Canoo Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 14, 2024

There are 9 speakers on the call.

Operator

Hello, and welcome to the Canoo Q1 2024 Earnings Call. As a reminder, this conference is being recorded.

Operator

It's now my pleasure to turn the conference over to John Wolf, Vice President, Investor Relations and Corporate Finance. Please go ahead, John.

Speaker 1

Thank you, Kevin, and thanks to everyone for joining us. Welcome to our Q1 2024 earnings call. During the call today, Tony will update you on our business and strategy, Greg will provide an update on our financing activities and Ramesh will go over the Q1 financial results and discuss the capital Please be advised that we may make forward looking statements based on current expectations. These are subject to significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and on our most recent Form 10Q and 10 ks and other reports that we may file with the SEC, including Form 8ks.

Speaker 1

All of our statements are made as of today and are based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we'll discuss non GAAP financial measures. You can find the reconciliation of these non GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website. With that, I'll hand it over to Tony.

Speaker 2

Thank you, John. Thank you for joining us. This earnings call will be more abbreviated update given we spoke to you 6 weeks ago. Our strategy of not focusing in on the consumer market as a first step has played out favorably based on the temporary headwinds facing that industry segment. It's been hard work to get here and there have been bumps in the road and we will continue to fine tune.

Speaker 2

But as the smoke clears and the true value of the companies that made tough decisions early to focus on core markets with differentiated products, we believe will see not only appreciation, but will deliver a new standard of how global platforms can better meet customer use cases. This will also result in lower R and D and higher return on customer and shareholder capital. Our strong technology focused culture is designed to meet our customers' mission centric mobility needs. It's taken a lot of grit to get here and it was made possible by the great contributions of many of our team to innovate and think outside the traditional industry box. To reiterate our strategy, we are focused on commercial fleet, government and military customers and their mission and use cases and their deepening focus on workforce safety and ergonomics.

Speaker 2

Now let me give you a brief update on our business. We are proud to have recently delivered LDV 190 vehicles to the USPS EV Charging Depot at South Atlanta Sorting and Delivery Center. These vehicles display our ability to customize configurations for our customers. They are right hand drive built for the use case of our hardworking postal workers, which is enabled by our steer by wire proprietary technology and our customer specific modified designs. Watch for new vehicles to be out delivering your mail on routes in Atlanta.

Speaker 2

We look forward to proving to the USPS that our American made product can achieve the new standard set by the Postmaster General and the USPS leadership team. Now that we have delivered right hand drive vehicles to the USPS, we are underway in homologating our vehicles for additional markets to address the needs of similar customers. And many of you were wondering why we were so focused early on, on becoming one of the approximate 261 foreign trade zones in the United States at our OKC facility, hopefully disconnects yet another dot. We recently completed a 2 week tour in the UK with our vehicles including fleet shows and other events, which showcased our right hand drive LDD configuration to highlight we were extremely impressed by the leadership teams from 8 of the top 15 UK fleet operators that we met, which together represent over 1,000,000 fleet units on the road today. These fleets have current electric adoption rates of up to 20%.

Speaker 2

The UK market has the tailwind of an aggressive mandate supported by the people of electrification goals and continues to be one of the fastest to adopt commercial EVs. We were flattered by certain foreign OEMs that spent more time in our booth than their own. We also appreciate being given the 1 to watch annual award at the Great British Fleet event. To everyone in the U. K.

Speaker 2

Who we met on the tour, we would like to say that your hospitality and your interest in our products has inspired us even more. Last week, the first of our vehicles arrived in Saudi Arabia for Red Sea Global. The inspiring development illustrated illustrating the Crown Prince's Vision 2,030 goal to responsibly diversify its economy in an eco friendly way. These vehicles are part of the previously announced pilot program to be used in its regenerative tourism developments. In addition, we recently signed a vehicle sales agreement with Jazira Paints, enabling us to expand into the rapidly growing $30,000,000,000 TAM in Saudi Arabia.

