Hyliion Holdings Corp. Q1 2023 Earnings Call
Good day and thank you for standing by welcome to be highly on holdings first quarter earnings Conference call. At this time all participants are in listen only mode. After management's prepared remarks, there will be a question and answer session I would now like to turn the conference over to Kelvin Paris, Hi, Leon to talk about your of Investor Relations Kevin.
Please go ahead.
Thank you and good morning, everyone welcome to highly on Holdings first quarter earnings Conference call on the call today are Thomas Healy, our Chief Executive Officer, and John <unk>, Our Chief Financial Officer, a slide presentation accompanies This conference call and is available on <unk> Investor Relations website at investors Dot highly on Dot com.
Please note that during today's call, we will make certain forward looking statements regarding the company's business outlook forward looking statements are predictions projections and other statements about anticipated events that are based on current expectations and assumptions and as such are subject to risks and uncertainties.
Many factors could cause actual results to differ materially from the forward looking statements on this call for more information about factors that may cause the companys results to differ materially from such forward looking statements. Please refer to our earnings press release as well as to our filings with the Securities and Exchange Commission forward looking statements speak only of the date as they.
<unk> made you are cautioned not to put undue reliance on forward looking statements and we undertake no duty to update this information unless required by applicable law now I will turn the call over to Thomas.
Thank you for joining us for our first quarter 2023 earnings call as we have a lot of important information to share with you. This morning, we will be providing updates on the advanced clean transportation Expo in Anaheim, California that we participated in last week news of the issuance of the final advanced clean fleet rule known as ACF.
Carb two weeks ago, and some strategic shifts that we are making in our hyper truck ear X commercialization plans in order to best maintain our strong cash position.
I'd first like to start off with an update on our hyper Truckee Rx powertrain development and commercialization work for those of you who are new to the story the hyper truck Eric system is a fully electric powertrain for class eight semi trucks that includes a natural gas fuel range extender to recharge the batteries as needed when fueled with renewed.
Natural gas the hyper Truckee Rx powertrain offers commercial vehicle owners, a net carbon negative capable alternative to battery only trucks, which have limited range and rely on expensive recharging systems that are not yet widely available I am pleased.
To report once again that we remain on schedule with plans to begin commercialization in the second half of this year.
There are no new milestones to check off for the first quarter, but the product validation phase remains on track as we will begin extended fleet trials later in the second quarter.
We are happy to inform that we submitted the required materials to carve in order to obtain our dual executive order with comments to certify the powertrain.
We expect to complete certification from carb and the EPA and the National Highway Safety administration sometime in the third quarter.
We've previously shared that we'd start production of the hyper Truckee Rx system in late 2023, but with the progress just mentioned, we now plan to begin production assembly of trucks equipped with the hyper Truckee Rx powertrain in the third quarter ahead of schedule.
We've made some other great strides to assist with pulling in the startup production timing. The team has been working diligently on building out our next batch of see sample trucks, which we expect will be the final version of the powertrain designed prior to starting production. These trucks are going through continued validation testing and they will be deployed in extended fleet trials starting this.
Quarter. We've also recently obtained ISO 14001, which is an environmental certification as well as ISO 9001, which is a quality process certifications.
So standards are expected of and common across the conventional suppliers and Oems in the space, but are often not obtained by early stage companies or new market entrants like Highlander.
This achievement continues to build confidence and operational excellence as we move into production.
Next I'd like to provide an update on our hyper Truckee Rx system commercialization plans and some strategic shifts we are undertaking that I mentioned earlier.
As I'm sure everyone. On this call is well aware the past quarter has been exceptionally challenging time for electrification and technology companies in the public markets. Unfortunately highly on stock has similarly seen a recent decline and it's prompted us to re look at what is the best strategic path forward for the company.
One very clear advantage the highly Ann has is our balance sheet with nearly $400 million in cash. What is also clear is that the ability to raise additional capital in the stock market has become severely limited without incurring excessive dilution for existing shareholders.
Consequently, we need to make sure that we utilize the cash we have in a focused manner and as wisely as possible.
During our last earnings call in March we shared that we expected to incur gross margin losses on the sale of the initial trucks that are part of our inaugural Founder's program due to startup inefficiencies that we expect to encounter as we go through assembly and delivery of the first powertrain systems.
We also shared that we expect to see an increased use of cash this year compared to 2022 as we purchase production powertrain components for the founders trucks and for additional trucks that we plan to begin building in the first half of 2024 following founders deliveries in total full year operating.
