Arrival SA (ARVL) 2021 Q4 法說會逐字稿

Hello, everyone, and welcome to Arrival's Fourth Quarter and Full Year 2021 Earnings Webinar. My name is Megan, and I will be your operator today. Before I hand the call over to the Arrival team, I'd like to go over just a few housekeeping notes for the program. (Operator Instructions).

I will now turn the call over to Mitesh Soni, Investor Relations for Arrival.

Thank you all for joining us today to discuss the Arrivals fourth quarter and full year 2021 financial results. My name is Mitesh Soni, VP of Investor Relations. And with me today is Denis Sverdlov, CEO; Avinash Rugoobur, President; Mike Ableson, CEO of Automotive; and John Wozniak, CFO.

Before we begin, I'd like to remind everyone that certain statements made on this call today are forward-looking statements. These statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and the information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statements to reflect changes that occur after this call. Descriptions of these factors and other risks that cause actual results to differ materially from these forward-looking statements are discussed in more detail in our filings with the SEC and our fourth quarter 2021 preliminary earnings release issued today on the 2nd of March.

During the call, we also refer to certain non-IFRS financial measures. This should be considered in addition to and not as a substitute for or in isolation from our IFRS results. For further information, please refer to our Investor Relations website at investors.arrival.com.

With that in mind, I'll turn it over to Denis.

Thank you, Mitesh, and thanks to everyone for joining us today. We at Arrival on the mission to make air clean by replacing all vehicles with electric. Before we get into the details of our earnings call, I would like to show you an important achievement in our progress with our van skateboard structure being assembled in the microfactory using in-house developed robotics hardware and software. This milestone proves our new method to design the assembled vehicles is working.

With that, I want to remind everyone why Arrival is unique. We address large and expanding total addressable market. All the Ecos will be replaced with electric, demand is huge. The total automotive market for all vehicle (inaudible) will be approximately 100 million vehicles per year. We target to have more than 100 microfactories over time, equivalent to 1 million vehicles per year. Our initial focus is commercial vehicles, but we believe this method can produce all vehicle types.

Arrival aims to create vehicles with best-in-class attributes and user experience. Our target is to be #1 in TCO, which is the #1 (inaudible) for fleet customers and #1 in vehicle uptime. We believe our microfactories are a superior method enabled by hardware, software, materials and next-gen robotics. Upgradable components, software and data significantly increases the life of vehicle and revenue potential. Platforms, we have developed help to accelerate time to market for new models and variants.

2021 was a transformative year, and we accomplished a lot, including remarkable progress and development of our enabling technologies, microfactories, vehicle platforms, new materials, components, software and new gen robotics, becoming a public company, started proving ground testing and validation for bus and van, advanced relationship with global companies such as UPS, LeasePlan, Microsoft and others, and the top service network in the U.S., Europe and United Kingdom.

Looking ahead, our priority for this year is start of production of bus and van and delivering the highest quality vehicles possible.

With that overview, let me now hand over to Avinash, President of Arrival.

Thanks, Denis. In Q4, we successfully completed our first capital raise and our full attention has been on working towards our key milestones on bus and van. The market continues to support a rapid shift to EVs, including the signing of the bipartisan infrastructure bill that includes $4 billion for zero-emission transit buses and President Biden's Executive order committing the U.S. to net zero by 2050 with 100% of new vehicle purchases to be EV by 2035, and the U.K. is Bus Back Better, which includes GBP 3 billion of funding.

This shift is happening all around the world and creates a favorable market for Arrival to drive growth in the years to come across multiple vehicle segments. This momentum and our products, which have been showcasing in the U.S. and EU continues to translate into strong demand with our nonbinding orders and LOIs more than doubling to circa 134,000 vehicles. The van continues to be the volume player for Arrival, and we are on track to start production in Q3.

On our bus program, First Bus, one of the largest U.K. operators has worked together with local authorities in England to submit zero emission bus regional areas or Zebra funding applications, which will potentially see up to 193 of Arrivals new electric bus models introduced across First Bus, subject to running successful trials, agreeing commercial contracts and the outcome of the full Zebra process.

