Hyzon Motors Inc (HYZN) 2021 Q3 法說會逐字稿

Hyzon Motors is a purpose driven company. The world drastically needs decarbonization efforts. And the core technology that's been developed through the parent company's activities since 2003 are just what commercial vehicles really need to go zero emissions with zero compromise.

We're building a stellar team around the world from Australia through China, Singapore and here in Europe to several locations in the United States, a stellar team that will deliver solutions for customers around the world.

The world cannot wait for these solutions. It is not optional anymore to think about decarbonizing. Corporations and governments must act now and Hyzon Motors is here to accelerate the rate at which that can be done.

Good morning and welcome to Hyzon's third-quarter 2021 earnings call. I'm Darla Rivera, Senior Manager of Investor Relations. On today's call are Craig Knight, our Chief Executive Officer; Parker Meeks, Chief Strategy Officer; and Mark Gordon, our Chief Financial Officer. Hyzon issued our results today in a press release that can be found on our website, HyzonMotors.com, in the Investors section.

As a reminder, our comments within this call may contain forward-looking statements which may include expectations and assumptions regarding the Company's future operations and financial performance, including the impact of COVID-19 pandemic, and are subject to various risks and uncertainties. Please refer to our forward-looking statements posted on our website under the Investors section.

For a more complete discussion of the risks and uncertainties that could cause actual results to differ materially from any forward-looking statements, please refer to our filings with the SEC, including a press release issued this morning which was furnished on Form 8-K with the SEC. Except as required by law, we assume no responsibility for updating forward-looking statements.

During this call we also will refer to certain non-GAAP financial measures including EBITDA and adjusted EBITDA. More detailed information about these measures and a reconciliation to the nearest US GAAP measures is contained in the press release issued this morning, which is available on the Investors section of our website and was furnished on Form 8-K with the SEC. And with that I am pleased to turn the call over to Craig Knight, Chief Executive Officer of Hyzon.

Thank you, Darla, and thanks to everyone for joining us this morning. Just a quick sound check, Darla. Hyzon's third quarter was a very successful one from both an operational and financial perspective. During the quarter Hyzon executed to plan, furthered the strategy we have been communicating and continued to build out our high-caliber team.

We achieved several milestones in terms of vehicle deployment, revenue, receiving additional orders, significant advances in our hydrogen infrastructure partnerships and ongoing investment in extending our technology advantage. Hyzon has made solid progress even in the face of well-documented supply-chain challenges that have deeply affected the manufacturing industry globally.

Today, we are again reaffirming our guidance of expecting to ship 85 vehicles by the end of 2021. We continue to expect to meet this target due to the strength of the global footprint of Hyzon's business with facilities and operations in Asia, North America and Europe, a feature which has shown enormous benefits during the current dislocations and which we expect will underpin our competitive advantage well into the future.

Hyzon believes the progress we have made within a few short months of becoming a public company is testament to our technology, our hard-working operations and technical personnel and an experienced management team that is working hard to protect shareholder interests. Hyzon is a purpose driven company determined to play an important role in accelerating the energy transition.

As a result of that global footprint and our deep historical relationships within Asia, when global supply chain challenges worsened, especially in the last few months, we were able to make a conscious decision to shift the mix of delivery locations from predominantly European to predominately Asian customers in China specifically. We did that because we could.

Hyzon's near-term focus is getting our vehicles on the road and into customers' hands. And wherever we can do that, letting customers see for themselves the advantages of fuel-cell electric vehicles that are available today, we will do it. And we have done exactly that.

During the third quarter, Hyzon delivered two vehicles to customers in Europe, one to the municipality of Groningen, one to the municipality of Rotterdam, both in the Netherlands. In earlier communications Hyzon had flagged several government agencies in Europe as early adopters, invalidating fuel-cell trucks for their needs. And we highlighted that the commercial sector was following closely behind.

