Q3 2022 Hyliion Holdings Corp Earnings Call
Good day and thank you for standing by welcome to the highly on third quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode.
After the Speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again the press Star one.
I would now like to turn the conference over to Adam Bresser highly on senior director of F. P N E and Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to <unk> Holdings third quarter 2022 earnings conference call on the call today are Thomas Healy, our Chief Executive Officer, and John <unk>, Our Chief Financial Officer.
A slide presentation that accompanies this conference call is available on <unk> Investor Relations website at investors that highly on dot com.
Please note that during today's call, we will make certain forward looking statements regarding the companys business outlook forward looking statements are predictions projections and other statements about anticipated events that are based on current expectations and assumptions and as such are subject to risks and uncertainties. Many factors could cause actual results to differ materially.
Forward looking statements on this call.
For more information about factors that may cause the companys results to differ materially from such forward looking statements. Please refer to our earnings press release as well as our filings with the Securities and Exchange Commission.
Forward looking statements speak only as of the date. They are made you are cautioned not to put undue reliance on forward looking statements and we undertake no duty to update this information unless required by applicable law with that I'll turn the call over to Thomas Hello, and thank you for joining us today for our third quarter 2022 earnings call I'd like.
To start off by taking a moment to welcome John Cancer, who is with me here today as highly on the new CFO almost two months ago, John joined the company and has already made a powerful impact on the organization. He joins us after a long tenure at Union Pacific and brings a wealth of experience and financial leadership Investor Relations strict.
<unk> technology and transportation operations. In addition to leading numerous financial Department at Union Pacific John previously led their it departments as well as their strategic planning.
In today's call, we will cover progress and results from Q3 as well as add more color to how we are going to commercialize the hyper Truckee Rx system and what we anticipate our initial go to market pricing debate.
This past quarter has been a very exciting time at highly on as we've had some key milestones on our path to commercialization I will highlight a few and then provide more details later in the presentation.
We started controlled fleet trials with our hyper Truckee Rx system. This includes a trial with green path logistics and more recently with Wegmans and Denmark. We also closed the acquisition of an innovative fuel agnostic generator technology from GE additives, which we first announced back in August we are pleased to share that we closed the <unk>.
Third quarter with $455 million of cash and investments on our balance sheet. Finally on this call we will be sharing more details on our founders program, which is an initiative around the early deployment of hypertrophic <unk> powertrains.
As I mentioned, we started our controlled fleet trials in Q3 as planned our first control fleet trial was executed with Green path logistics, one of the leading cleaning technology fleets in the United States Green path operates out of Dallas and hauling freight for some of the largest retail shippers in the United States.
We're frequently asked what are these controls fleet trials entail to put it simply it is a deployment of our technology into standard fleet operations as conventional trucks will be used on a daily basis in.
In the course of the day, we've seen fleets quite hundreds of miles on these trucks to deliver various goods.
As we've executed these trials we've had both highly on engineers and technicians on hand to monitor the vehicles cuts.
Customer feedback is very important to us, especially the feedback from drivers and I'm proud to say that drivers are telling us how impressed they are with how the vehicle drives and performs Moreover, it is easy to get in the vehicle and quickly understand how the powertrain works and.
Additionally, the natural gas infrastructure already in place has alleviated concerns about fueling.
Lastly, fleets are saying that they can pull forward a strong ESG benefit by reducing their emissions without having to give up the standard operating features that they have grown accustomed to.
Okay.
<unk> also shared with us their experience with plug in electric vehicles and it is clear that range and the lack of charging infrastructure continues to be a concern for the trucking industry as we heard from some of the other companies in the electrification space. This past week police are seeing plug and trucks as only being able to work for a small percentage of their fleet.
The range limitations. They are also questioning the extremely capital intensive deployment of Chargers. While this is an issue being experienced today with battery electric trucks, we see it as being an even larger problem with hydrogen fuel cell trucks. Upon initial adoption given the scarcity of hydrogen.
This is where we see highly owns product roadmap is truly benefiting fleets and limiting their concerns are shifting into electrification.
We're now beginning to see this firsthand with fleets they will be able to operate the hyper truckee, Eric powertrain without ranging xiety because of its ability to achieve up to 1000 miles between refueling stops as well as leverage the breadth of existing natural gas infrastructure.