<unk> capital spending gross losses on sales of powertrain systems, and working capital increases were expected to consume up to $200 million in cash in 2023.
Or said differently about half of our current capital position.
If we look back in time electrification startup companies were encouraged and rewarded by investors for rapidly growing market share and revenue. However, today. The market is rewarding a quicker path to profitability and conservation of cash driven by greater investor skepticism for unprofitable business models.
In light of recent capital market's developments and experiences of peer companies. We are taking steps now to better align with today's market expectations.
We will continue to scale and grow the company, but we will do so with a keen eye for opportunities to reduce the rate of cash burn.
The first area, we are going to address is the losses, we were anticipating an initial founders deliveries, which are still subject to finalization and definitive terms.
Our initial plan was to ship all 210 founders trucks by the end of Q1 of 2024.
However, as we assess the costs, we would incur by executing this plan. We believe there are more capital efficient ways to achieve similar customer demand in the long term, while consuming less cash in the short term.
As we begun procuring the powertrain and truck components the cost have come in higher than we initially anticipated due to suppliers passing through their surcharges onto us.
Thus, we need to pass these price increases along to our customers as well.
We are working with the founders fleets on restructuring initial truck orders as well as simplifying the agreements we will see changes to the fleet to participating in the program as we go through this process. However, we are confident that we can pull forward other fleets as replacement if needed.
One other objective is to place the initial units with a greater number of customers. As this will allow more fleets to test and validate our powertrain and give them the confidence to place more orders in the near future.
We are also planning to scale the ramp up of production volume at a slower pace than we initially expressed this will allow more time to procure components, which will reduce surcharges. We are now experiencing and it will give the engineering team an opportunity to implement some cost saving measures in the system design, our new goal is to.
Begin installing production powertrain systems into trucks in the third quarter and to complete and sell 30 trucks before the end of the year.
We will then continue to evaluate our future truck Assembly and delivery plan for 2024 based on modified and simplified founders agreements.
We're also pulling back on our facility renovation that we were planning in connection with a vast buildup of our founders program trucks. We also anticipate adjusting our rate of hiring and shifting more quickly to being a powertrain provider to the Oems as opposed to tying up working capital assembling and selling complete trucks all of these.
Actions will conserve cash, while allowing us to continue our path to commercialization and profitability.
Shifting now to an exciting update from the Act Expo. This past week Act is the largest trade show that focuses on new emission reducing technology for the transportation space.
In addition to showcasing our hyper Truckee Rx powertrain with over 100 ride and drive events. We also unveiled the hyper truck Carno solution.
We were very pleased with the level of interest and excitement we received from Oems partners and fleet customers.
With respect to the Carnose solution. It was the first time, we've publicly showcase the generator and provided an in depth opportunity to show how the technology works.
In our Booth, we had a 200 kilowatt size generator mounted onto a truck equipped with our hyper truck electric powertrain systems.
I'd like to share with you some of the highlights that we discussed about carnival.
First it is a fuel agnostic generator that is expected to be able to operate on over 20 different fuels. The vehicle. We had in the booth is equipped to run on both hydrogen and natural gas.
The generator brings forward significant efficiency improvements, while also reducing emissions and will emit no carbon dioxide when fueled by hydrogen.
It is also expected to have almost no routine maintenance as there is only a single moving part per shaft and no oil or other lubricants in the system.
Lastly, the generator operates at about 65, decibels, which is quieter than an average conversation between two people.
During our press conference at the show we also highlighted how we will expand our business focus to also offer the carnal generator solution for stationary power applications with its high efficiency low emissions low noise and minimal maintenance requirements. We see this as a strong solution for powering EV <unk>.
<unk> buildings hotels data centers and many other applications that could benefit from a scalable micro grid.
We expect to be able to produce electricity at a cost of around seven cents per kilowatt hour, which is far lower than the cost of grid electricity in the U S, which ranges from 11 to 22.
We also expect to host ride and drive events with our Hypotrich harness system later this year and begin to establish stationary charging demonstrations in 2024.
Okay.
Shifting to an update on our hyper trucks fuel cell demonstration truck. The development is well underway in partnership with ties on and I am pleased to share that we are still on track to having the first vehicle complete by end of year.
At the Act Expo highs on unveiled their new 200 kilowatt fuel cell, which is the solution that we are integrating into this demo vehicle.