These first two deliveries are not trials. They were deliveries of vehicles to be used by these customers in real world every day applications. This resulted in Hyzon's first vehicle revenues, which totaled $1 million, in the third quarter. In our previous earnings call we noted our expectation was to have first vehicle deliveries and revenue recorded in the third quarter, and that is exactly what we accomplished.

We are proud to reach this milestone, but these sales are obviously just the beginning. The seed sales that many of you have heard me talk about for some time, we are currently engaged in discussions to expand our relationships with many repeat customers who have previously placed orders, including some who have not yet received their first deliveries.

With one example of the recently announced agreement with a subsidiary of Sha Steel Group, the world's largest private steel company, for a 60-day trial at Sha Steel Group's operating base in China. For those new to the Hyzon story, we have always articulated our view that the market for our use cases would develop through a series of seed or pilot sales, then batch orders, then fleet conversions. And we are seeing the market progress just as we have articulated and believed it would.

Importantly, given the pivot we were able to make in our near-term focus from Europe to Asia, we haven't had a slowdown in the pace of our orders. As we announced this morning, Hyzon has received the first two purchase orders from Shanghai Hydrogen HongYun Automotive in China for a total of 62 trucks. The end user of these trucks is a large industrial conglomerate.

Along with the milestones in Europe and Asia, we also continue our push into the North American market where the buildout of our facilities in Rochester, New York and Bolingbrook, Illinois are anticipated to be online by mid-2022.

While the commencement of US operations is slightly delayed due to availability of manufacturing equipment, the Hyzon model is designed to ensure that we limit the damage as we continue to source fuel-cell systems from the parent company in the interim, while we obviously benefit from the parent company's installed base in fuel-cell manufacturing in these early stages. We are eager to get these two additional US manufacturing facilities up and running to complement our existing R&D facility in Detroit.

The North American market has seen enthusiasm for hydrogen powered commercial transport grow quickly, even since the beginning of the year, and Hyzon plans to be among the first to deliver hydrogen fuel cell electric trucks to customers in the US. If the fleet interest shown during the ride and drive event of our two Hyzon Class-8 fuel-cell electric trucks at the September ACT cleanup fleet Expo in Long Beach, California is anything to go by, we have plenty to look forward to.

The soon to be signed USD1.2 trillion infrastructure bill supporting the energy transition includes $8 billion for hydrogen hubs, which closely aligns with the hydrogen supply strategy already being pursued by Hyzon to support back-to-base fleet operations. We are actively shaping Hyzon's participation in submissions under the hydrogen hub program amongst other grant activities.

Along with the entire leadership team at Hyzon, I'm incredibly proud of what we have been able to accomplish since becoming a public company in the second half of July 2021. We believe our commercial and operational progress has been consistent with the plans we outlined and we continue to do everything we can to maintain our leading position, including the expansion of our portfolio of intellectual property and continued robust spend on R&D.

You can expect to hear us speak of the increasing Hyzon content within our fuel-cell electric vehicles. Over time we expect this Hyzon content to account for the majority of the specialized parts and components in the vehicle -- expected to account for around 70% of the vehicle's cost of production. This ensures the opportunity to consistently earn robust margins on sales.

To summarize our priorities, Hyzon has sharpened our focus into three value pools: vehicles, fuel and service. I've spoken a lot about the success of our vehicle operations and commercial efforts and now, to discuss our strategy around fueling and hydrogen infrastructure, I'd like to turn the call over to our Chief Strategy Officer, Parker Meeks.

Thanks, Craig, and thanks again to everyone on the call. As Craig just laid out, Hyzon's business has made significant strides in putting vehicles on the road. At the same time, Hyzon has been working to expand the supply side of the equation, supporting the buildout of hydrogen production and dispensing infrastructure to ensure commercial transport is able to continue to decarbonize at scale and at pace through adoption of fuel-cell electric vehicles.

We often hear from investors looking to us for guidance to frame the question of hydrogen supply and infrastructure buildout necessary to support the downstream adoption of fuel-cell electric trucks. And we thought we'd spend some time with you this morning to talk you through a bit more detail on our growing conviction on this topic.