Speaker 2

These agreements come from long standing relationships in the kingdom and are now generating strong interest including initial orders and are opening the opportunity for additional capital partnerships. While we are not yet authorized to discuss all of the names, we continue to finalize vehicle configurations and set delivery schedules for our Fortune 100 customers to align with their workflows and use cases and we will update you as we are able. On our manufacturing and supply chain progress which to some extent has slowed down. We expect more activity as we move through the year and given the points above we are working very aggressively to close the gap. We are increasing our step level manufacturing to reach a run rate of 20,000 vehicles by year end and to harmonize our supply chains and fulfill our growing backlog.

Speaker 2

We still have 2 long poles in our tent, aligning our supply chain and finalizing our capital requirements to meet our operational goals and run rate. And we are well underway and look forward to sharing information as to how we will bring these pieces together in the near future. The supply chain continues to be challenging for various reasons, but we are making very targeted progress. As announced, we continue to purchase new and like new manufacturing assets to close the gap. Our teams are already integrating this equipment into our Oklahoma facilities.

Speaker 2

Ramesh will speak more about the value created through these acquisitions. To conclude, we would like to extend a deep thank you to those who believe in us and our strategy and especially to those who are supporting and helping us to resolve these remaining key items, which will enable us to scale our operations. In addition, we know that for some investors it has been a challenging time over the past 3 years And we hope that we are proving to you that we are focused on a strategy that is differentiated and we believe will remain in high demand because our vehicles have a lower cost of ownership, meet the rising focus of driver satisfaction and higher safety standards on a regenerative platform allowing us to compete whether it's ICE, BEV or Hybrid. I look forward to seeing many of you at our first Oklahoma City Investor Day, which Greg will cover in his section. I'll turn it over to Greg.

Speaker 1

Thanks, Tony. We remain convinced that the commercial and government segments have crossed a tipping point with electrification and are the most attractive markets to pursue for our vehicles due to the significant opportunity to enhance our customers' return on capital and to achieve a positive environmental impact. In my conversations with investors, it's often misunderstood that we were that we are first focused on commercial, government and military end markets and have intentionally avoided the consumer market. Tony and the company made this pivot in late 2021 and our customers remain committed to sustainable mobility, primarily based on the strong economics and low total cost of ownership that our products provide. This commitment is as strong as ever, And we do not see any change in this feedback despite the headlines and challenges in the consumer market.

Speaker 1

Now let me give you an update on our capital raising efforts. The company continues to have consistent access to capital from a wide number of sources, and we actively evaluate financing opportunities that best limit shareholder dilution. Yet at the same time, we have robust average daily dollar volume in GO EV equity for a company of our size, which also enhances our options in accessing equity capital and makes us attractive to institutional investors. I've spent a lot of years in the capital markets, and I'm a believer that we have the right business formula and team. Combine this with achieving our business milestones, our sources of capital are only increasing.

Speaker 1

Further, it's a competitive advantage raising capital with long term relationships. And Tony has this. He has a track record of building international businesses, and we are growing and assembling a team and partners globally to execute on these opportunities. We are leveraging all of our existing relationships as well as building new ones. It takes time, commitment, international trips and being on the ground in these regions to build these partnerships and they have already yielded both strategic investor capital as well as commercial agreements in the KSA region and beyond.

Speaker 1

We are excited about the future potential. A quick recap of capital raised since the beginning of 2022. We have raised approximately $662,000,000 of financing from a variety of sources. Yorkville Advisors has been the largest partner providing approximately $405,000,000 of primary capital. Equity capital market transactions have yielded $100,000,000 Strategic supply partner $45,000,000 and we had a termination of a contract manufacturing and investment agreement that yielded $38,000,000 payment to Canoe.

Speaker 1

And finally, pipe transactions of approximately $72,000,000 In addition, our other largest supporter has been Tony and his family office, AFB Partners and its affiliates, who have invested over $400,000,000 since 2020. Tony and AFVP have supported Canoo at every critical juncture of the company's evolution. We have also now started to act as government funding. As we announced in January, we received the 1st funds from the State of Oklahoma and we are actively pursuing potential financings of certain government tax refunds and credits, both of which are non dilutive forms of capital for Canoo. We believe opportunities like these will increase over the next 12 months as we steadily advance our business.