I have just one further update to share which is around carb vehicle credits. We've previously showcased that vehicles with our hyper truck <unk> system will qualify for 75% of the zeb credits that Oems need under the ACP ruling starting in 2024.
About two weeks ago carb past their latest clean truck rule called advanced clean fleet or AC F, which has a direct mandate on fleets to begin adopting trucks with electrified powertrains.
I am very pleased to share that vehicles with our hyper truck <unk> system will qualify for 100% of the Zeb credits under this ruling the same as a pure battery electric or fuel cell truck.
Passage of ACF will likely produce strong tailwind for us as fleets look to comply with this new mandate I will now turn the call over to John So he can share more on our financial and strategic update thank.
Thank you Thomas and good morning, everyone turning to our financial results for the first quarter, we reported revenue of $310000 from hybrid sales, including a full truck equipped with the hybrid system compared to 340000 of revenue in the first quarter of a year ago.
Operating expenses totaled $31 9 million for the quarter up from $25 6 million in the first quarter last year. The increase in spending is due to growth in both R&D and SG&A expenses over last year.
In total highly on reported a net loss of $28 8 million for the first quarter, which is up modestly from the $27 1 million loss. The company reported a year ago as lower cost of sales and higher interest income this year offset higher operating expenses.
Looking sequentially first quarter operating expenses and net loss compared to the fourth quarter of 2022 were up only slightly 300000, and 600000, respectively. As spending is beginning to level off as we approach the start of hyper truck <unk> system commercialization.
We ended the quarter with total cash short term and long term investments of $385 million compared.
Compared to $422 million at the end of 2022, we spent $37 million in the quarter compared to $30 million in the first quarter of 2022 and $33 million in the last quarter of 2022 as Thomas mentioned, we are taking actions that will help reduce cash burn and expect that these actions.
We will significantly reduce operating expenses capital spending and working capital growth previously we guided to total operating expenses in 2023 of $130 million to $140 million in cash consumption of less than 200 million. We now expect operating expenses to come in on the low end of that.
Range, while we expect expenses to be reduced from the actions that Thomas noted some of the savings will be offset by the ongoing expensing of production truck components that have been or will be received until we have completed all hypertrophic <unk> research and development work to add some additional clarity.
On this point all truck components that we acquired prior to the start of powertrain commercialization our expense to R&D, even if those components will be used in protection powertrains that are later sold we've already started to receive some production components and will we see more in the coming months, we now expect to complete R&D.
Work later this quarter or early in the third quarter. The implication is that operating expenses. This year will be somewhat elevated due to receiving an expensing. Some production components ahead of the start of commercialization.
Note also that these higher expenses will be completely offset by lower cost of goods sold as we sell trucks later this year and into 2024.
We don't know the exact impact on operating expenses from this expensing of production components and it could be higher than we're currently forecasting we will provide further guidance at the end of the second quarter.
Regarding cash as Thomas noted we ended the first quarter with $385 million of total capital, including cash and short and long term investments because of the strategic actions. We are taking we now expect our cash spending to be approximately $150 million this year versus our previous guidance of $200 million factors.
That could drive cash spending higher or lower include the timing of truck sales in 2023, and 2024 as well as powertrain component purchases this year for deliveries in 2024.
Actions that we're taking now to reduce cash burn will provide some relief for concerns about the weak stock market based on our current projections, we have no plans or need to raise additional capital in 2023 and into 2024.
Finally, as a reminder, we are holding an investor day at our Austin headquarters on June 27th that we hope you can attend attendees will be able to participate in ride and drive events in both our hyper truck <unk> and hyper Chuck Carnival that we showcased at the Act Expo, we will also be exhibiting carnal generator components and.
<unk> for members of our highly on leadership team registration information for both the in person events and webcast is available on our website.
With that I'll turn it back over to Thomas.
Thanks, John at the Act Expo I was given the opportunity to give one of their keynote presentations, whereas shared by staggering stats around electrification. This presentation is on our Youtube channel, but I'll take a second and share the stats here with you as well.
Step one was that the battery packs on a bep truck will need to be 330% larger than you would expect when you take into account things like battery degradation charged limits driver behavior and the weight of the vehicle.
The second stat is the power consumption of plugging in 10 semi trucks is equivalent to the same power draw as a Super Bowl Stadium during game time.
The third stat is that it is expected that the cost to deploy charging infrastructure will be about one five times the upfront cost of the vehicles themselves. As an example, if you spend $10 million on trucks than planned to spend about $15 million on charging infrastructure.