The conclusion is that we are more confident than ever before -- not only is the required infrastructure buildout more modest than many might assume to support our growth targets, but the wave of buildout in our four key geographies, North America, Asia, Australia and Europe, is well underway.

The transition to zero emission commercial transport will require many different partners working together to create a sustainable ecosystem of feedstocks, hydrogen production and dispensing facilities and financing structures that reinforce each other and provide as seamless and efficient user experience as possible. Hyzon is committed to being a large part of meeting these challenges along with our partners.

Recently Hyzon has done this through a series of agreements with both innovative early-stage as well as large established global companies. In particular, Hyzon has made significant strides in our partnership with Raven SR. Earlier this year Raven SR announced a strategic investment from Chevron, ITOCHU and Hyzon.

Raven's technology is capable of converting municipal solid waste or many forms of renewable methane into emissions free hydrogen supply [insitu] for supply to decentralized hubs which are deployed at depots supporting fleets of trucks, complementing our back to base model.

The first of these waste to hydrogen hubs is slated to come online in the San Francisco Bay Area in the second half of 2022, and the second waste to hydrogen hub is set to be operational inside of just 12 months thereafter.

Additionally, the first Raven Blue renewable natural gas or RNG to hydrogen hub is inciting now, expected to also come online in 2022. These Raven Blue hubs and waste to hydrogen hubs can be brought to market in between 6 and 12 months once citing and permitting are complete and can produce 5 tons of hydrogen per day or more.

As we will discuss in a moment, just one single hub at 5 tons of hydrogen per day can support approximately 75 to 100 hydrogen fuel cell electric Class-8 trucks assuming average utilization. We are very excited about the progress we have made with Raven SR and plan to expand well beyond initial three hubs in the coming years.

Hyzon announced earlier this week our partnership with TC Energy, formerly TransCanada, to build, operate and own hydrogen production facilities across North America. We are extremely excited to be working with a company whose deep infrastructure, feedstock and technical expertise is expected to lend high value to the scale up.

Together we have ambitious schools for this new collaboration, targeting delivery of hydrogen fuel to commercial vehicles as soon as 2022 with production at each hub above the 20 tons of hydrogen per day.

In connection with our merger, we articulated projections of just over 17,000 trucks sold in 2025. We think it is useful to frame what is required on the supply side to support those vehicle sales and the opportunity that presents. In fact, of the 17,000 vehicles, roughly 9,800 of those forecasted vehicles are the heavy duty, medium duty and bus categories, which require more hydrogen fuel than Class-3 trucks and vans.

Based on average use cases, the 17,000 Hyzon trucks and buses would require 650 tons of hydrogen per day to operate. Now obviously the consumption needs will differ based on usage, long-haul versus heavy duty, or vehicle type Class-8 versus Class-3. But that roughly 35 kilograms per day on average per truck across the portfolio is a fairly widely quoted consumption metric and we also have actual data from fuel-cell EVs on the road today to give us real-time information.

So, what does one need to believe to see supply of 650 tons of hydrogen per day in Asia, Europe, Australia and North America that would be able to support 17,000 vehicles? To be honest, not very much. Let's set aside for a moment our stated strategy of Hyzon zero carbon through our partnerships with TC Energy, Raven and many others we expect to announce in the coming quarters, which we expect to all play an instrumental role in providing hydrogen to our customers.

Instead let's just look externally to the third-party hydrogen supply marketplace. The market is telling us that the buildout of hydrogen supply is happening now and it is more than sufficient to meet our volume case in 2025.

Just a representative sampling of supply buildouts underway today include: Plug Power's publicly stated and finance plans for its network to supply 500 tons of green hydrogen by 2025; Shell's construction now underway of a 10 MW PEM electrolyzer to produce a remarkable 1,300 tons per day of green hydrogen in Germany; Air Products' hydrogen plant construction currently underway in China, planned $5 billion green hydrogen plant in Saudi Arabia, and a planned $4.5 billion blue hydrogen complex in Louisiana; and Mitsubishi's plans to develop nearly 1,000 tons per day of hydrogen in North Dakota.