Now shifting to some of the milestones we've accomplished the startup controlled fleet trials checked another box on our path to commercialization. It has been one year since we set out these milestones and I am proud of how we've continued to execute on time and on track with our path to commercialization of the hybrid truck <unk> system.
During the quarter. We have also conducted summer testing of the hyper Truckee Rx powertrain by taking four vehicles out to Davis dam in Arizona, and putting the trucks through their paces and various test conditions. This included driving up a steep grade fully loaded and then turning around and hang back down the same great David Dam for Ed.
Of you who aren't familiar with it features one of the toughest strains in the nation, including a 6% grade that is sustained for over 11 miles not only its erode itself difficult, but we're also testing and temperatures of up to 110 degrees Fahrenheit.
I'm pleased to say that all four trucks successfully completed the testing.
Turning to our deployment plan for the hyper Truckee Rx system I'd first like to discuss pricing.
As Im sure. Many of you are aware it is well known in the industry that electric trucks are expected to be more expensive than diesel trucks. This will be the case for trucks outfitted with the hyper Truckee Rx system as well, but one of our key advantages is that we expect operating cost per trucks with our system to be significantly lower thanks to the low cost.
Natural gas and renewable natural gas when compared to diesel.
Yes.
Let's take a moment to compare the three options of electrification VEB plug in hydrogen fuel cell and the hyper Truckee Rx powertrain.
What a fleet considered its options and thinks about adopting a hydrogen fuel cell vehicle not only as a vehicle expected to be more expensive, but the fuel is going to be significantly more expensive than diesel as well.
For a plug in electric the trucks are expected to be more expensive, but the cost of fuel will be about the same as diesel power.
However, when you look at our solution the hyper truck <unk> equipped trucks will cost more than a diesel truck, but the fuel is about one third to one fourth the cost of diesel fuel, which gives highly on a big advantage.
As we bring our product to market one of highly adds key focus areas is to be able to offer fleets a cost benefit over other electrified solutions as well as to give them a product that can be comparable to diesel when taking into account the upfront purchase price and lifetime fueling costs.
What we've heard from fleets and others in the industry is that hydrogen fuel cell trucks are expected to come to market around 500 to $600000 VEB plug in vehicles are expected to be in the mid $400000 range. We are planning to offer our solution at a price in the high 300000.
Flexibility to adjust that number based on component cost inflation. All the foregoing prices include the benefit of the $40000 inflation reduction Act tax credit.
Such we expect to be on the lower end of price compared to other electrified solutions in terms of upfront vehicle costs, while keeping our distinct advantage in fueling costs as well.
Turning to our go to market strategy as we've previously shared our long term strategy is that highly on is a powertrain company and we expect to sell our solutions directly to the Oems for them to integrate into their production lines. However, as we launched the product we plan to source the contents of chassis from the <unk>.
OEM and then we will utilize our facility here in Austin, Texas and mud centers that are close to the Oems factory to install our hyper Truckee Rx product.
In the beginning when we are not in the Oems data book and not yet on their production lines, we will sell the entire vehicle and then over time, we'll transition to selling just the powertrain to the Oems as we scale volume.
Through this model, we will procure the chassis from the OEM and they will stand behind their warranty on the actual chassis in the Cabot itself, while highly on will be responsible for the powertrain and the associated components. As we've previously shared we will first go to market with the Peterbilt 579 truck and then look to expand to.
Other Oems as we go forward.
Now I would like to share a little bit more about the launch of our hyper Truckee Rx system that will begin late next year.
Earlier this year, we set out to secure orders for our first 200 production thoughts for what we are calling our founders program as.
As we look at the learnings from our hybrid system and what it took to be successful we realized that one of the biggest hurdle is having trucks deployed across the country, where they are more difficult to support.
So the founders program trucks will be deployed out of a highly on large facility in Dallas, Texas. If any of you have ever been to the southern Dallas area. You know that it is filled with many warehouses operated by some of the largest logistics companies in the country. We decided that there is no better place than Dallas to rollout our new technology.
The boundaries program will feature a white glove service and support from the large facility as we deploy our initial units at the launch facility. We will not only have service bays for supporting and maintaining our solution, but we will also plan to have onsite fueling to make it convenient per fleet to fill up on renewable natural gas.
Yes.
