Q3 2022 Xos Inc Earnings Call

Greetings and welcome to <unk>, Inc, third quarter 2022 earnings call.

At this time all participants are in a listen only mode.

If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

At this time I would like to turn the conference over to General Counsel of Excellence just isn't there. Thank you you may begin.

Thank you operator, and thank you everyone for joining us today.

Hosting the call with me today are Chief Executive Officer Dakota, similar Chief operating Officer, Giordano, Sordoni, and Chief Financial Officer Kingsley FMT.

I Havent this call excess issued its third quarter 2022 earnings press release, and a presentation, which we will reference during this call.

This can be found on the Investor Relations section of our website at investors got excess trucks dotcom.

On this call management will be making forward looking statements based on current expectations and assumptions, which are subject to risks and uncertainties.

Actual results could differ materially from our forward looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release. During this conference call or in our latest reports and filings with the Securities and Exchange Commission.

These documents can be found on our website at investors that excess trucks dot com, we do not undertake any duty to update any forward looking statements.

Today's presentation also includes references to non-GAAP financial measures and performance metrics. Please refer to the information contained in the company's third quarter 2022 earnings press release for definitional information and reconciliations of historical non-GAAP measures to the comparable GAAP financial measure.

Participants should be cautioned not to put undue reliance on forward looking statements with that I'll turn it over to Dakota.

Thanks, Kristin and thank you everyone for joining us today for our third quarter 2022 earnings call.

We appreciate everyone joining the call and are excited to share with you the progress made and challenges faced during the quarter.

We will also discuss steps made to evolve our organization to respond to the dynamic external environment.

During our call today I'll cover deliberate decisions, we made as a team set up excess for success in the coming quarters.

I will then review quarterly business highlights our knee charging infrastructure solutions and other updates since the end of the quarter.

Then Joe will provide an update on the manufacturing operation and our supply chain.

And to wrap up things Lee will provide a detailed review of our third quarter financial results and our outlook for the second half of 2022.

In this uncertain environment, we dedicated considerable time understanding customer demand our delivery capabilities, the constantly evolving supply chain and the economic environment.

We've worked diligently over the past two quarters to align our internal plan with these external realities.

This has led to several deliberate decisions to set the company on a trajectory for future growth and success.

These decisions focused on three key metrics demand margins and liquidity.

We continue to see demand and sales growing triple digit percentages year over year and will capitalize on this growth with our revised plans, which I'll share with you now.

First we've received several repeat orders from large national accounts.

Customer feedback is positive and our breadth of customers and backlog has increased substantially however.

However, the timeline for customer deliveries has increased due to delays in installing charging infrastructure.

Implemented an internal project to accelerate the delivery of infrastructure to customers, which I will cover in further detail.

We have right sized the organization to reduce operational expenses.

This initiative is focusing R&D in the near term on products such as the step van and excess hub that we believe will help drive profitability next year and in subsequent years.

We have simplified our manufacturing operations and supply chain focusing efforts on our flex manufacturing site in Tennessee.

These cost saving measures will also reduce the number of days in process inventory and benefit working capital in the future.

We have launched an internal project to align the organization on achieving gross margin positivity by the end of the first half of 2023.

We believe that we will achieve this goal through a combination of pricing actions lower product cost and lower overhead cost.

Finally, we continue to have access to capital as we closed two convertible notes with investors during the third quarter and we expect to access additional debt financing via an ABL and receivables financing in the near future.

These decisions better position us to continue growing deliveries achieved positive gross margins and <unk>.

Excess capital to scale the business.

We are building a robust sales and customer support organization and we're seeing continued strong demand for our products as our revenue for the third quarter of 2022 was $11 million up 12% compared to the second quarter of 2022.

During third quarter 2022, we continued our north American expansion with Idiot units delivered across 15, North American cities during the period.

These vehicles went to existing customers such as merchants fleet and Fedex ground operators across four states as well as new commercial EV customers.

The demand for excess vehicles and last mile delivery application has not slowed although regular seasonality and the last mile delivery sector. During the peak holiday shipments season is expected.

However, we are reaffirming our half year guidance, which anticipated fourth quarter seasonality.