The conclusion is straightforward. From the Gulf Coast to the US heartland, from the provinces of Canada to Continental Europe, from Australia to Asia, the hydrogen industry has moved beyond signaling interests or intentions and is now in the mobilization and scale-up phase. Many of them as sophisticated, well-capitalized and global industrial companies with very public plans are being driven by startups and modular technology platforms to develop these projects.

Fitch estimates that China is already the world's largest hydrogen producer of 22 million tons already produced in 2019. Here in the US, Congress just passed, and President Biden is expected to sign, the bipartisan Infrastructure Bill within the next few days. In it, as Craig mentioned, $8 billion was dedicated to clean hydrogen hubs, an additional $5 billion to zero and low emission buses, and $73 billion to rebuilding the electric grid with renewable energy and essential feedstocks for green hydrogen.

If passed the Build Back Better plan, with an additional $500 billion in clean energy tax credit, would represent the largest ever federal investment in clean energy with specific incentives for green hydrogen as well as the clean power feedstocks that we believe will even further galvanize the acceleration and cost down of green hydrogen even more rapidly than we are already seeing.

In summary, we are seeing the precise intersection of aggressive top-down policy architecture formulations in multiple OECV economies simultaneous with bottoms up industrial investment decisions. The resulting trajectory has not been clear since the day we announced our merger and intention to be in the public markets that the hydrogen supply and infrastructure buildout is underway.

Yet as we deploy our trucks, buses and coaches globally we won't play a waiting game or allow other market entrants to provide solutions for our customers when we can do it ourselves on the back of our proprietary relationships and technology. We intend to be an active part in developing the hydrogen supply infrastructure in all the markets where our vehicles operate.

Many of the large products I just mentioned are slated for 2025 or later online dates and we have the opportunity to meet significant vehicle demand much sooner with zero to negative carbon intensity hydrogen available in 2022 at diesel parity to support hydrogen fuel cell EV fleets.

We could not be more pleased with where we are headed in helping enable the broad conversion of commercial vehicles to clean hydrogen fuel and to broadening our partnerships with like-minded companies to accelerate the transition even further. Now I'd like to hand the call over to Hyzon's CFO, Mark Gordon.

Thanks, Parker, and thanks again to everyone on the call. Hyzon finished the third quarter with $498 million in cash on the balance sheet as the Company continues to manage its expense prudently with an eye to making every dollar count. For the third quarter revenues were $1 million, total operating expenses were $50.6 million and net income was $32.4 million.

Operating expenses for the third quarter were comprised mainly of $4.8 million of R&D costs and $44.8 million of SG&A costs. Within SG&A were charges totaling $34.1 million, which were essentially one time in nature relating to foundational equity grants for senior executives, an expense related to the retirement of our former CTO and to deal expenses.

Hyzon also reported a positive EBITDA of $31.7 million due to changes in the fair value of earnout and private placement warrant liabilities. Adjusted EBITDA for the third quarter was negative $15.2 million after backing out the one-time items related to the fair value of the earnout and private placement warrant liabilities and other one-time charges.

Hyzon remains on track to meet our forecasted full year 2021 EBITDA and to have more cash on the balance sheet than our original plan. We reiterate our plan to ship 85 vehicles by year end.

Looking over the medium- to long-term, we have become more optimistic about our margin outlook. This is a direct consequence of the energy crisis which has begun to unfold globally. As the price of oil increases the total cost of ownership of hydrogen vehicles becomes more competitive and the selling price of our vehicles needed to drive widespread adoption will be higher.

Hyzon is a technology company which also commands higher margins. We already have a leading fuel cell and we are innovating with eAxle's batteries and other components of the vehicle powertrain.

The energy crisis has actually shown up in the grid before it has shown up in oil. A lack of investment in natural gas and coal driven by climate change concerns has caused record commodity prices for natural gas outside of North America and for coal globally. The high commodity prices are leading to high electricity prices and this trend is only set to become worse.

