Q2 2022 Nikola Corp Earnings Call
[music].
Good morning, and welcome to Nikola Corporation second quarter 2022 earnings calls.
At this time all participants are in a listen only mode.
We begin today's call with a short video presentation, followed by managements prepared remarks.
A brief question and answer session will follow the formal piece before.
For my prepared remarks.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is my pleasure to introduce Nicola director of Investor Relations Henry Kwan. Thank you Henry you may begin.
Thank you operator, and good morning, everyone. Welcome to Nikola Corporation second quarter 2022 earnings call with me today are Mike Russell, Chief Executive Officer of Nicola and can Brady Chief Financial Officer.
The press release detailing our financial results was distributed shortly after six am Pacific time. This morning.
The release can be found on the Investor Relations section of the Companys website, along with the presentation slides accompanying today's call.
Today's discussions include references to non-GAAP measures. These measures are reconciled to the most comparable U S. GAAP measures can be found at the end of the Q2 earnings press release, we issued today.
Today's discussion will also include forward looking statements about our expectations.
Actual results may differ materially from those stated and factors that could cause actual results to differ are also explained at the end of the Q2 earnings press release and on page two of our earnings presentation.
Forward looking statements speak only as of the date on which they are made.
Cautioned not to put undue reliance on forward looking statements.
We will now begin a brief video presentation, followed by prepared remarks from Mark Russell and Kim Brady.
Okay.
Those truck showed up in our yard in Ontario, It was emotional.
Those trucks are also trucks, they're not full production trucks have less downtime with those two trucks than I've had with any new diesel truck that we purchased in the last 24 months.
My takeaway was yeah. This is going to work.
Yes.
Yeah.
The drive for zero emissions Biagi brothers come straight from the top.
That's the path we're taking.
This was impressive vehicle.
I think there are going to set a standard that is going to be tough for the competition to it.
Yes.
[music].
Thanks for joining us.
Q2 was important for Nikola.
First quarter of generating revenue.
Nicolas pretty Bev.
We couldn't have achieved this milestone without the extraordinary hard work and dedication of our outstanding team of people.
We're proud of what we've accomplished so far.
So excited about continuing this Brian .
Decarbonize heavy transport.
Let's start with things on the vehicle front.
Produced a total of 50, Nikola Tre bvs in Coolidge, Arizona during the quarter.
And we delivered 48 of those to our dealers around the country.
Two were delivered just after the quarter end and they'll be reported with Q3 shipments.
Our battery pack supplier Romeo continue to experience manufacturing challenges during the quarter. We lost a total of two weeks of production at Coolidge due to delayed pack deliveries.
On the customer front, we've completed and we are continuing numerous successful pilot and demo programs.
Including several that have not been publicly announced.
Notable among the public programs, our Tsi Biagi brothers, Anheuser Busch Univar Rogue one Ikea.
<unk> logistics systems and covenant.
With <unk>, starting this month and Walmart in September .
Average up and for all trade bvs in the field is an extraordinary 94% to date.
I'd like to highlight right now what it takes to actually get zero emission trucks enter commercial service in hauling freight every day I think this further validates an equal as long standing focus and strategy of providing a total solution, including service support and most importantly in this case charging them.
Fueling infrastructure.
When you commit to using a zero emission trucks, you're also committing to the infrastructure that it needs to operate let's use our launch customer <unk>. As an example, they've committed to 100 truck fleet of 30 tray Bvs and 70 tray Ftes there.
We're up and running with the <unk> and <unk> S. The EV prototype by using mobile electric charging and mobile hydrogen fueling equipment that knee Cola has helped provide nico.
<unk> mobile charging trailers and a temporary to permanent version that we call on is good as well as mobile hydrogen fueling systems, we've helped develop.
Can get a customer started but continuing to scale up to fleet level infrastructure can require additional significant and permanent electric power.
For charging and permanent heavy duty infrastructure for hydrogen fueling all located so that they will work with our existing operations.
Here again, Nikola is helping to provide this critical and necessary infrastructure as you saw in our announcement this morning.