We will encourage our fleet customers to utilize the large facility at their convenience, but we are also working on a nationwide service plan with partners, who will be authorized to work on our powertrain.
As we go forward, we'll share more details on where our large facility site will be located and who some of our service partners will be <unk>.
Interest in the founders program and desired participation in the initial 200 trucks was oversubscribed, but we believe this is an appropriate number needed to confirm the performance and reliability of the first hybrid truck <unk> production units.
This past quarter, we rounded out our first 200 orders by adding a 10 truck order from <unk> one of our hyper truck Innovation Council members. Ron is one of the many fleets to have participated in our ride and drive events and were impressed with how the vehicle performed and so are our powertrain as a strong solution for their path to electrification.
<unk>.
As previously mentioned, we believe that the successful completion of testing validation and certification work that we're doing as well as the continued deployment of fleet trials will be an inflection point for orders as these milestones are achieved and now that we've announced our target pricing, we will move forward with continue into <unk>.
Grow our order backlog for delivery in 2024 and beyond.
Finally, I would like to reiterate that we are still on track to start production in late 2023 and plan to deliver all 200 founder program trucks to our customers by the end of Q1 of 2024.
Now I'd like to shift gears and talk a little bit about our hybrid solution and some of the progress we've made.
We are pleased to share that we recognized $5 million in revenue this past quarter, while we continued to deliver more and more vehicles. We also have a backlog of orders of over $1 million for the solution.
As we've shared in past quarters truck availability continues to be an issue along with supply chain delays, which is one of the reasons. We've started deploying our hybrid systems pre installed on trucks as well.
As a result, we have shifted some of our installs out to the right.
As we look to 2023, our plan is to continue to recognize quarterly revenue from our hybrid solution that is comparable to this quarter as we move to the commercial launch of our hyper jockey Rx system.
I now would like to spend a few minutes talking about our recent acquisition of GE additives Carno technology on September 26, we closed on the acquisition of a new innovative generator technology out of GE is additive division, we paid $15 million in cash and $60 million in stock or $5 5 million.
Chairs ge's level of share ownership in highly on equates to about 3% of our total equity.
Through the acquisition, we not only acquired the carnal generator technology and its associated IP, but we also received an exceptionally talented group of engineers, who are experts in the generator technology as well as fuel injection flameless oxidation emissions and three D printing or additive manufacturing.
As a little background for anyone who is familiar with the cargo technology. It is a fuel agnostic generator that will be utilized in our hyper truck powertrain platform in the years ahead.
The generator can operate on over 20 different fuel sources, including hydrogen and pulled forward efficiencies that are significantly higher than today's conventional generators. It also offers superior emissions performance, especially when running on hydrogen.
We have been working with GE for over a year on this technology. They initially approached us back in 2021, because they saw that our powertrain solution was a strong fit with the generator. They were designing we decided to kick off a development agreement, but when we saw the performance levels of the generator and recognized how revolutionary it can be.
We decided that the best move for highly on it was to acquire the technology outright and bring it in house.
Many have asked US what makes this technology, so unique and there are two key areas to highlight.
The first is the flameless oxidation fuel injection process. This is the same or similar technology that is utilized in GE aviation jet engine and highly on has secured a license to use this in the cargo generator in.
In addition to superior fuel handling the key components of the generator are produced on a metal <unk> additive manufacturing printer as opposed to using conventional manufacturing processes.
This will allow us to truly rethink how parts are designed and manufactured these unique parts enable us to achieve much higher efficiencies out of the generator.
As we commercialize this generator, we see it as not only a solution that can be utilized in our powertrains onboard the trough, but it could be used for other applications as well for example, these generators could actually be used for stationary power generation to charge electric vehicles.
Our fleet customers are seeing on a daily basis that the grid is not able to support the power needs of electric semi trucks with the cargo generator. We believe we may have a strong solution to this problem.
Our plan is for the technology to be commercially launched a few years after the hypertrophic <unk> solution.
To recap highly adds roadmap for the hyper truck powertrain is to first start with a natural gas internal combustion engine made by comments as the generator. This variance of the product is called the Rx after that we will launch the hyper truck Carnival, which will use the new carnival generator in order to produce electricity onboard the truck.
