Q4 2022 Microvast Holdings Inc Earnings Call
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Speaker 6: Fourth quarter 2022 earnings call. At this time all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Speaker 7: Please note this conference is being recorded. I will now turn the conference over to our hosts, Cassidy Fuller and Vesser Relations for MicroVAS. Thank you. We will now turn the conference over to our hosts, Cassidy Fuller and Vesser Relations
Speaker 8: Thank you, operator, and thanks to the audience for joining us today. Wang Yu, founder, chairman, president and CEO , Sasha Kettleborn, chief revenue officer, and Craig Webster, chief financial officer, will host today's call.
Speaker 9: Ahead of this call, MyCervass issued its fourth quarter and full year 2022 earning virtually, which can be found on the Investor Relations section of the company's website ir.mycervass.com. In addition, we have posted a slide presentation to the website to accompany management to prepare remarks.
Speaker 10: As a reminder, please note that management will be making forward-looking statements on this call. These statements are based on current expectations and assumptions and reflect a company's view only as of today. It should not be relied upon as representative about views as of any subsequent date, and undertakes no obligation to revise or publicly release results of any particular decision.
Speaker 11: that could affect the company's financial results. Please refer to micrograph filings with the SEC, including the annual report on form 10K and 8K filed earlier today.
Speaker 12: In addition, during today's call, management may discuss non- GAAP financial measures, including adjusted growth profit, adjusted net loss, and adjusted eepetop, which the company believes are useful as supplemental measures of micrograph performance.
Speaker 13: These non-GAAP measures should be considered in addition to and not as a substitute for an isolation from GAAP results.
Speaker 14: These non-GAAP measures have been reconciled to their most comparable GAAP metrics in the tables included at the end of the company's press release.
Speaker 15: A webcast replay of this call will also be available on the Investor Relations section of Microvets website. With that, I will turn the call over to Mr. Wu for open opening remarks.
Speaker 16: Thank you, Cassidy, and thank you all for joining us today.
Speaker 17: I would like to start off with a high-level overview of the quarter.
Speaker 18: Before providing the key highlights for 2022,
Speaker 19: I will then turn the call over to Sasha Kellebone, our Chief Revenue Officer, who will discuss some of our key wins in the quarter.
Speaker 20: Followed by Craig Webster, our Chief Financial Officer, who will discuss our financials in more detail.
Speaker 21: I will then address our outlook for 2023 before opening the call-up to your questions.
Speaker 22: Please turn to slide three as I cover a few highlights from the fourth quarter of 2022
Speaker 23: the full year. We recorded revenue of $64.8 million in Q4 2022 and $204.5 million for the full year.
Speaker 24: We ended the fourth quarter with a record backlog of 410.5 million driving by a robust order intake of 364.7 million.
Speaker 25: led by the large win we announced in December for our Energy Storage Division, or ESS.
Speaker 26: and a strong demand across multiple commercial vehicle platforms in Europe .
Speaker 27: We are proud of our achievements last year and are looking forward to executing.
Speaker 28: on the many opportunities ahead of us in 2023.
Speaker 29: Some of our most notable achievements last year include the establishment of the Microwave Energy Division in Colorado and is the introduction our new ESS container offering.
Speaker 30: This expands our addressable market to include energy storage sector.
Speaker 31: Where annual deployments in the US alone reached to 13.5 GWh in 2022, and our large 1.2 GWh utility-scale project has been a big boost for our push into this market.
Speaker 32: In our commercial vehicle business, we expanded our partnership with Evicom, one of the largest commercial vehicle manufacturers in Europe .
for a number of additional vehicle platforms and expect to ramp production and begin deliveries this year.
We were also selected for $200 million grant by the U.S. Department of Energy to build our most advanced high temperature separator plant.
in the United States to help enhance battery safety for the industry.
And we continued to expand our industry-leading technology. We introduced our 53.5 amp hour high energy cells and began initial shipments in the fourth quarter. We anticipated this solution to be a key driver of our growth in 2023.
led by demand across commercial vehicle applications, including light commercial vehicles, electrical buses,
or EVUS and commercial trucks as well as ESS.
To meet this demand, we expanded our production capacity in HUZO by adding a fully automated 2 GWh cell module and a padline dedicated to the production of 53.5Ah battery products.
And our two gigawatt hour capacity expansion at our new U.S. facility in Crossville, Tennessee.
is in full construction mode with start of production targeted for Q4 this year.
