Q2 2023 Hyliion Holdings Corp Earnings Call
Please wait the conference will begin shortly.
[music].
Okay. Thank you for standing by welcomed.
Welcome to the <unk> Holdings second quarter earnings Conference call. At this time, all participants are in listen only mode.
After.
Remarks, there will be a question and answer session I would now like to turn the conference over to Kevin Ferrous Hopkins Director of Investor Relations. Kevin. Please go ahead.
Thank you and good morning, everyone welcome to highly on Holdings second quarter earnings Conference call on the call today are Thomas Healy, our Chief Executive Officer, and John Kinzer, Our Chief Financial Officer.
A slide presentation that 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 as such are subject to risks and uncertainties. Many factors could cause actual results to.
Differ materially from forward looking statements made on this call for more information about factors that may cause the company's results to differ materially.
Such forward looking statements. Please refer to our presentation and press release as well as our filings with the Securities and Exchange Commission.
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.
Welcome to the highway on second quarter 2023 earnings call. During the second quarter, we hosted our first ever Investor Day on June 27th in Austin, Texas at our headquarters we had more than 60 in person attendees and over 400 viewers on the webcast to tune in to learn more about highly on go forward.
Strategy, we showcase the building of our first production hyper Truckee Rx powertrain as well as unveiled newly planned product offerings and what the go forward market strategy will be for these products.
To start today's call I'd like to share an update on the market landscape and perspectives on some recent events that have taken place in the electrification space.
You may be aware last Monday, another leader in this space filed for bankruptcy and unfortunately, they are one of a number of companies in our industry that have faced financial and other issues in recent months we've.
We've also seen some providers experienced significant losses on their initial units as they feed the market with their products. Finally on faces many challenges as well and we are working diligently to avoid the same outcome and to grow shareholder value highly and has been trading near or below our cash value over the last few quarters.
However, one of the differences between highly on and others in the space is our cash position.
In light of this we continue to assess our business model and strategic priorities to ensure we utilize our capital as effectively as possible. We have seen significant shifts in the electrification space over the past few years that have impacted us and our peers and we expect that these shifts will continue to impact highly <unk> business model.
For example, we continue to see component price increases from our suppliers have experienced supply chain constraints that have impacted our development timeline and have seen both positive developments and potentially wavering on regulatory mandates as a result, we see fleets adjusting their electrification strategies as they move.
Further along the path to adoption.
Going forward, we will continue to look for ways to optimize our business conserve our cash position bolster our product offering to help prevent the content thing by Oems and deliver solutions that meet fleets needs.
We've already executed on opportunities like our acquisition of the carnal generator technology, and our development partnership with <unk> to build a fuel cell powered vehicles.
We will continue to look for ways to strengthen our business model and to optimize our business conserve cash and deliver products to customers.
Shifting now to the hyper truck E Rx I'd like to share an update on where we are with respect to launching the hybrid truck E. Rx powertrain later this year.
As just mentioned we have begun the installation of our first production truck and we plan to ship 30 trucks by the end of the year on our hyper Truckee Rx commercialization timeline that we unveiled seven quarters ago. We had planned to begin extended fleet trials in the second quarter of this year.
Fortunately, we have pushed the start of these trials out into the third quarter due to delays in receiving components needed to build our latest fleet of preproduction vehicles. However, we expect to start these trials in the coming weeks.
We are presently working with fleets to confirm orders and delivery timing for their initial production trucks. We see extended fleet trials is our final stage for many fleets and their decision process of procuring our solution. We are presently completely blocked through Q4 with trials with various fleets.
With the discussions we have ongoing and the interest we have received from fleets. We are confident in our ability to deliver 30 trucks by the end of this year.
As we get feedback from these fleet trials and initial adoption, we will assess our ramp up plans for 2024 and come back with further clarity on our projected volume ramp.
Even since last quarter, when we shared that we'd be shifting our delivery ramp and restructuring our founders of agreements. We've seen further unexpected price increases from our supply base. This speaks to how the electrification market is still in its early stages and manufacturing supply base and pricing are still being worked out.
As we have previously shared we are working to pass along some of these price increases onto fleets, which will allow us to sell the trucks, while reducing the gross loss, we expect to realize on the first units.
Another milestone on our commercialization journey is to achieve or complete our carb EPA admits of certifications relating to the powertrain I am pleased to share that we have successfully passed all required federal motor vehicle safety standards or F N DSS to satisfy our nitsa requirements.