Three commercial hydrogen dispensing stations in southern California.
Lead time for this infrastructure varies by location, but it can be significant for example, and in addition to normal permitting and local approvals.
Charging infrastructure at a given location requires an upgrade the power capacity utilities switch gear, our substation infrastructure. The lead time can be up to a year or even longer.
Lead times for hydrogen dispensing locations similar similarly varied by location, but generally there are more than a year.
In some cases this infrastructure lead time, along with any hesitancy or delay and committing to our commencing construction could be a limiting factor in the growth of zero emission customer fleets.
Yeah.
We began building the first batch of six Nikola Tre FCB beta prototypes during Q2, which we expect to complete in August the second batch of six Trey <unk> Betas will start later this month and should finish by the end of Q3.
The third batch will begin in Q3 and be completed by Q4 of this year. According to plan.
Specific changes from the Alpha is debated include increased hydrogen storage capacity and improved efficiency of the fuel cell power module.
These beta trucks will enable further engineering development and performance validation testing.
We will build the gamma variance next year in Q1.
And for our own captive fleet and additional customer pilots.
Let's go through the numbers and I'll outline what drove them.
And what we expect in the second half of in the second half.
First.
Regarding gross margin.
The trade Bev trucks, we produced and delivered in Q2 are the most expensive battery trucks will ever built.
The objective was to do whatever it took to ensure the components were available at the assembly line to start to build the best trucks.
Nonetheless, there are a few items that we could have better foreseen in Q2.
That we ultimately did not.
There were two contributing factors to our gross margin guidance coming in lower than expected.
The first being shipping and freight cost.
We recorded $10 7 million inbound shipping freight and duty expenses for the quarter.
Representing approximately 29% of our cost of revenue.
This $13 7 million $3 3 million represented duties and taxes.
<unk> $10 4 million came from freight expenses.
Of the $10 4 million roughly 80% of expenditures were expedited airfreight.
The impact on the cost of revenue was magnified because we purchased and received <unk>.
More components than we used in production due to the delays that we referenced earlier.
Does the impact of these two factors when our gross margin at a revenue level was more pronounced than if we had already scaled.
We had not budgeted this level of impact.
<unk>.
And it is something we will be better prepared for in future quarters.
To reduce our freight cost burdens going forward.
We have started shifting the shipment of most of our components to ocean freight.
We are also accelerating our localization efforts of certain components.
The EU to North America.
These two actions, we expect a meaningful decrease in per unit inbound shipping and freight cost and.
And a gradual easing of inbound freight cost pressure on our gross margin.
Next let me provide some perspective on the quarterly inventory write down of $7 5 million Rep.
Representing a $4 1 million sequential increase.
In second quarter, the net realizable value or an RV adjustment represented 96% of the write downs.
As you may be aware our <unk>.
<unk> costs have risen in line with inflation.
And significantly more for battery cells and key to us no exception.
Under U S. GAAP when our inventory value lies just above a trucks expected selling price or NRC, a reserve adjustment as required.
This situation was compounded by holding more inventory than we would have held if no production delays have cured.
If you notice on the <unk>.
So a summary table in the deck R&D expenses decreased by $11 5 million from Q1 to Q2.
This is because prior to our commercial deliveries in Q2.
Manufacturing expense items typically part of the cost of revenue.
We're recognized as R&D expenses under U S GAAP.
Including inbound shipping and freight inventory write downs and G&A expenses.
Q2, EBITDA sequentially fell by $14 million to negative $163 6 million.
We think it makes better sense to look at our results at the EBITDA level because of the reclassification items in Q2 regarding cost.
We believe it is a better quarter over quarter comparison to focus on costs before interest and taxes.
This quarter.
Given what they imply about our cash burn rate.
Equity and a net loss of affiliates decreased by $1 5 million in the second quarter to $1 3 million.
Driven by a $1 2 million equity and net loss of nickel that you tackle Europe .
As we shared in our Q1 earnings call.
