Lion Electric Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2023

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen, and a warm welcome to the Line Electric First Quarter 2023 Results Conference Call. At this time, all participants are in listen only mode. A brief question and answer session will follow the formal Presentation. As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Isabel Ajah, Vice President of Investor Relations and Sustainable Development.

Operator

Please go ahead, Ms. Ajah.

Speaker 1

Good morning, everyone. Welcome to Lion's First Quarter 2023 Results Conference Call. Today, I'm here with Marc Bedard, our CEO, Founder and Nicolas Brunet, our EVP and CFO. Please note that our discussion may include estimates and other forward looking information and that our actual results We invite you to review the cautionary language in this morning's press release and in our MD and A, which contains important information regarding various factors, assumptions and risks that could impact our actual results. With that, let me turn it over to Marc to begin.

Speaker 1

Marc?

Speaker 2

Thank you, Isabelle. Good morning, everyone. We are pleased to share with you today our Q1 results and to report that Lion is showing great progress, setting a strong foundation to execute our plan. There are 3 main items we will be talking about today. Number 1, we continued our sequential growth In vehicle production and deliveries, announcing today our 6th consecutive quarter of delivery growth.

Speaker 2

Number 2, Manufacturing operations at both our Joliet vehicle plant and our battery factory are now underway And we'll gradually ramp up over the course of the year. And number 3, with production ramping up in all three of our plants, We are focused on achieving profitability and are putting the right elements in place to achieve these key objectives. We will now provide color on each of these items before we open the line for questions. Let's begin with deliveries and orders. During the quarter, we delivered 220 vehicles.

Speaker 2

This is the 6th quarter in a row of sequential growth in vehicle deliveries. We delivered more vehicles in Q1 than we did in all of fiscal 2021, the year in which we became a public company. We now have more than 1100 vehicles on the road in real life operating conditions. Our purchase order book Currently stands at 2,565 vehicles for a total order value of $625,000,000 It includes orders for 2,270 electric school buses. We secured 289 orders in the EPA Clean School Bus Program, representing a total order value of approximately $105,000,000 And we are working to obtain additional orders from awardees We have obtained extensions from the EPA.

Speaker 2

Nicolas will provide further details regarding this program, including the upfront payments that have been made and are expected to be made by the EPA. I am also pleased to announce that the EPA recently released guidelines for the 2nd run of the Clean School Bus Program, which I will discuss in a moment. Our PO book also includes orders for 295 electric trucks And our Line Energy PO book amounts to approximately $6,000,000 for charging infrastructure and related services. We realize that the electric truck market is still in its early stage, but the recent unveiling of our Lion 5 truck, The first Lion model with our own Lion batteries and the upcoming commercialization of our Lion A tractor later this year Should position Lion very well in the truck industry. Coming back to the EPA program.

Speaker 2

In addition to the 920,000,000 dollars awarded in round 1. The EPA recently announced that it is awarding CAD400 1,000,000 in competitive brand funding for the replacement of existing school buses with clean and 0 emission school buses. For the 2nd run, Funding is expected to be up to $395,000 per vehicle, inclusive of charging infrastructure And all applications must be submitted by August 22 this year. Besides the EPA program, Various levels of governments continue to implement more stringent GHG emission targets, legislation And subsidy programs to accelerate EV adoption, both for 0 emission school buses and medium and heavy duty trucks. At the U.

Speaker 2

S. Federal level, the EPA recently announced new GHG standards for heavy duty vehicles. When finalized, these rules will lead to 50% of buses, including school buses and 25% of long haul tractor trailers to be electric by 2,032. At the state level, important laws and regulations are being adopted that will continue to accelerate the shift to the electrification of its transportation sector. For example, Carb recently adopted It's advanced clean fleet rule, which is expected to have an unprecedented impact on ZEV adoption in California.

Speaker 2

Under this new rule, All trucks performing drayage operations will need to register with CARB. And starting next year, only 0 emission vehicles can be registered. Federal fleets and high priority fleets will either need to purchase only ZEVs starting in 2024 or alternatively meet ZEV targets as a proportion of total fleet starting in 2025. In the case of box trucks and school buses, this proportion of ZEV is set to 10% of fleet in 2025, 25% in 2028 and growing to 100% by 2,035. In combination with the Advanced Clean Truck Regulation, CARB expects the ACF rule to result in over 500,000 Medium and heavy duty zero emission vehicles in California in 2,035 and close to 1,700,000 by 2,050.