The third evolution will utilize fuel cell technology as the generator. Our plan is to work with others, who produced fuel cells in order to integrate their solutions into our powertrain.
As you look at the hyper truck roadmap, we've designed a powertrain platform that can evolve with new fuels and revolutionary generator technology.
This is one of the key reasons, we have invested so much time and effort into our proprietary software integration as this will be utilized across all three platforms with that I would like to turn the call over to John to discuss our financial results. Thank you Thomas and good morning, everyone and it is great to be here turning to the financial results for the third.
<unk>, we reported revenue of $5 million related to hybrid sales, including a full hybrid truck compared to 200000 in the second quarter of this year and no revenue in the third quarter of a year ago.
Operating expenses totaled $62 9 million for the quarter inclusive expenses related to the acquisition of Carnival as Thomas noted the carnal purchase was recorded as an asset acquisition with the key financial statement impacts shown in the table on the right side of this slide.
The transaction included a cash payment to GE, a $15 million and the issuance of $5 5 million highly on shares were at $16 1 million on the day of closing.
Highly on also incurred $1 2 million of direct transaction expenses for a total purchase valuation of $32 3 million.
Of this amount $28 8 million was recorded as research and development expense and $3 6 million as property and equipment. Excluding carnival operating expenses were $34 2 million compared to $32 2 million in the second quarter and $26 8 million in the third quarter of 2012.
One.
As highly on continues to make progress on our development roadmap R&D expenses, excluding carno totaled $23 9 million up from $20 1 million in the second quarter of this year and $18 2 million in the third quarter of 2021.
SG&A expenses for the quarter were $10 3 million down $1 9 million sequentially in the second quarter, but up from $8 7 million last year.
In total highly on reported a net loss of $63 4 million for the third quarter and $34 $6 million. Excluding Carno acquisition expenses. This is up about $1 million compared to the net loss of $33 5 million, we incurred in Q2 of this year and compares to the $26 6 million.
Loss from Q3 of last year.
In total highly in our reported a net loss of $63 4 million for the third quarter and $34 $6 million. Excluding Carno acquisition expenses. This is up about $1 million compared to the net loss of $33 5 million, we incurred in Q2 of this year and compares to the $26 6 million loss from Q3 of last year.
We ended the quarter with total cash short term and long term investments of about $455 million compared to $500 million at the end of the second quarter. The change during the quarter reflects the $15 million of cash use for the carnal acquisition and $30 million of cash spend to fund our core operations.
Looking forward, we now expect our full year 2022 revenue to be approximately $2 million, which is at the low end of the range. We projected for the year during last quarter's call as Thomas mentioned supply chain delays are affecting our ability and our customers' ability to obtain trucks and components needed to deliver.
<unk> hybrid systems that we have on order fourth quarter revenue will also depend on the number of units. We sell is full truck hybrid sales and the number of hybrid system sales. We also expect our full year operating expenses to be approximately $130 million, which is at the low end of the 130 to 140 million.
The range that we projected last quarter. This estimate excludes the $28 8 million carnal R&D expense, but is inclusive of all ongoing carnal costs since the close of the acquisition year to date expenses, excluding carnal totaled $92 million.
We continue to believe that we have sufficient financial resources to fund the current commercialization activities for our hyper truck <unk> powertrain as well as for initial development activities for the carnal product.
That being said, we will start to see increases in working capital primarily as we acquired components needed for assembly production trucks late next year. The lead time for certain components remains long and unpredictable by beginning to acquire some parts in the coming months, we will reduce the risk that supply chain issues delay our plan.
A truck deliveries with that I will turn it back over to Thomas for closing remarks. Thanks, John before we open the call up to Q&A. There are a few more points I'd like to share first this past quarter. We released our inaugural ESG report. This report can be found on our website and we encourage you to take a look at it also this past quarter, we had the <unk>.
Pleasure of visiting the White house for an event celebrating the passage of the inflation reduction Act under this act the hyper Truckee Rx qualifies for a $40000 tax credit, which will make the adoption of our technology, even that much easier for fleets.
Additionally, as some of you may have already seen we continue to release, new educational videos on Youtube and on our website that highlight some of the facts around moving to an electric based future. These video is not only focused on highly on but talk about the shift to electric trucking as a whole by highlighting some other solutions such as B EV plug in.