Blackouts are becoming more common from China to Lebanon to California. Many European countries are now making electricity price records with electricity prices in the US at decade highs. A widespread rollout of battery electric vehicles will only exacerbate the situation with the grid and cause a regressive tax on the consumer. The energy transition needs a solution which is not grid dependent.

Hyzon with the help of our partners will produce hydrogen off grid. Widespread local hydrogen production has the potential to create energy security while avoiding a regressive tax. Fuel cells are not full cells, they are the answer to the current crisis. A widespread adoption of battery electric will add to the problem. And with that I'd like to turn the call back to Craig for closing remarks.

Thank you, Mark. As you've all heard, Hyzon continues to make strides across our three value pools of vehicles, fuel and service. We've delivered trucks in Europe that are operating today, we've received orders that we are on target to fulfill by the end of the year in Asia and Europe. We are building out hydrogen supply infrastructure with our partners and we are making progress on our US facility capabilities.

In short we are executing. We are executing to the plan we laid out with the ability to pivot where needed. We aren't here to make excuses for challenges, we are here to be careful and thoughtful stewards of our shareholders' money and to become the clear category leader in zero emission commercial vehicles.

In addition to our financial and operational progress, I would like to highlight two other important events of the last quarter: the hiring of Patrick Griffin as our President of Vehicle Operations as well as Jiajia Wu as Chief Accounting Officer. Both bring deep experience in their respective fields and further strengthen the team at Hyzon, working to achieve our corporate vision of zero emissions with zero compromise.

Thank you all again for your time and attention. And with that, I'm excited to share a video captured while in Groningen, of our Hyzon fuel-cell electric truck racing a diesel truck, before we open up the call for questions.

(video playing)

(Operator Instructions). Rob Wertheimer, Melius Research.

Hi, thanks, everybody. And you've got a lot going on, so congratulations on that. Craig, I don't know how much you're willing to talk about this, but you mentioned in a recent update that you're still working with a lot of the customers that have been trialing your product or looking at it or whatever across the last several months.

So, I wonder, do you track the number of potential entities that you're working with, the number of potential orders? And maybe you could just expand, to the extent you're willing, on the process there on the -- not backlog, but on the book of business you're working on, the funnel of sales and how that is developing. Thank you.

Sure, Rob, thanks for the question. Obviously the Hyzon Motors selling process is a typical kind of prospecting sales funnel, if you like, with the added complexity that we are promoting a new technology that most of our customers haven't really had any experience -- any prior experience with.

So, definitely there tend to be some drawn-out processes of becoming familiar with the technology and accepting it, and that's why we sometimes talk about those three phases of how the business will develop from the seed or pilot sales of ones and twos through the batch sales of fives and tens before we get to real serious fleet scale adoption.

What we are seeing though is a kind of compression of the process and the timing involved. So, while the earliest sales to customers to evaluate this technology could take 12 to 18 months to go from initial confirmation of a seed sale through to getting some commitments for decent loans we are seeing that compress.

So, I don't want to speculate exactly how much that compresses, but there's two real drivers there. One is the increasing urgency with which corporations and governments are moving to address climate change, as we've seen through announcements in the wake of a lot of the COP meetings in the last two weeks. Governments and corporations are really becoming more urgent about all this.

And then the second factor is the increasing acceptance of hydrogen as a part of the solution. So, it's no longer really a thing that we sit in front of customers talking about why hydrogen. So, typically today we are sitting in front of customers who have already evaluated their options and already considered how to decarbonize their activities.

And we're typically talking to fleet operators with trucks that have payload imperative, very high daily uptimes and back to base operating characteristics. And they've already decided they want hydrogen. So, all that accelerates the rate at which this happens.

Now of course, yes, we do monitor our pipeline and try and maximize our chance of success. But I wouldn't say it is an overly mature process yet because there's still a degree of education and degree of the kind of journey we go on with the customers. But I just do want to comment that the process is compressing because of those two tailwinds. And I think that that's a really important implication for our business and the rate at which we can scale up in the next two to three years.

