Q4 2022 Lion Electric Co Earnings Call
Speaker 2: Good morning ladies and gentlemen. Welcome to Line Electric's fourth quarter and fiscal 2022 results conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder this conference call is being recorded.
Speaker 2: I would now like to turn the call over to Isabella Jahi, Vice President Investor Relations and Sustainable Development. Please go ahead. Good morning everyone.
Speaker 3: Welcome to Lions post quarter and Cisco 2022 results conference call.
Speaker 3: Screw the telephone line at the conference on rip in guttural discontinuements and Do
Speaker 3: Today, I'm here with Marc Bedard, our CEO and founder, and Nkona Büle, our EDP and CEO .
Speaker 3: Please note that our discussion will include estimates and other forward-looking information.
Speaker 3: and that our actual research could differ materially from those implied in those statements.
Speaker 3: We invited to review the personal language in this morning's press release and in our mDNA regarding the various factors, assumptions, and risks that could cause our actual results deformatively from those implied in such overlooking segments.
Speaker 3: With that, let me turn it over to Mark to begin.
Speaker 3: Mark?
Speaker 4: Thank you, Isabel. Good morning, everyone. At the beginning of last year, as we were discussing our strategic objectives for 2022, we highlighted the following specific areas of focus that guide our work and investments.
Speaker 4: ramping up production at our Montreal plant.
Speaker 4: building and starting production at our drill head plant and our battery factory.
Speaker 4: and accelerating vehicle and charging infrastructure deliveries.
Speaker 4: I'm glad to report we delivered on our plan for each of these items.
Speaker 4: while maintaining our commanding leadership in the electric school bus space.
Speaker 4: There are three main elements we will be talking about today. Number one.
Speaker 4: We continue to increase our vehicle production cadence in Q4.
Speaker 4: which translated into growing vehicle deliveries and growing revenue.
Speaker 4: and we expect this trend to continue in 2023.
Speaker 4: Number two.
Speaker 4: We achieved significant milestones in our two growth projects.
Speaker 4: as we assembled our first electric school bus unit at our US manufacturing plant and our first battery pack in our battery factory.
Speaker 4: And number three, while in 2023, we will continue to invest in our two new manufacturing factories to ramp up production capacity, we will also continue to smartly align capital spans with expected near-term demand for our vehicles and to carefully manage our liquidities.
Speaker 4: We will provide color on each of these items before we open the line for questions.
Speaker 4: Let's begin with deliveries and orders. During the quarter, we delivered 174 vehicles consisting of 139 buses and 35 trucks.
Speaker 4: This is the fifth quarter in a row of sequential growth in vehicle deliveries.
Speaker 4: In fiscal 2022.
Speaker 4: We delivered 519 vehicles, more than twice the 196 vehicles delivered in 2021.
Speaker 4: Our fuel book currently stands at 2,468 vehicles.
Speaker 4: For total order value of $575 million.
Speaker 4: It includes orders for 2,167 electric school buses.
Speaker 4: including 190 from the EPA program.
Speaker 4: as school districts that were awarded grants under the program have started to place purchase orders ahead of the April 28 deadline.
Speaker 4: Speaking of the EPA Clean School Bus Program.
Speaker 4: We have already started delivering electric buses funded by this program, well ahead of the October 2024 deadline.
Speaker 4: Also, as per the program rules, we expect the ATA to make upfront payments to program awardees after receiving proof of a confirmed purchase order.
Speaker 4: This will have a significant positive impact on our liquidities by allowing us to invest in that type of procurement cost required to manufacture these vehicles.
Speaker 4: Our PO book also includes orders for 301 electric trucks. And last, our Lion Energy PO book amounts to approximately $6 million, mostly for charging infrastructure and related services.
Speaker 4: Beside the APA, ZTF, and many other programs discussed previously,
Speaker 4: other legislation and funding initiated continue to support the shift to the electrification of the transportation sector, which represents great news for Lion and our customers.
Speaker 4: For example.
Speaker 4: The US federal government recently published the US national blueprint for transportation decarbonization and signed the global memorandum of understanding on zero emission medium and heavy duty vehicles.
Speaker 4: which commits to 30% of medium and heavy duty vehicles self being zero emission vehicles by 2030 and 100% by 2040.
Speaker 4: In California, the proposed 2023
Speaker 4: In California, the proposed 2023 budget allocated $48 billion to climate change.
Speaker 4: On the IRA front, Ryan was officially approved as a qualifying manufacturer by the IRS.
Speaker 4: which means that our vehicles sold in the United States starting January 1st, 2023 are eligible for a tax credit of $40,000 per vehicle.
Speaker 4: Let me now provide an update on our supply chain.
Speaker 4: Last year.
Speaker 4: the supply chain continued to be impacted by several factors, although to a lesser extent than in 2021.
Speaker 4: I discussed previously.
Speaker 4: This has generally translated into longer lead times, increased transportation costs, and ultimately, higher cost of components for vehicle production.
Speaker 4: While supply chain issues are improving,
Speaker 4: We nevertheless expect continued challenges this year, which may impact our production cadence and vehicle cost.
Speaker 4: to mitigate those supply chain impacts.
Speaker 4: We have successfully put in place several measures.
Speaker 4: which we will continue in 2023, including qualifying additional suppliers and proactively managing inventory for critical components such as batteries and motors. At the end of the quarter,
Speaker 4: We had approximately 4700 BMW battery packs on that.
Speaker 4: This inventory should enable us to gradually convert to LAN batteries as we ramp up our own battery production, which I will address in a minute.
Speaker 4: As far as battery packs to be supplied by Romeo.
Speaker 4: battery packs to be supplied by Romeo. The arbitration process is progressing.
Speaker 4: In addition, we initiated legal proceedings against Nikola Corporation.
Speaker 4: on the basis that it intentionally interfered in our contractual relationship with Romeo and in our business expectancy with respect to our relationship with Romeo.
Speaker 4: As you can expect, we will refrain from commenting on this situation.
Speaker 4: Let me now talk about the development of our different vehicles.
Speaker 4: We have substantially completed the development work for Deliney bus.
Speaker 4: the Lion V Bus, the Lion V Truck, and the Lion 8 Tractor Truck.
Speaker 4: and we expect these platforms to begin commercial production this year.