Nichols as well as fuel cell technology, we encourage anyone who is interested in learning more about what fleets need to know as they look at new technologies to go watch these videos.
Lastly, I'd like to close the call by sharing that demand for highly on solutions remains strong and continues to increase we are continuing to hit the milestones we set out a year ago and we remain on time and on budget with the commercial launch of the hyper truck E. Rx powertrain, we look forward to giving fleets a viable path to <unk>.
<unk> that enables them to reduce their emissions with that we will open the call to questions. Operator. Please go ahead.
Thank you as a reminder.
I would like to ask a question at this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
Your first question comes from the line of Steven Fisher with UBS. Your line is open.
Thanks, Good morning.
Just this morning on the morning, just to start off on the revenue recognition for the first 200 units when they clarify it sounds like we should assume that it's going to be the full upper 300, thousands of dollars per unit since youre going to be selling the whole truck.
And if that's correct I guess your Cogs are just going to include.
The agreement you have with tank car.
That's correct. So in the initial vehicles that first 200, and then even after that we anticipate that we will be recognizing revenue for the entire vehicle as we shared on the call as we go forward as we scale volumes continue to build the relationship with the Oems that's when we'll shift into more of a <unk>.
<unk> powertrain setup, where we'll be selling the components over to the OEM and they'll do that.
Integration.
Okay, great and.
Maybe a little bit early for this but I guess any sense of the split between.
What's going to be in the first quarter of <unk> 24 versus kind of what's late 'twenty three.
So we haven't added exact specificity that yet so what we've said to the fleets and what we're expecting is we'll start the production late 'twenty three start shipping units in that timeframe and then by the end of Q1 of 'twenty four we'll have all 200 of those initial founder programs trucks.
Return to fleets deployed in operations and and those will all be.
Being delivered in based out of that Dallas launch facility that we mentioned so we haven't given exact color to how many and in 23 versus <unk> 24, but.
I would assume that it's heavier weighted in the Q1 than it is in.
End of 'twenty three though.
Okay. It makes sense and then how should we think about the quarterly cash burn now that you have cargo in there there's more inflation, but.
You've obviously been making more progress and getting closer to commercialization.
Thank you mentioned that it was about $30 million of burn for the core business and then you had the $15 million for for Carno. So.
Whats the right run rate and how we should think about for the next handful of quarters on cash burn.
Yes, Hi, this is John I'll take that question. So as you noted we're running I think just a little bit under $30 million a quarter for the first three quarters. This year and it was about 30% in the third quarter. Excluding the <unk> 15 that we paid to GE. So you got those numbers right and as you've seen kind of through 'twenty, one and 'twenty. Two we have slowly started to grow expense.
<unk> and cash flow has been very consistent with that.
Fourth quarter again, we will look relatively similar.
There's not going to be any real step changes that we anticipate an operating expenses and therefore cash burn through the core.
I will reiterate as I just mentioned that on the working capital side, we're about ready to start putting trucks together, so we're going to be buying components chassis in batteries and so forth and just given the supply chain circumstances will want to pick some of those up early so we will probably start to see a little bit of impact in the coming.
Orders, but the core operation Youll, probably just see like a slow very slow increase and then we will see some working capital.
Okay, and working capital, we thinking like single digit millions of dollars initially.
Well, it's going to it's going to grow between now and late next year. When we start to put the trucks on the market I don't know exactly. We just started just started to put orders in for components, but I think youll see a little bit here in the fourth quarter and then it's a number that's just going to grow and will add up over time, so it's going to be.
Tens of millions over the next year or so.
Yes.
Single digit tens of millions so somewhere in that range, but it.
It will be kind of a slow increase and then we'll start delivering trucks.
Okay very helpful. Thanks very much.
Your next question is from the line of Andres Sheppard with Cantor Fitzgerald. Your line is open.
Hi, Good morning, guys. Thanks for taking my question and congrats on the quarter.
Just a couple of clarifying questions from us so on slide nine it looks like it says that we should expect.
'twenty three quarterly revenues from the hybrid system to be in line with Q3 results. So does that mean that we should be modeling roughly $2 million in revenue for next year for the hybrid. Thank you.
Hey, Andrew Yeah. So I think that that makes sense. So what we're saying is we did have a million dollars in revenue this quarter and we're expecting as we go into <unk> three to the launch of the <unk> it'll be that similar half a million dollars per quarter. So I think your assessments or are in the right ballpark there.