I would now like to turn the call over to our Chief Revenue Officer, Shachya Ketaburn, who will discuss some of our key wins and achievements in the quarter.
Thank you, Mr. Wu. I would like to start by reviewing some of our key wins during the fourth quarter.
Besides the already mentioned highlights from Mr. Wu, I would like to mention further on slide 5 that Kalmar and Microvask have extended their supply and purchase agreement through 2026.
We are proud to support Kalmar on their global electrification journey with our new Gen4 packs. With our technology roadmap and deep understanding of Kalmar's heavy duty business, we look forward to many more years of close cooperation. Please turn to slide 6.
which highlights some of our key awards in the commercial vehicle market.
We have four major highlights to share that reflect the diversity nature of our presence in the market.
Starting with our ongoing strategic partnership with the French-based technology company Gozon, that offers one and on-road zero-emission smart vehicles for freight transportation and people mobility.
The GOSV-ATM, as an example, is a full electric yard tractor designed for deployment in distribution centers, logistic hubs, container depots, and other industrial applications.
It has a loading capacity of up to 38 tons. The ATM will be powered by Microwave's high-tech Gen4 battery packs.
Thanks to our strategic cooperation with C&I Industrial, Iveco Group, our batteries are now powering the new prototype of the New Holland agriculture tractor, which will be produced starting late 2023. Our Gen 4 battery pack solution allows us for non-stop daily operations and can charge to 100% in 1 hour.
Then we have our battery supply agreement with RE Automotive, which is aiming to revolutionize the future of commercial vehicles with its innovative full electric skateboard platform. Our Gen4 battery pack is designed to address the requirements of commercial vehicle fleets, which our partner RE Automotive is targeting.
The newly deployed Gen4 battery packs contain Microwas high energy 53.5 amp per hour pouch cells. The Gen4 battery packs will meet cross regional battery standards such as ECE revision 103, GB38031 and UL2580.
Additionally, the outlook for ongoing business with our customer Dongfeng Trucks, China's leading truck brand, is very promising.
Especially for the hybrid heavy-duty truck segment, our new Gen4 battery packs with 48A ourselves would play an important role.
Now please turn to slide 7, which displays our major orders in Q4.
We received a nearly 10 million order for a cargo-hanting application from Marthi Trepple, a German-based leading manufacturer of industrial trucks for the transport of heavy payloads, including for airports, seaports, logistics, and distribution centers.
We remain very active in India. Light medium commercial vehicle is predicated as the next frontier for the electrification in India due to the surging energy costs and propelled by the steep demand projections in mid-mile and last-mile transportation business.
The Indian market will experience a doubling in light-medium duty vehicles sales within the next 15 years.
Similar developments can be observed with e-buses, where the share of e-buses of the overall bus fleet is expected to reach over 40% by 2040. To reinforce our standing in the Indian market, Micovac has established strategic partnerships with two of the leading commercial vehicle manufacturers.
Our customers, Switch with their e-bus and light commercial vehicle portfolio as well as JVM with their bus portfolio are well positioned to meet the growth.
During the fourth quarter we received an order in excess of 6 million from switch its subsidiary of Ashar of Leland for an e-bus application in India where Micovask is an exclusive supplier.
In addition, we are working with JVM Group to leverage further growth opportunities in the Indian e-bus sector, using our fast-charging batteries, allowing for up to 300 km daily commutes.
Furthermore, we have a new battery supplier for the EVECO Crossway, produced by EVECO Bus. The new Crossway uses our industry-leading high-energy density battery pack system IPAC ranging from 400 to 466 kWh, accelerating its EVECO's transition to zero emissions.
During the quarter, we also continue to benefit from ongoing audits from Ashkel Pielen, Iveco Group, ZF, Shell and others.
Our strategic partnership with IWECO Group continues to strengthen and we expect it to expand in 2023 and beyond.
The EVECO eDaily is now available for the European market and has already won the Want to Watch award, while EVECO Bus has issued multiple press releases announcing multipleity tenders it has won using microbus battery solutions.
For 23, in addition to delivering on these projects with the vehicle, we are looking to grow our business with them across other vehicle platforms and projects.
We have multiple initiatives to further grow our commercial vehicle business in the US. For example, we are in the process of finalizing a strategic partnership with a proven market-leading specialty OEM. Our high power long-life, high charge rate battery technology is a perfect fit for mining applications.