Speaker 4: Please note that the timing of the start of commercial production for the Lion-A tractor truck
Speaker 4: could be impacted by the supply of the Romeo powered battery packs for the reasons I just mentioned.
Speaker 4: Also, as a reminder, our buses will be manufactured at both the Montreal and the Joliet plant.
Speaker 4: while our trucks will be manufactured in Montreal for the time being, where we have ample capacity to accommodate during the match.
Speaker 4: Which takes me now to an update on the Johnnia plant and the battery plant.
Speaker 5: As announced.
Speaker 4: We completed in Q4 the assembly of the first electric school bus unit at our US plant and delivered our first made in America electric school buses while we ramp up our manufacturing capacity.
Speaker 4: In this regard…
Speaker 4: We expect to manufacture a modest number of buses in Joliet during the first quarter, followed by a gradual increase in production throughout the year.
Speaker 4: We will continue to invest carefully in the JONIAC plan this year. With a goal to have an annual production capacity of 2,500 buses by the end of the year.
Speaker 4: As for our battery plant, following the completion of the installation of the first portion of our battery assembly line in our battery manufacturing facility.
Speaker 4: We completed in Q4 the production of our first battery pack at our own battery factory.
Speaker 4: Final certification of the first battery pack model is expected in the first half of this year, followed by a gradual production ramp-up in 2023.
Speaker 4: The first Lion batteries will serve to power the Lion C and Lion B-SPO buses and Lion Fire trucks.
Speaker 4: With our planned 2023 investments in the battery plan,
Speaker 4: We are targeting to reach a battery production capacity of 1.7 GWh by the end of the year. This represents capacity for approximately 5,000 vehicles in a mix of buses and trucks.
Speaker 4: As for the Innovation Centre Building
Speaker 4: The shell work is now substantially completed and this building will initially be used this year for testing certification of vehicles and batteries, for pre-delivery inspection of vehicles and other warehousing space.
Speaker 4: Let me now talk about our recently announced North American agreement with Mitsubishi and EMGS commercial finance.
Speaker 4: to provide financing for all electric buses and medium and heavy duty trucks through our Lion Capital Solutions offering.
Speaker 4: This agreement will allow Lion Capital solutions to provide our customers with financing solutions specifically designed for Lion School buses and trucks, thereby making it easier and simpler for our clients to secure the financing required for the purchase of their Lion vehicles.
Speaker 4: All of this without putting in significant pressure on mine's balance sheet, as we will leverage Mitsubishi's vehicle financing expertise in capital.
Speaker 4: This type of product offering should have a positive impact for our customers as it could eliminate or reduce.
Speaker 4: upfront capital requirements for the purchase of line vehicles. Nicolas will now further discuss our financial performance for Q4 fiscal 2022, and he will also provide color regarding our Catholic objectives for 2023.
Speaker 4: for the purchase of line vehicles. Nicholas will now further discuss our financial performance for Q4 fiscal 2022 and he will also provide color regarding our capex objective for 2023. Thank you, Mark.
Speaker 4: I will start with the financial highlights of the Q4 and full year 2022 results. I will then cover the 2023 investment outlook for our growth project and conclude with our liquidity position. I will then cover the 2023 investment outlook for our growth project and conclude with our
Speaker 4: During the quarter, we delivered 174 vehicles consisting of 139 buses and 35 trucks, which translated into revenue of $46.8 million compared to $22.9 million in 2024-2022, a 104% year-over-year growth in revenue. If you think about it – it used to be on the internet and myhar Shark fan.
Speaker 4: 160 of the vehicles delivered in Q4 were delivered in Canada and 14 in the United States.
Speaker 4: This was our fifth consecutive quarter of sequential gloat and vehicle delivery.
Speaker 4: We posted gross margins of negative 10%, mostly impacted by supply chain challenges, ongoing inflationary pressures within manufacturing costs, and our conscious decision to continue to invest in plant ramp-up, which is an important part of our growth strategy and our goal to achieve long-term profit as well.
Speaker 4: As previously explained, for the foreseeable future, gross margins should continue to reflect the investments we are making to establish manufacturing operations at our Jolyus facility and the Lyon Campus and to ramp up production at all of our facilities.
Speaker 4: As we scale production, we expect margins to improve as fixed costs will be spread over increased numbers of units.
Speaker 4: SG&A amounted to $16.6 million in Q4. After removing the impact of non-cash share based compensation, SG&A amounted to $13.1 million. This is a slight decrease vs Q3 expenditure of $14.8 million, again net of non-cash share based compensation.
Speaker 4: The adjusted EBITDA was negative $13.9 million for Q4 as compared to negative $7.5 million for the same period last year and negative $15.1 million in Q3 2022.
Speaker 4: During the quarter, CapEx amounted to $39.1 million, including $18.9 million incurred for the Joliet plant and $19.6 million incurred for the Lion Campus, as compared to $19.2 million during the same period last year.
Speaker 4: Capital expenditures for Joliet in Q4 were higher than the previously disclosed estimate of $12 million mostly due to earlier timing of equipment construction milestones and tooling costs.
Speaker 4: Capital expenditures for the Lion Campus in Q4 were lower than the previously disclosed estimate of $35 million due to later timing of construction of the Innovation Center and due to battery plant equipment received in early 2023 as opposed to the end of 2022. For the quarter, addition to intangible assets, which mostly consists in R&D, amounted to approximately $21.3 million.
Speaker 4: as compared to $9.7 million last year. Let me now make a few comments on selected 2022 full year performing time.
Speaker 4: We delivered a total of 519 vehicles during the year consisting of 409 buses and 110 trucks as compared to 196 vehicles in 2021.
Speaker 4: 471 of the 2022 deliveries took place in Canada and 48 in the United States.
Speaker 4: This translated in revenue of $139.9 million for 2022.
Speaker 4: up 82 million or 142% as compared to 57.7 million in 2021.
Speaker 4: Our gross profits were negative 12.9 million or negative 9.3 percent for the year and adjusted to the top for the negative 55 million.
Speaker 4: Most of the capex incurred for the year related to the two growth projects. $72 million was incurred for the drawing plant and $71 million, including approximately $5 million of R&D, was incurred for the line campus.
Speaker 4: Finally, additions to intangible assets stood at $79 million for the year.
Speaker 4: Let me now spend a minute on capital investments for our growth project in 2023.
Speaker 4: As previously signaled, we plan to further invest in CapEx activity, although at a reduced pace versus what we did in 2022.