Speaker 2

As seen in the past, we expect that many other states will follow CAB's leadership and adopt similar regulation. In addition to regulation, we continue to see great momentum in subsidies and incentive programs with 1,000,000,000 of dollars available across the U. S. And Canada to support fleet electrification. With our product lineup focused on urban range and our growing production capacity, We believe we are highly positioned to benefit from all these programs and we'll continue to closely monitor them on behalf of customers.

Speaker 2

Which takes me to an update on the Joliet factory and the battery plant. During the Q1, We focused on the ramp up of electric school bus production in Joliet, as we continue to install school bus working stations equipment with a targeted manufacturing capacity of 2,500 buses per year by the end of the year. This allowed us to continue to manufacture Allianz C units for customer deliveries. Also, we should proceed with the official grand opening of our Joliet plant during the summer. As for our battery plant, we did the grand opening and hosted analysts for an on-site meeting a few weeks ago.

Speaker 2

We installed additional equipment as we continue to ramp up the production of Lion battery packs with an objective of bringing Our production capacity to 1.7 gigawatt hour on an annual basis by the end of the year. This will be enough to power approximately 5,000 of our vehicles in a mix of school buses and trucks. Certification of the first Although our 2 battery pack models is expected in Q2 of this year, followed by a gradual ramp up of production during the rest of the year, We will gradually integrate our Lion battery systems into our different vehicle models, starting with the Lion C and Lion D. School buses And the Lion 5 trucks. Also, we currently have over 3,800 BMW battery packs in inventory to perform a smooth transition to our own batteries throughout the year.

Speaker 2

Now a few words on our Saint Jerome plant. The operational improvements made in the prior years have allowed us to continue to increase our production cadence. No major CapEx is required To achieve our production capacity of 2,500 vehicles at scale, consisting of 1,000 school buses and 1500 trucks. Let me now address our focus on profitability. In parallel to ramping up operations at our 3 plants, we are focused on our path to achieving profitability.

Speaker 2

The unit level economics are healthy and the Lion model works well at scale. As we produce and sell more vehicles and expand on our vertical integration strategy, such as the Lion batteries at our own battery plant, We are confident that the Lion model should generate attractive margins. The CapEx investments To bring our total capacity to 5,000 vehicles, including batteries, will be completed by the end of this year, a very significant milestone for Lion. We have also put in place measures to contain cost at all levels of the company to minimize as much as possible the time line to profitability. Our entire organization is aligned towards achieving this goal.

Speaker 2

Nicolas will now further discuss our financial performance for Q1. Nicholas?

Speaker 3

Thank you, Mark. I will start with the financial highlights of the Q1. I will then comment on Q1 CapEx and conclude with our liquidity position. During the quarter, we delivered 220 vehicles consisting of 207 buses and 13 trucks, which translated into revenue of $54,700,000 compared to $22,600,000 in Q1 2022, a 142% year over year growth in revenue. 215 of the vehicles delivered in Q1 were delivered in Q1 and 5 in the U.

Speaker 3

S. This was 6th consecutive quarter of sequential growth in vehicle deliveries. We posted gross margin of negative 4%, A significant improvement relative to the negative 10% margin in Q4 of 2022. If we remove the impact of non cash share based compensation, SG and A amounted to $17,500,000 in Q1 as compared to $12,600,000 in the same period last year. The increase was mainly due to an increase in expenses as we expand our head office and general corporate capability and sales force in anticipation of the ramp up of production capacity.

Speaker 3

Adjusted EBITDA was negative $14,500,000 for Q1 as compared to negative $11,300,000 for the same period last year. During the quarter, CapEx amounted to $23,100,000 including $6,000,000 incurred for the Joliet plant and $14,000,000 incurred for the Lion Campus. As previously signaled, Our 2023 CapEx for the Joliet plant and the Lion Campus are expected to amount to $65,000,000 consisting of $45,000,000 for the Lyon campus and $20,000,000 for the Joliet Baker plant. We expect CapEx to drastically decrease next year As we expect to have by year end a combined production capacity of 5,000 vehicles at our Canadian and U. S.

Speaker 3

Vehicle plant and a production capacity of 1.7 gigawatt hours At our battery plant, enough to power approximately 5,000 vehicles in a mix of school buses and truck. Any future investments towards further capacity expansion will only take place when justified by the order book and importantly, our liquidity profile. As a reminder, we expect that approximately 55 percent or approximately $25,000,000 of the $45,000,000 Capital expenditures to be incurred in 2023 from the Lion Campus will be financed through the federal and provincial loans secured for such purpose. In addition to the tangible assets, which mostly consist in R and D, amounted to approximately $16,500,000 as compared to $15,000,000 last year. Let me now say a few words on our liquidity and capital resources.