We also remain on track with Carb and believe we will have this complete in Q3. Thus we are confident in our readiness to begin shipping trucks in the fourth quarter.
Also during Investor day, we unveiled the next variant of the hyper Truckee Rx will be the powertrain and a day cab truck.
We initially selected the launch of the hyper Truckee Rx on a sleeper truck, we believe that fleets would adopt slugging electric trucks per day cab applications and range extender electric for sleeper truck applications.
Its fleet to began adopting plug in electric trucks. They are finding that the range is much more limited than they expected and the charging infrastructure either doesn't exist or is difficult and costly to install.
Thus over the last couple of quarters, we have seen increasing interest from fleets and a hyper Truckee Rx powertrain on a day cab vehicles.
We are therefore moving forward with initial development and are planning to have the powertrain ready in 2025.
As we embark on this development. We also plan to incorporate design improvements to help with cost and weight.
We've heard from fleets that the additional weight of the hyper Trekkie Rx sleeper variant will hinder its ability to operate and weighed out hauling applications. Thus for the day cap, we are exploring ways to reduce battery and tank sizes to remove weight. In addition to the savings of moving to a takeout.
In Q2 car passed the advanced clean fleet, our Acs mandate, which will require fleets to start adopting vehicles that qualify for the EV credits in 2027, I am pleased to share that the hyper Truckee Rx powertrain will qualify for the same level of credit I think battery electric or a fuel cell truck.
We will qualify for under this mandate.
CF first regulate adoption of day cab vehicles, and then later covers sleeper trucks starting in 2030. This is an additional reason why we plan to add a day cab variant of the hyper Truckee Rx powertrain to our product portfolio.
We also outlined our development plans around the integration of the Cummins 15 liter natural gas engine.
We are presently utilize that Cummins 12 liter natural gas engine, which is carbon EPA certified for 2023, but the Cummins 12 liter engine will only be EPA certified in 2024, meaning can't be sold in California, Thus will work to integrate the new comments 15 liter natural gas engine into the hybrid truck ear.
By late 2024, which is expected to be bolt carb and EPA certified.
Now shifting to the Carnival, we unveiled a represented good model of what our planned 200 kilowatt stationary power Carno generator will look like including approximate dimensions and its small footprint as depicted on this slide.
We continue to see strong interest that's exceeding our expectations for a stationary carno solution that has the ability to solve various problems, we see it as a fit for prime power applications as we anticipate being able to produce electricity for less than the cost of grid power in most locations.
It could also be used for peak shaving to help level lies power demand on the grid and be used to produce electricity in areas, where the grid power is unavailable.
Generator offers clean low cost electricity has a smaller footprint than conventional generators requires limited maintenance and operates at very low noise levels.
The cargo is also fuel ignostic able to run on conventional fuels like natural gas propane diesel and even on zero carbon emission fuels like hydrogen and ammonia.
We also showcased how the carnal units can be stacked together to produce greater power levels, while not compromising any of its benefits.
I'll reference the footprint of a 20 foot shipping container filled with carnal generators could produce more than two megawatts of power output.
This footprint is half to one third the size of conventional generators and even a 10th the size of some new clean generator technologies coming on the market today.
We see the path to the carnival stationary market as achievable over the next 12 to 18 months and it broadens our ability to provide electrified solutions to the commercial vehicle market by powering EV charging units.
In the slide presentation accompanying this call you can see that we've showcased what the key milestones will be for both the hybrid truck Carnival and the carnival stationary generators over the next few years.
We are planning to begin initial deployments of the carnal stationary generators next year and we expect that these will be revenue generating.
We are already well underway in discussions with likely customers around their initial deployment of the generator.
We are also continuing with the development to integrate the carnal generator into the hyper truck powertrain as we work to integrate and validate the hyper Chuck Carno over the next few years, we plan to be ready for initial fleet trials starting in 2026.
Third variant of our hybrid truck powertrain is a hydrogen fuel cell version a couple of quarters ago, We announced the partnership with <unk>, where we kicked off the integration of <unk> latest 200 kilowatt fuel cell technology with highly on hyper truck powertrain technology on an initial development vehicle, we are pleased with <unk>.
Sure that this development has been going very well and this vehicle is up and running now and completed its initial test drives around a test track just a few weeks ago.