Speaker 1

Although the markets have been challenging the last 24 months, we have been able to continue to invest in our business and advance the mission of Canoo. We have been highly disciplined in the way we have optimized our business, while staying flexible to allow us to take advantage of dislocations in the market, like our recent distressed manufacturing asset purchases that Ramesh will cover in more detail. Young companies like ourselves must remain focused and this focus and execution will benefit our partners in the long term. Finally, as Tony mentioned in his earlier remarks, we are announcing an invite only Analyst and Investor Day at our Oklahoma City facility this summer. We will share more details soon, but we're very excited to showcase our progress as many of our suppliers and other partners have seen when they toured this facility.

Speaker 1

I will now turn the call over to Ramesh to cover the financial update.

Speaker 3

Thank you, Greg. Moving to the income statement. Our Q1 2024 results are as follows: Research and development expenses totaled $26,400,000 for the quarter compared to $47,100,000 in the prior year period, a 44% reduction from Q1 of 2023. We also reduced R and D expenses by 16% compared to $31,500,000 for the quarter in Q4 of 2023. SG and A expenses excluding stock based compensation totaled $22,500,000 for the quarter compared to $24,100,000 in the prior year period, a 7% reduction from Q1 of 2023.

Speaker 3

We also reduced SG and A expenses excluding stock based compensation by 3% compared to $23,100,000 for the quarter in Q4 of 2023. Additionally, a 29% savings from workforce transition into Oklahoma as well as transitioning from engineering to manufacturing. As it relates to our key non GAAP metrics, here is a summary. 28% or 18,800,000 dollars quarterly adjusted EBITDA improvement from negative $67,100,000 in Q1 of 'twenty three to negative $48,300,000 in Q1 2024. 11.5 percent or $6,300,000 quarterly adjusted EBITDA improvement from negative $54,600,000 in Q4 of 'twenty three to negative $48,300,000 in Q1 of 'twenty four.

Speaker 3

72% or negative 2.83 percent adjusted net loss per share improvement from negative 3.96 per share in Q1 of 'twenty three to negative 1.13 per share in Q1 of 'twenty four. 35% or negative 0.60 adjusted net loss per share improvement from negative $1.73 per share in Q4 of 'twenty three to negative $1.13 per share in Q1 of 2024. Turning to cash flows. We ended the quarter with cash, cash equivalents and restricted cash of 18,200,000 after giving effect to the CVC preferred stock purchase agreement for a total of $16,500,000 our cash balance would have been $34,700,000 on March 31, 2024. Net cash provided by financing activities for the 3 months ended March 31, 2024 was $49,800,000 compared to $56,000,000 in the prior year period.

Speaker 3

Cash used in operations for the 3 months ended March 31, 2024 was $47,500,000 compared to $67,200,000 dollars in the prior year period. The $47,500,000 cash outflow for quarter ended Q1 of 2024 is towards the lower end of the prior guidance provided in April of 2024. We will continue to optimize our capital in the future quarters. Our cash outflows from investing activities of $4,900,000 for 3 months ended March 31, 2024, compared to $18,400,000 in the prior year period. Our Q1, 2024 investment in CapEx was primarily attributable to the new or like new advanced manufacturing equipment purchases primarily from the UK.

Speaker 3

These assets enable the company to increase its general assembly and vehicle cabin build capacity. These assets were all purchased at discounted price of over 80% of the estimated value and were carefully reviewed, inspected and selected by Knud's team. As we continue to pursue these opportunities, our previously issued guidance from last month remains unchanged. Additionally, since Q4 of 2023, we have purchased 6 times more assets from auctions at pennies on the dollar, reducing capital expenditures by tens of 1,000,000 of dollars and we will continue to follow the strategy as we progress through. Other cost optimization efforts come from our recently established free foreign trade zone, which will lower the vehicle cost by up to 5% as we decide to export our Canoe products to the rest of the world.

Speaker 3

With this, I'll turn it back to John

Speaker 1

to conclude. Thanks Ramesh. With that, Kevin, could you please hold the lines for questions?

Operator

Certainly. We'll now be conducting a question and answer session. Our first question today is coming from Michael Lake from The Benchmark Company. Your line is now live.