Speaker 3

In Q1, gross proceeds for the exercise of the over allotment option for the December 2022 unit offering generated $7,500,000 We also completed a sale leaseback transaction for the battery plant building in Mirabel, raising gross proceeds of approximately $21,000,000 We raised $4,600,000 under our ATM program and we grew $6,300,000 on our government loans related to the Line segment. As of the end of Q1, we had an immediate liquidity position of $57,000,000 consisting of a cash position of $36,000,000 and $21,000,000 availability on our ABL credit facility. We were also owed $10,000,000 on the government loans for capital expenditures incurred up to March 31, 2023 on the Lion Campus. Also, as Mark mentioned, 209 purchase orders were obtained in connection with the EPA Clean School Mess program, most directly through vouchers filed by Lion and, to a lesser extent, to applications made by free agents, which were converted into purchase orders of Line. These purchase orders represent a total value of $105,000,000 For approximately a third of these orders, clients have requested an extension to the EPA, mainly due to challenges related to the charging infrastructure and related construction work.

Speaker 3

As Mark mentioned, we are also working to obtain additional orders from awardees who have obtained extensions from the EPA. Upfront payments under the EPA program have already commenced with over $10,000,000 having been received from the EPA since the end of the quarter. As applications in respect of other orders are processed by the EPA, we expect to also be able to receive other upfront payments from the EPA. Lastly, at the end of the quarter, capacity of approximately $90,000,000 remained available for issuance under our ATM program. To conclude, I will reiterate that we will continue to closely monitor market conditions and our liquidity and capital requirements and resources.

Speaker 3

We'll also continue to explore and evaluate different financing opportunities with a view to raise additional capital and strengthen our financial position in the upcoming months. With that, I will pass it back to Mark for concluding remarks.

Speaker 2

Thanks, Nicholas. Before we open the line for questions, Let me conclude by saying that we are pleased with our Q1 performance, and we expect this gradual growth in orders, sales and production to continue. We will keep building on this momentum and on our objective to achieve profitability. Thank you for your time this morning.

Speaker 1

Operator, we will now open the line for questions. I just want to ask you to limit to 2 the number of questions asked

Operator

Our first question comes from the line of Chris Baba of B. Riley, your line is now open. Please go ahead.

Speaker 4

Yes. Hey, thanks for taking my questions here. Maybe you could just kind of quantify how many extensions you think are out there for the 1st round of Of the EPA that are still the kind of free agents that are looking for potential solutions. And Maybe just on the EPA strategy for the 2nd revenue, how you think the bundling of the bus and charging infrastructure Do you think pricing will become more of a factor here where customers will be looking to open up additional funds for charging infrastructure?

Speaker 3

Hey, Chris. Nick here, Bhopal as well. I'll take this one. So in terms of the broader Extensions as part of the EPA program, it's something we're in the process of trying to find out. We believe it could be a Significant number that are still out there for reagents, but don't have all the facts right now.

Speaker 3

In our case, in the case of the clients that we work with, We're talking about a third of the orders or a third of the clients that requested an extension. Recall that in total we're talking about close to 2,400 unit vouchers for electric buses that were awarded. So it's something that we're working on right now. In terms of the 2nd round, what I'd say is the 2nd round is $395,000 Of total vouchers for both the vehicle and the charging infrastructure, it's essentially the same amount, but it's not as Prescribe meaning in the 1st round it was 375 for the button and 20 for the charging infrastructure. Now there's a little bit more flexibility in terms of allocating the amount.

Speaker 3

I would also say that it's a completely different program. In the first round, we were talking about a rebate, right, where it was Essentially, a subsidy to purchase the vehicle. It was targeting a really broad audience. There were over 400 awardees as part of the program and they were capped at each applicant was capped at 25 units max in the 2nd round. It's a competitive grant process.

Speaker 3

There's a pretty detailed scoring system in there and there's both minimums and maximums For school districts, larger school districts, we're talking about minimum 15, maximum of 50 units. And for the 3rd party that have to aggregate at least 4 school boards. We're talking about a minimum of 25 and a maximum of 100. There's also a big focus on leveraging 3rd party funds as part of this. Overall and I should also specify that the EPA Indicated that they expect to award 25 to 50 applications as part of this competitive grant process.

Speaker 3

It's a more complex application, but I'd say it's more aligned with what we've done in the past in terms of bidding.