We see tremendous opportunities in this segment and are currently executing our recently announced technical partnership with her consortia, led by Shell, to support the decarbonization of the mining industry.
We will provide high-powered battery solutions with ultra-fast charging capabilities in support of a modular truck being designed for the mining industry.
Production delivery is expected in 2025. In the commercial truck segment, we have an exciting partnership in the works with a leading global truck manufacturer for a medium duty application in the US. Testing is expected to be completed this summer and a formal customer commitment is anticipated later this year.
As we noted over the last few quarters, raw material prices remain at elevated levels as a result of supply chain disruptions as well as worldwide inflation.
Our unit costs across the board continue to track significantly higher than we anticipated at the beginning of last year. In the second half of 2022, we implemented mitigation strategies including optimization, longer term supply contract, identifying new and or additional sources of supply and increasing our selling prices wherever possible.
as we ramp up our new manufacturing capacity in Huzu, securing additional EFS wins, and bring new manufacturing capacity online in Clarksville.
I will turn the call over to Craig to review our financial performance.
Thank you, Tascha. I'll spend the next few minutes just looking at our Q4 2022 financial results. Please turn the slide 9 out, summarize the main line items from our Q4 P&L.
We recorded revenue of $64.8 million in Q4 2022, which was down slightly from $66.8 million in Q4 2021. The year-over-year decrease was due to a delayed order shipment that we will recognise in Q1 2023, along with currency headwinds. On a full year basis, despite facing continued challenges from the COVID-19 pandemic,
profit of $2.2 million in Q4 2022 compared to gross profit of $1.2 million in the prior period, a 93% improvement.
On a full year basis, our gross profit was $9.1 million compared to a gross loss of $42.7 million for the prior year, a 121% improvement against the prior year.
In Q4 2021, we provided for higher warranty costs associated with the legacy product, which was not repeated in Q4 2022.
Our growth margin for full year 2022 was 4%, whereas in the prior year it was negative 28%.
Operating expenses were 37.3 million in Q4 2022 compared to 52.2 million in Q4 2021. The largest contributor to the decrease in operating expenses was the decline in our share-based compensation expense, which totaled 16 million in the quarter compared to 22.6 million in Q4 2021.
As mentioned previously, non-cash share-based expenses were a large contributor to the increase in GAAP operating expenses and operating loss.
Full year 2022 operating expenses were $170.7 million compared to $157.4 million in the prior year, an 8% increase.
Gap net loss was 33.7 million in Q4 2022 compared to net loss of 46.6 million in Q4 2021.
Gap net loss of full year 2022 was 158.2 million, compared to a net loss of 206.5 million in full year 2021.
We believe a more accurate representation of our financial performance, especially as it relates to cash operating expenses and operating loss, is as illustrated in slide 10.
After adjusting for non-cash settled share-based compensation expense in their cost of sales, Adjust of Gross Profit was $4.2 million in Q4 2022 compared to Adjust of Gross Profit of $3.1 million in Q4 2021. This translates into an adjusted gross margin of 6.4% in Q4 2022.
compared to 4.7% in Q4 2021, a 1.7% increase in improvement.
We were pleased to see another quarter of gross margin improvement despite higher raw material prices. This demonstrates our continuous efforts throughout the year to improve our long-term gross margin. When making the same adjustments for full year 2022, our adjusted gross profit was $16.8
compared to a logistic growth loss of 38.5 million in full year 2021. This translates into a logistic growth margin of 8.2% in full year 2022 compared to negative 25.3% in full year 2021. A 33.5 percentage point improvement.
After adjusting for non-cash SBC expense in SG&A, our adjusted operating expense in Q4 2022 was £21.4 million compared to £39.6 million in Q4 2021.
When making the same adjustment for full year 2022, our adjusted operating expense was $96.5 million compared to $97.6 million for full year 2021. After making those non-cash SBC expense adjustments and accounting for changes in fair value of our warrant liability and convertible notes, adjusted net loss was $15.9 million in Q4 for each one.
metrics, the most comparable gap metrics are included in the table at the end of our earnings press release. Slide 11 shows the geographic breakdown of our revenue for the 12 months ended December 31, 2022 compared to the prior year period. As you can see, our two largest markets were Asia Pacific and China.
growing 38% and 42% respectively year over year. Revenue in our European business declined 19% for the 12-month period ended 2022 compared to the prior year period mainly due to the delayed start of customer projects.