Also announced the expansion of excess energy solutions with a suite of five new types of excess DC fast Chargers that are compatible with both access and other commercial electric vehicles and <unk>.

<unk> a wide range of charging applications.

Charging infrastructure deployment is the largest hurdle slowing our pace of deliveries.

<unk> expanded the excess energy solutions team, which now uses a robust managed process to help customers secure charging infrastructure as quickly as possible.

This team provides turnkey infrastructure, starting with site evaluations site engineering and design permitting planning construction installation and commissioning of fleet charging infrastructure.

Several customers have made use of these services, including Loomis and universe, which have deployed charging infrastructure at multiple sites across the country.

These services are helping improve the pace of customer deliveries.

Also improve our margins.

In addition to our infrastructure solutions I'd like to cover other highlights over the last few months.

We announced a strategic partnership to expand our leasing and distribution network with national lease one of the largest full service truck leasing organizations in North America with over 900 locations and over 165000 vehicles in its fleet.

With this partnership excesses vehicles and services will be listed as part of the offerings from national lease.

Additionally, we also named Ww Williams as a pilot service provider to support excess customers with World class service and maintenance.

Subsequent to the end of the third quarter, we introduced an extended service contract offering in partnership with National Truck Protection Co Inc. A leading aftermarket truck extended service provider in the U S and Canada for class two through eight commercial vehicles.

This extended service contract is expected to help decrease the total cost of ownership or T. C. O four our step vans and create an enhanced overall ownership experience for our customers.

Additionally, we are making several changes to the step van platform.

Focused on improving both suites total cost of ownership and accessories gross margins.

This past quarter excess unveiled new features for our advanced driver assistance systems, commonly known as eight off to all of our step vans such.

Such features will become standard in excess vehicles going forward and will help fleets they've on insurance repair and driver safety costs in an effort to further reduce direct material costs. We began work in early 2022 to integrate more cost effective battery cells into our vehicles.

This includes making use of more affordable chemistries, such as lithium iron phosphates for less weight sensitive commercial locations such as parcel delivery.

This has been part of our ongoing development plans for some time and we expect to launch multiple new battery configurations in 2023.

We will continue producing are lira battery line for powertrains weight sensitive locations and service parts.

In addition to increased battery options, we've conducted value analysis and value engineering activities that have managed to reduce material usage and assembly steps significantly.

And some high cost components like high voltage harnesses. This is led to savings of roughly 50% on direct material costs.

We are making great strides to help our customers improve safety and consequently, lower the total cost of ownership, while also reducing direct material costs.

With that I will now turn the call over to Jeff.

Thanks Dakota, our operational focus is to increase delivery volume and begin delivering gross margin positive units by the end of the second quarter next year.

We have a robust internal plan to make sure we achieve these goals.

This includes the following initiatives.

Turning to take price action, the effects of which will begin to see in the coming year.

Streamlining our manufacturing operation and focusing production in Burts town, Tennessee.

This will help improve our margins by reducing the overhead costs in manufacturing as well as reducing freight costs.

We've established an internal project dedicated to further reducing the cost of our step van platform through design and engineering, while also preserving performance and reliability of our vehicles.

These efforts will bring significant improvements to our direct material costs as well as the vehicle performance.

The supply chain team has been working in tandem with our engineers as well as their supplier partners to uncover new areas of cost reduction on the step van and platform and re domesticating key parts of our supply chain from Asia to North America.

While we are confident in our ability to execute on these plans. We don't expect our margin improvement to be linear from here to the end of the second quarter as we work through existing inventory and continue to take steps to optimize our manufacturing and supply chain systems.

Achieving gross margin positivity is our core focus along with continued revenue growth and sufficient access to capital to support such growth.

That's Dakota mentioned many of our customers are continuing to struggle with obtaining adequate charging infrastructure.

I'm excited by the progress our team has made with the excess hub and excess energy solutions with the aim to alleviate charging bottlenecks.

Hub is a mobile charging station that can be used to charge up to five electric commercial truck simultaneously, while minimizing the power draw from the electric grid.

We look forward to providing updates on the excess hub in the near future as we begin to rollout the mobile charging station to customers.