Speaker 4

Got it. Now that's really helpful. And maybe on the path to profitability, we saw some progress And gross margins in the quarter with some additional volumes, can you walk through whether we should expect the cadence of fixed costs over The next couple of quarters to come on as you ramp Maribel and Joliet or whether we can expect continued Steady improvements there with some additional volumes.

Speaker 3

Yes, I'd say on that, look, we're we think the model works well at scale. It's We've said in the past continues certainly to be the case. There is a potential Improvements related to the unit mix as we deliver more units in the U. S. As we have more of those Price increases that come in, in the deliveries.

Speaker 3

We think volume will help on the margin side of things. At the same time, I think you identified correctly, There can be some volatility related to the timing of the cost of the Joliet facility as well as the battery plant. But we're As Mark mentioned, it's clearly a focus for us to continue to improve on the margin side of things.

Speaker 4

Okay. That's helpful. I'll hop in the queue. Thanks, John.

Speaker 3

Thank you.

Operator

Thank you. Our next question comes from the line of Mike Schallke of D. A. Davidson. Your line is now open.

Operator

Please go ahead.

Speaker 5

Okay. Good morning and thanks for taking my question.

Speaker 4

I've got a follow-up

Speaker 5

This question real quick about your profitability comments there, Nick. Maybe a bit of what I can ask is, just more immediately is, How far do you think you are? How many quarters where you think you are from being breakeven on a gross margin level? Maybe you can just like start there.

Speaker 2

Yes. Good morning, Mike. Well, we're Profitability is really a key objective for all of us at Lion. And the way to get there is, well, the first Snap is really a positive gross margin and then a positive EBITDA, and the ultimate goal is the free cash flow, right? Free cash flow positive.

Speaker 2

So we feel that, as Nick was saying earlier, our model scales very well. And one of the reasons for that It's because the models we are building are purpose built for electric. So with respect to volume, We don't need a very significant volume to achieve this Profitability. So this would be the and we spoke about the material margins in the past and they are very healthy. So let's say that this model as we have right now works very well In Saint Jerome and also the way we're ramping up in Joliet, this is going very well.

Speaker 2

I think we're very focused On school buses and getting to this first phase of 2,500 school buses of manufacturing capacity, we feel is pretty And we feel that right now the manufacturing capacity ramp up is very well aligned with The ramping up that we're expecting also on the purchase order side.

Speaker 5

That's great. And perhaps my other question is also a follow-up on your comment there, Mark. I guess I'd like to know a little bit about the cadence of the ramp up from here. It sounds like you've got increases in Q2, probably in Q3, Q4 sequentially. But I'm kind of curious, is there a quarter where there's a large step change And the production volumes, are there because you're opening up more at Juliet, we've got a large credit source at some point this year.

Speaker 5

Just any sense as to how steep the event might be over the next couple of quarters would be appreciated.

Speaker 2

Thank you, Mike. We feel that it's going to be gradual. This quarter was the 6th consecutive quarter of growth. And for us, it's really growing from 1 quarter to the other. That's the name of the game.

Speaker 2

We have a very strong foundation, And we will keep building like that. So I don't believe in a switch that you're just turning on and off and then you can increase by thousands of units. In my mind, this is totally unrealistic. So you can expect this growth to keep going In Q2 and then into Q3 and to Q4 as well, this is exactly what we're expecting and this is very well aligned Also with our customer request, we need to make sure delivering electric vehicles, Mike, It's something that we need to plan ahead. So you need to plan the delivery of the vehicle at the same time that you are planning the charging infrastructure installation as well.

Speaker 2

So all of this is very well aligned with the Lion Ecosystem that we have.

Speaker 5

Okay. I appreciate the color. I'll leave it there. Thank you.

Speaker 2

Thank you, Mike.

Operator

Thank you. Our next question comes from the line of Rupert Merer of National Bank. Your line is now open. Please go ahead.

Speaker 6

Hi, good morning, everyone. First, just to follow-up on that last question. I think you had 5 deliveries in the U. S. In Q1.

Speaker 6

How many of those We're produced in Joliet. And given that you plan to be at a capacity of 2,500 by the end of this year, Is that a number that you think you'll physically have the capability to do by the end of this year?

Speaker 2

Hey, good morning, Rupert. With respect to the manufacturing capacity of 2,500 units, The CapEx by the end of this year, as you know, will have been fully invested. And It's after that, it's the ramp up of the labor that we need to do. So when we're saying we have a manufacturing capacity of 2,500 units, We do have the equipment to manufacture 2,500 units, and we will make sure that we align the labor with the forecasted delivery. So we're not saying that we will get that pace before the end of the year, but we will be ready To be at that pace, if the order book is there and if Obviously, the customers are requesting those buses in this period of time as well.