Speaker 1

Thanks. Good afternoon. Can you talk a little bit about the USPS and the expectations

Speaker 4

for an RFP to come and when timing and what type of magnitude do

Speaker 1

you think that could be?

Speaker 2

I mean, hey, Mike, this is Tony. The USPS is very focused. Obviously, they've publicly announced what their objectives are. What our postmaster generals, the joy is doing to the business to make it competitive and ultimately profitable. We believe that there's a tremendous upside.

Speaker 2

We see them very focused on executing their plan. We see lots of opportunities. They gave us a tough market to prove ourselves in, weather condition wise, geography, routes, which we love and we're grateful for. And we'll have more to share with you on that. But my guidance would be to look at how much they've allocated to this initiative and the timeline in which Postmaster General intends to execute it and his management team.

Speaker 2

In addition to that, his shift in the business to be much more competitive on shipping on the ground versus the air.

Speaker 1

Okay, great. And then also, I didn't know you Walmart?

Speaker 2

Yes. We are not authorized to say too many things, but we continue to refine, they're very focused on their business model, very well organized about their needs and they take their view out for quite a long period of time. I think they have the infrastructure, the horsepower and the team to execute it. We'll share more information as we're allowed, but we continue to be very focused on it and innovate and there will be more information to share at an appropriate time.

Speaker 4

Okay, great. And then just one last one. On the supply chain, you mentioned it remains challenging. We still have

Speaker 1

the guidance out there for $50,000,000 to $100,000,000

Speaker 5

What needs to be done

Speaker 4

on the supply chain to get there?

Speaker 2

Yes. So look, I think we're hitting a point now, as you know, Mike, you've been out to see what we've done and how we're doing it in kind of the scrappy and entrepreneurial way and the way we're trying to change the game and be able to scale our manufacturing and keep our costs in check. We just only have so much capital and so many things we while we would love to fight many things in parallel, we also have to be disciplined to where we have to fight in a serial fashion. And frankly, all my years in this industry, especially around parts, locking your supply chain too early will only cause you problems as we've seen with recent current events that have been unfortunate for some. So I think there's a benefit and there's a risk and that's why I say various reasons.

Speaker 2

But net net, if we had probably within the last 2 months, if we had the capital in place, we would have probably be a bit more accelerated. In addition to that, that saying that knowing that we've now successfully completed the purchase of long lead equipment that we were making the bet that we could buy. And you know when you're buying stuff at $0.10 on the dollar to $0.20 on the dollar, the bomb impact it has based on the useful life of these vehicles, which allows us to compete not only in the EV, which seems to be less favorable in some topic circles. However, at the end of the day, it becomes a return on capital and a regenerative approach. And we've taken an approach to know that we will compete against ICE, DEV and hybrid.

Speaker 2

Those challenges are lessening as we go day by day. And I think we'll make a pretty big push here in the near future and we'll announce those things as they come to life.

Speaker 4

Great. Thanks and congrats on the progress to date.

Speaker 2

Thanks Mike.

Operator

Thank you. Next question is coming from Craig Irwin from ROTH Capital Partners. Your line is now live.

Speaker 5

Hi, good evening and thanks for taking my questions. So Tony, the post office, I guess, is enigmatic sometimes, hard to penetrate, but actually far more visible than the Fortune 100 customers that I know you got to be looking to serve. So I don't think we're going to see the electric pictures of your vehicle in some of these other high priority customers that you're pursuing given their employees are often under NDA etcetera. Can you maybe just help us with some bread crumbs, little bit about who these Fortune 100 customers could be? There are all sorts of different business models out there where they do need a large fleet.

Speaker 5

What would you say are the top 10 fleets in the country that might be the most attractive to you where something like

Speaker 2

an LD-one hundred and ninety would

Speaker 5

be a good match or a different format, a custom format. Can you tease that out, maybe give us a little color on who we could potentially see or the tariff is?

Speaker 2

Yes, that's a great question, Craig. So when you're at TEM, if you will, not an OEM, you're a technology company and keeping secrets and and really working and integrating with their teams so that we can enable them to win on a platform that is scalable and that's scalable across multiple companies, but yet each company has its uniqueness. I mean, we're not stamping out boxes here. As you know, you've seen what we're doing. It is different.