The fourth stat is that over the past 50 years, we've only seen a 3% increase in the amount of grid electricity coming from renewables, such as wind solar and hydro.
And lastly, stat five is that it can take upwards of 10 years from start to finish to create a new natural gas power plant as we stand here today, we are decommissioning power plants in the U S and slightly reducing our yearly national electricity production.
I shared all these stats in an effort to showcase that <unk> solutions are already behind the eight ball in setting up the infrastructure needed for charging. This also ties into our plans to utilize the carnal generator as a power source for stationary applications.
Or stated another way there is a tremendous opportunity for highly on technology and the future of electrification.
To close out we are excited to start the production stage of our hyper truck Eric system next quarter.
We are taking important steps to reduce spending and extend the runway that our strong balance sheet provides us today and finally, we look forward to seeing many of you at our Investor Conference in Austin on June 27th.
With that we will now open the call up for questions.
At this time, if you'd like to ask a question simply press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Bill Peterson with Jpmorgan. Please go ahead.
Yeah, Hi, Thomas and John next.
<unk> Expo last week.
Wanted to dig a little bit deeper in the feedback you received and if you think about the fleet operators you were speaking with.
Most of the discussions really centered around E Rx or.
What was your impression of cargo at that time that are there and are there still fleets interested in the hybrid program.
If theyre going to be looking at putting in some some trucks from 2024 and beyond where do you where do you think the discussions were.
It's focused on.
Absolutely Bill and great seeing you out at ACC as well so.
I would say the the focus from the trade show was both on the hyper Truckee Rx and then on cargo as well. So we had to truck. So we're participating in ride and drive events.
The Rx truck.
And we did over 100 ride and drive experiences with those trucks. So it was actually there's a video out there online of one of the fleet managers, saying that he couldn't even get a ride in it because the line was so long so no. The interest level was fantastic in the Rx a lot of great discussions with fleets, who want to be adopters of it both medium size.
Very large fleets and some smaller fleets as well and then.
We heard a lot of buzz around Carno actually we heard from.
Numerous people that Carnival was the talk of the show.
And people didn't really understand it going into the show and I think we were able to show showcased the technology, how it really works and get a lot of people excited about it but the reality is with Carno as it is still a few years away from commercialization into a vehicle as we shared on the call today, we are going to put it into initial stationary demo.
<unk> next year in 2024, so we will actually be bringing carnal forward into stationary first prior to putting it into vehicles and then the sales team is working with fleets on adopting the hyper truck <unk> the natural gas range extender. So interest was a it was <unk>.
Fantastic from the show.
Our next question will come from the line of Andre Shepard with Cantor Fitzgerald. Please go ahead.
Okay.
Hey, guys good morning, and thank.
Thanks for taking our question by the way it hopefully we didn't interrupt.
So I don't have any other question, but.
I wanted to touch on the the.
The hybrid trucks, Eurex and the deliveries Thomas you've mentioned.
On the call today I think in the past the expectation was to deliver the 210.
Orders by Q1 of 'twenty four.
Now it looks like we're targeting 30 deliveries in 'twenty three I guess my first question is twofold is that 30 deliveries in.
For this year is that distributed amongst Q3, and Q4 or is that going to be predominantly Q4, I'm just trying to understand I guess since the production timeline was moved up and then I guess sorry, the second part of the question is.
Any color on what.
24 might look like.
Sure. So let's take Q3 first so as you mentioned.
23 first so as you mentioned, we were able to accelerate when we're going to start installing trucks, which will actually start happening in Q3.
From from an actually getting the unit back into <unk> that will actually still probably take place in in Q4, So as you're thinking about revenue start to look at Q4 for that but then as we communicated on the call. The goal is to deliver 30 of the founders trucks by the end of this year and then to the second part of your question of <unk>.
Whats 24 going to look like so we.
We really need to go back and have the discussions with the founders program fleets that we mentioned as well as other fleets who have been sitting on the sideline, saying theyre interested in it but as we had shared previously we had booked out to all the build slots and the founders program, we need to go back to those fleets and look to pull them in as well, but I think the overall general message from this.
Earnings call is.
We're going to start production, a little earlier, but our ramp up our growth plans for production are going to be a little slower primarily driven by we want to be smart with capital right. So we want to ship less units at a loss. So we'll conserve cash that way I give our engineering team the time to roll in some product improvements that are going to pull some cost.
Out of the system also give the suppliers some time to deliver components to us so they're not putting as much surcharges on them and then from there as we move into having a profitable system look to scale up volume at that time.