This project remains on track and will be complete by the end of this year.
I will now turn the call over to John to share more about the financials from this past quarter.
Thank you Thomas and good morning, everyone turning to our financial results for the second quarter. We reported revenue of 266000 from hybrid system sales compared to 172000 in the second quarter of a year ago operating expenses totaled $38 5 million, an increase of $6 3 million compared.
To the second quarter of last year the year over year increase in spending is due to growth in research and development costs, partly offset by lower SG&A expenses.
R&D costs were up seven 4 million in the quarter due to higher expenses related to hyper Chucky Rx powertrain development and Carnival.
Our train development costs were up $3 7 million as we expense production truck components that were received in the quarter.
I mentioned last quarter that until we complete R&D work on the hyper Trickier X system all component purchases will continue to be expensed, even if those parts will ultimately be used in production powertrains that are later sold to customers.
The impact of this expense was partly offset by lower expenses related to other R&D work on the hyper trickier ax system in the quarter.
Going forward, we expect that expensing of production component purchases will have a negligible impact on our R&D costs as we make progress towards hyper truck Air X system commercialization.
The second driver of higher R&D costs in the quarter was carnal expenses that we did not have in 2022 as a reminder, we purchase carnal technology from GE late in the third quarter of 2022, and therefore comparisons of year over year expenses in the first three quarters of this year need to account for this difference total.
<unk> expenses in the second quarter were $3 7 million.
In total highly on reported a net loss of $35 2 million for the second quarter, which is up from the $33 $5 million loss. The company reported a year ago as lower cost of sales and higher interest income this year, nearly offset higher operating expenses.
Looking at year to date performance for the first half of the year revenue was 576000 compared to 512000 in 2022 total operating expenses were $70 4 million compared to $57 9 million in 2022 again the increase in expenses was driven by higher R&D expenses.
At $12 5 million.
Which $5 4 million consisted of expensing of production component purchases.
<unk> offset by lower costs for other powertrain R&D work, the remaining $7 1 million of higher year over year R&D costs was driven by carnival expenses in the first half finally SG&A expenses in the first half were approximately flat with 2022, our net loss year to date was <unk> 64.
<unk> 1 million compared to $60 6 million in the first half of 2022, we ended the quarter with total cash short term and long term investments of $354 million compared to $422 million at the end of 2022 and $385 million at the end of the first quarter of this year.
We spent $31 million in the second quarter compared to $37 million in the first quarter and $27 million in the second quarter of 2022.
As we discussed last quarter, we are taking actions that will help reduce cash burn and expect that these actions will significantly reduce operating expenses capital spending and working capital growth. We continue to hold to the guidance that we shared at our Investor day back in June of approximately $130 million total operating expenses. Despite the <unk>.
Unexpected impact our production truck component expensing. This year also we continue to project cash consumption of less than $150 million, including cash operating expenses working capital growth and capital expenditures. As previously noted we ended the second quarter with $354 million of total capital.
Which gives us flexibility to continue hyper truck <unk> commercialization work, including initial truck deliveries as well as carnal development work, we expect to finish the year with a total capital balance of around $275 million, which will give us financial flexibility into the future. We have no plans to raise capital. This.
Year, but we'll remain opportunistic in 2024 and beyond if market conditions are favorable for raising additional equity capital with that I'll turn it back over to Thomas.
Thanks, John as we wrap up this call and move to Q&A I'd like to encourage anyone who hasn't yet watched our investor day video to do so this presentation offers a great overview on both the hyper truck powertrain technology as well as the carnal generator. The recording can be found on highly on the Youtube channel.
We will now open the call up to Q&A.
Thank you if you have a question. Please press star one on your telephone keypad, if you wish to remove yourself from Q simply press star one again.
Please for your first question.
Okay.
Your first question comes from line of Donovan of Shafer.
Please go ahead.
Yes, hi, guys. Thanks for taking the questions.
So I wanted to first.
Talk about the hydrostatic eurex during those 30 units. It sounded like you said, you're you feel pretty comfortable like Youre on track.
But being there at the Investor day.
Seeing the lifts and everything and the crews working on it I'm just curious.
Yeah.
There's a learning curve with anything like this and this is kind of the start of being in being in like production mode. On these so is that at a point right now where you're already.
Yes.
The crews that are doing this to the teams that are doing this they're already kind of at a run rate where if they just keep pumping them out at the current pace you will hit that 30 30 units or is there kind of the expected are baked in certain amount of well.