Speaker 2

It isn't the easiest story to tell, as you know. But I will tell you that when those customers speak, I believe it will speak volumes of the discipline and the way we've approached partnering with them and solving problems and helping them gain their competitive advantage. And while we're we would love to have all the customers out there, we're also very selective to make sure we're not selling to every customer the same thing. We're very specific about creating competitive advantages with high volume customers that we believe are going to take market share here and globally.

Speaker 5

Okay. So then again, if we could use the post office as like a metric, right? I think the first photos that people saw out there, you had the LTV 130 and the LTV 190 photographed and put up on different Internet web pages unofficial, right? So you'd obviously been working with the post office for quite a while before you announced in January of this year that you'd come to an agreement. What sort of activity is there or roughly how many of the top fleets?

Speaker 5

Is it logical for us to assume that you're working with right now? And would you see a similar structure where you work with people for a period of months or maybe even years before you see a formal purchase agreement?

Speaker 2

Yes. Look, I mean, I think it's important to make sure that you're getting multi year long term agreements that allow you to buy your supply chain, right, that you can actually get the best returns, trying to sell 1 at a time, 10 at a time, 100 this month, that's not our model. Our model, as you know, is based on being an integral partner and really focused on the workflow, the order economics. We all know the driver safety and driver ergonomic issues that are growing and the ability to get more out of each square foot. So as you can see, what we see in our world where some of the people in the space, they're trying to go down in square footage, which is very expensive because you have a lot of tooling breakage, right.

Speaker 2

You have a lot of leakage, you have a lot of impairments, you have a lot of different products. Ours is a common platform and we're going up in square footage. And it was designed that way, which means customer use cases and gives them greater flexibility of use case on a common platform. So I think from our perspective, our goal is to be able to give our customers a vehicle that is configurable, adaptable to seasonality, but also on a common platform such that the return on capital will increase over time in Generation 2 and 3 rather than decrease while we build a more profitable company at the same time. So creating that, which is why you got to get outside the industry box, right, of thinking.

Speaker 2

And so I think for us, it's not an issue of opportunities as we saw with the maybe you have or haven't seen some of the reviews that came out of the UK. It's a very competitive product and it's scalable and it's configurable and that's what businesses need today. And so I think for us, it will be how methodically we execute, so we don't break our quality, We don't break the things that made us who we are, but that we continuously grow step by step. And we think of capital and how we deploy capital, not just by what we raised as we've seen with others, but how we deploy like waiting and buying at all time lows. 2 years ago, robotics was at an all time high in cost.

Speaker 2

Today, we are the ones that are buying at an all time low. Now, we feel bad for those unfortunate, but sometimes shuffling the decks of the sequence isn't the way that people normally do it, can be a good advantage. And I think, we've had some good luck and some discipline. And of course, now we got to focus on these next two areas, harmonizing the supply chain, so that it's strong and can meet our demand. It's something we're very focused on right now.

Speaker 2

In addition to that, as you know, we've been against having Chinese parts in our vehicles for quite a number of years now, since I took over. And as we saw with recent announcement, those things are playing favorably. And we're just trying to build a real strong business with a multi year customer long term relationship that drives their cost of capital down and their productivity up.

Speaker 5

Great. Well, thanks for taking my questions. Congratulations on the continued progress.

Speaker 2

Thanks.

Operator

Thank you. Next question is coming from Dan Ives from Wedbush Securities. Your line is now live.

Speaker 6

Yes, thanks. And can you talk about the Saudi Arabia opportunity and just like how you're thinking about that with obviously a first deal and then what that could ultimately be?

Speaker 2

I think if you looked in and you know this about us, we don't build to pass standards. We build our products and break them and we never shy around from the toughest markets. I think if you build a product where you go to the toughest places to perform, you're going to build a better global product. And I think Saudi Arabia is not only an environment that I encourage people to visit, the vision of the crown prince and what he's doing for his people, the economy, the region and ultimately the world I think is pretty impressive. As So we see the opportunity there.