Other side of this is these initial units that we're shipping will put we will place them in the hands of more fleets than we initially anticipated that way, we can hopefully convert them into placing larger orders as they actually experienced that technology, and then they'll be ready to receive those vehicles as we're moving into being profitable on the system. So.
This is really just a an effort to optimize or preserve cash trade and shipping units at a loss.
Minimize that as much as we can and move towards profitability.
Got it that makes sense. Thanks for all that color promised and so.
Is it still fair for us analysts to costume the 210 orders will be delivered.
By the end of 'twenty four.
Just trying to again for modeling purposes trying to better understand that.
Yeah, our goal will be where we're scaling into the one hundreds of units as we get into 'twenty four or so.
Still planning on growing volumes with everything we just haven't given we're not ready to share exact numbers yet of what 'twenty four is going to look like.
Okay fair enough.
Sorry, one last follow up for from Us.
In the past you had.
Hello.
Awesome.
Tentative I guess asp's for the ear X I think in the high 300000.
Any sense of what gross margins might look like either in Q4, 'twenty three or 'twenty four again, I know youre not.
Specific numbers, but we'd be thinking about those.
Thank you.
Yes, so I'll take the first part and then have John take the second there. So in terms of the pricing as you mentioned, we had previously shared MSRP.
Pricing on the hyper Truckee Rx would be in the high 300, thousands after we took into account the IRA benefit of $40000. So we're still looking at being in that same ballpark, but it's going to be in the higher threes are closer to four <unk> as we go into production here and then John you want to take the profitability question, Yes, and yes.
Listening to what what Thomas had mentioned on the call. The actions that we're taking now are helping helping us get closer to.
To not having a negative gross margin. We noted last quarter that we did expect the first trucks to be sold at a slight loss due to startup and logistics and so on so these actions will help and maybe if I can just put a little bit of clarity on this we've been seeing some companies that are selling full trucks.
Selling them at one hundreds of negative one hundreds of percent then we're not talking anything like that we're talking.
Excluding overhead which is a little bit of a wildcard at low volume, we're talking about minus 10% plus or minus so it's not.
Not a big number and it's something we think we can close due to the actions that we talked through.
So initially we're still probably a little less upside down but this puts us.
But in a better position and we expect to be able to reach that positive gross margin more quickly this way.
Got it okay. Thanks, very much congrats on the quarter I'll pass it on.
Your next question comes from the line of Steven Fisher with UBS. Please go ahead.
Thanks, Good morning.
To follow up on that last point there.
No a lot is in flux and things are changing all the time, but would you envision that somewhere within those first 210 units or so there will be positive gross margins or is it still likely sometime after that first batch.
Yes, I think it's still a little early to tell as Thomas mentioned, we are expecting to ramp up production as we get into 2024 again, we are seeing great interest from fleets.
It's just really all about what's the best startup strategy that maximizes the use of our cash and minimize the potential for margin loss. So.
Volume will help.
Time will help.
<unk> to get some of these design changes and will help so.
We're just starting off a better foot here and it'll help us ramp up.
Okay. That's helpful. And then just in terms of the cash burn I mean, it looks like at the burn you had in this quarter.
We view with about 10 quarters worth of cash and I know you took out $50 million of burn from this year. So are the broader plans.
That you have to slow that pace of burn and extending that 10 quarters by by years or by quarters and then.
What would you have to see in order to kind of curtail spending further and with sort of the current will be the place to trim back do you need to do something further.
Yeah, Let me, let me address cash so that's a great question. Steven if you look at where we ended last year, we had $422 million our outlook this year being around $1 50 that leave us somewhere around $2 75, which puts us in a position that we're not needing to raise any money. This year gives us.
The flexibility not to raise money next year and into 2025. The unknown is of course, what we're going to spend.
After this year, we haven't given an exact forecast, but but we are an asset light company. We don't expect to need a lot of capital spending we're doing what we're doing now to reduce working capital as we build up.
Let me comment on expenses a little bit.
We've been I mentioned I think at the end of last quarter were leveling off the growth in spending.
Look at this.
This quarter compared to the fourth quarter that it really is leveling off.
And that leveling is really driven by the powertrain side of it as we as we finish up R&D and move on to commercialization.
<unk> is not a a.
A big part of our organization, yet, but I will say it is growing and we intend to grow it more so we're certainly not going to back off in any way on cargo just given all the interest and opportunity with that product. So if you're thinking forward looking we haven't put a number on it but we wouldn't expect cash use to likely <unk>.