You can see here the feedback from Janette Bell describing a strong relationship between First Bus and Arrival. We will be certifying the bus and starting our public road trials with First as planned. And I want to remind everyone that the sales cycle for bus starts with trials for 1 or 2 quarters. We are seeing increased demand in the U.K. through next year and ongoing into the future, which enables us to begin production locally.

As part of our commitment to support First Bus's goal of a fully zero-emission bus fleet by 2035 and the increased demand from other operators, the decision has been made to produce vehicles in the U.K. in the second half of '22. Rock Hill will continue at a later date.

Mike will go into further details on this, but we believe this simplified approach reduces cost and logistical complexity and is aligned with our customers' push for local government funding and our ability to bring production to demand. I truly believe only a company like Arrival with its agile approach is able to quickly respond to strategic decisions in this fashion.

Today, I wanted to take you deeper into the Arrival software ecosystem. The significant data we generate and how this is expected to act as a multiplier for per vehicle revenue for Arrival. Arrivals unique quality is that we're vertically integrated. This means we design and build not just our vehicles, but all of the core systems, software and sensors within them. As most OEMs use a mixture of primarily third-party components, they are limited in their ability to collect such a holistic and complete data set, thereby limiting the insights they can generate and the improvements they can offer to customers.

All the Arrival systems are designed in a way that they share structured data about their health, performance and efficiency. It is also possible to send raw data about any signal or parameter, which is available in any system. Our hardware is shared across all vehicles regardless of form factor. The bus van and car all use the same components, allowing us to capture combined data over all vehicle use cases and fleets.

With Arrival connected device platform, we can collect data from our vehicles at all phases from early development through aftermarket until end of life. In case of accidents and faults, we can automatically generate pack and publish the data set, which gives clear sequence and the root cause and when coupled with machine learning intelligence means we can continuously identify patents and generate deep insights and build new features, such as, predictive maintenance, advanced driver monitoring and many, many others, thereby constantly improving the uptime of vehicles and reducing the TCO for our customers.

Our in-house software ecosystem has 4 key objectives in mind: One, deliver best-in-class digital services and data to our customers; two, continuous vehicle improvement through hardware, plug-and-play architectures and software updates; three, tools to rapidly bring new products to market; and four, to optimize our production processes to generate efficiency giving's.

Some examples of our digital services include the Move App, which will power self-service vehicles and trials and contactless delivery, giving users control over their vehicle and reducing the need for dealerships. Our 16-inch touchscreen inside the vehicle, which is integrated with mobile apps and back-end systems to manage the fleet vehicle jobs and assist drivers.

And our Fleet Studio App, which allows fleet owners large and small to manage their fleet at all times. The extensive telemetry data that calms off each vehicle is also made available directly in the cloud in a way that customers can seamlessly integrate into their existing tools or use [outs].

It is important to note that we believe this is a large competitive advantage. Commercial vehicles are high utilization vehicles, running considerably more miles than passenger vehicles, and we believe we will be able to collect more data per vehicle than anyone in the industry, and we have the control of the hardware and software that enables us to improve the vehicle considerably. And every dollar we save on the TCO makes our vehicle the most competitive product on the market. We consider these data and software packages a significant multiplier to Arrivals revenue. We have only touched the service here on what Arrival software ecosystem is capable of.

With that, I will hand over to Mike.

Thanks, Avinash. Today, I will go through the significant progress we're making in our microfactories. The development of our enabling technologies and the status of vehicle testing and certification for both the bus and the van. At our Bicester microfactory, installation has continued at pace with 6 of the 7 technology cells already installed. Most importantly, as Denis highlighted, we've recently completed our first robotic assembly of the vans skateboard structure using a microfactory technology stuff.

Although only this skateboard structure of the van was assembled, it demonstrates the production capability of the cell. Each subsequent step of assembly in the technology cell will use the same fundamental technologies, so we expect to progress rapidly from this first result. This is a significant achievement and a critical step forward towards microfactory production.