Speaker 2

I mean, the build out, the growth, the vehicles per household, There's just so many factors. Obviously, as you know, I'm a big fan and have friends in the region for many years. And I've just seen the changes and I'm a big believer. And so that TAM is going to be rock solid. I think it will affect Africa and others and I think it will bring them in a positive direction towards an ecological standard.

Speaker 2

In addition to that, I think the Brits are not being forced by regulations. They have a genuine need. They have a small island that they need to protect and they're protecting it. That's why their adoption is up. The U.

Speaker 2

S. Post Office was part of a strategy of going after right hand drive markets. We believe in those markets and of course we believe we have the lowest cost of entry, which of course that volume gives us more advantage as we produce vehicles for customers like the USPS. We're always looking for ways to actually improve their bottom line. And then if we do a really great job on that, we're going to create a great bottom line as we've been fortunate to do in our other companies.

Speaker 6

And then just to I mean Craig's question on the post office. So just walk through again like the sequence of events like what how we should be thinking about this over the next 3, 6, 9 months, starting to roll out?

Speaker 2

I wish I could say more, but it's not the appropriate time. I think that the most important thing is seeing the happy faces of the workers and the Postmaster General DeJoy is very focused on having a great relationship with his workforce, the largest veteran workforce in the U. S. We share his values. I think we're going to be in there doing everything we can to help execute on his strategy.

Speaker 2

And he has the money and the ability to drive the change with his leadership team. So I don't want to get out over my skis. I want the product to speak for itself. And when the post office is ready to share more, we'll be right there with them.

Speaker 6

Okay, thanks.

Operator

Thank you. Next question today is coming from Stephen Gengaro from Stifel. Your line is now live.

Speaker 7

Thanks. Good afternoon, everybody. I think I have two questions, but the first one is when we think about sort of the guidance you laid out for the year, I mean, effectively comes to about 1,000 to 2,000 vehicles roughly delivered. Where do you stand in the visibility on the deliveries? And when do we start to kind of see a sort of a sustained ramp?

Speaker 2

Yes. So look, every container we that we've purchased that we get online, we When you come out to the factory, you'll see how we kind of built the factory, how we staged it for growth and for these other markets, which is why our MPP 1 platform can produce upwards of 75,000 already on an annualized basis as we look to find ways to expand. The site is designed in 20,000 unit increments. And we got good visibility on we're really playing an allocation game. And our customers that have become big believers by using the product and us configuring it to their needs, we are not able to deliver any one customer allocation.

Speaker 2

And of course, our whole thing is aligning with their multi year strategies, which takes a lot of pressure off of the buy it now, need it now, hurry up. And in addition to that, I do want to kind of go through this cycle to make sure that we got everything right. I do intend to be measured as one of those TCPO rather than TCO only on the professional ownership. So we've got some high bars to hurdle, but we will we don't see any change. In fact, there are a couple other opportunities brewing, which close out a few more areas for us.

Speaker 2

Where we manualized semi automated some of the process while we took the bet to wait that some guys will fall. And those that are continuing to give opportunities for us and we're a ready buyer and we make sure the capital is available for those acquisitions, those transactions when those companies are in need, are now centering around the paint shop area where we can pick up more automation and improve our BOM costs even more. So we're starting to get and hopefully it comes through this way. You can see we're really getting it together to knock out those last two steps. And I think just by the circumstance of things, the things that could haunt us as we go to market have kind of ended up towards that tail end and those things.

Speaker 2

And we're learning from those that felt everyone we're buying equipment from, we are learning from them what did they do wrong, what did we what could we do better. And we believe that's real money, right? That's real investor capital. Otherwise, we'd have to go get that money and learn those lessons that way. So it's not just the cost of equipment that Ramesh and Paul and team that have executed on, but it's also that we've been sponging up lessons learned.

Speaker 7

Okay. Thanks. I mean, but like so do we I understand sort of this is a process, but I just want like a visibility perspective, like can you like should we think about 100 units in the Q2 and 500 in the Q3? Like I'm just trying to get some sense as we sort of think about

Speaker 8

I mean

Speaker 7

is there anything you can give us that kind of helps us understand how that evolves?