Grow.
This year is probably a target that we work around plus or minus a might be a little bit lower maybe a little higher but the balance that we have now gives us a lot of runway to be able to get to the point that we're generating gross margins and also Thomas mentioned, starting carnose stationery demonstrations next year.
Is this a good a good launch pad for getting that product to the point, where it can be generating gross margins too. So I think I would just put it.
0.2, it by saying Hey, these actions that we're taking give us a lot of time.
Such that we're not really at the at the near term Mercy of the markets, if we needed to raise cash.
Terrific. Thank you very much.
Your next question comes from the line of Luke Horton with Northland Securities. Please go ahead.
Hey, guys I'm on for Donovan Schafer, we added.
Couple of overlapping calls and had to do a little divide and conquer but just wanted to touch on revenue recognition with the first 30 trucks and going forward as well.
The clean sales in title transfers or will there be some kind of financing or deposits or.
Any sort of other arrangement, where it's not just a matter of multiplying units by that high 300000 ASP to get.
You get the revenue number.
Our plan would be for these to be straight sales.
To the fleets such that they can recognize for example, the IRI credit.
And therefore, we could also recognize the cash from those sales. So the expectation is we're trying to get them to be pure sales versus any kind of financing arrangements from highly on.
That's certainly not our intent.
Okay got it and then just touching on the winter testing were there any key takeaways from the completion of this and have you guys closed out all phases of this winter testing.
Yes, so winter testing, one well we've checked the boxes on what we needed to do through the cold months.
Which included put in trucking some thermal chambers that we're bringing it down to like negative 40 degrees. So.
Pretty robust testing, we're pleased with how when obviously there were learnings that did come out of it. Some design changes modifications that we wanted to make and we will roll those into the product, but overall, where we're pleased with how the testing went and don't see it changing our commercialization plan actually as we shared on the call if anything we're pulling up the commercialization.
Plan of getting into production.
So all went well there obviously as we continue to build the last batch of systems here before we go into start of production.
That will continue to test those and look for areas to optimize and that does lead into some of the cost savings opportunity as I mentioned, we found through testing and validation.
Some things are over engineered are designed to be more robust than they need to be so we can scale. Some things back in order to still be able to hit all of the requirements of the industry still have a strong product that meets the life requirements, but is an over engineered and then that'll help us pull some cost out as well and that leads into some of the cost saving efforts we mentioned.
Got it that's good to hear.
Just last one year on the regulatory landscape, so any update or pending determination that could impact you guys coming out of the Treasury Department on the IR, a bill or anything similar along those lines, where their rule makings of guidelines and process that could have a positive or negative impact.
Yeah. So I think right now at least from what we're seeing it's positive impact so IRA is $40000 tax benefit.
ACP, which is the mandate that carb put on the Oems were going to qualify for 75% of these <unk> credits that a normal BV a fuel cell truck will qualify for that we announced probably close to a year ago. The announcement just recently from a couple of weeks ago was that AC F which.
Now the mandate being put directly on the fleets telling them how many of the vehicles. They buy it need to be electric we're actually going to qualify for 100% of the zeb credits that are conventional bev or fuel cell truck will qualify for us. So.
I think theres going to be a great tailwind for US right. I mean fleets are now going to be mandated that the trucks, they buy need to certain percentage going into car. Following states are going to need to be.
Credit generating vehicles, and we will be just as good as a a bev and a fuel cell truck. So I think it's a big positive what we're seeing from a regulatory standpoint.
Awesome, that's great to hear.
It for me guys. Thanks for taking the questions.
Thank you.
And apologies Bill Peterson line with cutoff, we will now take your follow up questions. Please go ahead.
Yes, Thanks for letting me ask another question.
I wanted to come back to the fuel cell program.
You mentioned that integrating a fuel cell later this year early next year. If we took your time frame of the Rx where you started in the second half of 'twenty, one and carrying that through the second half of 'twenty three something like a two two and a half year timeframe is that the right way to think about that program in other words from a starting point to an endpoint or are there areas.
We'll basically be already done because you've done the work on the X program and Youre, primarily just change you have to.
The power source.
It's definitely the latter of what you Express Bill So we're carrying over all of the testing validation learnings that we had through the hyper truck E. Rx development, and we'll be able to apply those to both the hyper truck cargo and two the hyper truck fuel cell.
So as we think about taking let's take the fuel cell for example, taking that into a commercialization effort.