In summary, we believe that we're on the right path to scaling our business responsibly.

We are proud of the team's hard work during the quarter and difficult decisions that we needed to make this includes the decision to reduce employee head count to achieve near term gross margin positivity as Kingsley will discuss further in a moment.

The opportunity for clean fleet and logistics solutions in both the public and private sector remains the mens and we expect to continue to benefit from the secular shift to a net zero carbon economy.

I'll now pass the call over to our CFO Kingsley often Mickey.

Thanks, Joe and good afternoon, everyone.

So it's just focused on growing delivery to meet the continuing strong demand for our products achieving positive gross margins and allocating capital prudently.

Reviewing our financial performance over the quarter.

Our revenues for the quarter increased to $11 million compared to $9.8 million in the second quarter.

This is in line with our guidance and was driven by a 21% increase in units delivered to 88 compared to 73 in the second quarter will be.

We took price action earlier in the year and expect to realize average selling prices to increase as we deliver more of those units.

We remain one of the most cost competitive zero emission options and plans to take further price action in early 2023.

We're excited to see the grocery that fleets as a service offerings, which include logistics financing exosphere and energy solutions, we'll be talking more about this revenue stream as it grows in 2023.

Our gross margin during the quarter was a loss of $10.8 million compared to a loss of $5 $1 million in the second quarter.

This is driven by an increase in our cost of goods sold to $21 $8 million compared to $14 $9 million in the previous quarter.

We booked a number of noncash adjustments in the quarter that maturity increase our cost of goods sold.

These includes adjustments for future sales as we work through older lower margin orders in our backlog.

Adjusting for inventory, which is now obsolete due to improvements of our products do you talking she needs research and development efforts.

The other inventory adjustments.

In total these adjustments with $5 $3 million and without these our gross margin loss would've been 50%.

We believe that these adjustments are largely transitory in nature as we invest in our systems and procedures and continue to add trucks to our backlog with higher average selling prices.

We continue to expect to be gross margin positive I see unit level towards the end of the first half of 'twenty three.

As Jim mentioned with food because much of our research and development operations on engineering programs to remove costs in the bill of materials and improve availability of pioneer story.

In addition, a six.

<unk> mentioned, we will significantly reduce freight costs and other overhead by centralizing manufacturing in our facility in Tennessee.

Turning now to expenses third quarter operating expenses fell to $24 million from $22 $7 million in the second quarter.

We made the difficult decision to focus operational efficiency and reduce workforce by 16% from a maximum head counts in May 2022.

We've got all of our team no I and the management team was all those effects as well.

As a result, we expect general and administrative expenses and sales and marketing expenses to fall in the fourth quarter.

R&D expenses over the quarter were $8 $6 million versus $8 $5 million in the second quarter.

We expect to see the benefits of this activity and reduced material costs, a few population in the coming year.

Turning now to our balance sheet and liquidity.

We closed the quarter with cash cash equivalents and available for sale securities of $109.2 million, which includes $3 million over strict cash.

She had $55 million in convertible securities in the quarter as.

As of the end of the quarter. The vessel book debt was $53 $7 million net of debt discounts and issuance costs and conversions in our liabilities position.

Growth in inventory slowed and we now recorded net inventory position was $66 $3 million versus $62 $2 million at the end of the second quarter.

Both our accounts receivable and payable positions fell despite growing revenue as we continue to fine tune our systems and processes.

Operating cash flow less capex or free cash flow for the quarter was $32 $2 million down from $51 million in the second quarter and we expect it to fall further over the fourth quarter.

Finally.

We reaffirm our previous guidance for the second half or towards 'twenty two.

We expect deliveries to be in the range of 150 and 200 units.

We expect revenues of between $18 $75 million and $25 $6 million.

non-GAAP operating loss in the range of $43 million to $52 million.

We will provide further guidance on 2023 early in the new year.

Thank you very much I'll now turn you back over to Dakota.

Thanks Kimberly.

Before we open it up for questions I want to thank our team for their continued efforts to build the best commercial EV company possible.

Our team has worked incredibly hard to set access on a trajectory for future growth and success.

We believe our decision to focus on growing deliveries, increasing profitability and managing liquidity is unmatched in this industry.