Our European joint venture with tobacco now engages in product development and vehicle engineering.
In addition to his contract manufacturer world.
We recorded a.
<unk> hundred 73 million net loss for the quarter.
Basic and diluted net loss per share came to 41.
Basic and diluted non-GAAP net loss per share came to 25.
Beating consensus estimates on a non-GAAP basis, adjusted EBITDA came to a negative $94 3 million adjusted EBITDA excludes $154 8 million in stock based compensation to pinpoint.
Row millions for legal expenses to pay Mr. Milton Attorney's fees.
Under his indemnification agreement three.
Three $1 3 million for equity and net loss of affiliates.
Mainly from our Iveco JV in Europe , and for a net 0.2 million loss for the revaluation of financial instruments.
Including warrant liabilities and with this.
On the balance sheet, we ended the second quarter with $529 2 million in cash and equivalents, including restricted cash.
Up from $385 1 million at the end of Q1.
The $144 1 million increase came from one to 200 million private placement of convertible notes, we placed in June with Antara capital and 250 million proceeds from the issuance of a promissory notes collateralized by Nicola on equipment in restricted cash.
In addition to the $529 2 million in cash and equivalents.
We still have $312 $5 million available liquidity throughout two equity lines with too many capital.
At the end of June we have total liquidity of approximately $841 8 million.
Up from $794 million at the end of Q1.
As of the end of June we have sufficient capital to fund our business for the next 12 months of operations.
Given our target of keeping 12 months of liquidity on hand at the end of each quarter.
We will continue to seek the right opportunities to replenish our liquidity on an ongoing basis, while trying to minimize dilution to our shareholders.
We are carefully considering how we can potentially spend less without compromising our critical programs and reduce cash requirements for 2023.
We will provide you with detailed guidance for 2023 on our Q4 2022 earnings call.
But for now a good way to think about how we can achieve our goal is to consider it in the context of our ongoing capex requirements at the Coolidge plant.
For example, with the completion of phase III by the end of Q1 2023, our Coolidge plan will achieve a design capacity of 20000 units.
While we have not made our 2023 production planned public.
The 20000 units in annual capacity will be sufficient to allow us to achieve our 22023 and 2024 production targets two.
2023, who lead to manufacturing facility related Capex for phase III is approximately 345 million <unk>.
Including a paint line.
Laying this phase of our expansion to 2024 allows us to reduce our 2023 cash needs.
And fund raising targets in 2022.
We will continue to monitor market conditions and remain opportunistic about raising capital.
Moving onto our Q3 guidance.
We expect to deliver 65 to 75 nickel I trade bets.
21, 1% to $24 4 million in revenues in Q3.
We anticipate our gross margin to be between negative 240% and.
And negative 250%.
As we explained in the Romeo merger call.
We've agreed to provide real meal with interim funding to ensure continues our operations there.
Funding comes in two parts, one up to $20 million and a temporary price increase for each Pac delivered through transaction close plus $215 million and a senior secured note.
The temporary price increase for the packs will weigh down our Q3 and Q4 gross margin.
We expect however to make notable improvements in inbound shipping and freight cost and benefit from the operating leverage effects.
Delivering more vehicles.
On labor cost.
Without Romeo emerging Pat the gross margin would be up would approximate.
Negative 150%.
To negative 160%.
We anticipate a range of $80 million to $85 million in R&D expenses and.
In the $80 million to $85 million in SG&A.
Including roughly 58 million in stock based compensation.
Capex for Q3 should be $85 million to $90 million.
As we expect station Capex.
S C vitulli and hydrogen hub spending to catch up.
Regarding fiscal 2022 guidance.
We have not revised the existing 300 to 500 truck delivery.
Still given the battery charging infrastructure challenges Mark mentioned.
We are more likely to hit the lower end of that guidance range.
The merger with Romeo will introduce new elements to our P&L in several ways.
Especially in the short run, which I will discuss in some detail.
We plan to revise our full year financial guidance post transaction close and share it with you in our Q3 earnings release.
We are currently working on the merger pro forma which will serve as the basis for our new full year guidance.