Speaker 4: For Joliet, we expect 2023 CapEx to amount to $20 million.
Speaker 4: These investments should allow us to have the infrastructure in place for an annual production capacity of 2,500 buses by the end of the year.
Speaker 4: For the battery facility, we expect to incur a cap-ex of $23 million.
Speaker 4: in 2023 with the goal of bringing annual production capacity to up to 1.7 gigawatt hours by the end of the year. In parallel, we expect to incur approximately $22 million in capex for the innovation center in 2023. With the goal of bringing annual production capacity to up to 1.7 gigawatt hours by the end of the year.
Speaker 4: We expect that approximately 55%, or approximately $25 million of the $45 million in capital expenditures expected to be incurred in 2023 for the Lyon Campus, will be financed through the federal and provincial loan secured for such purpose.
Speaker 4: Let me now say a few words on liquidity and capital resources.
Speaker 4: In Q4, we successfully closed a $50 million offering of UNIT, with each unit consisting of a common share and a warrant to purchase a common share.
Speaker 4: We also raised $10 million under our ATM program during the quarter.
Speaker 4: Finally.
Speaker 4: We drew $56 million on our death facility, including the revolving credit facility, the government loans related to the Lyme campus, and the
Speaker 4: and on a new credit facility with Sinapa and PDQ, which was used to refinance our previous credit facilities with Sinapa.
Speaker 4: As of the end of Q4, we had a cash position of $88 million.
Speaker 4: We were also owed $10 million on the government loans for the Lion campus for CapEx incurred in 2020.
Speaker 4: Shortly after the M-24, we announced the exercise of the over-allotment option for the unit offering, increasing gross proceeds by $7.5 million.
Speaker 4: We also announced the sale of these backtransactions for the battery plant building in Nairbank, raising gross proceeds of approximately $21 million.
Speaker 4: As previously mentioned, we expect that approximately 55% of the TEDx to be incurred in 2023 for the Lyon Campus will be financed to the federal and provincial level.
Speaker 4: At the end of the quarter, capacity of approximately $94 million remained available for issuance under our APM program.
Speaker 4: While our balance sheet provides us with flexibility and runway, we will continue to closely monitor our liquidity in 2023 and look to seize opportunities that may become available to raise additional capital.
Speaker 4: With that, I will pass it back to Mark for concluding remarks.
Speaker 6: Thanks, Nicholas.
Speaker 4: Before we open the line for questions, let me conclude by saying that as we start 2023 it's a good order book and our three manufacturing plants gradually ramping up.
Speaker 4: We have everything in place for long-term growth and profitability. Our focus is on sustaining this trend. Also, you will be able to see all of our improvements yourself, since we will proceed with the official opening of our two new factories this year, starting with a visit of the battery plant this spring.
Speaker 4: Thank you for your time this morning.
Speaker 3: Operator, we will now open the line for questions.
Speaker 3: I just want to ask you to limit to two the number of questions asked to allow other participants to answer that question.
Speaker 2: You can of course go back in the queue if you have any follow up questions. Thank you. If you would like to ask a question please do so now by pressing start followed by the number 1 on your telephone keypad. If you change your mind and would like to be removed from the queue please press start and then 2.
Speaker 2: Our first question today comes from Mike Schliske with DA Davidson. Mike, please go ahead. Good morning and thanks for taking my question.
Speaker 7: I know you don't usually give any kind of guidance, but we're already at the last few weeks of March here. Can you give us some kind of directional or range for the production of trucks for at least the first quarter here?
Speaker 7: I'm sorry I mean I said I mean trucks and buses of course. Trucks and buses yeah good morning Mike this is Mark thanks for thanks for your question yeah absolutely I mean we don't give you know guidance as you said.
Speaker 7: But it's going very well in terms of manufacturing capacity. Manufacturing capacity in Montreal, just a reminder that we have manufacturing capacity of 1,000 units, and we're ramping up in Joliet as well. So what I can tell you is that the trend that we've seen in the last five quarters...
Speaker 7: you know, keep growing, this is what we're expecting as well in 2023. So I've said it several times, I mean, it's a constant growth one quarter to the other, and this is exactly what we think will happen in 2023 from one border to the other.
Speaker 7: There aren't really many other classes.
Speaker 8: 6.
Speaker 7: trucks, maybe one or two other class 5s, there are only zero class 6 trucks of any note at the show. I'm curious, A, how the show went, do you think, for your folks? And B, I guess I'm curious, why aren't we seeing a real flood of orders there if you really can't get an easy class 6 anywhere else and class 6s in general are in short supply on the x-size?
Speaker 4: Yeah, well, I think we said it right at the beginning, Mike. I mean, the Class 6 we have right now is one of a kind. I mean, this is a purpose-built electric truck like everything else we're doing, purpose-built buses, purpose-built trucks. So it's not an afterthought for us. I mean, that's part of the DNA we're doing. You're absolutely right. This is
Speaker 4: market where there's almost nobody else right now, the Class 6. And you've seen this with some of the partnerships that we, the partners that we were exposing with at this show. So we feel it's a good market for us. We feel that the truck
Speaker 4: market is just at the beginning of this. And you see that also, you know, with the order book at 301 units to us. I mean, it's only the beginning of that. And we feel, you know, that the supply chain crisis and the COVID crisis in the last couple of years, has basically delayed everything by about two years.
Speaker 4: And so we feel very good. And if you walk the floor, you probably saw the number of partners that we have there and also the interest of the operators for our trucks. So that's true for the Class 6, but that's also true for the Class 8, but also for the other models that we are launching this year.
Speaker 4: They've seen them already. They are driving them. And the good thing about those operators, they are looking, a lot of them, they're looking at electrifying the whole thing. So the whole fleet. So basically they are looking at their operation. They have a very good understanding of the total cost of ownership and what that means. And they spend so much money in diesel right now.
Speaker 4: and in maintenance as well, that they are excited by the trucks that we have right now, and the ones that are coming along. So thanks for your question. I think everybody is starting to see the difference between what we're doing and some of the other income dental OEMs have been doing, which is basically just a retrofit of their current products.
Speaker 7: Okay, just to answer the question, the actual Work Truck Week itself, how do you feel it went? What feedback do your folks from the booth give you? As far as your customer visits, are they going to order, receipts, etc.?