The skateboard structure assembly also used the other key element of our microfactory method, our autonomous mobile robots or AMR. Our AMRs are used to move vehicles and parts through the factory and are more flexible replacement for the traditional assembly line. The AMRs path is controlled dynamically. They don't follow a preset path so they offer us great flexibility in the operation of the microfactories. AMRs are designed to operate either singly or in groups, and each van microfactory is expected to utilize approximately 140 AMRs.

We continue to expand our U.S. operations in advance of van start of production in our Charlotte microfactory. We've produced our first composite panels on production equipment in the U.S., and we've also announced a battery module manufacturing facility in Charlotte that's anticipated to bring an additional 150 jobs to the area. This battery module manufacturing facility is envisioned to eventually support production at both Charlotte and Rock Hill.

As we progress towards start of production, we continue to monitor our supply chain and associated logistics. Unfortunately, we've started to see some delays in parts and equipment delivery. While these delays have not yet affected our start of production timing, we will watch these areas closely in the coming months.

Turning to our key milestones. We achieved our first 2 bus milestones in Q4 2021 with Trial Bus production and Proving Ground trials, both starting in December. We intend to deliver vehicles for U.K. based public road trials with First Bus in Q1 2022. We've completed the build of the First Trial Bus, and the second one is currently being assembled. These trials are expected to last between 3 to 6 months, and we will continue to build further buses for trials in the second half of the year.

Our intent originally had been to build both right-hand drive and left-hand drive buses in the Rock Hill microfactory. However, because we've seen significant potential near-term customer demand for our buses in the U.K., we've decided to shift our focus to producing buses in the U.K. To be clear, we are still expecting to build buses at Rock Hill at a future date.

As far as development milestones, we've begun building the final prototype versions of both our bus and van. These vehicles are the final step in the vehicle development process and are the vehicles used for trials, testing and certification prior to production.

Currently, we have 3 buses in testing with 2 at IDIADA's testing facility in Spain and 1 in the U.K. We have a further 6 being built in Banbury. We recently completed bus primary structured certification, as well as, steering and braking based calibration. We continue to target completing bus certification yet in Q1 of 2022. You can see in these videos examples of the testing our buses are undergoing, including abuse and fatigue testing of suspensions, closures, exterior and interior panels.

For van, we've already built 20 prototypes for use in our initial testing and demonstrations to customers. We recently completed the first prototype van for European certification testing with break and steering calibration, stability control and cold environment tests already completed in Sweden. We have a further 11 vans under construction that will be used for further testing in the U.K., Europe and the U.S. These vans will be a combination of both right-hand drive and left-hand drive vehicles, and we intend to achieve full product certification in Q2 of 2022.

As a result of all these developments, we've updated our target milestones for this year, taking advantage of our ability to deploy our capital and manufacturing capacity to those regions and those products where we see the strongest customer demand.

Finally, to reiterate, we believe the Van skateboard structure build using AMR is a key step forward for improving our unique manufacturing method. It's truly exciting to see our enabling technologies come together on the factory floor.

And with that thought, I'll pass it over to John.

Thanks, Mike. First, I'd like to cover our preliminary Q4 and full year 2021 results. All amounts referenced in my comments are in U.S. dollars using average exchange rates over the relevant period for conversion.

For the fourth quarter of 2021, the expected loss for the period was between $42 million and $52 million compared to a loss for the period of $40 million in the fourth quarter of 2020. The expected adjusted EBITDA loss was between $56 million and $66 million compared to a loss of $44 million in the fourth quarter of 2020. As of the end of the year, the company had 637 million shares outstanding. The weighted average shares outstanding in Q4 were 612 million.

Capital expenditures in Q4 were approximately $90 million to $100 million compared to $56 million in the fourth quarter of 2020. During the quarter, the company raised a combined $648 million through a $338 million secondary offering of the company's shares and the issuance of $310 million in convertible green bonds. The company ended Q4 with approximately $900 million of cash and cash equivalents.