Our focus is building a sustainable scalable business model with products that create value for our fleet customers.

We've accomplished significantly more than six years than our peers with less capital and less time and it would not be possible without this team our external partners and our loyal customers.

I would especially like to thank several customers this quarter, including Loomis unit first merchants fleet Fedex ground contractors, and our new customers that have joined the excess family in 2022.

I will now turn the call over to the operator to open the line for questions operator.

We will now begin the question and answer session.

I'll ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your headset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

And our first question here will come from Donovan Schafer with Northland Capital. Please go ahead.

Hey, guys congratulations thank.

Thanks for taking the questions and congratulations on the continued growth in.

Kind of the initiatives were taking I think they're they're broadly speaking the right moves.

I wanted to talk about just sort of kind of the the focus on Tennessee and for really no doubled.

Doubling down.

On the operation improvements in that area and kind of the head count reductions.

So do those go together, where there's maybe is it safe to kind of assume.

In relative terms, that's sort of a deep emphasis on Los Angeles as you know.

Ah is a manufacturing operation to really be pumping things out and.

The relative increase on focus is kind of see as a real a central place there.

Yeah. Thanks Donovan for your question and happy to provide more context I'll go ahead and start and then we can certainly follow up with more details, but I think you're interpreting it exactly correct.

We really want to demonstrate our products can get to gross margin positive and ultimately be be very profitable vehicles and long term.

And in order to do so we need to make sure one our direct material costs can can be profitable, but than any of our associated overhead costs with running our production facility in delivering vehicles are also reduced.

And what we've decided to do is really centering on Tennessee has a great cost structure. It has the ability to scale vehicles that facility has already produced thousands of vehicles.

And in a previous life.

And really it means less focus on our Los Angeles and Mexico facilities.

Meaning that all of our energy all of our efforts from our manufacturing operations team our quality team our supply chain team are centered in on one facility, where we can really optimize for process improvements and for cost reductions.

And I'm I'm sort of also guessing and maybe are assuming.

The role L. A will still be kind of a meaningful role because it from sort of an engineering design talent.

From an extended.

Silicon Valley.

The satellite kind of thing they call it in Silicon Beach, and all that stuff. So.

Are you still is there still kind of a longer term commitment to Los Angeles area and meaningful head count there.

Yes, absolutely. So we're continuing to maintain our facility here, where most of our engineering team is based.

And we view this as a core area and resource that we're going to continue to preserve and maintain to focus our efforts on research and development on cost reduction within our platforms and on future improvements that are going to be in the vehicle as you probably know there is an incredibly good hiring pool within Los Angeles for hiring all of the skills associated for <unk>.

<unk>, our own powertrain battery and software technology, which are the core intellectual property areas that excess is focused on and that we build on.

Unlike some of our peers.

Yeah.

Doug.

Sorry, Donovan. This is Joe I would just add to that by saying we have highlighting with Dakota is that in saying that we have deep R&D capability.

At our headquarters in Los Angeles.

Not only on developing products, but also testing and validating products. So that's where we would take in new cells. For example from a new cell vendor and do battery cycling and do testing in a thermal chamber and put.

Put new components battery modules or other electronics on a shaker table and really get those deep deeper insights on the products that we put onto our trucks.

The validation really starts there before before it goes to tenancy for production. We also have low volume production or our manufacturing capability on the battery side in Los Angeles.

Yeah, Okay that makes sense I I've seen this in some solar companies and some other clean energy, where you kind of ended up with Oh.

<unk> and engineering talent concentration and you you have a lot of equipment, there and so it still has its sort of testing and almost even maybe pilot line type capability, where you can kind of stimulate manufacturing and figure out how that would kind of work and then you take it somewhere else for the scaling.

That's exactly the case yeah.

Yeah, Yeah, Okay, and then I wanted to ask about merchants fleets. So you know obviously they have proved to be very good and solid customer for you guys. You know there, it's not like you're sending out vehicles.

Is that like a dealership ship situation, where you know the revenue recognition can get murky or whatever but.

But they do as I understand it and correct me if I'm wrong on all of this put merchants really is it is there sort of they're almost like a fleet as a service company and leasing it out to other.