Speaker 7: I am sorry, Mike. So the Word Talk show, now we went well. In those shows, it's always like the – well, we do it obviously to meet some customers, but we don't need those shows to meet with the customers. We do that already. We just keep getting sued.
Speaker 4: So it's really about brand recognition, and also to expose some of the equipment that the operators can put on the truck. So it went very well. That's part of what we are doing basically on a daily basis. We keep building the brand. We keep building.
Speaker 4: the relationship with all of those customers. So I think, you know, as I said earlier, I think we're just at the beginning of what we will see in the future. But, you know, this is the reason. We feel this market is going to be so big at some point. This is the reason why we've reserved.
Speaker 7: three-quarter of our capacity in jolting at the mean for trucks at some point in a few years from now. Great, I appreciate it. I'll leave it there. Thank you. Thank you, Michael. Our next question comes from Buenora Poirier with Desjardins Capital Markets.
Speaker 2: Please go ahead Benoit.
Speaker 9: Yes, thank you and good morning everyone. If we look at the order book, it was pretty stagnant in Q3. Are you seeing bookings slow down given the macro environment and higher financing costs? I mean if we look specifically for the truck venture, it has declined over the last two quarters.
Speaker 4: What could explain this? Yeah, I've been wanting to speak to you this morning. No, to answer the first part of your question, no, we're not seeing a decline. I mean, there's a number of factors influencing the order book and when we look forward...
Speaker 4: Obviously, the EPA program we expect will help with the order of momentum. We always have.
Speaker 4: you know, the smaller orders with a good number of operators that we're working to gain and there's also the bigger contracts that we're working on. So, you know, continue to feel good about the order book going forward. In terms of, I think Mark addressed the question on trucks.
Speaker 9: And just on the liquidity front, you were successful to get over slightly over 100 million of financing in the quarter. If we look at 2023, you provided great color about Joliet, also Mirabel. What about the acquisition of Intangible and how should we look at the free cash flow burn for 2023 in light of the...
Speaker 9: the ramp up in investment overall in your plans.
Speaker 4: Yeah, I'll take a step back here, Binwan. When you look at the overall balance sheet, we had 88 million of cash on the balance sheets, and that's as of December 31st. And then right after the quarter, we announced the sale lease back to $21 million, another $7.5 million from the over allotment option on the December unit offering. We had the revolving credit facility at $200 million. There was about $7 million in capacity there at the end of the month.
Speaker 4: secured 109 of those purchase orders at the end of the quarter. The specific guide that we're giving for 2023 is really on $65 million CapEx for the growth project. Of course, we'll need to continue to fund our operations and there will be continued investment in R&D or in the acquisition of intangible assets.
Speaker 4: And with all that said, we feel that the balance sheet provides us with significant runway and flexibility. We will of course continue to explore alternatives to raise capital. We're very mindful of the market conditions and...
Speaker 4: We'll of course try to use as much as possible non-dilutive instruments. Recall we still have $94 million remaining on the ATM, so that could be one of the tools that we have to fund our operations.
Speaker 9: Thank you very much for your time.
Speaker 2: The next question comes from Chris Salza with B Riley. Chris please go ahead.
Speaker 10: Hey guys, thanks for taking my questions here. Maybe a little bit more on the EPA program, 190 purchase orders. How many of those were applications that you had filed versus some of the free agents that were out there that had filed independently?
Speaker 10: And obviously there was a really long waitlist for the program in the first round. Can you talk a little bit about the discussions with the EPA for what they might be looking for in the next round and the structure and timing that you guys think might be the case for that 2023 round? Thanks. I will keep Sonic launching after we are through that.
Speaker 4: Yes, hi Chris. In terms of the first part of your question, I'd say the majority of those purchase orders that were secured were from the 210, but we are seeing some successes in terms of converting the free agents, so that is going well. And I think more importantly there is significant dialogue around.
Speaker 4: free agents. So if these things take time, the deadline is April 28th and we would continue to make that a key priority for the company.
Speaker 11: That was about the further rounds of the... Oh yeah, the further rounds. Yeah, yeah. Yeah, yeah.
Speaker 11: There will be a billion dollars we expect allocated next year. We expect that part of it will be via a reimbursement program like the one that's in place today, but there could be a separate component as well. And we expect to hear more in the first half of this year in terms of timing, in terms of the procedure and then the form of the program.
Speaker 10: you had a big uptick in orders in the third quarter and then moderated a bit in the last quarter. I'm curious if you're seeing any momentum or you know customers that were waiting for kind of the IRA details you know around some of those subsidies and what are you seeing kind of you know now that it's a new year and
Speaker 11: some of those IRA subsidies are starting to kick in there. Yeah, Chris, this is Mark. The IRA is gonna help for sure. I mean, 40,000 a unit, I mean, is good. And as I was mentioning earlier, I mean, the TCO, I mean, this is really the tool that all the operators are using to purchase. And right now the TCO is favorable in most of the cases. So that's great. I was talking about the lion.
Speaker 11: five earlier. There's a lot of momentum we feel around the Lion 5. So obviously we will be launching this one this year. The same Lion 5 will be used as the electric ambulance under the partnership that we have with the MeRS. So this is good. The Lion 6, as we were talking earlier, I mean, there's almost nothing else. Nobody else in the market right now, and this is a big market.
Speaker 11: Also, we're expecting some good results with the Lion 6. It's a matter of timing. You mentioned the Lion 8 tractor. This one, we will be launching by the end of the year. You're absolutely right. This thing with Romeo could have an impact on the launching date. That could delay. That's the difference between the 2 tractor lords and the 1 Indian littler Muhammad.
Speaker 11: the launch of that product. But that being said, though, we have orders for the Lion8 tractor right now, and there's a lot of momentum also with the customers. So we're trying to go as fast as possible, I mean, to launch this product. And we feel that adding like the full line of products of medium to medium altitude.
Speaker 11: is going to be something very specific to Lion that most of the other OEMs will not be providing. Okay, maybe just the last one. Would you be able to provide any update around either timing or volume you think we need to hit for positive gross profit and causing VIBR to start?
Speaker 11: the gross margins and eventually I'll of course keep it that as well but I won't provide a specific timing or number of units.
Speaker 6: Thanks.
Speaker 6: Thank you.
Speaker 2: The next question comes from George Jenricks with Canaccord Genuity. George please go ahead.