Speaker 2

So I think we need To be sure on to be aligned on this thing.

Speaker 5

Yes.

Speaker 3

Rupert, I'll just add. We still had modest volumes in Q1 as we're ramping up. We're not providing the Split, the exact split of the units, but it's still in ramp up phase. And as Mark mentioned, we expect it to continue to ramp up over the year.

Speaker 6

Okay, great. And can you remind us in your order book how many sales or orders are available For sale this year in Canada and the U. S?

Speaker 3

Yes. I mean, the order book, the composition, It goes all the way up to 2026, but what we've said in our disclosure is that it's the bulk The quality of that is delivered from now to the end of 2025. Obviously, the Substantially all of the orders are related to some subsidy programs, some of which include the ZET ETF. In fact, a big portion includes the ZETF and some of these applications are still pending approval. So We're working to get those approvals, but I don't have a specific breakdown to give you for this year.

Speaker 6

Okay. Great. I guess I better

Speaker 2

leave it there. Thank you. Thank

Operator

you. Thank you. Our next question comes from the line of Craig Irwin of Royal Mailkn, your line is now open. Please go ahead.

Speaker 7

Good morning and thank you for taking my questions. So I wanted to see if we could maybe dive into Gross margin is a little bit more from a qualitative perspective. So when we look at the big components in gross margins, materials, Labor and overhead, can you comment whether or not you're still seeing cost escalation on materials, If you're getting more efficiency on your purchases, if that's something that's generally stabilized and Materials content per bus is possible or bus and truck is possibly coming down the way one would expect with your volumes. Then on the labor, can you comment about the number of hours per bus, number of bus and your Proportionate labor versus where you would be at the end of the day, you obviously hired ahead to facilitate a ramp that we expect to go on for a couple of years and to really train the workforce ideally. But if you could talk maybe the man hours approximately, that would be helpful.

Speaker 7

And then the overhead, if we Would it be fair to assume that those buses are pretty profitably with NICE Mark? And do we fully does the P and L get fully complex overhead We'll be carrying for both the Meridel and Joliet facilities in the future.

Speaker 3

Yes. Hey, Craig. Nick here. Thanks for the question. Let me just tackle qualitatively those items.

Speaker 3

In terms of material, I'd say it's a mix In terms of cost pressure, we're still seeing some inflationary pressure. But at the same time, we're starting Not only to see some of that ease, but we're starting to see that we have a good eyesight on

Speaker 7

the benefits

Speaker 3

The cost down and it's something that we need to achieve and we're working at through the quarters, but it's becoming more and more tangible. And the dialogue with suppliers, whereas it was about containing costs only or containing cost increases in the past, It's become more and more about going back to previous prices and reducing the cost in some instances. In some more sort of Technical or technological items were eyeing out a more long term couple of years type thing Significant cost out opportunity, but that will take some time. But I'd say overall on the material, Certainly, there's been a change in the dialogue and the relationships where we see some important opportunities to bring costs down in a number of places. So There's certainly room there.

Speaker 3

In terms of labor, what I'd say is right now our workforce It's not where we wanted to be in terms of productivity at the hours per vehicle. One of the principal reasons for that is all the development Activities that we have and the new platforms that we're launching and the new production lines that we're ramping up. And So certainly not as important cost wise as is the bill of material, but there are some opportunities there, but we expect That this will improve really once we've gradually and once we've launched the new platforms that we're bringing to market this year. And then finally on the overhead, look that we it's probably the biggest issue in terms of weighing on gross margins, Overhead cost absorption, I would say that we have a cost base today That is reflective of much more than just our Saint Jerome plant and we'll absorb that over more volume As we scale up both Saint Jerome and the Joliet plant, there is likely to be some increases in the overhead As we ramp up Joliet, but not anywhere close to proportional to volume, meaning we already incur those costs In great proportion in Saint Jerome to manage the 2 operations or the 2 production plants.

Speaker 7

Excellent. Thank you for that. So my next question is really The velocity of sales into the North American market. So you've done an excellent job capturing vouchers, supporting your Customers in the school district are out there, to procure vouchers from the EPA programs. So can you really talk about the tempo of potential build freeze into

Speaker 5

the North American

Speaker 7

market? And Should we expect maybe back end loaded for the first half of the year to really see those deliveries closer to sort of Mid-twenty 24? Or is it possible that we see a rapid uptick on the book rates? And is that facilitated by some of the heavy pricing we've seen from other OEMs in the market?