As many of you may anticipate the merger with Romeo will cause our full year guidance to change.
This is because one negative gross margin impact from the temporary pack price increase in Q3.
To a lesser extent in Q4.
Negative gross margin impact from existing Romeo customer contract runoff.
Three incremental R&D and SG&A expenses of Royal Mail post merger.
And for transaction costs and purchase accounting adjustments that may further impact our Q3 and Q4 Opex.
We will come back to you with our revised full year guidance at our Q3 earnings call.
While second half will be challenging from a gross margin angle.
We expect 30% to 40% cost reduction benefits for the non battery cell related pack cost by the end of 2023.
Key cost cutting initiatives will involves switching from machine to cast it packing closures and.
And using the combined purchasing power of the merged entity to optimize the supply chain.
We believe this is achievable because we have had about 10 manufacturing engineers working on site at Romeo since early 2022 to support rural Mill production.
With a good accumulated understanding of romeo's operations, we have identified several areas of operational improvements that will begin to be implemented immediately following the transaction closing.
Longer term, we are targeting up to $350 million in annual battery pack cost savings by 2026.
Regarding our supply chain.
Part of this shortage challenges still remain.
Although the visibility and availability of components have somewhat improved.
But we are not out of the woods yet.
We previously stated that one of our biggest constraint was a consistent supply of modulus impacts from Romeo.
Our proposed merger with Romeo takes us a step closer to ensuring a dedicated and consistent supply.
Perhaps a more significant challenge that faces us and the industry is inflation.
And its impact on margins.
We are subject to a commodity pricing increase from LG.
Which has increased our battery cell price by approximately 30%.
The adjustment is calculated every six months based on the price movements of certain battery cell chemistry metals.
The previous six months.
We are uncertain when the critical metal prices for battery cells will normalize and come back down to the pre Ukrainian where prices.
And how much of that increase.
We can successfully passed onto our customers.
This is something we are.
Grappling with.
And Unfortunately, we have little control when it comes to batteries sell prices.
This concludes our prepared remarks.
We'll use the remainder of the time to address your questions.
But before we open the line to analyst questions.
We would like to take this opportunity to answer some questions from our retail shareholders.
Henry.
Thank you Tim the first question from our individual investors is.
When can I see nickel on the road I've never seen any of your vehicles on the Street y.
It is exciting to see the trucks on the road more and more are out there hauling freight and being excited every day.
And videos that are increasingly showing up online.
You have a better chance of seeing one if you're in one of our target launch geographies, such as California. Good luck with your trade spotting.
The next question from our investors is considering the number of <unk> entering the market in the next several years, how is nickel or planning to differentiate itself to ensure long term success.
<unk> is the first to market review and secured a contract with Amazon and Ford has the capacity to ramp production quickly and Nicola has.
First we should clarify that unlike these companies we build only U S class eight in European heavy duty commercial trucks.
And we're addressing the short medium and long haul commercial freight segment.
So that's an immediate difference between us and them.
We're also one of the first truck Oems in the market for class eight babies.
We're likely to be the first OEM to commercialized class eight ftes.
But in the long run, which we're really going to differentiate and equally as energy infrastructure on slide three of the deck you can see that the total addressable market for just hydrogen is bigger than the entire market for trucks.
Thank you Mark.
The next question coming from our individual investors addresses a similar topic.
What plans do you have to excite investors about what your company is bringing to the table do you have a plan to become profitable.
So when.
I think Marc has already discussed Nicholas value proposition.
So let me share some thoughts about achieving profitability.
Doing our analyst day in March we stated that we are looking to achieve a positive gross margin for our trade beds by the end of 2023.
In the end of 2024 for our fuel cell electric trucks.
Under our basic roadmap.
We would like to get to positive EBITDA by the end of 2024.
The primary assumptions behind this roadmap has been that as we continue to scale, we should be able to spread our fixed costs over a greater volume and reduce our bom cost.
From our current vantage point installation remains a great unknown that makes our path to a positive gross margin any challenge.