Speaker 2

I would. But what I would say is more important than that right now is that we continue to go after and get vehicles on the road with customers that are high volume multiyear purchasers of vehicles. Like in addition to that, we need to make sure our supply chain can supply as we step up. That's always the big question in these things. And of course, we've been very focused for over 2 plus years putting these vehicles on the road, not for testing, but with customers doing their use cases.

Speaker 2

And so what I would say is give us a little bit of rope. We're not going to be so focused on quarterly guidance. We want to get a bit more maturity, but we will tell you 20,000 unit run rate. We're going to knock out a couple of 1,000 units ish plus and we want to be. We want to set the bar so that we can be and we can emerge with the right customers and then really accelerate our ability to access non dilutive low cost of capital based on the credit ratings of these great customers.

Speaker 7

Great. That's helpful. Thank you, Tony.

Speaker 2

Thank you.

Operator

Thank you. Next question is coming from Donovan Shafer from Northland Capital Markets. Your line is now live.

Speaker 6

Hey, guys. Thanks for taking the question. So first, I just have to ask, and kind of as a refresher or maybe reminder about battery sourcing and everything. There is this news today, Biden is increasing the tariff on batteries from China. I believe it's at the level of cells and then they also have this provision about battery parts going from 7.5% to 25% effective this year, at some point this year, I really haven't parsed the whole thing just yet.

Speaker 6

I know you presumably haven't had much time to parse it yet, but if you can just give us any general perspective on how you would expect that to impact you? Do you know if there's a carve out for fleet commercial vehicles? Any color or clarification there would be great. Thank you.

Speaker 2

Yes, Donovan, we if you go back to earnings calls when I first took over, you would have you would detect how we were migrating away from Chinese or let's say, contested territories. And we understand this is not just about energy. This is national defense weapons grade type energies that are being done. There's a rotation in so many sectors from a competitiveness perspective. And we've never been reliant on Chinese batteries since I've been here.

Speaker 2

We exited those projects and we're focused on core allied nations and I mean core and domestic manufacturing and bringing key partners with helping guidance by both sides of our senators and congressmen, and working with countries to create economic development opportunities that we anticipated this and we believe we're in a good position. We're not going to scramble, because we scrambled 2 years ago.

Speaker 6

Okay, that's helpful. And actually kind of on the flip side, is there a potential for any benefit because the other piece of this was, I believe it was a doubling of the tariff on the import of the Chinese vehicles. And certainly from a consumer standpoint, which you guys don't do consumer, that's probably the main focus. But with the challenge of doing like a Class 1 vehicle, I mean, we've had companies in the past, I think Elms was one of them, where they were importing a very small kind of Class 1 type cargo van from China and assembling that or putting that together here. So I was just curious if all holding all else equal, does this help with sort of moats or was there any real threat of competition from manufacturers in China and that is now somewhat diminished?

Speaker 6

Or is that something you just totally different apples to oranges never mattered in the first place?

Speaker 2

No. So look, I've been highly criticized about this because we had to chart on chartered territory to get away from China because China controls most of what can see here sense in a vehicle, with the exception of us. And every we keep burrowing down deeper into our supply chains to their supply chains to make sure I mean we understand there's conflict period on technology that's arising obviously from some of our past. We have some good insights. We understand that, but we believe we have an advantage, right?

Speaker 2

I mean, we badge our vehicles because they're American made, they're American innovated. We actually have some suppliers where they have received notice from certain countries of question under this tariff where that if they sell to us they will be cut off because we are focused on military's fleets and those matters. So we've navigated quite a bit of things. I think the game will get pretty interesting. And I think I applaud them stepping up because the Chinese government aiding this uncompetitive environment by subsidizing is just not right.

Speaker 2

And it's and I believe our way will be because we'll win on technology and we got to stay ahead of it. And that's what we're focused on doing. And I believe workforces that are very American centric very much love what we do and why we do it.