For the full year 2021, the expected loss for the period was approximately $1.3 billion compared to a loss of $95 million in 2020. The full year 2021 loss included a onetime noncash charge of $1.2 billion associated with the merger of Arrival and CIIG.

The expected adjusted EBITDA loss was between $178 million and $188 million compared to a loss of $93 million in 2020. Capital expenditures for the year are expected to be between $315 million and $325 million compared to $122 million in 2020. These results are preliminary, and we expect to release full financial statements on April 8 when we file our 20-F with the SEC.

Turning to our outlook for 2022. We expect an adjusted EBITDA loss of between $185 million and $225 million and CapEx of between $380 million and $420 million, and we expect to end the year with between $150 million and $250 million of cash and cash equivalents.

We continue to expect van production to begin in Bicester in Q3 of 2022 and in Charlotte of Q4 of 2022. And we expect to produce and sell between 400 and 600 vans this year as we ramp production in these 2 microfactories. For bus, we will be building saleable buses in the U.K. and expect the majority of these will be used in trials in 2022. The priority for this year is completing vehicle certification, starting production with our unique method and ensuring the highest possible quality from our production methods.

As we look beyond 2022, I want to reiterate why we believe the unit of economics on our microfactories differentiates Arrival and is expected to yield attractive margins over the long term. Our long-term production and nonproduction CapEx target remains $50 million per microfactory. Van microfactories are expected to produce 10,000 vehicles per year on 2 shifts and we continue to expect to generate $100 million of margin per year at full capacity.

We expect to achieve these CapEx and margin targets over the next few years as we optimize the bill of materials on our vehicles and improve efficiency in the microfactories. We believe this to be an important and achievable target so much so that 50% of the long-term compensation of the senior leadership team is tied to meeting both the microfactory production and margin targets.

Finally, I'd like to remind you why we think Arrival has an attractive business. We see a large growing demand as we start production this year, and we'll deliver our first vehicles to our customers. We have significant upside from data and digital services, and we have attractive unit of economics and a CapEx advantage from our microfactory approach that allows us to scale rapidly to hundreds of microfactories with the flexibility to produce many vehicle types.

In summary, we are well positioned for accelerated growth as we ramp production and scale our microfactories over the next several years.

I'll now hand the call back to Avinash to wrap up.

In conclusion, we have a very large addressable market, supported by accelerated industry tailwinds and have seen our backlog continue to grow at an impressive rate. As more customers experience our products to approximately 134,000 vehicles. We have deepened our relationship with one of the largest U.K. bus operators and hence, have flexibly moved initial production to the U.K. to support this potential demand.

Van will start production in Q3 in Bicester and Charlotte in Q4. On the microfactories, we have crossed a major development milestone with the van skateboard build you have seen today. Our software ecosystem is pervasive through everything we do and is expected to be a significant revenue multiplier as we continue to lower TCO and provide customer-facing software packages.

The entire Arrival organization is all hands on deck focused on achieving certification with our vehicles already commencing testing and validation. We are looking forward to seeing the very first vehicles produced from a microfactory and vehicles in the hands of our customers by the end of the year.

Thank you. And with that, we open for Q&A.

At this time, I would like to turn the floor over to Denis Sverdlov for opening remarks, and then we'll hold a Q&A session. Denis?

Yes. Hello, can you allow me to turn on the video, of course, you cannot do it. Hello, everyone I will read in my statement because I'm quite emotional about this, but I need to address this. So I would like to -- I want to address any concerns related to my nationality, you all know that I'm Russian nationality.

And I'm strongly against war or discrimination of any kind. I was born in Georgia and worked in Russia. My wife, 3 kids and I left Russia in 2013 before Crimea events, and I was shocked at that time. And after 2 years in France, we moved to London in 2015, where I founded Arrival. I have no connection to the Russian government in any form, I have only one desire to have a chance to create a meaningful impact globally. I found that this company in U.K. with an important mission to make air clean everywhere replacement vehicles with electric.

Arrival is a multinational company built on values. We operate in multiple countries, and our duty is to support our team members in any way they need. Currently, we do not see the current situation has a material impact on our business operations. We have no parts sourced in Russia, and our people can work from anywhere as we mastered in remote working during pandemic. We are monitoring and we will provide updates should there be any material changes.