That is an interesting response, thank you. And the level of activity is as high as it has been in recent months or higher?

Yes, higher, continual interest. The industry events we participate in -- we were at a clean fleet events in the Netherlands a few weeks back and great interest there. We had a truck in the booth. We were at the ACT clean fleet Expo that some of the analysts came to see us. And we had the [run drive] event I mentioned in the [coal], huge interest there from fleet operators and it's just increasing all the time. And as I said, the acceptance of hydrogen as a part of the solution is growing and that's the most important thing.

Perfect. And then just one small one and I'll get back in line. You mentioned sort of the nimbleness at which you've shifted and taken advantage of some of the rising demand, I suppose, in China. Has anything slipped out of backlog or slipped -- I guess some of the North American or European must have slipped a little bit into 2022. But is there anything that sort of fell out? And I'll stop there. Backlog might be the wrong word. I apologize.

Yes, timing is definitely a factor. We are not seeing customers lose faith, but we are seeing some deliveries delayed for a few different reasons. We've had some customer scenarios where their hydrogen infrastructure rollout is a little delayed, so therefore there's not really much point delivering vehicles without hydrogen being available. That's one factor.

And then the other factor, of course, is access to vehicle platforms and electronic equipment and so on to assemble the finished product, the finished vehicles. So, some delays from the customer side, some delays from our side. Of course, some of the deliveries we expected to make in 2021 we will now make in 2022.

However, with the pivot you mentioned towards a much more liquid and fast-moving market, namely China, we were able to continue to deliver and gain that real world on-road experience and valuable customer interaction that we crave. That's why we'll continue taking orders and making deliveries at a pace consistent with our business plan.

And just to be clear, nothing has fallen out of backlog? There's some deliveries that have slipped. The backlog continues to grow strongly and we will update the market on that in the fourth quarter or on the fourth-quarter call.

Jerry Revich, Goldman Sachs.

Hi, good morning, everyone. I apologize, my video was not on, but I think I know who won that race, Craig. Can you talk about --?

(multiple speakers) to drive these trucks.

Yes, absolutely. Craig, can you talk about the 83 units that you folks are planning to ship in the fourth quarter? Obviously we don't expect you folks to provide month-by-month updates, but considering we're halfway through the quarter, just help us build comfort with what's left to deliver out of those 82 units, what's the progress been quarter to date because, obviously, that's a pretty significant step up?

So, Jerry, we're going to have an update on that at some point in the next few weeks with videos and photographs for people to see. So, for now we'll just tell you that we are on track to make the forecast.

And obviously that implies, Jerry, that there are quite a few vehicles that are in build and approaching being finished and tested. And to Mark's point, in the next couple of weeks we'll be able to show some photos and videos of deliveries that convey that very clearly.

Okay. And can you folks talk about your sequential build plan beyond the fourth quarter? Should we think about production coming down seasonally in the first quarter in China? Just flesh that out for us in terms of what the cadence looks like over the next couple quarters given the lumpiness in deliveries in China in particular.

We still expect 600 to 700 vehicles to be delivered next year and we expect it to grow through the year -- on a quarterly basis.

So, Mark, just to make sure we're on the same page, you're anticipating production to be up sequentially first quarter of 2022 versus fourth quarter of 2021?

Correct.

Okay. And in terms of the types of orders that you folks are seeing and the interest that you've described over the course of the call, can you talk about what are the specifications that you are seeing increasing interest? It sounds like it's at the heavy end of your product range based on what you described, but maybe you can just give us some more color on what product mix you are seeing in terms of orders that are coming in.

So, I can take that, Jerry. Definitely the heavier trucks have an automatically enthusiastic response from the customers that are starting to try this technology and the potential customers. There really isn't a broad acceptance for heavy duty trucks that are used, driven many hours a day. People just don't see any other option besides hydrogen. So, we kind of naturally have a very receptive audience when we speak to customers about our heavy truck offerings.

I will say though that it's not only heavy trucks that have a lot of promise here. We do expect to be supplying quite a few of the medium duty rigid trucks as well in the next couple of years. And we've also got in our plan Class-3 lighter trucks within the next couple years becoming a significant feature and becoming a volume driver over time.