Especially the cost of a battery cell prices.
While OEM.
<unk> raised the fees in line with inflation. It remains unclear to what extent, we may be able to pass through that increase.
So operating leverage will be one of the biggest factors driving our future gross margin, but potential headwinds from the impact of prolonged inflation.
Good extend our existing timeline.
The next question from our individual investors is.
If proposition to its past will you use the extra shares for capital immediately diluting the stock on an as needed basis.
A great question because it allows us to discuss something here on a topic on which many investors have asked us for clarification during the voting process.
As you may know proposition to past.
But we feel that this is still a very relevant question because many people who are not aware of what our committed share count was four coming into the end of Q2.
While our fully diluted number of shares stood at $495 million on June 30.
Yes. We included the committed shares of options are of Hughes and warrants as well as reserved share four hour Eli can convertible notes there share count came very close to 570 million shares.
This left us with a sufficient number of shares to acquire Romeo without having to come to market. So the increase in the authorized number of shares.
That was just approved will not be used to fund our merger with Romeo.
Having said that the 200 million shares increase in the authorized number of shares will leave us with the flexibility to pursue future capital raising opportunities.
Thank you Tim operator, let's open the line now for analyst Q&A.
Okay.
Thank you very much sir.
At this time, we will be conducting a question and answer session.
I would like to ask a question. Please press star.
And one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the question queue.
For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys.
If you could please limit your questions to one question and one follow up question. Thank you we will now pause to see if there are quick.
Okay.
The first question comes from Jeff Kauffman from vertical research partners.
Please proceed with your question.
Okay.
Yes.
So I wanted to take a look at it.
Kind of two implications of the guidance here.
To get to the range of 300 to 500 vehicles and I know you said the low end thats, implying almost 200 vehicles in the fourth quarter is does this sound right based on the guidance Youre, giving and should this be considered kind of a rolling ramp rate as we enter 2023.
Jeff.
Jim Great question.
As you know we have been consistent that our delivery and production will be skewed towards second half of the year. We talked about in Q2, we had some production hiccup due to delays in battery module and pack delivery in Q3 as you know we are trying to get better control.
Over this situation as we're going through the merger.
So when you think about in terms of our guidance for 2022, and the second half and Q3 and potentially Q4 I think the way you are thinking about that is reasonable as we get into 2023, we anticipate actually picking that up.
Currently.
So a fair implication based on the low end of your 300 to 500 would be 200 give or take for fourth quarter.
Well I.
I think if you do the math and if you take low end of our guidance and then subtract keytruda in Q3.
And I think that's reasonable in terms of how are you thinking about that.
Okay and then just.
A question on gross margin.
Pretty clear the guidance youre, giving on the $20 million of assistance to Romeo through the gross margin and I think your commentary was two.
240% to 250% and <unk>, but without the.
$20 million it would be in the 150% to 160% range.
Again, as I'm coming down the ramp and we get to the end.
Clothes Romeo.
Should we assume youre heading back toward that range or with some of these other.
Factors, such as continued supply chain cost continue to push that.
Gross margin higher until we solve some of these issues sometime next year.
Yes.
And Jeff, but we plan to do better than that as you know we've talked about our inbound logistics costs, which as of March 30% of our.
Cost of goods sold which is very high and as you know that.
That represented about 80% airfreight and we are looking to shift that and we were doing shifting actively.
To ocean freight we know that that's.
Significantly decline as well as duties and taxes.
So we are actively working on that and we are looking to achieve something.
Lower.
But we'll be transparent in terms of what their Romeo and package. So that you have good idea in terms of what kind of progress that we're making in terms of our execution.
Alright, well congratulations on the shareholder vote and then the news flow continues to be terrific. Thank you.
Thanks, Jeff.
Yeah.
Thank you. The next question comes from Mike <unk> from D. A Davidson ladies and gentleman. Just another reminder, if you could please limit your questions to one question and one follow up question. Mike You May proceed with your question. Thank you.
Yes, Thank you and good morning.