Speaker 4: Hi, good morning and thank you for taking my questions. I'd like to ask a little bit about the EPA program and obviously we're very close to orders being concrete and manifesting themselves materially and potentially in your order book. Can you help guide us understand a little bit of what your market share expectations are?
Speaker 11: in terms of conversion? Well, look, I mean we're going after all of the the markets here, you know, there's a clear list of all the applicants and it's clear to us which ones are free agents. There are some LayU9 companies in your organization that need aSarah P tenants experience
Speaker 11: some areas where you see we're having more success in certain regions, but the idea for us is to focus on the regions with critical mass and where we're ready to deploy. So unfortunately, I can't point to a specific targeted market share, but we've already started delivering some units. We've secured 190 purchase orders so far. And as I mentioned before, we think we have good momentum with the free agents, so we're looking to get as much as we can.
Speaker 4: And then switching to the commercial side, I'd like to ask a little bit about conversion there as well because the Inflation Reduction Act incentives are out. I believe that many of your offerings are eligible. When do you expect momentum to turn there and to start manifesting itself in orders –
Speaker 4: on your order book because if you I understand you have the whole the TCL argument. It's very compelling. The incentives are very compelling. But when do you think we start to see momentum in the P&L? Thank you. Yes, Mark mentioned that we're getting good traction in the discussion that.
Speaker 11: speaking with a few years ago that were very enthused. And in the last couple of years, the dialogue slowed down and we're seeing that come back in the recent month. And so it's quite promising. I think what's interesting about the IRA $40,000 tax credit is that it applies really broadly.
Speaker 11: And so, you know, either on itself, on its own or in combination with other programs, it's just something that helps scale quite a bit because of how broad the program is. So we certainly expect to get momentum in the truck space this year. And what we want to announce there is the purchase orders. So obviously stay tuned for that.
Speaker 11: And George, also this is on the US side and this $40,000 is obviously helping us move the needle, but if you take a look at us on the Canadian side, there are many programs out there like the InZev and also the one that we have in Quebec. And those are making, well those will make in our opinion we feel.
Speaker 11: a big difference as well. So there are that type of money right now, but there's also some other programs on the US side as well like HVIP programs. So there's like local money in many places and this is where we feel like that's what we're doing like the Lion ecosystem with the Lion Grants. It's really easy because it's not easy to manage.
Speaker 11: through all the money available right now. And this is one thing that we feel, you know, we're doing well with our customers. But many of those programs, I mean, just started to apply. So, well, we spoke about the EPA, obviously on the school bus side, been waiting for it for a couple of years. And now we'll see the result of that. But we feel the same thing.
Speaker 11: on the truck side as well. So there's some subsidies that just came available to the customers. So some of that, let's say new money, is something new for the operators, but we're very up to date on all of that and we're helping them. We feel that's obviously going to help because the upfront cost.
Speaker 11: is always a challenge. I mean, when you're selling electric vehicles, I mean, that's part of the challenge and that's one of the reasons we have this agreement with Mitsubishi and EMGS as well, because we feel that they need to finance their product. Cdcneh warsŽ kidno ?e? Bye!
Speaker 11: we feel will really help us move the needle as well.
Speaker 4: So it sounds to me like you're saying that some of the bottlenecks are really red tape as opposed to anything else at this point in time just because the programs are new and people are still working through the map and the paperwork so to speak.
Speaker 11: Well, yeah, there's a little bit of that, but there's also, I mean, that's a change. I mean, we've always said it, and we can see the difference between the truck business and the bus business right now. We started selling the buses in 2016, and now when we're selling buses, I mean, the question back then is that is this reliable? Is it possible to make a living with those products?
Speaker 11: with those vehicles and now that question doesn't exist anymore.
Speaker 11: And the people in most of the regions now they're going full electric. We feel the same thing will happen on the truck side, but that will not happen like just tomorrow. I mean, those truck operators, they're making the calculation with us, they're trying the product and we feel that they will be purchasing.
Speaker 11: a modest number of units to start with, a little bit like we saw on the school bus side. And after that, they will go with big orders. But this is what we're doing now with the truck operators. And obviously, this money that we can use to lower the upfront cost.
Speaker 11: is really going to help. I mean, it's helping the TCO, it's helping them with everything, it's helping them making those decisions.
Speaker 2: Thank you. Thank you. Our next question comes from Kevin Chang with CIBC. Please go ahead Kevin.
Speaker 4: Good morning, thank you for taking my question.
Speaker 4: Maybe you can speak to how you're wrapping up labor here. You know, you provide a great color on where Joliet's going to be and where Data Factory's going to be in terms of production capability. I guess...
Speaker 11: How is your ability to find headcount here in order to match your production targets I guess over the next couple of years here? And maybe if you could also comment on what turnover looks like today maybe versus a couple of years ago within your current facilities. Yeah, good morning. Good morning, Kevin. This is Mark.
Speaker 11: So we fund, I'm talking about the Montreal factory to start with. The manufacturing capacity for buses is 1,000 units. We add the equipment and we add the people to manufacture those units. So we have a good pace right now and the supply chain has been an issue. And as I said just earlier, I mean it will remain an issue.
Speaker 11: on the bus side, on the truck side, we do have the equipment we need to manufacture the 1,500 units a year, but we are ramping up the labor as need be, because obviously, well, you saw the order book at 300 units, and also we need to match this with the timing of the launch of the new products.
Speaker 11: So we don't see a specific challenge or with respect to having the right labor on the truck side in Montreal. Right now, let me now speak about Joliet. In Joliet, we're doing fine. We have about over 100 people right now and we've invested in the capex that we have.
Speaker 11: 1,500 units at the Montreal factory. So right now we're ramping up the labor in Joliet as needs be, but we have over 100 people right now.
Speaker 11: We're doing fine. We're doing fine. And as I said earlier, I mean, we will be doing a modest number of vehicles in Q1, and we will be ramping up the output in Jonia throughout 2023. So that's great. We started manufacturing in 2022, and this is going to be a constant ramp up.
Speaker 11: So you're going to see that in our results for the whole year, but this is exactly what we're expecting. And you can expect this number to go higher than the over 100 that we have right now. But it's always a challenge to recruit the right people.
Speaker 11: But, you know, we are we are able to hire the people that we need right now in both in both countries. That's excellent. Maybe my second question, you know, you know, the vehicle order book, you know, almost 2500.