Speaker 6

Great. And then just if I can squeeze in one last one, it's just the deliveries this quarter to Saudi Arabia and also to USPS, are those revenue recognition events for those deliveries or are those still kind of in part of a demo type or broader contract conversation? And then any feedback from the usage, like I know they've demoed them, but maybe it's only been a day or 2 that they've actually been not doing them, but if there is incremental feedback that would be interesting to hear?

Speaker 2

So I don't squeeze customers. I mean, I think we probably could be generating more revenue. But the answer is to your question, yes, we generate revenue. We're trying to get you guys to focus on the fact that we're building a business rather than a lot of this false stuff that was out there. And to also, as we brought things down more into alignment to where we can execute, get you focused on that and those customers and those size fleets like in the UK.

Speaker 2

I mean, we went there because we know there's a group of customers which represent a small group. Think of us, we don't go after tons of customers. We go after customers that have tons of units. And are very core ally centric. And that's been our niche and that's been our place.

Speaker 2

But yes, we'll continue to recognize revenue With respect to most cases, like in the Red Sea, I want to make sure that they love what we do. And when they do, I will bill them and I will and we will project out the volume accordingly. But we will be much more of a tech company on being tight lipped about things. And I believe that, that will keep the element of the ability for us to not only meet, but beat expectations as you guys kind of write your own views.

Speaker 6

All right, great. Thank you for taking the questions.

Speaker 1

You bet.

Operator

Thank you. Next question today is coming from Amit Dayal from C. Wainwright. Your line is now live.

Speaker 8

Thank you. Good afternoon, everyone. Tony, you mentioned that tablet constraints are keeping you a little bit from being where you potentially could be in terms of production, etcetera. Is that the bigger gating factor at this stage or your supply chain issues and your just setting up all of the equipment, etcetera, like what sort of keeping you from ramping production faster?

Speaker 2

I think getting the keeping pacing capital, I mean, hopefully, one of you guys kind of really goes out and builds a model and shows about how much invested capital that has been done, the the disciplined capital approach, which as you know, most people wanted money on the balance sheet rather than we're very focused on what we can deploy, how we can deploy it, how big of a return, what's the advantage we can get, and focused on those kinds of items. But I would say in looking back in the mirror, knowing that we were able to close on these 44 containers and some of these deals that we have in the pipeline, would I have pushed to have a bit more capital into the system, I would have done that because I would have accelerated a bit. But these are cautious times. There's a lot of criticism about things. And unfortunately, some people have fallen, some we're just in a different segment and we got caught in the crowd and we're step by step differentiating ourselves.

Speaker 2

But as time goes on, especially now, it's very important that we solve the capital issues, right? So we can accelerate step by step, not as in tons, but as in staying efficient. Otherwise, you end up with idle points and you don't want that. Hopefully that answers your question.

Speaker 8

No, it does. It just gives us a sense of how things are playing out a little bit behind the scenes realized. With respect to this Analyst Day coming up, are there any milestones or catalysts that we should be aware of that you could potentially sort of announce or disclose around that timing? I

Speaker 2

think if you find people who've been out there and have gone through the slalom course, I think it will speak volumes. I think the experience will be different that we will put you through. And it'll be what people who are very proud of their product and want to put it to the maximum test right in front of you and right beside you. So I think the catalysts will continue to form here for us. And I think 2024 is just a heads down, get it right, close out the 2 gaps, step level function, focus on the economics, long term deals, get our non dilutive capital in place and seek the opportunities to expand the business on the footprint and grow upwards in square footage on the platform because of the higher return on capital for us and our customers.

Speaker 8

And Badoni, that's all I have.

Speaker 1

Thank you. With that, guys,

Speaker 2

yes, I was just going to say thank you to everyone for the questions, but I'll turn it over to Hugh to wrap it up. Thanks.

Operator

No, I'll just hand it over to you for any further or closing comments, my friend. Go ahead, please.

Speaker 2

Just again, I want to compliment the team. These have been tough times. We've rallied together and I'm extremely proud of these people. I couldn't say enough about it. And I can't say enough about customers and the people who believe in us at a time when innovation always hits a moment of pause.

Speaker 2

It's those people that make the difference and I'm grateful for those people. And I hope that many of you continue your belief in us as well.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.

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Earnings Conference Call
Canoo Q1 2024
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