And we now can move to Q&A. Thank you.

(Operator Instructions). It looks like our first question is from Brian Johnson with Barclays.

2 questions. First, Denis, appreciate your comments. The first question is around the skateboard assembly milestone. Can you drill down on that a bit and kind of give us a sense of what -- a few things. What went into that? Is that a more critical gaming factor than actually assembling the rest of the chassis and the body of that? And I think third, kind of related to that, when I think of skateboards, I think, of metal frames, traditional welding, kind of plugging battery modules and assembling them, which sounds -- and I'm not a manufacturing expert, different from the challenge of assembling the plastic bodies. So just maybe kind of talk a bit more on that?

And my second question is a little bit different. It's just around the competitive dynamics within the bus market.

Yes, absolutely. So on the first half of the stage we finished and why it's so much important for us. Is that this stage includes all what we call microtechnologies. So there is a process where you need to pick up the parts using like (inaudible) station. There is a process how they lifted like in a special position, then there's a process how the robots picking up them and applying glue. Then when it placed like inside the structure and then like other operations like [FDS] and bolts and so on.

So what is important with this stage is that we actually did our full set of this microtechnology within the cell. So -- and all of them work the way we have planned. So for that reason, is our very important milestone. And actually, like another very important thing that actually the achievements we've got right now, it is according to our plan. So we are not late with that, and this is very, very important so that it's actually developing with the -- how we were planning. And this is very, very important stage for us.

So we expect that a lot of operations within the vehicle. And actually, we already -- we were recording this before and after that, we already did the other pages of assembler as well. So actually putting the hoops on the structure and putting composite panels like on top of that, utilizing exactly the same microtechnology. So for that reason we are expecting that we're actually going to go through those stages quicker than we're doing this in the first one, because the first one was as we're saying like the collection of all microtechnologies coming together.

Another very important thing is that actually, robotically, we were developing this technology ready for quite a long time, but we were waiting for the parts to arrive from it. So assembled already the -- like the product. That's like -- so the parts arrived when we did the full cycle of doing this within the real parts from our vehicle. And for that reason, we are -- from one side we are extremely excited about this. Of course, this actually proves that our method works. So our of course testing, which we're doing right now -- that the method of design works so that are like different type of interfaces actually can -- they work really well.

But from other side, is that like the assembly processes also works as well. So both kind of things have been proved on the stage -- like on the stage of -- what I'm saying like with the all tests we did so far, we are quite happy what we see. But obviously, like we're still going through a certification process and probably we can get some other surprises there, but we don't expect that either there will be some surprises, yes. That's probably my answer.

So just a follow-up there. Kind of when is the milestone of creating -- using the microfactory process to create the full body and make the skateboard into the vehicle?

As you know, we are starting to start of production is starting in Q3. And this is the date we were talking already for a long time, and we are not moving this date. So it's still valid, and that's our internal target for the company. So if you ask me when we will see like the full sellable product that is assembled? It's going to be Q3 for the van in 2022. But obviously, we'll see earlier results on that, and we will update you with the progress in -- when we'll start -- when we'll report Q1 and Q2, obviously.

Okay. And second question I get from investors is the original back in 2017 when I first met you, was all about LCVs coming in there. We know the kind of landscape there. The bus is also increasingly a key part of it as you emphasize that's going to be the initial focus in the U.K. That being said, you've got a number of competitors in the bus space and certainly Daimler's there. Can you give us a sense of why you think you'll have a competitive advantage in the bus space?

Yes, absolutely. First of all, we believe that we have better products. I mean, if you just see on the attributes of the product we have and the user experience creating in our products have been software features and smart [AVs], features we have within the product is something which is absolutely unique for the market. And so we see -- we still see that our product value proposition is so much stronger than like any other company already announced their products. So this is #1.