However, we expect sales in the region to see a strong rebound in 2023 as these projects begin to ramp up. We are pleased to note that a good percentage of our backlog is from European customers who are launching electrified models for the first time and should achieve year-over-year volume increases using our technology.
Especially the 53.5 amp power cell. Revenue in our US region for full year 2022 hosts a strong 298% growth rate compared to full year 2021. We have very high expectations for US revenue growth in 2023 and beyond.
and are ideally positioned to meet the opportunities in the US market from our parkour facility. The award of the 1.2 GWh ESS contract, one of the largest of its kind in the US to date, has accelerated our business plan for micro-mass energy. That project is utilising our ME4300 container solution.
with a 53.5 amp power cell allowing each container to deliver 4.3 megawatt hours of energy. With that energy density, we estimate that our battery solution allows for 30% fewer containers relative to those from competitors.
This gives the developer a smaller construction footprint cost, easier and faster installation, and reduced maintenance with far fewer containers to maintain over the life of the project.
Additionally, the energy retention performance of our cells far outperforms those of other suppliers.
Given the clear performance benefits of our ESS container, the utility scale energy market in the US is a huge opportunity for us. July 2030 is estimated 396 GWh of energy storage capacity will be added in the US alone.
with around 70% of this being projected for energy shifting applications. I will now take you through our funding position and other significant metrics from our 2022 proposal as you'll will see on slide 12...
and a short term investment. We never banked with Silicon Valley Bank and have no exposure as a result of its collapse.
Our cash position gives us a very strong balance sheet to execute our 2023 plan, especially our 4GWh capacity expansion which will come into production, given it's an additional 1 billion of revenue potential.
We also closed the year with a very healthy backlog of 410.5 million, which is our highest dose of the day.
This underpins our conviction that 2023 will be the start of many high growth years for microbrands. Our high energy 53.5 amp cell makes up over 80% of this backlog and we expect to realize margin improvements as we further scale this technology. The US and European projects account for approximately 90% of our backlog.
and we expect these regions to have another strong year in 2023.
Moving on, capital investments we made in 2022 totaled 128.7 million and were predominantly utilized to bring the additional 4 GWh of capacity online that I just mentioned.
We estimate that capital expenditure for the first quarter will be in the range of 50 to 75 million and will primarily be used for milestone payments on completion of our HUSO expansion, ongoing construction of Clarksville and our upcoming plans to use Mexico as an pet container assembly hub.
We will provide more details on this Mexico project in our Q1 update. As we mentioned previously, we fully expect Clarksville to be a direct beneficiary of Section 45x IRA Credit.
It should also qualify as domestic content for all of our US customers. Looking ahead, we see 2023 as a stand-out year in which we will be able to demonstrate tangible and material results from the R&D initiatives and capital investments we made in prior years.
With that, I will turn it back over to Mr. Woon to review our outlook.
I will turn it back over to Mr. Woon to review our outlook. Thanks, Craig.
Please turn to slide 14. Based on strong visibility from our backlog position, along with positive industry tailwinds pushing electrification forward in our key markets.
We expect to achieve very strong year-over-year revenue growth in 2023 of 65% to 75%.
or total revenue in the range of $336 to $358 million.
As Craig just mentioned,
Our backlog is mostly composed of orders from customers in Europe and the United States.
and is driven by our resonance reduction of 53.5 amp hour high energy cell.
They recently announced 1.2 GWh ESS project and they ramp up multiple commercial vehicle projects in Europe .
In the first quarter, we expected to begin deliveries of our 53.5 amp-hour cell from our new fully automated line in Huzhou.
In the second half of the year, we anticipated starting deliveries of our ESS containers from our Mezco assembly plant.
And in Q4, we expect to have an additional 2 gigawatt hour capacity up and running at our cross-filler plant on the fully automated production lines dedicated to the 53.5 amp power cell.
As a result...
We anticipated closing out 2023 with 7 GWh total production capacity.
including 4 GWh dedicated to the manufacture of our new 53.5Ah high energy cell.
We expect to add a significant into our backlog over the course of 2023 with orders from our commercial vehicles and ESS customers.