Every day, they get a little bit better so it's not strictly kind of a linear improvement.
So there is a certain amount of just expected kind of timing and improvements that will help you get to the 30 units just kind of curious of the nature of their if you can talk to that.
Yeah. It's a good question and you had the opportunity to actually be at all firsthand, but.
We are in the ballpark right now from a production standpoint to be able to achieve those 30 with with no drastic changes there are no big changes at all and so from that standpoint. Your other comment we are getting faster at every single day actually at times that the teams have been able to improve events quite impressive.
We don't think we've we've got in all of the time out of it yet either so from that standpoint, we have high confidence in the ability with the team that we have the facility operation setup that we have to be able to achieve those dose 30 units by end of year. The other thing I'll. Note is we are also in parallel path being up mud.
Their ability and capability to be able to do hyper truck installs as well and so that's going to allow us to be able to go scale volume as we haven't for mud centers.
Okay.
And then second question Scott.
So you talked about it in for the hybrid.
<unk> being kind of in the high 300, thousands and I'm curious.
Cost increases that you've seen.
Are we moving towards that mid crossover too.
Two.
Hit the kind of 400000 Mark.
<unk> or not and if you can give any color around.
How we should think about the day cab as I understand it you can actually you can do a smaller battery and still get the get the.
Full credit on their day job. So if you can just if we can get kind of rough.
Rough sense of if it's a 100 K lower or 50, K lower how does <unk> kind of compare.
Sure. So let's first start with the <unk>.
Sleeper cab variant of it so as you mentioned in previous call. We we've expressed high three hundreds and that is still where we're targeting now that is already taking into account the benefit that will be received from the inflation reduction act that 40000.
So it's still on track for that high three hundreds.
With respect to the day cab.
It's still too early to put numbers on that in terms of cost and price of that system. As you mentioned, we are targeting some improvements. So one is just obviously the shift of going from a sleeper truck to a day cab date.
Day cabs are conventionally less expensive in the market and then we are also looking at smaller battery pack, while still be able to achieve that ACF credit even looking at simply to push us toward reducing the size of the tanks on the vehicles, just because the range of a day cab.
What asleep for it so more to come on what the pricing of a day cab, though what would actually look like.
Okay, and then if I can squeeze just one more in on the stationary car into a generator.
The release, you talk about having demo.
Dennis that's deployed in 'twenty four and also generating revenue. So I'm curious are those kind of two separate buckets are the same thing would.
Would you have one set of demo units.
In a separate set of units that are out there generating revenue or is it kind of like.
You would have you deploy some of these and you call them demo units because maybe the revenue model youre selling the electricity, but keep ownership of the unit and its still sort of.
Helping to prove out the concept and it allows you to show it off to people and stuff like that would maybe the same units are kind of two separate groups or batches.
I think that's the way to look at it will be the same unit now obviously as we go deploy these and as I mentioned on the call. We are in discussions right now with the likely early adopter the.
We will be working with each one of them and looking at what their potential long term use cases, then and then structuring. These these agreements appropriately and so I think from your standpoint, though look at them.
In the same bucket our goal as these early units that will be deploying in 2024, we will be able to generate revenue off of those units and then youll see that as a great kind of feeding into the market to be able to then.
Hopefully goes scale volume from there.
Okay, great. Thanks, guys I'll take the rest of my questions offline.
Your next question comes from the line of Steven Fisher of UBS. Your line is open.
Thanks, Good morning.
Just to follow up on that Carnal question I know you plan to generate revenues in 2024 can you just give us a sense of the the path and timing to gross margin positivity on that Carno stationary generators, that's something that even have in your line of sight at this point or is that something that's.
Much further out it needs a bigger scale.
Hi, Stephen this is John .
Great question, we're excited that next year, even though we just acquired the <unk> technology that we have an opportunity to put some units and demonstration service.
And even get some revenue for them.
We havent projected yet our shared our expectations in terms of gross margin, but we don't we don't think as we ramp up cargo, we'll do the demo units, but then we do expect that we'll be able to be ramping up sales in 2025 and beyond that there is not a long pathway to positive gross margins, but I.
Wouldn't want to give you any specific numbers just yet.
As we kind of worked through the engineering on it but.
We think it's card overall is a pretty good story.