And you know what is important that, like I think I need to emphasize there is that we are using a lot of technologies we are bringing from like out coming products from the van. For example, bus has a lot of components reused from the van, including, for example, steering wheel, which has never been done in history before. Was normally bus has a huge steering wheels, well it's exactly the same as van has. And so, why it is important because we are 2,700 people company, and we have more than 1,000 software engineers working in our company making the software. You don't see any other bus company in the world, which has this potential in terms of people and the (inaudible) should go into the product. And for that reason, we are getting much better product.

But the second part, as I said, because we were using components from van. We see that the cost of our bus is lower as well. Because normally, if you -- even super successful bus company and you're producing, let's say, 15,000 buses a year, you come in the market and you say, like, I want to buy more than 15,000 orders, it's so small volume that normally you pay huge price for that. In our case, of course, we're building bus using, for example, our bus has 4 motors from van, exactly same motors. They are using unit economics of the van inside the bus, which is again something which has never be done before. And for this reason, we are getting benefits like cost benefits, which are not possible to get it with the direct just normal way of doing buses. And for that reason, we feel very, very confident and strong in our position.

Your next question comes from Steven Fisher with UBS.

So you mentioned some delays on parts and deliveries that you're starting to see. Can you talk about how broad that is? And what's the risk that, that might shift out any of your time lines?

Yes, I'd say, right now, we're seeing constraints in 2 areas that probably won't surprise you. They're generally industry-wide geared -- production capacity on 2 lines with LG, which is the equivalent of about 82 million cells per line. And allows us to assemble battery packs between 18,000 and 20,000 vehicles of vans per line. So we feel pretty good about that.

We're also seeing constraints in chipsets and in semiconductors. We have been able to stockpile those, and we think we've got enough lined up for start of production this year and the volumes that we've guided to. But just in general, with a lot of the economic uncertainty that's out there, we continue to see issues with the supply just with logistics. We continue to see issues with inflation. And obviously, we have a conflict now that's going on and we need to continue to monitor the situation.

But where we sit right now, at least, we feel very confident about our ability to secure all the necessary parts for production this year and even as we ramp up production into next year, but it's something that we need to monitor on a daily basis. And obviously, there is uncertainty there. And if we could see constraints that we don't anticipate right now.

If I may, I just want to actually answer this question from 2 sides. I mean, the majority of what John said is more about long-term projects, right? So because batteries is the long-term approach we are doing this already for long time, and we secured our position chips, storage. So we placed some of the chips has 60 weeks lead time, and we placed the orders for those chips like long time ago. So we've stockpiled that, like so we don't see the issues here.

But obviously, we kind of -- every day, we can have sometimes delay of 1 week or 2 weeks for some of the parts which are coming. But because of our flexible nature, we can -- we almost -- we're almost planning every day. So we can have like our operational team is spending in the morning like, okay, guys, like we have those parts arrived, like this is (inaudible) like what do we do? And based on that, kind of they can aggression change the plan.

So for that reason, we just say that we -- of course, we impact same as any other company with just instability with the supply chain, but it doesn't make a material impact right now on our operations because a flexible method of like a general method of doing things allows us to address that and compensate that internal road. So -- but look, I mean, of course, we see like aluminum pricing like is growing high right now because lot of – is supplied from Russia and nobody knows it's going to be available in the market or not and so on. So of course, it will make impact on like everything.

I mean not only us as a company, but any others. But what we're happy with is that we -- is our method allows us to be flexible. And that's where we can compensate a lot. So actually, our microfactories approach and our kind of method of which we apply to supply chain becomes our very strong competitive management.

And then nice to see the ramp-up in the LOIs. I'm wondering if you could just give us a sense of how many binding orders you have and how you see those nonbinding LOIs ramping into actual binding orders?

Yes, Steven. So in terms of the cells conversion. I think what's important is right now, we're going through the process of showing the vehicles to customers. And I think you're seeing the impact of that in the doubling of the LOIs. We expect that to start converting this year. And if I just remind everyone that the van sales cycle is different to the bus sales cycle. So bus will typically require the trials. They last 1 or 2 quarters.