Theres less validation that would need to happen on the powertrain and then similarly highs on is doing their own validation on the fuel cell as well so.
We're more it's bringing two things together as opposed to building an entire new product not saying that there won't be testing and validation. Its just its a more accelerated timeline. The other thing is to <unk>.
Benefit with a fuel cell truck is.
It does not need to go through the conventional carb EPA testing like what our hyper Truckee Rx is having to go through so as I mentioned on the call. Today, we are we have.
Submitted all the documentation we need to to carb, that's a dual executive order process that we're doing joint with Cummins. So all of that has been submitted and we're on track to we believe receiving certification in Q3, that's a process that we would actually just forgo or not even need to do with the fuel cell development.
Okay. Thanks for that additional color.
Okay.
Our next question will come from the line of Mark Delaney with Goldman Sachs. Please go ahead.
Good morning, everyone you have Brian on the lines speaking on behalf of Mark Delaney. Thanks for taking our question. So.
So the first question is our first congratulations on pulling for the timeline for the hypertrophy Eric's powertrain system, but could you provide some additional color would just some key things that need to be done.
Make sure that we get to that launching at their quarter.
Sure. So first thing is we're building out our final batch of development vehicles.
The initial ones already belts, we're building out more right now and those are the trucks that will go through extended fleet trials and those will be happening starting this quarter in Q2, and and we will carry those forward even through start up production will be doing the fleet trials. So.
We'll be deploying those and that will allow us to get more customer interest and then I think the big milestone that we need to go through is just getting that car BPA niche certification that that.
That I mentioned earlier and.
Gating item might foresee is really the carb certification and.
The big milestone there was submitting everything we needed to in partnership with Cummins to carb and that happened in the first quarter. So we think we're on track and in good shape for Q3 launch.
Thank you for the additional color there and my second question before I yield the floor is.
How far along are you all with negotiating terms with the founders customers and what has that response been and additionally are there any customers who are Lauren purchasing plans at all thank you.
Sure. So we're still at the early stages of those discussions we just recently kind of got all the final pricing of what component costs, we're going to be for building out the systems and as we mentioned on the call. It has come in higher so we're going to look to pass through some of those incremental charges onto the fleets that is a customary.
Thing to do in this industry.
Usually if you go buy a brand new truck from an OEM, there's usually a line item on your invoice that says surcharges. So.
So we don't suspect that that's going to be a surprise, having those sort of discussions with fleets, but with that being said these fleets put those initial orders together about a year ago. Now. So we there are going to be changes to the the fleets that are in that mix and then we're going to also look to pull an additional fleet. So when we set up the founders program. It was.
Does structured with I believe 11 fleets and so we're going to look to add more into that so that we can place. These initial units with more wind.
When more fleets a wider variety and then look to build the backlog even further so as we go into higher volumes of production, we have greater commitments from a wider variety of fleets as well.
Perfect that's all from us.
As a reminder to ask a question press Star one on your next question will come from the line of Jeff Kauffman with vertical Research partners. Please go ahead. Thank.
Thank you very much and nice to see you in fact Expo as well.
Just two short questions.
Yeah.
Speak to fleets about EV infrastructure is a big issue fuel cell infrastructure is a big issue are there additional infrastructure requirements that youre going to need geographically as these E. Rx units start to be run publicly and then I guess secondarily following up on that.
Thank you for the info on the ACF in ICT.
Okay.
Availability.
A majority of the sales youre talking to in California, do you need other states to adopt mou's on the carb mandates to incentivize the sales there or are you looking pretty much nationwide at this point on the IRI credit.
I appreciate it let me break the question down into a few different points there and once again, great seen yet Act Expo, sorry, I know I had to run and cut our conversation short but.
In terms of the <unk>.
Rx needing more infrastructure, so theres about 700 public stations in the U S that is plenty to get started with a vehicle that has a 1000 miles a range up to 1000 miles range that.
We're in we're in good shape there so.
The goal is more get these units out there leslie to use existing infrastructure.
We'll say one of the common themes that we saw at Act Expo is people are getting much more concerned about bev infrastructure as well as fuel cell or hydrogen infrastructure I shared it in the keynote presentation, but when you start thinking about plugging in 10 trucks consumes the same power as the entire Super Bowl Stadium consumes during game.
Like this is this is problematic for fleets or.
When they get quotes from their utilities.