Once our 2 gigawatt hour clock speed expansion is off and running,
we will begin to realize the benefits of Aira.
which equated to $45 per kWh on all sales and modules produced. On 2GWh of production, that has a potential of $90 million per year in IRR credits.
We will also progress our separated business in 2023, and by the end of this year anticipate to having an angels get ready for the vlog of December , Jenna and I will be on the web
10 million square meter production line for our poly-alameda separator operation.
In parallel, we will also be working towards its full-scale operation in the United States starting in 2025.
All of those initiatives position us well for continued strong revenue growth over the coming years, which we believe will enable us to achieve profitability in the next 2-3 years.
I'd like to finish by saying that at the start of 2023, this is the strongest position that my company has been in.
We believe that the market has finally caught up with our technologies.
Customers have been testing the 53.5Ah cell since 2021, and we started to receive multi-year orders later that year.
We then started to initiate our capital investments to meet the demand and those will be finished this year.
All the foundations are now in place to see the large scale industrialization of our technologies, which puts us in a very strong competitive position as we enter our multi-year high growth phase.
With that, I would now like to turn the call over to your questions.
Operator, please provide instructions for the Q&A session.
provide instructions for the Q&A session. Thank you.
Ladies and gentlemen, at this time we will be conducting a question and answer session. If you would like to ask a question, please press star 1.
gentlemen at this time we'll be conducting a question and answer session. If you would like to ask a question please press star 1 on your telephone keypad.
A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star 1 on your telephone keypad. Your first question comes from…
I'm sorry. A good question, Nicole. This is Yang Wu.
To answer your question, the 53-point amp power is specially designed for the commercial vehicle.
and the well-balanced for the long life and fast charging capability.
And, you know, this is going to be a...
And you know, this is going to be a...
primary products to deliver to the commercial vehicles. For example, the vehicle group, they choose most of the platform is going to use this product. This product is giving very long life and we put a long life 5,000 cycles on our spreadsheet.
and actually retesting as much as I'm doing that.
Right now we have the testing data reached to full-time cycles and the battery still maintain 95% performance which is amazing.
We moved this product to ESS Energy Storage application. Since Energy Storage applications only have 0.25C, like a 4-hour system, and 0.25C, the charging and discharge rate...
And this given the battery much, much in under life, we simulated, you know, we never tested for 10,000. That's like a five, six years for testing.
This given the battery much, much in under life, we simulated, you know, we never tested for 10,000, that's taken like five, six years for testing. And by the way, we simulated, you know, the...
The lifespan is going over 10 times cycles, which has no idea with this high intensity.
And the intensity is relatively higher than the competitors, you know, you know, the same category.
This long life is much longer. That's why if we see we're using an ESS container, it gives us much higher instances and 30% less number of containers you're going to install it, the customer install it in the field.
this long life is much longer. That's why, you know, the, if we, you see we using a, uh, ESS container gave us much higher in density and, um, 70% less container number of containers you're going to install it. The customer installed in the field and, um.
we will see the market is going to very much welcome this product in the coming years. Perfect, thanks so much for that. You know and just on the ESS side, can you guys speak to the the scope and scale of the sales pipeline that you're seeing already and how you expect that
bunch of money to expand the factory. And our factory, we have a lot of projects lined up and we can pour products.
And our ESS, we couldn't sign more contacts.
And our ESS, we couldn't sign more contracts. And that's the situation.
So just speaking of the CapEx funding, can you talk about how mature your conversations are around potential equipment finance or other options for asset-backed financing for that expansion, particularly in the U.S.?
Great, can you answer that question? Yeah, absolutely. Colin, good to hear from you.
CapEx wise, do you want a summary on what we've got? Do you want to sort of promote the whole top way down like available cash, you know, CapEx? I think that's pretty pretty clear. Mostly what I'm looking at is any sort of debt or asset backed instruments that you guys are thinking about to support some of that CapEx.
here this year to offset some of the pressure on your cash balance.
Yeah sure, I don't think that we've got that much pressure on the cash balance and we mentioned before and this is what we did in Hoosier right so we once we've gone through the construction phase and it's de-risked and we can show banks that you've got contracted cash flows.
then we will look to put in really conservative financing. So later last year we closed that 111 financing line for the Hoosho capacity. That was at a 4.8% interest rate. So the beginning of January 19, backwards on a repair
I'm hearing some echo on the line. Can you hear me clearly? Yep, we sure can.