That story is not a long run in terms of getting to the two being able to forecast those things, but we're just not quite ready yet.
Got it that's helpful. And then in terms of the day cab how does the development of that product affect your cash burn.
Yes, so I'll start it off and John can chime in as well, but so it will be utilizing a lot of the same team that we already have in Austin, Texas, taking the knowledge and a lot of the the development we have already done on the sleeper truck carrying it over to a day cap, but as you mentioned, yes, there'll be some improved.
Cost benefit some weight benefit to that solution. So theyre still at engineering spend and I'll, let John touch on that yes.
<unk>.
Tried to share we talked about this a little bit of Investor day around our cash our expense outlook for next year and I did that in the context of what we spent the last couple of years and then also if you note and look through the comments that I've made today about our expenses.
Taking out some of the unusual costs related to R&D component expensing that were flattening out projected this the beginning of the year that SG&A would be flattening out.
And R&D is looking to flatten out to even with the addition of cargo so as Thomas mentioned.
As we as we complete the commercial the R&D work on the sleeper truck those people will be shifting over and that money that we had spent the past towards.
We protect development will shift over to these other things, including the 15 liter and the day cab, So I guess, what I'm getting at here.
I don't want to.
<unk> forecast too precisely, but we don't expect a big ramp up in spend there or a big additional cash burned to get the day cab. It's the next follow on product that we're really talking about there with the day Catherine 15 liter.
Okay terrific. Thank you very much.
Yes.
Your next question comes from the line of Bill Peterson of Jpmorgan. Your line is open.
Hi, Good morning. This is Susan that Khatami answer. Thanks, so much for taking my question maybe.
Maybe to start can we get some clarification around where it is confirming that.
<unk> seen that.
Ladies and building verification vehicles.
The expected.
And lastly on your deliveries later this year for the year.
Yes, so I think the what we saw it was.
It really components that were coming in and sharing that they met the proper quality specifications that we were laying out our supply base. We saw that there were some deficiencies. There and then we were able to work with the suppliers and make improvements in the product that they are producing for us to be able to meet those standards.
Things like sheet metal, making sure that tolerances are correct. The paint specs are correct as well as wiring harnesses, making sure. They were they were built to to bolt the spec that we had outlined and to make sure that those specs, where we're going to meet the.
The harsh conditions of the roads out there that's really what what led to some of those delays. So I think our team had done a great job in forecasting out when we needed components and supplies.
Fortunately, we just saw that some of the material that was coming in didn't quite meet the specifications and the demands that we were looking forward to to meet end.
Supply chain base worked very well and diligently to correct those issues and I'm pleased to say that we're now in the process of building out those remaining preproduction development trucks.
That's really helpful color. Thank you.
Then maybe a second one.
Can you tell us a little bit about your philosophy on.
And then <unk>.
Getting this initial 30 trucks to customers.
Hey, good level of inventory that you feel comfortable having strength.
And beyond.
Yeah. So the focus right now is obviously those 30, both securing the orders and then getting those trucks built out and in the hands of customers as we look at 2020 for one of the things that were.
We're looking at closely is how does the these extended fleet trials go how do these initial adoption of units go.
<unk> units later this year and using the that input to really look at what the 2024 volumes are expected to be so we plan on coming back with further information on that as we get a little bit further ahead, but as you mentioned on today's call. We think we're weeks away from being able to start these extended fleet trials, which for.
Many fleets. This is kind of their final gating item before making order commitments right and thats expected at it.
It's something that I think the industry.
Is is demanding and rightfully so as they want to actually experienced technology in their operations first for a period of time before they are willing to place order commitments.
And that's something that is not uncommon to just highly on.
Okay, great. Thanks, so much for taking the questions.
Your next question comes from the line of Undress Shepherd of.
Cantor Fitzgerald your line is open.
Great. Thank you good morning, everyone.
That's on the quarter and thanks for taking our questions.
I just wanted to maybe start off by clarifying the cadence of the 30 unit delivery for this year should we expect the vast majority.
In Q4 or might there be some.
Material deliveries in Q3, just trying to understand that what that breakdown might look like thanks.
Yes.
Later this year, so Q4 targets, so we'll be going through the details of the trucks. We actually started the first build of our production trucks.
During Investor Day, and then we're looking at more of the Q4 timing of when deliveries will start taking place.