Speaker 3

Look, in terms of the EPA units, which is I think what you were referring to, and correct me if Not the case, but we're the deliveries can go all the way to October 2024. I want to make it very clear that our objective To deliver those units as soon as clients are ready to take them and we think we can deliver them well before that. In general, Clients are looking to get those units. And the first phase of the EPA was about getting purchase orders and we're still Looking at that, as I mentioned, I think there's an opportunity to do more. But really what's going to be most important is going to be the cadence of deliveries and the quality of the product that's delivered.

Speaker 3

And so it's our objective to do much sooner than 2024. At the same time, we use the word gradual quite a lot and expect that the cadence of those deliveries will be gradual. But we do I mean, We had very few units delivered on the U. S. The purchase order book has proportionately become more U.

Speaker 3

S. Driven than it was in the past And it's our intention for that mix to change over time over the coming quarters.

Speaker 2

Hey, Craig, what's your question only on school buses or were you alluding to trucks as well?

Speaker 7

It would be useful to know on trucks, but on a school bus, that's what everybody is watching right now. My next question is going to be on trucks. So

Speaker 3

Okay. And you talked Craig, I think there was another part to your question on pricing. Look, I mean, I'd say we think we can be very competitive when we need to. It will apply it can apply well to that second round of The EPA which talks about leveraging sort of 3rd party funding, essentially we feel the EPA is asking for groups to do more with less and we can do well. We've We've done competitively quite well in the Canadian market as well.

Speaker 3

Probably hasn't been as much of a factor in the first round though Yes. So we expect it to become an increasing focus and we think we're well prepared for that.

Speaker 7

Thank you. And If I could ask the truck question that I have. So your name Please

Speaker 3

go ahead. The

Speaker 7

Line 6 and the Line 8 Both shipping and in customers' hands, that's usually a pretty good thing for the pipeline, the potential orders And real world experience tends to change the quality of those customer interactions. Could you maybe give us some color around that? And then, IRA, it seems that Class IV could have outsized Stimulus funding, let's say, a sub state is a less attractive word. But Class 4 is not in your plan. You've got both Class 5 and Class 8 planned for this year.

Speaker 7

Could you talk about flexibility to address This substantial support for Class 4 out there in the market. Is it something you would consider? Thank you for taking the question.

Speaker 2

Thank you, Craig. Class 4 is not in our plan for now. Craig, we feel that Class 5, which is a medium duty and where we have many options for the customers. We'll cover a lot of the market. For most of those operators, what really matters is that they can drive those trucks Without the special driver's license and they can do a lot with this Class 5 and it's also the payload That matters.

Speaker 2

And you can have a lot of payload with this Class 5. So we've decided to go with The Class 5 for now, Class 4, I mean, you're getting very close to the market of the lighter truck and where it's really crowded Right now, and this is a market that we've decided to stay away from. And we feel that the medium duty and heavy duty is really A market where there's a lot of potential and very few OEMs that are proposing purpose built Trucks right now. So we're one of the only OEMs out there that are proposing to our customers purpose built Electric trucks, so huge market on Class 5. You're absolutely right.

Speaker 2

We delivered Class 6 and Class 8. And for many of those operators, they are looking at electrifying the whole fleet or most of the fleet. And it's almost, let's say, a pilot for them right now. But this is going well. I mean, discussions With the truck operators, I mean, we really see an increased interest.

Speaker 2

And Craig, you probably saw As well, the ACF that we were talking about earlier, we feel this is a game changer. New regulations in California and when we're looking at the past, like with the ACT, a lot of states and a lot of Canadian provinces will follow what California is doing. And with the ACF, it's a major game changer We're starting in 2024. So it's really tomorrow. I mean, it's early next year.

Speaker 2

The operators will have to start Buying electric trucks in California. We were expecting this to happen And this is finally happening, and we feel this is a real game changer. So when you're looking at the product lineup we have, the Class 5 that we We unveiled last week and the Class 8 tractor that we will be unveiling by the end of the year As well with the Class 6 and the Class 8 straight body as well, we have a full lineup of products For those operators and we feel it's very promising.

Speaker 7

Thank you. If I could just squeeze 1 in on the truck. Can you remind us the approximate number of customers that are operating through Line 6 OR Line 8 trucks and the total size of the fleet that's rolling right now?

Speaker 3

Yes. We have about 125 to 160 trucks out With clients, I mean, the bulk of clients who have purchased less than 10 units.

Speaker 7

Thank you very much. Well, congratulations on the progress here. I'll hop back in the queue.

Speaker 2

Thank you, Craig.