Average selling price in the quarter of your trucks were a little bit higher than my model.
You've shown some good uptime in the slides today, so I'd be curious.
What we what we saw in last quarter's numbers as far as average selling price you've got a good run rate for the next couple of quarters. I know the later orders are a little bit higher with the average selling price were possibly next year and I'm just curious maybe thirdly. The most recent conversations on price given the uptime and the performance or have you have you.
Can you.
Share with us we have a lot of confidence uneven.
Are there price increases going forward given what.
Trust me about to deliver thus far.
That's a great question, Mike the market is figuring out what we know what the threat.
Pricing is going to be of course.
And as you point out at this point we have.
The longest range truck that we know about out there.
And it's performing extremely well.
So the feedback is generally super positive across the board.
That's why we are confident that we're going to have pricing that's going to be in the upper end of the range once the market gets clearer and settles on on pricing.
We started at what's kind of the prevailing pricing for battery electric trucks at this point theres not that many players in the market.
And almost nobody at volume.
So the market is still in the early stages and figuring out what the pricing is but as you said so far pricing is coming in higher than.
Than previously expected.
Okay.
Okay, Great and for my follow up I wanted to ask about the hydrogen stations, particularly the ones in Colton and alone in the corner of long Beach.
Are those going to be only the operator, Hello, I just wanted to confirm that and can meet it.
Is it trying to figure out some of the numbers behind it.
Is it appropriate to go back to those original spec documents and some of those original buildup models.
Things like that to kind of get a feel for those numbers or have things changed at all.
Fishing or any or any changes in how you plan to address the market.
Michael Let me address that in two parts first of all the stations be.
Wholly owned by an equal out.
It's unlikely that we'll do a station.
Two stations that are 100% us we generally do these things in partnership with <unk>.
One in Ontario.
A travel centers of America location and will be dispensing and in a portion of that existing station.
To that that you referenced those will be ones that we built from scratch.
<unk>.
Well, we're more likely to be the headline there.
But don't be surprised if we do things in.
Our collaboration with other companies at most of our.
Station locations and definitely at our hubs as we have announced so far all three of our announced hub projects involve partnerships.
The station projects are.
Well often involve partnerships as possible, we would build a 100% on its standalone stations that it is possible and if.
And I'm actually I'm sure we will do some of those but generally we like to do these things in partnership with other players.
In terms of.
The.
What was the second part of your question.
In terms of Capex I just model yeah, right right. So we want to make sure that you understand this start dispensing station, Sony So not stations, where we will generate hydrogen and dispense.
But when we think about capex for dispensing stations, only they typically run $6 million to $8 million or so and as mark alluded to it when it comes to Ta. This is a joint venture. So we will both be funding capex for dispensing hydrogen.
So don't.
Spec level documents with more than two years old now those.
Our technology approach has changed slightly.
Most of our production.
Production is not all will be in hub locations at this point.
And what we have at dispensing stations is dispensing equipment only so you're just gonna have static storage and dispensing equipment. The other difference is.
We're more likely to not have onsite compression.
And because we are.
Leaning very strongly towards distribution of hydrogen in liquid form.
Yeah.
Okay, well, thanks for that color I appreciate it I'll pass it along.
Thanks.
Yes.
Thank you. The next question comes from Greg Lewis from <unk>. Please proceed with your question Greg.
Hi, Thank you.
Good morning, and thank you for taking my question just following up on Mikes question around hydrogen Hum.
I guess last week.
It looks like Theres been it looks like there is finally getting to be some progress in the production tax credit or for hydrogen.
I guess, what I'm wondering is as you think about you know not did not.
The station level, but not at the hub level strategy.
Should we think about that impacting or maybe potentially.
Realizing there's still a long way to go for this.
This tax benefit for hydrogen production is there any way to think about how this could potentially pull forward your decisions around those hydrogen hubs that.
Seem to be part of the longer term story for the company.
Yeah, Great question Greg.
PTC the production tax credit if it's and if it is included in legislation that that passes and as you said it looks more likely now that it.