Wonderful Thanks, Thomas and then in regards to Opex so it.
It looks like you've lowered your guidance for the year from.
Let's call it $135 million previously as the mid point to now $130 million.
As I look at the past three quarters, you're already pretty close to that annual number. So does that mean that we should expect a lower than usual opex number in Q4.
Yes, I'll take that one.
Yes.
As I mentioned, just just for clarity.
Order ago, when we projected we projected a $130 million to $140 million of total opex for the year that was before we announced the acquisition of Carnival.
And so as I just mentioned in the prepared remarks that projection is now on the low end, but it does exclude that acquisition accounting entry of writing off the $29 million of R&D. So why don't I just want to clarify that.
Because it's an unusual item that has come up lately. So again just to put them in one sentence.
Our expectation for the full year is to be at the low end of the range that we gave last quarter. So we expect to be around 130, excluding the $28 $8 million.
R&D expense related to Carnival acquisition that we recorded this quarter.
I see.
That helps thanks for clarifying that maybe one last one if I could.
In the past you've provided.
Updates on the <unk> orders and reservations numbers it.
It looks like at this quarter, obviously, you talked about the founders program and having that first 200 orders into production slots, but I'm wondering are there any changes to the reservations or the number of orders or what was the thought process I guess it not necessarily quantifying it this quarter. Thank you.
Thanks, Andreas and actually a question that we figured we would get on this call so to give a little more color to it earlier. This year, we asked their task the sales team would go out and fill the first 200 production slots.
There's going to be the founders program, it's going to be out of that launch Chile, it's going to have a <unk>.
Service element to it a white glove service and.
And so that was the initiative is go fill the first 200 in order to expand past that.
Wanted to establish what was our pricing going to be we've just come out with that on this call and so now we're going to add sales teams to continue to go grow that backlog as we look at the founders program. We were oversubscribed, we had more interest in it then that 200, so that was great to see but now that we've got pricing out there that we're public with we'll look to go grow that backlog.
And as we've said I think Theres a couple of big milestones here that we're about to hit so one is the controls fleet trials and expanding fleet trials next year.
Feedback thus far has been very positive and we're going to look to get it in the hands of more get the truck in the hands of more fleets next year and I think that's going to give fleets confidence.
They'll start placing orders and and then we will we're going through the commercialization process of certifications and validation of the technology and that's what fleets wanted to see so we do expect to continue to grow that order backlog, but up through now the focus has been filled that first 200.
Understood. That's helpful. Thanks, very much Thomas Congrats again.
Pass it on thank you.
Thank you.
Your next question is from Bill Peterson with Jpmorgan. Your line is open.
Yes, hi, good morning, guys. Thanks for taking the questions.
For the.
Controlled fleet testing can you share maybe more color on some of the key learnings you have any areas for improvement.
What's your plans are for winter testing and what Youre looking to achieve there I guess, how many vehicles you need also to support the testing in total.
Sure So I'll break that down into a couple of things. So first the controlled fleet trials.
So they've been going very well as we mentioned green path logistics Wegmans Debmar.
We've been able to execute upon and are running and so.
So from that standpoint learnings have been really just tweaks to the control algorithms how to make sure that our powertrain is responding to the driver feedback best possible. We've been very pleased with the reliability and performance of the trucks, we're very pleased with how that's going so overall.
Yes, it's going well and the feedback from fleets has been great. One other thing while we're on this topic I will add is some of the fleets. We have been working with have also had experience would be EV plug in trucks and it's been interesting theres actually they've been they've had some BV plug in trucks, there, while they pat or Chuck there as well.
<unk>.
Happy to say that drivers have spoken very highly of what what we're bringing forward I will say drivers have tremendous ranging xiety with BV plug in trucks. The range is just not there compared to what a normal diesel truck can get and frankly, even what's potentially being advertised of what the range of the electric truck is going to get.
Theyre not seeing that and so so we have heard from fleets they've had instances of these trucks running out of battery power and having to get towed back home to be put on the charger. So that's something that we're not experiencing obviously with the hyper Truckee Rx they have plenty of range. They are using the existing infrastructure out there. So that's been good and then second part of your question was on <unk>.