I just heard somebody else if they can go on mute please. So we've still got 75 million left to draw on that. That fully funds the remaining amounts gone hoo-sho. Then on Clocksville, what we're seeing now, just what Oozon alluded to is, it's more of a production capacity challenge, right? So where
We're bringing 2 GWh up this year in Clarksville. The backlog that we have already, we said it is like $410,000. Most of that is for the 53.5 amp power cell. When we look at available capacity in 24, the ESS contract we have.
the projections from commercial vehicle customers going into 24 will already be full in Clarksville.
And you've seen this and you've seen the data we've given you, it's because the energy storage market in particular is growing so fast in the US.
So, you know, already we're looking to put in place additional capacity, you know, a further two gigawatt hours. Financing to do that, I think it's easy to structuralize. There'll be some senior secured financing on the first phase. And then, you know, what we can do on that second phase where there's no construction, it's just equipment.
We have some equipment that equipment cost to add is worst case, you know, 150 million dollars and then
in terms of the cash flows, you've got the cash flows from your customers, but the real kicker in this is that, as Oozong mentioned, 2 GWh gets you 90 million a year in IRA credits. Then we add 2 GWh, that equipment cost I just mentioned.
With your IRA credits, you're paying it back in two years.
Really that's what Ira is doing for this sector is it's incentivizing us all to you know add the capacity, make sure you've got customers which is what we're proving right and then your payback periods are shortened. Perfect that's super helpful guys and just the last one you know in terms of some of the raw material inputs and the...
Sash, do you want to talk about customer engagement on that and then I can pick a bit more on gross margin improvement at the end if that's all right? Yeah, sure. I will do that. Colin, nice to have you on board here. So generally speaking…
With most of our customers we do have raw material price clauses in place. So, first of all speaking about that, and it's not about the question can we raise prices, it's more about finding common grounds and then moving ahead with that. Everybody knows that the raw material prices went up.
and everybody knows that the situation will level back to a normal level. And at the end of the day, it is like, you know, we have a lot of strategic projects in front of us, so we have strategic partners and with strategic partners, we always have strategic pricing at the end of the day. So we look forward in a positive way. We, it's not...
on the gross margin because it is really relevant. This year we did adjust at 8.2% and it's pretty fair. We are just out that non-cash SPC expense from production. It's not true production cost now.
To do that, we made nine different cells this year to get to that, it's just at 8.2%. Now, this is a real good thing that we're highlighting on the backlog.
Like over 80% of the backlog is 53.5 amp hour. So the gross margin improvement
is going to come from the introduction of that cell and then as we scale it, right, and what we're pointing it towards is let's...
Let's assume and hope you can make the assumption, we'll give you the forecast, we'll give you the backlog, we told you what the Asia Pacific and China business was and how not much of that is in backlog. So I think we're telling you that we're really confident on 23.
Let's start to think through how we get to profitability in 24. We end the year, you know, we have a billion dollars of revenue potential, 53.5. Now, I'm not saying it's going to be at 100% utilization in 24, but it's going to be a high utilization because of the demand we have and demand that's being created by how good that technology is.
Let's say we can get to 75% utilization in 24. That's 750 million just on 53.5 Amparo loan. Given where we are with demand and how tight our capacity is, I think we can make about 150 million gross profit. Then our job as a management team is to manage our cash operating expenses.
through to that time. Now they've got to grow because we're in high growth phase. I think realistically we can manage them to about 150 in 24 and at that point you're getting to break even and I didn't even put any IRON numbers into that 24. Yeah, Colin, for the cost control side, you know the most of costing.
hour.
probability.
That's very good and we never had this before because we just have lots of different products in a small volume. Right now we have one single product, one supply source and firm up all the supplies.
are very good and we never had this before because we just have lots of different products in a small volume. Right now we have one single product, one supply source and firm up all the supplies. Perfect, thanks so much guys.
Thank you, and just a reminder to the audience, to ask a question, press star one on your telephone keypad. To remove yourself from the question queue, press star two on your telephone keypad. Our next question comes from George Giannarikos with Canaccord Genuity. Please answer your question. Hi, it's Camera Man.
Hey, good afternoon, everyone. Thanks for taking my question. I'd like to start with the energy storage market. I'm curious as to how you were able to put all the pieces together and turn around the product so quickly. Thank you. Good question, and I constantly ask myself that as well.