Speaker 12: vehicles, obviously some of these orders came in.
Speaker 12: during various points in the cycle in terms of supply chain issues, commodity cost inflation. And I'm just wondering.
Speaker 12: how you protect the gross margin here as you deliver into that order book. Do you have a, you know, is there an inflation adjustment factor or some sort of indexing so at the time of delivery or when you put this vehicle into the production line that
Speaker 12: you get made whole on maybe unexpected costs that may have occurred over the past year or two or for these fixed price contracts where you
Speaker 12: where you essentially have to manage the cost and the price level is essentially fixed.
Speaker 11: Hey Kevin, Nick here. To answer your question, yes, the purchase orders of the vast majority are at a fixed price. We have for sure seen some inflation in the bill of materials over the last year or 18 months and that's reflected in the gross margin that we're presenting today.
Speaker 11: We continue to think that the model scales really well. So the way to protect is obviously to start with a unit level economic that works well. And we think that's the case. That said, you've heard us in the previous quarters talk about some price increases that we rolled out. They are.
Speaker 11: relatively modest price increases and we're going to gradually start seeing those through the P&L. And because of our direct sales model, we feel that we're quite nimble in being able to implement those price increases. But the bottom line is really starting with a unit level economic that works well and that scales well and we think that's the case today still with the figures in the order book.
Speaker 12: I know you're not going to give me the number because I know someone tried to ask it earlier, but maybe just from a qualitative perspective then, do you think the inflation you've seen over the past couple of years here, and maybe some of this is transient over time, but whatever is structural, do you think that materially changed where you thought the break-even unit number was? I'm just going to keep it short and just for quick
Speaker 12: I know you're not going to give me the number because I know someone tried to ask it earlier, but maybe just from a qualitative perspective then, do you think the inflation you've seen over the past couple of years here, and maybe some of this is transient over time, but whatever is structural, do you think that materially changed where you thought the breakeven unit number was?
Speaker 12: versus what you know today this and maybe what you thought a couple of years ago or has inflation been pretty manageable and you know that that breakeven target is still so pretty much the same. Yes for sure it has an impact but I say you know scale unit mix will help.
Speaker 11: you know, are more important than just the inflationary pressure. And as I mentioned going forward, when we think longer term, you know, the price adjustments will sort of reset that. Recall that we've always said that our objective is to bring the price to our customers down over time for inflation.
Speaker 11: takes us in a different direction in the very short term. The objective remains that in the longer term, what it does cause is certainly a delay in price reductions for us.
Speaker 11: Also, keep in mind that the batteries that we're using right now, like the BMW batteries, we have a fixed price and we have $4700 of those in stock as we speak. This has an impact of about, you know, the batteries account for, let's say, 30-40% of the bill of material of an EV. So this is very significant.
Speaker 4: And also we're very pleased by the investments that we've made in the battery factory. The battery factory, I mean, this is going to make such a huge difference in terms of costing, I mean, at some point, because obviously, you know, we're shaving costs. I mean, when we're comparing to the others.
Speaker 11: So we spoke earlier about all the advantages of adding all battery factory in terms of you know cooling technology and all of that and better efficiency and all of this, but also better costing and this makes a huge difference and this is something we're totally controlling through this vertical integration. So right now I mean for 2023 it's going to be mostly the BMW batteries that we will be using and this cost has not really changed.
Speaker 4: So that's a big piece of our bill of material and this is something that really helped us manage through this inflation. Those are great points. Thank you very much and best of luck in 2023 here. Thank you. Thank you. The next question comes from Dan Levy with Barclays. Please go ahead Dan.
Speaker 12: Hi, good morning and thank you for taking the questions. I just want to go back to your comments on the Juliet rant.
Speaker 4: and plans to get to a 2,500 annualized capacity by the end of the year. Maybe you can just talk about some of the gating factors, you know, that are required to be met to achieve that capacity. And then maybe you could give us a little more color of how we think about actual your run rate of production.
Speaker 11: as that capacity is being unlocked. Yeah, well, no, thank you. Good morning, Dan. So yeah, and Joe, yes, I mean, what we've been doing, and we'll do the official opening within the next few months, so you'll be able to see that yourself as well. We have more working stations than we have at the Montreal factory. So basically, you know, the...
Speaker 11: the goal in a few years from now will be to have a capacity of 5,000 buses.
Speaker 11: And at the end of this year it's going to be 2500 buses. So those structures of what we are doing now with the number of working stations which is about 70 working stations in Joliet, has been planned for this kind of manufacturing capacity. So it's a little bit less labor intensive. We've invested a little bit more in automation.
Speaker 11: as well. But you know, this was the plan. The good news though is that you know by the end of this year with you know the CapEx investment that we still need to do this year to get there after the end of 2023 when we're looking at the battery factory, you know at the 1.7 gigawatt hour when we're looking at the 2500 units in in Jolnyth. I mean there we're almost done.
Speaker 11: with with with Capex investment. I mean those plants and the same thing in Montreal were already done. So we're kind of done. I mean this is a big year 2023 for us because this is really the year where we're managing those three manufacturing plants and one of them I mean is already scaled up on basically on the school buses and the other two
Speaker 11: the other two plans. I mean, we're ramping up, but they are there. We have the people on site. A lot of the equipment, you know, are already there. So, it's great. I mean, this is 2023. It's really a big year, you know, of, let's say, kind of turning point, you know, for for Lion. So, basically, by the end of this year,
Speaker 4: If we hire the labor because we feel that we need to do the 2500 units, well then you know this will be on a, I think you were asking the manufacturing phase, so it's basically like 50 units a week.
Speaker 11: that we will be able to do if we decide to hire the labor in Joliet. But you know, you'll see that by yourself. I mean, the equipment, you know, will be there. So the equipment will be there. And after that, to go from $2,500 to $5,000, the amount of capex needed is absolutely not the same that you know the amount of capex it took.
Speaker 11: to get to $2,500. So it's a lot more modest than anything we've been spending in the past. So it will be kind of, let's say, almost easy to double the manufacturing capacity at some point. And we do not expect we will need to do that before probably a couple of years after that. But we are ready to take the market by storm and be even bigger than we are right now when the timing will be right.
Speaker 13: So just to interpret, it sounds like to unlock further growth, there's not a lot of additional spend required, meaning there's not sort of an underlying desire to manage expenses and to limit volume growth.