And just to walk through the process. So what we have lined up as we will be sourcing the content to chassis from pack by our Peterbilt will be then doing the outfit of our powertrain technology in Austin as I mentioned going forward. We will also have the ability to do that at mud centers as well as in Austin and then that.
Vehicle will go back to <unk> go through final end of line certification the venue will be put on the vehicle and then it would be ready to go out to customers and that will enable these vehicles to also achieve that acte credit that we've been talking about so so that's the process, but in terms of when the deliveries will get back to.
So we're looking at Q4.
Got it okay, that's what I thought thanks Thomas.
And maybe a question for John here.
In terms of gross margins I know, we're not providing too much visibility around those but.
Is it realistic to target positive gross margins at some point throughout 2024 or is this perhaps more of a 2025 storey. Thank you.
Yes, I think it is still a bit early to tell as we as we noted we're still working on our order book for next year and that's contingent upon these extended free trials that were about ready to kick off and so <unk>.
Volume drives cost and.
So getting that order book in place and also some of the design changes we're working on and also working on getting the powertrain it get into the point, where we're selling powertrains those all play into our.
Expectations for timing on gross margin as we noted we're not expecting big losses right out of the gate, but we do that we do expect some red ink.
No.
It's a little bit early for us to share.
Our expectations there because of all of those things. So you can be sure we're working on it very hard.
Got it okay. Thanks, John and maybe just one last one if I may.
You mentioned.
Given your current liquidity.
Don't anticipate any.
Okay.
Any any capital releases this year, but that you will remain opportunistic for next year. So I'm just wondering if you could maybe elaborate a little bit further as it pertains to next year, how are you thinking about potential capital raises.
Are you leading towards.
Towards equity or debt or one way more than other just just trying to better understand how you are thinking about it as it pertains to next year. Thank you.
Yeah.
Yes sure.
I've shared I shared at Investor day.
We're slowing cash burn we've reduced our estimate for this full year by.
$50 million from where we started the year down to an expectation that it would.
No more than $50 million, we still feel good about that we're trying to keep it as low as possible to extend our options right and so.
You could extrapolate what we've shown what we showed today on the slides and say Hey, we don't really need to raise capital at next year. In addition to this year the point about.
Being opportunistic as the opportunity arises.
Some docs as some companies increase a lot due to better prospects and so on and if that were to show up we would probably look to the capital markets I don't see I see that being probably more of an equity pure equity type of a play versus.
Anything else.
So again the whole idea is to give us some flexibility.
Execute on our strategy as Thomas outlined it.
We see big opportunities out there, there's a little bit more work to do to get a day cab.
Get the carnival opportunities I'll figure out the best way to build the sleeper cab <unk>. So all of those things and then the other strategic opportunities that we ended at today, just keeping open minded about what those might look like and how they might.
So those are all things that are playing in.
Our capital forecast that I think the good news is we've we.
We have.
A lot of flexibility, we've created the flexibility and runway for ourselves and we're we're not just assuming that.
Things are going to turnaround.
Six months or so.
Being very strategic about how we think about.
Using our capital and how that aligns with our strategic plan. So again, we've got we've got flexibility, we're really watching it carefully and we will just see how things go.
Got it Okay. That's super helpful. I appreciate that thanks.
Thanks, again, congrats on the quarter and I'll pass it all thank you.
Thank you.
Your next question comes from the line of Mark Delaney of Goldman Sachs. Your line is open.
Good morning, Thank you for taking my questions and thanks for all the details on the Carnival.
I believe you mentioned in your prepared remarks that some suppliers have been increasing prices and therefore, the bom cost of the <unk> could be higher than you had been thinking earlier. This year I was hoping you could clarify a bit more on that topic are you able to give us a better sense of the magnitude of the increase that you are now thinking about in terms of the <unk> cost and you guys maybe give.
Just a sense of the breadth of suppliers join us as a single component or two that's driving the increase or is it a broader based set of changes.
Yeah.
Sure. So I'll first start with kind of the overall theme for maybe it's even more than a year. A couple of years is just significant component price increases and what we shared on the last earnings call was that was what one of the reasons that it drove US let's go back and revisit these founders agreements we need to pass some of those price increases on to end customers.
That as we heard on air as we shared on today's call. Even since then we've seen some more component increases you mentioned that those are in.
In the one thousands of dollars range and.
So what we're seeing is that price increasing from suppliers does not lightening up just yet.