Thanks for taking my question. I'd like to start with the energy storage market. I'm curious as to how you were able to put all the pieces together and turn around the product so quickly. Thank you. Thanks. Good question, you know. And I constantly ask myself that as well.
Actually, the battery cell and the battery technology we put on the vehicle is testing for a long time already, like three years testing.
And you know the vehicle application is much much difficult than containers. Container is never moved. Vehicle is vibrating, you know, moving in a different conspiracy.
is much much difficult than containers. Containers never move. Vehicle is vibrating, moving in a different contingency.
you set the product in the container, we have similar modules set in the container. It's pretty easy. We have experience to put it on the vehicle. That's why we set up a...
manufacturing in Mexico to take advantage of the low labor costs to make more competitive also and at a border of Mexico you know the Mexicali is very close to most of the ESSA application fields which is very near
in the southwest of the United States. Thank you. Great. And maybe this is a follow-up. Could you kind of help us understand the potential margin difference between the U.S. businesses and other geographies?
Who's on? Do you want me to take that one?
to take that one? Yeah.
Yes, I'd say George a lot of it really comes down to the IRA benefits. Unless the EU announces something similar, what we're getting is, you know, Clarksville production, you know Clarksville does both sell and module so we're getting $45 in a kilowatt hour.
and what you translate that through is probably a 15 to 20 point uplift in your gross margin and then the other part of it is just how incremental it is to cash flows because what we see is maybe a...
short of a two-year payback on your capital investment so you know that you've essentially got free cash flow after that.
Great. Thank you everyone for taking my questions.
Great. Thank you everyone for taking my questions. Have a great day.
And this is Monica Gould, Investor Relations for MicroVest. We do have a few questions that came in through the web and we'd like to ask those now. So first, is your Clarksburg capacity spoken for already? You just broke the little bit.
equipment is fabricating in China. And I saw, actually I went there last week. I saw all the equipment laying on the floor for F.A.T.
and the factory testing. Right now, after factory testing, it's qualified and we're going to ship it.
ship to US and install US, you know the
the expectation is going to be end of this year to produce the battery. I'm sorry, I'm not sure if you heard me clearly enough, but the investor was asking if the capacity is spoken for already.
You heard getting very close to spoken to already for 2 GWh and we're already planning to add an additional 2 GWh and when we do that it's based on actual contracts.
So another question that came in is about the current status of the DOE grant, if you could talk about that. Yeah, the DOE grant that we are working on, right now it's very close to close the deal and it's in a contract.
Negotiating stage, we still need an engaging contract with BOU. We are in the first batch of the negotiation.
We still need an engaging contract with BOU. We are in the first batch of the negotiation. We will see the results soon.
Okay, great. I think we addressed this mostly in the prepared remarks about our China 3.1 expansion.
capacity if that's producing cells already and when we'll begin production. But maybe just want to review that one more time. Yeah, I'm in the China factory right now and we have a little bit delay maybe in the end of this month.
It will really produce the first style. It just needs the ramp up. I slowly ramp up to ensure the process.
To reach the full production, design and production takes a few months. And we are producing small volume right now.
Okay, great. And the last question, going back to gross margin progression 2023, the author was curious about the impact of the automated production on a gross margin.
I think we'll definitely see it but you know let us show you the actual from Q2 Q3 onwards now as we just said right we're really looking now to focus around one core technology on fully automated lines
efficiency of production planning, negotiating with suppliers and you know we're confident that we will report that progression throughout the year.
And the final question has to do with our 2023 guidance and how much of that, what's the assumption for ESS in the guidance?
is about
around 20 to 25 percent is ESS. The rest is commercial vehicles. So commercial vehicles still growing like really positively. And as we mentioned, we still expect really strong showing from India, China.
and getting into the back end of the year, like it's more, we've just got capacity constraint to actually grow the revenue beyond that. So that does it in terms of our questions.
I would like to turn the call back to Mr. Wu for any closing remarks. In general, you might provide starting the high growth for business. I'm super happy right now. I don't see any problem for the sales side.
And the only, you know, the concentrate on our business is delivery. You know, we need to deliver as much as possible our products.
and finding money to do the expansion. I'm saying that the multiple year high growth, this is a very positive, you know, going to make us super busy.
Thank you all. Thank you all for joining this meeting.
Thank you. And that concludes today's conference. All parties may disconnect. Have a great evening.
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