You mentioned.
The board and.
Our own Senators cinema hearing art of course due to Arizona.
It has previously.
It seems supportive of that so we'll see if she still is.
And assuming that procure goes through reconciliation and gets signed by the president that's $3 nationwide.
Depending on the amount of carbon intensity of the hydrogen that youre producing of course, where we're targeting very low carbon intensity hydrogen at our hubs whether they are electrolysis based as will be the case in Arizona or whether they are carbon capture based from.
Petroleum sources like they are in Indiana.
We think we're going to have very low carbon intensity pretty green hydrogen.
For the sub locations and we think we will qualify for a good portion of that incentive which will be.
Currently being tagged at up to $3 per kilo.
Depending on the intensity.
When that hydrogen is dispensed in.
State, where there is an additional incentive like California, where you have the CFS credit.
It's up to an additional $3 per kilo.
For dispensing there and of course, that's our launch geography for both battery electric and hydrogen fuel cell trucks. So we're looking forward to that that would be powerful incentive we would have up to $6 per kilo.
Incentive for dispensing and California.
And as you've seen we were targeting.
Our cost of production for the hydrogen is less than half of that so even with distribution and station costs.
That would be pretty much off the hook.
In terms of economics for hydrogen.
He started here and we're of course, we're ahead of the game here with with strong progress on Huntington's patients.
Yes.
Comment obviously, we are still somewhat in early stage, we don't know.
Ultimately what this is going to pass we are cautiously optimistic as mark talked about potential economics is quite compelling we have not factored in any of those incentives in any of our projections and our forecast and as we get closer at once it passes we will communicate as to <unk>.
What the impact might be from our perspective.
Okay, Great Super Super helpful and then.
Just.
Congratulations on the on the acquisition of Romeo Power is you got to go look to get vertically integrated.
That being said.
Battery supplier.
Tara on their quarterly call talked about <unk>.
Delivering a prototype batteries too.
Btu.
I guess, what I'm wondering is.
What is the process, there where those prototypes become operational.
And I guess bigger picture as I think about those.
Could those actually be on vehicles.
Later this year potentially.
Moving the needle from the low end of guidance, maybe a little bit higher or.
The way to kind of connect the dots there with with those protein are batteries being a source of.
A source of batteries for the try.
Well first of all very good procure is a valuable supplier to us and will remain a valuable partner and supplier to us on batteries and we are working very hard with them and theyre doing a great job as we go through the testing and validation process that should be completed this year. So we should have.
Them available to us to to add to production.
By the end of the year, if not the first quarter of next year. So next year, we'll definitely have procure batteries available to us based on current projections without commenting on the impact that may or may not have in terms of our capacity to produce we're really excited about having that second source, particularly in Europe .
Where are we.
Don't have any romeo production assets and as.
Jim mentioned several times, we're getting real tired of moving stuff around the world, we want to localize production wherever we can and.
Batteries are heavy inexpensive to move from U S to Europe . So we're looking forward to procure has helped to get us localized production in Europe going forward.
Yeah.
Okay Super helpful. Thank you very much.
Yes.
Yeah.
Thank you ladies and gentlemen, just another reminder, if you'd like to ask a question. Please kristin. Thank Glenn if you would like to ask you a question Keith.
The next question comes from Bill Peterson from Jpmorgan. Please proceed.
Yeah, Hi, Thanks for taking my questions I wanted to also understand just the revenue guidance Standalone for Nicola.
And why it wouldn't be why it would be different.
Maybe a bit higher than the prior one and relates to pricing.
Yes My question is.
All of these deliveries seem to be dealers at first but what about the actual end customers are always going to be through the dealers.
And if so I guess, how does the pricing mechanism that I'm just confused.
Higher than what you put in your prior quarter guidance, but just trying to understand how to think about the price changes that happened here.
Yeah.
Bill Great question.
As you know the pricing is the same ultimately when we sell to dealers and dealers sell to end customers. We are carefully coordinated and joined at the hip.
So we are.