Operator

Thank you. Our next question comes from the line of Tamy Chen of BMO Capital Markets. Your line is now open. Please go ahead.

Speaker 8

Great. Thank you. Good morning. First question I had is related to the Clean Bus program. So you said the of the 298 purchase orders, about a third are requesting Some delays with the EPA.

Speaker 8

Do you know like what length of delays We're talking now here. Do you know what amount they're requesting for?

Speaker 3

Yes. When we say a third of clients, I'm really referring to the number of units, Penny. And the delays go all the way to the latest DPA allowed is August 15. And some of the Clients have they don't all go to August 15 and those delays were largely related to having the appropriate Contracts for the installation of charging infrastructure. So it's just a matter of figuring that out.

Speaker 3

And so I'd say the Extensions go anywhere from sort of end of May to all the way to August.

Speaker 8

Got it. Okay. And then my last question is, apologies if I missed this earlier, But were any of the bus deliveries in this quarter from what you've been awarded so far from the first round. And can you talk a little bit about how you expect your bus deliveries to unfold over the rest of this year as it relates particular to The Clean Bus program? Thank you.

Speaker 3

Yes, really just a very small number of units from the EPA program. So it hasn't kicked in materially. What you may have heard me answer before around the Timing of the program, the program allows for delivery and all other requirements around the scrapping or selling of diesel bus and whatnot To be done by October of 2024, we're working with clients to time those deliveries, but our objective Is to deliver faster than the deadline. I mean, we as I mentioned in one of the prior questions, the first phase of this was about getting the purchase orders, The second phase about timely deliveries of quality vehicles. At the same time, a client has to be ready to take on the vehicle and we want this to be a positive experience.

Speaker 3

But the bottom line is we're going to look to do these deliveries as rapidly as possible.

Speaker 8

Got it. Okay. Thank you.

Speaker 3

Thank you, Danny.

Operator

Thank you. Our next question comes from the line of Stan Levy of Barclays. Your line is now open. Please go ahead.

Speaker 9

Hi, good morning. Thank you. And apologies if I missed this earlier, I jumped on late. But just wanted to ask On the CapEx side, I think recently the Canadian government budget is allowing for some additional Tax credits for CleanTech Manufacturing, which would be a pretty nice offset on the CapEx piece. So maybe you can just talk about If there's any further clarity here and what offsets you might have on CapEx?

Speaker 3

Yes. Hey, Dan. The yes, so in the federal budget, there's discussion of an investment tax credit, I believe, of 30% For investments related to EV manufacturing, battery manufacturing and the version that we've seen, it It refers to investments that take place after January 1, 2024. So it's something as you would imagine we're very much looking into. At the very least, it could be an option for future expansion.

Speaker 3

At the same time, one thing we've made Very clear this morning is that post our 2023 CapEx plan, our intention is to drastically reduce CapEx and we don't plan to build capacity Extensions until number 1 is justified by the order book and number 2 importantly that it's it works with our liquidity situation and so Something we're looking into right now. We would want this to apply, of course, to our current investments, but they're not Not a program that we're counting on just yet given the timing restrictions I just talked about.

Speaker 9

Got it. Thank you. And then again, apologies You mentioned it earlier, but if you could just address within the order book, obviously, buses are up, But trucks are down, so maybe you could just talk about some of the movements within the order book on the truck side.

Speaker 2

Yes. Good morning, Dan. Yes, it's slower than expected, To be honest, but at the same time, what we're seeing right now is very exciting. We have trucks out there. We have customers.

Speaker 2

And we do have a full lineup of purpose built trucks. And with the unveiling last week of the Line 5, We see increased interest. And we feel it's going to be exactly the same thing with the Line 8 Tractor as well. A lot of the market is expecting the Line A tractor truck to be launched before Yes, at the end of the year. So we feel the timing is finally working for us right now.

Speaker 2

And if you remember how it's worked, on the school bus side, it took about 5, 6 years to really take off. And With the supply chain crisis and the COVID and all this crisis within the last few years, we feel that This period is starting now. And we think this is exciting. And I was referring to the ACF Earlier, and as I was telling Craig, I mean, this is really a game changer in our opinion. So there's some subsidies Out there, there's some subsidies on the U.

Speaker 2

S. Side. There's a lot of subsidies on the Canadian side. And now we're seeing this new regulation Taking off as well and this is great and this is really going to help us. I mean only in California where Carbiz is saying that the ACF rule, they are expecting to have over 500,000 ZEDs On the road just in California by 2,035 and over 1,700,000 ZEDs By 2,050.