<unk> of vehicles. So the batch of vehicles that we're in right now as we previously shared theres going to be in and around that 10 units out there.
That's where we're at right now and we're just to start about to start the build of the next batch of trucks, which is going to be around 20 more vehicles and then it'll be those vehicles that then bring us into the startup production in late 'twenty three so we're using the current batch and we'll use the next batch and these these fleet trials and yeah as I said.
Very pleased with how theyre going thus far.
Okay. Thanks for that additional color I don't know if you've mentioned I might have missed it but it takes for kind of provide some.
Pricing.
But how should we think about the margin structure I guess under sort of the two forms one would be your sort of first.
Your first go to market strategy, and then how should how we should think about it when it's actually being built by the OEM directly.
Yes, I'll take that one.
We have some pretty good ideas of what costs are going to look like we're getting ready to put together. The first trucks. There is some a little bit of the unknowns in the component costs, but we are starting to narrow in on what those numbers are.
As you would expect initially that we're putting together a new product. The first costs are going to be higher than what you hope your long range.
What's your expectations are because youre, we mentioned Thomas mentioned, we will be putting together the units. Some here in some <unk> centers. So we do expect that that cost will come down overtime as we get efficiencies from volume purchases and eventually on the OEM Assembly lines. So, yes, we expect to be a little upside down to start off with.
<unk>.
It's still going to be straight up with this but certainly have a line of sight to get costs out of it as we grow volumes and we can get some some better insights into component pricing and things like that.
Your next question is from the line of Mark Delaney with Goldman Sachs. Your line is open.
Yes, thanks for all the details provided today and thanks for taking my questions.
I guess first in terms of the payback period for the ear accident that you're communicating pricing maybe you can share what youre hearing from some of the customers in terms of how long it will take for them to make up for any premium comparative I in a more traditional truck you talked about the fuel savings.
Many years before they may breakeven now that we know that.
Please thanks.
Absolutely. So this is just one of the things that we believe we have a strong value proposition to the fleet. So when we look at the ROI, we're going to be able to offer fleets up positive ROI. If you look at that upfront vehicle costs. Then you look at the cost of the fuel over time comparing that to a diesel we're expecting a payback in just under.
Three years to the fleet and then if you look at kind of the normal operating duration for fleet. That's in the five to seven years for a truck that can give.
Give them a north of $100000 in savings over what it conventional diesel would be now I'll preface all that with it obviously varies based on what conditions of fleets are running and how many miles are putting on per year, how long they hold it right, but hopefully that kind of gives you a general sense. What I will say is when we're talking about fleets about what they're hearing with BV plug in.
What they're hearing with fuel cell vehicles.
They're not seeing the opportunity to recoup those costs those high upfront costs at least for kind of longer miles over the road type applications and so we see that as a strong advantage for us because not only can we pull forward that ESG benefit the climate change benefit reduced emissions for fleets, but then we're also giving them the ability to actually have a truck that can.
Return a positive ROI for them.
That's really helpful and any kind of relates to my second question was the.
Competitive pricing you were showing a potential prices for bev or a fuel cell I wonder if you could elaborate a little bit more on the specs you were looking at I mean are those.
Our fuel cell trucks that can do the same kind of range is the <unk> or is it more of.
Kind of average across cross market I know some of the.
Competitive offerings, maybe go lower range. So just trying to understand how you've incorporated that into the comparisons.
So the pricing we gave on Bev of what we're hearing from fleets are more vehicles that are being advertised in that kind of 200 mile range. So I guess to your point, we're pulling forward that thousand miles range. So obviously, the bev has much lower range than that we have heard some bev trucks, having the opportunity of being up in the 300 miles.
Kind of a range.
Expect those prices could even potentially exceed what we just mentioned for bev pricing, but one thing that I think is really key to note and I think this is kind of a notorious thing with B b visas.
And as someone who drives the VEB what it says on your dashboard of what Youre going to get for range is not really what youre going to get for range and and we're hearing that is true in the trucking industry as well as when fleets actually put these trucks in operation, They're climbing hills, you got heavy loads, it's draining the batteries quickly and so so from that fleets are actually tell them there.
Rivers' reduce the number of the expected range of the vehicle the vehicle for BV plug in just because in real world conditions. It comes back lesson.