Companies should you get data from them and visibility on you know you send them.

<unk> step vans.

Are you able to see how that gets turned around and whether they actually do sort of resell a vehicle with services attached or whether they.

Our leasing I'd kind of like what those use cases are how quickly you know does it all get deployed instantly and so all 60.

You send them 60 that gets kind of gobbled up right away.

Their uses or so.

So some fraction of that ends up sitting on the lot for a couple.

Yeah. It's a great question, Yeah merchant fleet as you mentioned, it's been a incredibly great customer of ours and continues to be a good customer as we deliver more vehicles to them.

Around the customer deliveries.

Merchant fleet is an FMC or a fleet management company. So they do keep that that customer data confidential, but they do share data with us around utilization around their expectation for delivering these vehicles.

Such that we can continue to improve the product and then the second point I'll make is all of our vehicles out there in the field have telemetry on them, but they have our access to your platform. So we can track and monitor those vehicles for service purposes.

NSS, how well, they're performing in the field, how they're being charged.

Where theyre getting delivered you know all the all the particulars that are more specific to service and maintenance and fleet management.

So we still do have have visibility on those vehicles in the field for customers.

Okay.

That's helpful. And then just the last question last question, if I can sneak one more in just for supply chain.

I there was lost I think it was last quarter might've been one before that Geo made a comment about our wire harnesses as just an example of something where there's supply chain hiccups.

This time, you kind of mentioned some improvements to help maybe on material costs, but then I also.

This sounds more products through you know, maybe Gulf coast or Savannah other ports.

Just curious if there's kind of an update on just supply chain dynamics given those those changes and things you guys have made.

Yeah. The team has done a lot of work in this area to improve the supply chain situation, but those improvements are all across the board.

You mentioned wire harnesses. That's an example of a component that we mainly relied on sourcing from Asia that we've actually domesticated to North America.

That's an example of a change that we've made to make our lives easier from a supply chain perspective as.

As far as the ports during the supply chain crisis, we did divert some.

Some of our supplies coming in from Asia to ports other than L. A and long beach and that helped alleviate some of the pain I think we've been doing less of that now and freight prices have fallen a bit over the last couple of months as well so moderate improvements, but there are still difficulties in sourcing things like P. C.

We're certainly not at the woods, yet when it comes to supply chain crisis.

Okay very helpful and I'll take the rest of my questions offline. Thank you guys.

Thank you.

Our next question will come from Mike Szeliski with D. A Davidson. Please go ahead.

Good afternoon, and thank you for taking my questions.

One thing you didn't mention at all in the prepared remarks Dakota was the a M. D. M. D ph D. S. T. A products are those products on ice for now.

You'd still going forward in the whole new in the new 'twenty about in place what is going to come with those products.

Yeah. Thanks, Mike I appreciate the question.

We continue to make progress on the Mdx T and HD X T platforms, but as a part of our focusing in alignment plans for 2023, we really want to center in on the vehicles that are going to be able to the platforms that are going to be able to generate meaningful volume and profitability in 2023.

And in the excess hover or those two platforms. So we do continue to make headway and will bring those vehicles market, we're continuing to showcase them and demonstrate them for customers out in the field.

But the vast majority in focus.

So this is gonna be centered in on the step down in excess of 2023.

Okay.

And then looking at what's implied for the fourth quarter for deliveries.

It's still a pretty wide range and I'm not even sure I mean, both days left in the year given some of the holidays that are ahead of US and you can just give us some of the key factors, which would put you at the low end of $1 50 or or high end for 200.

Perhaps that's more like what's in your inventory today.

Paul a question, but just some kind of thoughts as to your capex level up to one to one end of that guidance range or the other at this point in the quarter would be appreciated.

So we'll have to see.

We've made lots of really good progress in manufacturing getting trucks ready for customers.

And the key thing that drives that range. The two real factors. The first factor is kings of Hey, Mike those back there is a customer's ability to just take trucks, specifically charging infrastructure.

Speak to the loss of about some of the solutions that we're bringing to help our customers take out of trucks and then secondly, the old practices just a normal seasonality you see in the fourth quarter also broadcast bizarre do parcel delivery companies and they're very very busy with the holiday season.