Speaker 11: the heavy spending is done now? Well, I mean, we're very carefully managing the spend. Liquidity is top of mind for us, and we're making sure we're aligning the order book with our spending, no doubt. And that's the reason we've decided.
Speaker 11: to go to 1.7 gigawatt hour at the battery factory. And same thing with respect to the capex that we're investing in Jolya. So yeah, we're being very, very careful about that. That being said though, I mean, you know, going from 2,500 in Jolya to 5,000 units is very minimal, let's say.
Speaker 4: spending if we compare to everything we've been spending so far because everything is in place to get to $5,000, but we will carefully manage. And when we're saying, Dan, like going from $2,500 to $5,000 doesn't mean that we have to go from $2,500 to $5,000. I mean, there are...
Speaker 4: steps that we will be taking through ramping up. So if we need to go higher than the $2500 because we are having a lot of success in getting all of those orders, we will be able to ramp up carefully in the CapEx plan. CapEx and all those investments are always top of mind in everything we are doing.
Speaker 13: Great, thank you. And then just as a follow-up, you were talking about supply constraints still as an issue. Maybe you could just provide a little more color on those underlying constraints. And you said you're taking actions to mitigate that. What are those actions? Thank you. I'm sorry, did you get that?
Speaker 11: Oh, the supply chain, yeah, well that's exactly what we've been doing in the last couple of years. I mean, you know, one of the things we've been doing is the supplier redundancy. And it's going very well. And also, it's almost natural that supplier redundancy, especially with what we're doing now, like we're the only OEM on the school bus side.
Speaker 11: with factories on both sides of the border. So we're having suppliers on the US side, we're having suppliers on the Canadian side, but there's nothing that prevent us from using one supplier in one country and using it on the other side. I mean, it needs to be. So that's one thing we're doing. At some point also what we did, a little bit like, I don't like to say overstocking, but this is a little bit what we've been doing in the.
Speaker 11: out of the wood on all of those supply chain issues? Absolutely not. Can we manage and navigate through that? Yes. And we feel we're getting better and better from one quarter to the other. Honestly, I feel that the worst is behind us, but we're very well equipped for any other headwind.
Speaker 11: in this regard going forward. And we feel there will be headwinds in the supply chain. Supply chain crisis, I mean, you know, obviously we've been talking about the war also that's been impacting all of us. So there's a war, there was a supply chain crisis, you know, for a lot of other reasons, including COVID.
Speaker 11: and all of that but I feel good that we're well equipped to protect Lion and our customers in those difficult times. Great, thank you very much. Thank you, Dan.
Speaker 2: The next question comes from Rupert Mera with National Bank. Please go ahead Rupert. Hi, good morning everyone.
Speaker 10: Morning, morning, Uber. So on the call so far, we talked about supply chain and it does seem to be limiting your production run rate and I think you mentioned these issues could be around for another 18 months or so. But in Juliette…
Speaker 10: You believe you could have capacity to do 50 units a week by the end of the year if you hire enough people. So it sounds like you think the supply chain may not be a limitation.
Speaker 14: for Joliet by the end of the year. Is that a fair comment?
Speaker 11: Well, we feel that it's under control. It's more and more under control, Rupert. Let's put it this way. The discussions we had like a year ago, the tone was totally different.
Speaker 11: Well, we feel that it's under control. It's more and more under control, Rupert. Let's put it this way. The discussions we had like a year ago, the tone was totally different. Right now, I mean, we feel better and better about this.
Speaker 11: the supply chain, we still feel this is going to be an issue, but this limiting factor we feel is going to go away within the next 18 months. You're absolutely right. So hopefully, in a year from now, supply chain immune will be...
Speaker 14: something that will almost not be a limiting factor anymore. And are there any other limitations to the production rate? We know the order book is...
Speaker 14: is big enough, but are there enough of those orders that you could deliver on this year, let's say, to produce at that kind of run rate?
Speaker 14: Well, there's always the final approval of the subsidies and all of this, but it's going well because most of the orders that we have always rely on subsidies, but absolutely no red flag. It's going well, but we're aligning obviously.
Speaker 14: the buses and that they are being trained is always something that is top of mind for us. So thank God that we had this Lion Energy that we've launched several years ago. We feel this is making a huge, huge difference for the operations of the
Speaker 14: the operators. So I will say you know for them it's really receiving the buses and trucks when they need them but they need to be fully prepared to receive them to make sure that it's going to be a very very efficient operation and I feel this is something that you know throughout the years we became very very good at doing so you heard me talking.
Speaker 14: you know, with everything that they need to do that. And that's one of the reasons we've decided to sell direct. And I think it's serving us very well. Great, thanks. Thanks for that. And then secondly on the battery plant, so you believe your capacity could be 1.7 gigawatt hours. I think you said that's enough for 5,000 vehicles.
Speaker 14: optimize those operations for...
Speaker 10: those operations for say improving your margins.
Speaker 14: It's always an option Rupert because this capacity is going to be there and you know the reason we're scaling up to 1.7, I mean it's a matter of automation. Almost everything is automated, you'll see that, I mean we'll do an opening probably in April and you'll be able to see that it's a very exciting operation. So it's a matter of automation, it's a matter of purchasing the right robot so we felt the 1.7 GWh at the right number.
Speaker 14: Yeah, you're right. I mean, if we're selling only trucks, I mean, that would be like 2,500 trucks, like if we're selling only like Lion-Aid tractor. If it's only buses, it's like 10,000 buses. So we do have ample capacity in this regard. We're not planning on selling our battery packs to anybody else right now.
Speaker 14: because time to market is of the essence as well right now. And doing this for other OEMs means a lot more. If you want to do it right, it means a lot more than just selling a battery pack. That will mean integrating the battery pack with their current trucks or buses. So we are talking years.
Speaker 14: for those OEMs to integrate those packs. This is something that many incumbent OEMs through the years have been understated, but it takes a lot of time to integrate a battery pack on a truck or on a bus. So we're not thinking about any short-term option like that because we don't feel it's going to serve us well. We want to keep this capacity because we feel that we will need it.
Speaker 14: on a short or medium term basis. And we want to make sure that we are fully focused on selling the Lion products and getting the better cost. So not an option for now.
Speaker 13: Thanks, so just one final follow up on that battery plant. Are there any other limiting factors on the capacity of that plant? Do you have any supply chain concerns for the battery plant or I know it's mostly automated so imagine a few labour concerns. Any other concerns you might be able to hit the run rate?