Quotes are one five times the cost of the actual trucks right. So if a fleet is going to buy 50 trucks that means theyre going to be spending could be in the range of $30 million to $40 million in charging infrastructure.
That usually at least from what we've seen prohibits fleets are moving forward with that that opportunity. So we think infrastructure is a huge advantage we have with the hypertrophy Rx now lets shift to the second part of your question of ACF ACD credit so.
California has adopted those those standards.
You are on the correct thought process there that additional states are coming forward and saying that they're going to follow similar or the same mandate as what carb is pulling forward now they might be doing in a slightly different timeline or some slight modifications to it but generally theyre going to be following what carb is doing.
And I believe Theres been 14 states plus D. C that have confirmed that they're going to be following a similar format as carb. So over the years ahead, we suspect that that.
Is going to be as I mentioned before it's just a great tailwind for us in getting fleets to adopt this solution.
Okay awesome. Thank you very much.
Your next question will come from the line of Noel Parks with Tuohy Brothers investment Research. Please go ahead.
Hi, good morning.
Good morning.
Hi, just a couple of things.
You know.
I was wondering as.
You've done a little bit of the adjusting to.
Which fleets will will see units.
But we'll see.
I get the chance to.
That will come out.
Do you anticipate any fresh competitive pressure from from other Oems.
On the just general time to delivery.
Or are customers still pretty firmly focused.
A technology first manner that.
They are most concerned about.
Performance in.
I was concerned about.
Timing for instance.
Yes, I think think fleets are concerned about both rate they want to be on on the front end of adopting new electrified solutions in terms of fresh competitive pressure.
I think act Expo is a great showing of it right I mean, all the main players where they are showcasing their solutions.
We did not see anyone else doing a similar solution to what we are bringing forward with the hyper Truckee Rx we did see a lot of discussion on Bev, we saw a lot of discussion on fuel cell trucks.
But I think to the.
The point you were talking about earlier around infrastructure, that's what's really concerning fleets about adopting those solutions. So I actually think as as fleets get more into their cycle of trying out bev vehicles trying out fuel cells, yes, theyre going to be some applications, where they work, but then they look at the hyper Truckee Rx and see this as something Thats more.
Prudent or applicable to more of a nationwide type of a solution and.
Just even to give you an example on the bed like <unk>.
Hopefully there is ton of BV solutions out at Act Expo.
Did they need to bring in a diesel generator in order to actually charge those vehicles. So those trucks are sitting out in the parking lot running on a diesel gen set and.
Just kind of talks to obviously that was a.
Tradeshow in charging infrastructure wasn't deploy there, but that's not the first time, we've heard of that we've even heard of fleets having to bring in diesel generators in order to power up their evs. So.
I think that talks to just kind of the problems that are going to be faced with BV adoption.
Wow Okay.
That is.
Surprising because it seemed a little bit counter to the decarbonization spirit.
But that's our thoughts, but hey.
And you mentioned.
Near the top of your comments that.
Your.
Next fashion trucks should be serve your your last.
Design.
Great and.
I just wondered.
You know what.
Oh.
I guess in.
In your.
The last six months of tweaks.
Two the product.
What sort of things have you been adjusting what sort of things are.
Going to happen in this last go around.
Yes, so thankfully.
It hasn't been major major tear ups I mean, we've we've done some changes over the past couple of years to optimize where weight is distributed on the vehicle we've done things to.
Proved a rugged ability of our paintings back on wiring harnesses and making sure. They they can really.
Stan the harsh conditions on the road, we've done improvements to cooling loops and systems and.
I think.
Everything you know it wasn't like we had to take take a pause and say hey, we need to go back to the drawing board and rethink things right everything has been kind of going down the right path, just making optimizations to make sure. This product is going to be robust and reliable some of the changes that we'll make in order to improve some cost downs, we see that there is opportunity.
And kind of the structural design sheet metal design of some systems, we see that our cooling system is is provides it's over.
It provides more cooling more robust and what's needed. So we will look to skinny that down there is.
Optima optimizations, and mounting and things like that so that will not only pull cost out, but it will pull weight out of the vehicle as well. So those would be some of the things we look to optimize as we continue to go forward.
Great. Thanks for those details.
We have no further questions at this time I will turn the call back over to Thomas for closing remarks.
Well. Thank you everyone for joining our Q1 2023 earnings call a lot of exciting developments I think act Expo was a great showing for the organization both with the hyper Truckee Rx and the carano. So I appreciate you joining the call and we look forward to chatting again next quarter.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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Sure.
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Thanks.
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