Like I said, we reaffirmed our guidance and we're focused on delivering on that.

Okay, great. Thanks for that.

I just know that gets you a positive gross margin at the unit level next year and you seem to have a.

Turned down cost structure as well.

King's me on what.

I'm frame or these worth volume level per month, you might see the company, becoming EBITDA positive.

Yeah, absolutely when we think through about the factors that get us EBITDA closed the savings driven by the operating capital to infection, we havent guided to that specific point and that's another COVID-19 because for us soon after that.

And what drives the answer a couple of things eight volumes of units.

Which we'll talk more about early next year, but also the growth you know non step down in revenue.

So to speak a little about pieces of service offering which is growing there is a high margin service offerings and we expect this to grow significantly in 2023 as well.

So that's some of the other extra spear items that you're that you're in.

And working on.

Yeah. So there's just extra sphere, the extra synergy Dx, whose hub some of the other logistics offerings do we have something L. D. C is a very critical part to help our customers electrifying and also very important parts of our revenue stream and suddenly we've spoken about very consistently we spent most of the year launching the different aspects of it.

And next year, we're really driving that through without customers.

Okay great.

One last one here.

Just give us some your thoughts guys about how you feel about 2023 shipments at this point are you looking at continued quarter over quarter improvement after the fourth quarter here.

Obviously, assuming that the supply chain conditions don't.

So deteriorate substantially is it safe to assume gradual increases going forward.

Yeah, we remain really confident in the demand that continues to exist within the market as we shared we've seen triple digit percentages and sales demand and sales growth year over year from.

From 'twenty, one to 'twenty, two we don't anticipate that the volume of demand will slow down as there's a backlog in replacement vehicles that has existed for the last two years because of the supply chain client.

We haven't guided specifically to volumes for the full year next year, but given a lot of the indications and conversations we've had with customers. We're confident that the sales demand will continue to be very strong and that our internal initiatives to improve the delivery and timelines for delivery of charging infrastructure will also.

<unk> dramatically improved in the year.

Further enabling growth in deliveries.

Alright, well thanks for that color I appreciate it I'll pass it along.

Thank you. Our next question will come from Jerry Revich with Goldman Sachs. Please go ahead.

Yes, hi, good afternoon, good evening everyone.

Hi, Jeremy good evening.

I Wonder if you could talk about the cost per truck. So we're running at about 200 and some odd thousand.

Per truck today to get to the gross profit positive targets that you spoke about.

What's the gross profit per truck need to get to and what's the path.

To get there. So I appreciate the pricing part of the lever can we talk about the.

The build materials part.

Yeah, I'm happy to detail kind of the buckets that we have basically established of cost reduction and the areas. We're really focusing on and then kings. We can follow up and provide a little bit more detail on each of these areas.

But first as you mentioned is price action and taking price action. We've already made some price increases earlier this year and we're going to continue to increase prices at the beginning of 2023, as well, which will have an impact on our asps and overall, our asps per quarter.

The second area that has been a significant area of focus for this entire year has been.

Then value analysis and value engineering in the platform that we build our step one in our mdx platform and reducing the overall direct materials cost and there are several activities that are taking place on this front, including some of the battery changes our high voltage harness and high voltage architecture changes as.

As well as some modifications to cooling system low voltage electrical and chassis components.

And each of those areas, while there may be small contributors that incremental compounding effect of each of those vehicles sub systems adds significant savings to our direct materials, our bill of materials cost.

And then the third area is really streamlining our operations focusing in on one production facility in Tennessee.

It's going to keep manufacturing operations, there keep our quality operations there.

Improve our costs and reduce shipping and logistics on the freight side and ultimately centering on building an incredibly efficient operating machine outside of that tenant in that Tennessee location and that'll reduce our overheads are.

And ultimately you know our our allocated overhead they get factored into our gross margin calculation the.

The other thing we've done is we've.

<unk> taken other areas of the organization and the reduction in force that we implemented earlier this year, where non critical resources some of which were allocated to that overhead which will further improve gross margins. So that's those are the buckets, but I'll, let kingsley touch a little bit on the detail and how we've removed some of those costs and how we continue.