Speaker 14: No labor concern, you're absolutely right. I mean, labor is not a challenge. Supply chain is always a challenge. So I should say that we have the same supply chain challenges as we have for the rest of our operations.
Speaker 14: We know the lead times of all of our suppliers. We have a solid agreement with the cells, which is keen in what we're doing, so we've announced that last year. This is in place and this is very strong. We have a long-term relationship with most of those Tier 1 suppliers as well. With most of the suppliers, we didn't start trying to pretty much split the brand.
Speaker 14: building this relationship just lately. I mean many of them, we had them as suppliers for many, many years. So it's a very good relationship. It's almost partnerships that we have with those suppliers. So I will say all the comments I've made earlier about the supply chain and the challenges for the next 12 to 18 months are the same, but we're...
Speaker 14: We navigate through those and we manage those supply chain challenges, you know, the same way we're doing for the rest of our operations.
Speaker 14: navigate through those and we manage those supply chain challenges the same way we're doing for the rest of our operations. Great. Thank you very much. We'll leave it there.
Speaker 2: Thank you, Rupert. The next question comes from Michael Glenwood Raymond James. Please go ahead Michael. Oh hey, everything's been answered. Thanks.
Speaker 3: Okay, thank you Michael. Our next question comes from Abhi Sinha with Northland Financial. Abhi, please go ahead. Yeah, thanks for squeezing in. So just one question on supply chain, this last one. I know you have a lot.
Speaker 3: Is there any way you can quantify the impact whether on revenues or in terms of number of units, what the exact impact could have been? If there was no supply chain impact, what revenues or the units could have been? Yeah, I mean.
Speaker 14: Well, not easy to say. Obviously, we've been managing those supply chain challenges. So, we've been hiring the people we need accordingly with our production schedule. So, the good news is that we have a good, solid…
Speaker 14: order book and this is where it starts and when you're looking at the number of buses and Trucks we can do we're very well equipped to do that. But you know, I spoke about this earlier I mean, I think you know part of We were being very careful with you know, the capital the capital span and capital span is not only capex it's also about opex it's also about operation and making sure you're making money on every single buses and trucks that you're selling and
Speaker 14: this is what we're doing. So we align all of our spending according to the economic conditions, including everything. So not easy to answer. I mean, if there was no supply chain challenges, I mean, you know, how many units we could have done, but obviously we could have done a lot more units than the ones that we did last year.
Speaker 14: And did you face more issues on the Canada side of the US supply chain? Well, I would say it's on both sides of the border. I mean, we have a lot of suppliers on both sides of the border. So we're trying to be as local as possible. But we're, it's really like the...
Speaker 14: the landed cost and the quality, you know, that's always top of mind for us. So we have suppliers in Canada, we have suppliers in the United States, we have suppliers in some other countries as well. We're trying to avoid any other countries and we will not, as you know, we will not be doing business with the...
Speaker 14: authoritarian countries in a few years from now. But I don't think there's any significant difference between Canada and the U.S. right now. I think it's really a matter of understanding and really knowing your supplier because they have their own challenges. Sometimes they will be manufacturing in some other countries as well for some components that they're putting into the components that the U.S. is using.
Speaker 14: they are selling us. So our game is really to stay very close to them and make sure we understand their business, and we understand their lead times, and we have a full transparency on when they will deliver the products. But I don't see any significant difference between the two countries. Thanks, Just one last question. On the battery, if I understand that you switch to BMW with a little more robust, more powerful battery,
Speaker 3: When you are making your own, I'm trying to understand if you could provide some color, what's the differentiating factor? I know you talked about the cost. Is there anything else that adds on with this charging speed, more power? And what does it do to the immediate margin for you guys in terms of any kind of quantification? How accurate would that be? Well Adi, there are so many differences between our packs and any packs that an OEM can...
Speaker 14: could be buying from battery packs suppliers. First of all, those packs are let's say custom made for the Lion products. So it's a perfect weight and balance of our trucks and buses. And the operators are saying they're seeing a huge difference because of that.
Speaker 14: So not only, I mean, it's a better driving experience, but it's also safer for them. And it's also a way to put more kilowatt hours needed. Like we do have a modular approach, and we are selling in multiple of 70 kilowatt hour or 105 kilowatt hour as well. So basically, you know, the customer, you know, can buy and invest the money in the number of kilowatt hour they need for their operation. So that's a huge difference.
Speaker 14: In terms of technology as well, I mean, wow, it's like night and day. The efficiency we could get from our batteries is better than most of the technology that we see out there right now. For many reasons, the BMS is really state of the art, so the battery management system, but also the BTMS, the thermal management system, state of the art, fully custom-made, to the Allianz batteries as well, and the users that we're doing with the Allianz trucks.
Speaker 14: So right now, I mean, we're at 350 kilowatts, but you know, we're working on getting a lot more than that in the short term future.
Speaker 14: for a lot of operators that are using our trucks like 20 hours a day, makes a huge difference. So charging speed as well, but also the cooling system will affect the efficiency of the battery, it will affect the charging speed for the batteries as well, but also the life cycle.
Speaker 14: So when you are able to cool your batteries in a timely manner, well, you are helping your life cycle. So your life cycle is getting better also, and we feel that all of those factors are making a huge difference. Now you've been asking about the gross margin Nick. I don't know if you want to comment anymore on this. Yeah, look, I'm just saying that we expect to get the
Speaker 11: So, margin improvements over time from switching to wrong batteries, obviously, we're supplying at the commodity level. We're cutting in terms of the areas. We're reducing obviously the profits that we're paying to third parties. There is some ramp up in terms of getting there, but that's one of the key components that will certainly help. Sure. Thank you very much.
Speaker 3: million for capex.
Speaker 11: Is there any other CapEx or are we looking at a total CapEx this year, $65 million? No, there is some other CapEx that I qualify, Craig, as sort of maintenance and procurement CapEx, et cetera. Over the last year, that CapEx was about $10 million. That's in 2022. But I think that's pretty cool because we EnUL.
Speaker 2: Okay, thanks guys. Thank you Greg. Those are all the questions we have time for today, so I'll turn the call back to the management team for any concluding remarks. Well thanks everyone for joining us today. We look forward to continue.
Speaker 1: Thank you.