I think just to close on that note I mean, that's going to cause fleets have to buy more assets more trucks just to be able to move the same amount of goods.
That's going to even further making it tougher value proposition for BV plug in.
That's very helpful. Thank you.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question is from Donovan Schafer with Northland Securities. Your line is open.
Yes.
Hey, guys. This is Luke on for Donovan.
Just wanted to follow up on the Rx testing with those three fleets with green pathway England's in Denmark.
Just wondering what the.
A range of use cases that these testing sites or representing with long haul short haul freight et cetera, or just kind of the day to day.
In the life of one of these trucks.
And how it varies between these three locations.
So we've approached it would go into the fleet and kind of letting them choose how they want to run it.
So we've seen hundreds of miles being put on the vehicle in a day.
It has been a situation where the vehicles have been coming back to a home base.
<unk> it.
It's probably been more operated like a regional as opposed to a true just over the road drivers sleeping in the trucks, but but not regional type range as in like 100 miles a day I mean, they've been going out and putting miles on the trucks, but that's really up to the fleets discretion, one thing that you'll see coming out shortly here is that.
That initial movement of freight with with Green path, we actually moved some some cargo for shell some of their lubricant products in the video will be coming out on that soon here and you can see I mean.
These trucks are being put into just normal standard operation and lead in the drivers.
Work to trucks and.
For us we're taking that feedback and then looking at how can we continue to make the product better.
Got it thanks, that's helpful and thanks for the additional color on that.
That's it for me, but.
Thanks for taking the questions guys.
Yeah.
Your final question comes from the line of Noel Parks with Tuohy Brothers investment Research. Your line is open.
Hi, good morning.
Good morning Noah.
Just a couple of things.
At the Cardinal acquisition I'm, just curious why there.
Expense.
Outlook in the capital.
That you anticipated before the deal or are in reality tracking to your expectations pretty much.
Yes.
They are as far as we know I think we said back between the acquisition that we thought we would spend around $75 million to $100 million pools at the time it would take to develop the.
<unk> and so from what we've learned so far we're still we still think that's a reasonable number.
Again, as we look kind of into this quarter and next quarter, they're fully integrated the.
Unemployed in there.
The impacts are there.
Spend capital and operating expense or kind of reflected in our outlook. So we feel we can feel confident in it and the numbers are still still pretty solid.
Great and then I don't know if this is something you've touched on before but.
As far as the.
Sure.
Corporation of Macondo technology.
Is there anything in the.
The recent government incentive packages that thanks to benefit in.
In particular from.
So from that.
Okay.
So we do see that there are government opportunities out there for the Carnero actually potentially great government opportunities right. If you think about being able to deliver them a truly fuel agnostic generator that they could throw jet fuel in it they could throw diesel and gasoline you name it they could they could put it in the generator and it's going to use it.
That opens up a lot of opportunities.
Just kind of being.
Energy independent if that makes sense, so strong opportunities there, we will be pursuing and looking at government funding opportunities to assist with the Carnero and and also speaking with the government about.
How they could potentially use it while we're on the cargo topic I'll just share.
The Ohio facility recently here is spending time with the engineering team and it's a truly innovative solutions I just to touch on.
Sure. This flameless oxidation process that converts a fuel into heat they had it set up on a test bench up there got to see it where you're bringing fuel in.
You're looking at it through a clear chamber you can't see anything happening, but yet all around at all the metal parts are glowing red because it's producing heat and so.
Really really neat stuff and something that we see as being truly innovative for the trucking industry. But then also as you were mentioning potential other industries as well.
Great. Thanks, a lot.
This concludes the question and answer portion of today's call at this time I would like to turn the call over to highly on CEO Thomas Healey for closing remarks.
Well, thank you and we appreciate everyone joining today's call as I mentioned during the Q&A stay tuned for a video that will be putting out here to showcase.
The control fleet trials with Green path logistics in that movement of freight for shell. One other thing to note is if any of us on the line today and didn't get an opportunity to ask a question we will be posting on Twitter. Shortly here seeking any additional questions and then John and I will do a quick video answering some of those so please join in on that is.
Well, but otherwise thanks for joining and I hope everyone has a great quarter.
Ladies and gentlemen. This does concludes today's conference call you may all disconnect and have a wonderful day.
Please wait the conference will begin shortly.
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