Speaker 2

So now the OEMs don't have any choice than offering A ZEV in California. And a ZEV is really it's going to be electric or it's hydrogen. And with respect to electric, with the purpose built full lineup of trucks that we have right now, we feel we're very well positioned to capture some of

Speaker 9

Great. And if I could just get a squeeze a follow-up on that. Just to clarify, What is the typical timing of an order cycle from a fleet? Meaning, we've seen ACF pass And just how long does it typically take for fleets to then flow in orders and for those orders to eventually convert to production?

Speaker 2

Dan, it's always the first order that takes A lot of time. And especially on the truck side, I mean, the fleet operators we're talking to, a lot of them, they are very large fleets. And well, it takes a lot of planning to electrify your fleet. And it's really a teamwork The operator and the OEM to make sure that while the right specs are on the vehicles, but also the right Charging infrastructure are being selected, and they are being installed in a timely manner as well. So it takes some time, I mean, to do a good job.

Speaker 2

And you probably remember, I mean, our way of thinking, it's really, I mean, for us to adapt to the operator and not The other way around. So the first order is takes always a lot longer. And that's one of the reasons you see so many repeat Orders on the school bus side and that's the reason why the order book is growing very well also. We expect the same thing To happen on the truck side. And we are working on the initial order for a lot of those truck operators as we speak right now.

Speaker 9

Great. Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Michael Kapriel of S. Jordan Capital. Your line is now open. Please go ahead.

Speaker 10

Good morning and thank you for taking my question. On the supply chain issues, your press release mentioned that So had some continued issues. Maybe just an update versus last quarter, what sections have improved, what has gotten more Call. Any updates on that front? Thank you.

Speaker 2

Yes. Good morning, Michael. Thank you. Yes, still supply chain Challenges, I mean, we're not done with those challenges at this point. It's a lot better than it was in the past.

Speaker 2

We're still expecting To have those supply chain issues for the rest of the year, you probably remember The way we've been able to deal with this and one thing we've done, I think, very well is the redundancy of suppliers. We've been doing this because of the supply chain crisis, but we've also been doing that because of our expansion into the United States. So right now, we have a lot of suppliers on both sides of the border. And for most of the components, we have at least 2 suppliers and sometimes more than 2 suppliers as well. So we feel that this will still be a challenge for the remaining of the year, But it's becoming less and less of an issue.

Speaker 10

Perfect. That helps a lot. And maybe just on the liquidity front, Your cash did drop in the quarter. And if the timing on the upfront payments for the EPA lasts until August and maybe some other delays Canadian stimulus, what would you say would be your pecking order of priorities in terms of liquidity? What would you prefer in terms of maybe issuing shares, the ATM or the other options you have available?

Speaker 10

Thank you very much.

Speaker 3

Yes. Look, I'd say just first on the liquidity, Michael, we finished at $67,000,000 at the end of the quarter. That was a $36,000,000 of cash and $21,000,000 available on the credit facility. We were owed $10,000,000 on the government loans for the campus as at the end of the quarter and have since collected Half of that, we received $10,000,000 in E Pay payments. We've also collected $7,000,000 as part of an R and D subsidy program.

Speaker 3

Certainly, the EPA orders are expected to help. It's $105,000,000 in value in total. Recall that about a third for a third of those, the clients have requested extensions that can go all the way to August. We expect to continue to receive some of those payments. You asked about specific timing.

Speaker 3

The EPA talked and they stated in the program an objective to fund 60 days after They processed the order. It usually takes a little bit of time to get these programs going. So we're Pretty happy that it has started already. And then in terms of additional sources, we have, as you mentioned, the CAD 100,000,000 of government loans, which we expect to fund about USD 25,000,000 of our Lion Campus this year. And then we have the About $90,000,000 remaining on our ATM program.

Speaker 3

I said that during the prepared remarks, we will continue to monitor market conditions, our liquidity, our capital And we'll evaluate different financing opportunities with a view to raise some capital and strengthen the financial position in the upcoming That said, I can't give you a precise answer on timing and instrument. I will say we feel we have a significant runway. But the we'll be mindful of dilution, we'll be mindful of flexibility, but I can't be more precise than that at this stage. There's going to be a lot of varying factors.

Speaker 10

Thank you very much for the color. Much appreciated.

Speaker 3

Thank you, Michael.

Operator

Thank you. As there are no additional questions waiting at this time, I'll hand the conference back over to Ms. Isabelle Ojard for closing remarks.

Speaker 1

Well, thank you.

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Earnings Conference Call
Lion Electric Q1 2023
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