To.

Future quarters.

So Jerry I think the.

The only thing to note is when you think about the cost of our trucks are the number of different bucket as is the case that speak about sort of direct material cost of battery cost the chassis costs and as we mentioned we have there is a recent development efforts.

Give us a confidence and reducing its direct costs, but there's also an element of fixed costs that we have from having the two facilities in Mexico and also having production in Tennessee and you just think through the level of freights between making the battery packs herein and a shifting them over to Tennessee, and maybe having a chat.

It is manufactured in Mexico, then moved to Tennessee for final P. D I C.

We're seeing very significant reduction in our overhead costs freight costs and other indirect costs as well.

When you look through Oh, sorry for the direct material costs.

Large amounts of the reduction will sees from a reduction in the battery costs and I'll spend the chassis costs as well.

So.

On a and then B as you mentioned and they'll see the pricing action was taken because we have a lot of detailed about this.

The individual customers in the times of delivery and we can look into the points in the future where the price when we expect to realize in Asp's Abu B increase that gives us that confidence of impulses gross margining basis second half of next year.

Yes.

I just want to stay on the cost part of the equation.

For a moment because you know the really interesting part about your initial vision.

The business was to deliver evs.

A modest premium.

Two diesel in step vans or $80000.

Trucks, and so our cost per truck is over 200000 today. So I'm just wondering based on these actions as those get us to 150000 per trial <unk> hundred 25000 per trucking costs, just so we can.

Assess for how we're doing relative to.

That value proposition.

That you folks have been focused on.

Yeah, Gary It's a great question. So you know the.

We started the business and what our focus has always been on delivering a package to a customer that's ultimately going to reduce their total cost of ownership.

And we always have factored in the overall cost of acquisition of the vehicle and the cost of fueling that vehicle in the cost of maintenance and service and one of the things that has happened as we start to see some of the fuel markets have gone up significantly in the past year or so.

Particularly in 2022.

The cost of operating a diesel has also gone up considerably, particularly for fleets that are operating these trucks eight to 20 hours a day sitting there idling and utilizing more of that fuel. So we do have more flexibility to be able to price them competitively still.

As compared to a diesel vehicle and obtain a T C O savings within the first three to five years of the vehicle and even though we are taking price action, we still see several customers that are <unk>.

Advocates of adopting electric vehicles because of the volatility that theyre seeing in the fuel and broader energy markets are.

Our goal has always been to price them as competitively as possible, while still building a profitable and sustainable business and so we're gonna take and modify the business as much as possible to make sure. We can achieve strong gross margins in the future.

And also deliver something that's of value to our customers the value engineering and the value analysis that we do internally and the continued cost reduction efforts isn't going to stop when we are a profitable on vehicles it'll continue to be introduced and will continue to initiate cost savings in various areas of the direct material.

Of the vehicles and.

Jerry just to add on that even with a full costed price actually next year, we still remain one of the most cost competitive zero emission options on the road and in fact, one of the few zero emission option to devote full stop.

We have been taking price actions throughout the year, and we've had minimal pushback from our customers and excitement from them to take out trucks.

Yeah.

Yes for.

First of all Boston.

Yes. Thanks.

Sorry, I didn't mean to cut you off.

No I think the price competitiveness point is a really important one that we remain still one of the most price competitive options in the market of folks that are actually shipping vehicles and if you look at some of our peers in the industry their pricing as you know representative increase of 40, 50% above where we price so it doesn't near.

Really provide the the TCR savings that customers are excited about making that transition.

I appreciate it thanks.

Okay.

Those are all the questions that we have today.

Now I'll turn the conference back over to Jay Cohen for closing remarks.

Thank you operator.

And thank you everybody for joining us today to discuss our third quarter results, we are making tremendous progress towards our objective to build the fleet of the future with innovative solutions to produce new platforms that go farther last longer and provide a more cost effective platform for our customers.

Look forward to keeping you updated on our progress and we hope to see many of you at some of the upcoming conferences.

Thank you and have a great day.

Ladies and gentlemen, thank you very much for your participation.

This does concludes today's teleconference. You may disconnect your lines and have a wonderful evening.