I would say revenue and margin because they don't come at any extra cost for us. It's really credits we get for doing what we're already doing and.
And all of our vehicle sales were pretty much qualified because we just sell evs and so.
It's got an interesting potentially very interesting potential, but we're just at the beginning for now.
Okay, that's great color and obviously when we look at on the financial standpoint, you mentioned, great color about your available liquidity and Capex.
And I'm just wondering about the inventory rebuild how should we be thinking with respect to the potential inventory build for 2022 and how the booking activity is important with respect to cash advance to offset the <unk>.
Increase in working cap.
Yes.
Good question, you will have seen.
A reduction in the amount that we invested in working cap in the last quarter.
Obviously, the objective is to sort of grow into our working capital requirement that you will.
Said differently to have working cap investment.
<unk> lesser proportion of sales over time.
That said I mentioned earlier.
We need in the current environment to stock say overstocked on batteries in some cases on motor is another critical component. So we do expect some variability going forward in the working capital needs. We do expect to continue to invest in working capital.
And to your last question to the last part of your question, we don't depend on customer advances.
<unk>.
Fund.
Our activities are generally note advances in the school bus space.
And there could be some in some circumstances and the trucks, but it's not.
Financing tool for us.
That's great. Okay. Thank you very much.
Thank you Beth.
Thanks, Doug.
All the time, we have for today as we have one study commitment. So thanks, everyone for joining the call and we look forward to continuing the discussion and feel free to contact me for any further question. You may ask you have a nice day.
Okay.
Thank you everyone for joining today's call you may now disconnect your lines and have a lovely day.
Okay.