We're commencing those initially with our partner in First Bus. And -- but we do need to run those trials before they'll convert into binding orders. When it comes to the van, it's really once we hit that certification point. And that is being planned for Q2. And that's where we really see our conversion across the binding orders. And as industry tailwinds are really big, and we mentioned some of them, but the commercial vehicle segment, in particular, their requirements are also driving a faster transition. So when you see the growing backlog, I think that towards the -- our sales team is really focused on that right now, and that's going to just progress through the year.

Your final question comes from Michael Filatov with Berenberg.

So the first one, it seems like you mentioned the delay or I guess maybe the push out of the production at the Rock Hill facility. It seems like potentially that is because you see stronger demand in the U.K. with U.K. customers, if I'm understanding that correctly. But I know previously you've said demand is not really an issue for you guys, right? It's more so just getting to production. So just maybe if you could provide a bit more detail around the decision to push out the start of production at Rock Hill. That would be great.

I'm happy to give you a little bit more background on that, Steven. First, I would make the point...

Yes, please, Mike. Look, if you don't mind, I will do like a very short kind of thing. It's a very simple answer here, is we have a very strong client in U.K., First Bus. They're having more than 5,000 buses. And obviously, with all the push from governments, it's a lot of pressure on the local operators to switch to electric. So we have a local customer for us to buy local products. And for us, it's a business decision. So originally, we wanted to build those vehicles in Rock Hill, because we wanted to develop our U.S. presence and our operations there. But this customer and for this customer, it makes a lot of business sense to make it here in the U.K. And for that reason, like we're doing this.

And again, like we see it as an advantage of organization, because assume you're like a standardization, you're building the factory, you're doing this, you're putting the CapEx there and then like your plan is changing. So you can all say like should continue, should be not already invested in our case, because of our -- that we can reuse equipment and we're using very cheap leasing -- like the building, we're using the standard warehouse, which is quite cheap when compared to the production site. It's not specially [built]. It allows us to give this flexibility, and so that we can react on the demand for customers. So it's purely business decision. It makes much more sense for us as a position to do then.

And for Rock Hill, we are not canceling this project. We are just saying that we are going to do it a bit later when we will create like a right -- like there are 2 aspects of that. So we need to have a U.S. based products. So we need to have the U.S. bus certified in the United States. And like -- and like with the -- like our customers in United States, we understand with their plans. So it aligns very good with our plants as well. So the point here is that -- the fact that we are moving from Rock Hill, it doesn't make like impact in terms of our kind of business. And this is very, very important element. So we support our customer here, and they're planning to do the purchasing next year anyway. And we do like in preparation of all the bus configurations happening here. So we are quite pleased with the development of this.

Let me just add. We still see significant opportunity in the U.S. market. Obviously, with the passage of the infrastructure law, there is a significant funding there for EV buses. As we've said, we will be building U.S. buses in the future. As Denis explained, it's just we have a near-term customer demand. We have trials that we'll be starting here very shortly. And of course, the government and the customers are interested in having the buses built locally.

Yes, the sales cycle, as I said, it's the 2 quarters -- quarter to 2 quarters of trials first. And so, because we're already going to be commencing those locally, it just makes sense that will lead on into production from there. So I just want to -- Charlotte still starts production for van in Q4 this year.

Yes. What is important about all our messages today in terms of date were confirmed -- like almost all dates, right? So the only date which is change because there's no production in Rock Hill, but it's not a delay. It's a business decision to move to U.K. And another important thing is that in terms of our trials, like we're starting like as we plan in terms of dates. And like we -- like so actually, like we are doing very well in that regard.

Thank you, everyone. I will now pass the call over to Avinash for closing remarks.

Thanks, everyone. So thanks for tuning in. I think just to sum up, we do see a rapid transition in demand. We've shown that our backlog is growing and more than doubling as products get out to everybody. And our method of vertical integration, which we've seen to be the -- skateboard being assembled is through the major milestone and that vertical integration allows us to scale rapidly. So thank you, everyone, for joining. We're really excited about this year.

That concludes today's call. You may now disconnect.