And there's a very good reason for that, Jerry. As we penetrate the really low hanging fruit, the sweet spot markets of the heavy trucks, high daily use case, back to base -- as we penetrate these markets what we're doing is we're justifying and even sponsoring the investment in hydrogen infrastructure which comes with very compelling economics when you have substantial demand right next-door.

So, with those local hydrogen hubs that Parker was speaking about before, close to the strong demand centers for heavy trucks, you're driving a whole new set of economics around the hydrogen. And then that will immediately translate to adjacency for application and adjacent vehicle types all of a sudden becoming very compelling on hydrogen, because the driven mile on hydrogen will be cheaper than the driven mile on either diesel or electricity.

I appreciate the discussion. Thanks.

Bill Peterson, JPMorgan.

Yes hi, good morning. Thanks for taking the questions. First just housekeeping. When you say deliveries of 83, is that also you're expecting revenue recognition on those or are some of these for some sort of trials?

And I guess more importantly, when you look at your 2022 plans it seems like you're mitigating the supply constraints fairly well. Is this due to you guys executing take-or-pay much earlier on than other people? What gives you the confidence in your vehicle delivery expectations for next year? And are there any areas of supply that you still need to overcome as it relates to your build plan for next year?

You want me to take that, Craig?

Yes, (multiple speakers).

Revenues we absolutely expect to recognize on those trucks, the 85 trucks we anticipate being delivered by year-end. What I will point out though is the reason we're able to do this, as Craig mentioned in his opening remarks, is the pivot towards China. The supply chain constraints in China are obviously a lot less because everything is made there. So, it's easier for us to execute there.

But as we've said in the past, the ASPs, the vehicles in China are substantially below what they are in Europe. So, our backlog continues to grow and it's mostly European vehicles which have gotten caught in the pipe -- like the pig and the python or whatever analogy you want to use. But we are confident that we can see large deliveries and it's really thanks to us being a global company.

And let me come back, Bill, to the question on expectations and whether or not there's any differentiation there versus others. Partly if you look at the physical numbers forecasts, you might want to look at comparable groups of recently de-SPACed new energy vehicle sector players.

If you look at forecast numbers, when we ranked -- we had a look at these peer group of 16 companies, we were the fourth most conservative on margin forecasts and second most conservative in terms of number of vehicles expecting to ship here in the next few years. So, probably the volumes themselves are a little smaller, and so access to the parts and components may not be as much of a challenge with a bit smaller physical numbers.

The second thing on that is that part of what happens in the first half of 2022 is that we finally have in our hands a lot of the inventory we ordered back around the middle of the year, which we were anticipating would have enabled us to deploy dozens of vehicles in Europe, for example. So, these vehicles are all of a sudden delivered in the first half of next year.

So, we actually do have a backlog of inventory that was ordered earlier that didn't get here in time for assembly and deployment as early as we would've liked, but it's still coming in. The other thing we did is we ordered substantial inventories for 2022 production some months back. With the worsening lead times particularly in Europe, we pulled the trigger on a lot of orders well ahead of when you would normally order.

That actually will have a detrimental effect on some cash position numbers before the end of this year, but it will have a beneficial effect on our ability to assemble vehicles and deliver them and recognize the revenue in 2022.

Thanks for that color. The way I interpreted some of your prepared remarks is when you say focus on vehicles and hydrogen and service, I sense that means you're not looking to sell fuel cells. And I think you shipped a fuel cell to an aviation customer, if I'm not mistaken, or are going to.

So, just want to understand, is this a pivot? And when you say you're more focused on hydrogen, is that to say -- and I think we'd like to go through some of the economics of when you look at the announcements with Raven and TC. Can you help us understand, are you going to see more upside in fueling over the coming years? And what are your contributions in terms of capital expenditures or OpEx or whatever for this hydrogen infrastructure enablement?