So from that I don't see that it is going to change our our pricing at this stage.
But we just wanted to add that color to the market.
Still seeing price increases then.
Not unique to highly on by any means.
The things that we've seen as others are out reporting earnings.
Some are taking very significant losses on on shipping out vehicles, and so John touched on that a little we don't see that we're in the same boat we are going to be operating at a loss on these initial trucks, but but we will be working diligently to pull that cost out of the product.
As we go forward here and then we see day cab adds.
Another market opportunity for us to go after as well Mark I might add to that.
As people would expect when you've got the new industry, forming in a lot of especially in the class eight market that doesn't have a lot of volume that you are talking about things like battery systems.
And then E axles, and so forth the industry really needs to mature and get to the higher volumes.
Naturally youll see youll see pricing coming down over time, it's just we haven't yet reached that volume driven inflection point on pricing and we're dealing more with feeling inflationary.
But they are working the other way. So it's just part of the Sky and part of it's design part of its.
Procurement and so forth. So those are the things that are affecting us.
Yes.
That all makes sense.
I appreciate the color I guess to follow up on that topic, I mean, as you're thinking about price cost.
In terms of some of these factors what you can pass on and what highly on May have to absorb do you think that price cost dynamic gates production in 2024, I realize you're still formulating the exact.
As you said in your prepared comments, but curious if.
Potential losses, maybe limit.
How many <unk> units in 'twenty, four or you may want to manufacture and sell.
Yes.
Great question and we've actually.
Dress this a little bit in the past.
Just recently.
As you think about the changes in our cost.
The shift in strategy that we outlined a quarter ago, where we said hey, we really want to control and meter that ramp up of this product because of because of all of these challenges.
You add to that that we see all the other opportunity around the day cab and Cardinal and so forth that we definitely want to get our trucks out there get miles on it prove out the technology powertrain technology and reliability.
We do have this this change where the.
The 12 liter engine that we have won't be certified in California next year that doesn't mean, we can't sell trucks will continue to sell them, but.
We're not rushing to put out.
The trucks as quickly as we were maybe a year ago or even further back because that's.
Not necessary.
Get where we want to be which is to have.
Like I said the day cab truck.
Working on design changes that will take costs weighed out so two.
2024 will be a year, we're going to continue to sell but it's not.
Our strategy with more we get out there the better we want to.
Be very thoughtful about the volumes and the ramp up as we as we work on these other things that we've outlined today so.
Then that will kind of help us really in all areas of proving up the product managing our capital cash flow and those type of things so.
Yes, so you might say there is there could be some metering of that just depending on.
Those factors the interest level the price level component level, so forth this week.
Get through next year.
Understood. Thank you.
Again, if you would like to ask a question press star one on your telephone keypad.
Next question comes from the line of Chris <unk> of CPE investments. Your line is open.
Hey, guys. Thanks.
Hey, guys.
Can you hear me okay.
Yes, hi.
Right.
Regarding sales.
As far as your plan for the market.
Guys planted on having like field sales.
Reps in the field or.
Mostly working with Oems or.
Do it more of like.
Online presence or a combination of all.
Yes.
Sure so.
Not an online presence type of a market.
The commercial vehicle space is very used to.
Meetings in person.
Discussions about how theyre going to be expecting their trucks with conventional for tier one suppliers. In this space is that you do have a field sales team, but youre also working closely with the Oems. So you want to go out and educate the fleets on your technology and on your solutions, rather than as Theyre going in placing brand new truck orders through their deal.
They are spec ing your product and so that will be our goal as we move to that model of being a powertrain provider as opposed to the full vehicle seller and that is something that is very customary in the industry and a model that we'd look to slot into.
And do you guys currently have any reps in the field or when would you start actually ramping up sales reps.
We do already have sales reps that are doing exactly what I just mentioned as well as.
Right now in the beginning will be transacting the entire truck sale, but then looking closely looking to close quickly move over to selling the powertrain as opposed to the entire vehicle.
Awesome alright, thank you.
There are no further questions at this time I will now turn the call over to Thomas for closing remarks.
Thank you everyone for joining today's call and also appreciate everyone who attended in person or virtually during investor day for those of you who havent strongly encourage you to go to our Youtube channel.
Watch that presentation. Its a couple of hours long, but it gives you a great amount of detail bolt on the hyper truck powertrain solution as well as the carnival. So thank you for joining today's call.
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