In marketing and working with customers, we understand especially at this early stage, we are going to be heavily involved in facilitating sales with customers, even though we are going through with dealers.
While we are having pricing discussions we are talking.
To our customers ultimately even when it comes to what can we pass through with respect to.
Increase in battery cells, it's very fluid as you know and if there is a large orders we may need to potentially consider some discount but those are fluid discussions and ultimately we'll have a better idea.
At this point when you think about our guidance for Q3, we try to be conservative and we have now in 325000 foot average sell price.
But once again, we are looking to do better than that.
We're really pleased to have our dealer partners in place.
I think the wisdom of that is being shown currently.
As they help us manage that.
Complexity of getting charging and then fueling infrastructure in place at customer locations or near near customer locations, where it's needed.
Our dealers are a very experienced and substantial.
Operations in the geographies, where they service they have existing.
Usually off road and heavy duty equipment that they service and support himself.
So they really and they are also generally a number of them are experts and distributed power in local power.
So that's.
There are just perfect for what we're trying to accomplish here they are great partners.
As you mentioned.
This quarter, we've been filling the dealer pipeline.
Getting inventory, making sure they have inventory to sell but there are plenty of vehicles to demonstrate them for pilot programs.
Yeah.
Okay. Thanks for that color My second one is related to cash it sounds like you no longer expect to need to raise cash.
Capital in the second half.
But I'm just trying to understand cash burn do you have a big jump in receivables inventories so working capital trials seem to be fairly negative yet you're going to have worse gross margin trends here in the second half.
Didn't reiterate capex, but maybe thats sort of second question is capex, probably in the $300 million range, just trying to understand how we should think about the cash burn over the next several quarters into next year.
And.
Bill.
Consistent in terms of how we think about cash.
And we are always looking to have enough cash for next 12 months of operations what.
What we have said with the end of June we have sufficient cash for the following 12 months of operations, having said that as you know our current cash burn rate based on financial statements.
It's running around $55 million per month, and so it really depends on how much cash and liquidity, we want to end up at the end of this year having.
Having said that once again, it's important for us to make sure that we have adequate cash for 2023.
And so what we have stated is that we are going to be opportunistic in terms of when we raise cash but you should be assured that at any given time end of each quarter, we're managing our liquidity.
Way that we have.
Ample cash and liquidity for the following 12 months of operations.
When it comes to Capex.
No we talked about especially when it comes to.
Hydrogen ecosystem and infrastructure, we are going to be asset light and capital efficient.
As we announced hydrogen hubs.
We will be looking for.
Partners and we've also stated that TCE is already our partner on when it comes to Arizona.
And so when we articulate and talk about how we plan to move forward.
A much better idea.
But our capex requirements for dose.
Very low.
Alright, 300 for the full year or should it be considered lower than that.
What do you mean by targets.
Pardon me in the last quarter in the last quarter in the last quarter, and I guess, you're withdrawing guidance, but yet in the last quarter. You had put a $300 million is kind of the mid points of Capex I'm, just wondering how to think about that.
If you don't have that for the full year, maybe related to Romeo, but just standalone nickel of how to think about capex.
Sure.
As you know for first six months, we were pretty efficient in terms of Capex. Most of the capex were related to our phase III expansion and equipment and investment in affiliates.
And so it came out to approximately.
$80 million or so year to date.
I think we've talked about for Q3 around $90 million would be a good estimate and so we are running favorable in terms of full year Capex guidance. However, we do anticipate that it will be catching up in Q3, and Q4 and so you should work with what we have originally guided for the full year in terms of Capex.
Thanks for the clarification.
Thank you ladies and gentlemen, just one final reminder, if you'd like to ask a question. Please.
Thank you, Brian if you would like to ask a question Keith.
One thing when we will pause to see if there are any further questions before we conclude.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to management for closing remarks. Thank you.
Thanks, everybody for dialing in and we'll talk to you next quarter. Thanks.
Yeah.
Thank you. This concludes today's conference you may disconnect. Your lines at this time and thank you very much for your participation.
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