So, two parts to that question. I'll just make a brief comment on the first part of your question around the focus on fuel cells or otherwise. The supply of fuel cells for off-road applications -- for example, mining ships, trains, aircraft, whatever -- hasn't been a core focus, but it's always been part of our business model and our capability because we own that core technology.

So, we've always acknowledged that we will sell fuel cells into other applications besides the on-road trucks. But in terms of where we invest our money and resources and build our teams and execution capabilities, that's really around the vehicle applications that we've continued to focus on and highlight. So, it's not like we won't sell fuel cells, but it definitely is not where we are investing in the facilities and the teams that we've been speaking about as we speak about building out capabilities.

So, that's one thing, because the ability to sell fuel cells goes back more to the core technology itself. And of course, we continue to invest in that core technology but we don't invest heavily in the applications beyond our trucking and heavy vehicle applications.

So, assuming that's reasonably clear, I'll hand over to Parker for some comment on the hydrogen hub strategy partnering model and what we expect to see for the Hyzon business in terms of the investments we are likely to make and the value that those investments are likely to bring to the Company.

Thanks so much, Craig. Thanks, Bill, for the question. So, as we elaborated in the commentary, we do have our first hub coming online in the second half of 2022 and two more hubs lined up behind that. In terms of the model, Bill, we are building partnerships across the whole ecosystem from feedstock through production through short-haul distribution from our decentralized hubs to very near dispensing points if not on site and dispensing.

The model for Hyzon, as we mentioned before, is to invest in the production step to lock in that very attractive cost structure. An example is our announced partnership with Raven where we have the right to invest a significant amount of equity in each hub and we have right to 100 of the first 200 waste to hydrogen hubs and 150 of the renewable methane hubs.

In terms of the opportunity, the economics, what I can tell you is as we are fine-tuning design in final stages of the hub that is coming online first in the San Francisco Bay area. When you have a very, very low to zero to negative carbon intensity hydrogen production in a state like California where a low carbon fuel subsidy is in place, and Oregon has one as well, Washington is right behind it, other states like New York are progressing well.

When you are a zero carbon intensity where the California credit is trading today, conservatively that can easily be a $4 per kilogram subsidy as you go significantly negative on carbon intensity, which you achieve by sources like biomass where you are mitigating methane release and other renewable gases. A negative carbon intensity can actually in some of these processes go very negative and that subsidy grows even further.

So, the subsidy combined with a very economic CapEx and efficiency in the process, like Raven and many of our other production partners have, enables us to have very attractive economics while still providing a net cost of hydrogen dispensed into vehicles that we're very comfortable will be at or below diesel parity as soon as that first hub comes online.

And the opportunity really in the decentralized model is speed to market. So, when you think about the differentiation between our strategy and the scale of hubs we're planning to build close to fleets, and some of the large scale announcements that I mentioned before. The capital cost for a 5 ton per day hydrogen production hub is likely a tenth or less of some of these massive projects that you are seeing put out there, many of whom can climb into the hundreds and millions of dollars of capital.

Anyone who's studied capital projects knows the significant risk that comes with a $200 million, $500 million, $1 billion capital projects, not many of those come in on time and on schedule. Whereas we can build our scale of projects right close to demand in lockstep with fleets in that 6- to 12-month timeframe post permitting and siting of pure construction time that I mentioned before.

So, it fits with our back to base model, fits with our speed to market model. And we are quite excited to bring the first hub online the second half of 2022 to show real produced low to negative carbon intensity hydrogen at (inaudible).

So, I'll just add to what Parker said. We have $150 million of CapEx in our five-year plan, which is slated for hydrogen hubs. We have been in conversations with a number of different banks and the appetite to debt finance these hubs is extreme and the interest rate is actually very low. So, after the first couple of hubs we plan to work out debt financing for them in an off-balance-sheet SPV type vehicle, and we're excited about the ability to make that happen.

As you're, I'm sure, aware, there are a lot of people who want to invest in green infrastructure. And then also I'd point out that in Parker's remarks he talked about a Raven Blue that will be sited and come online this year. So, that's actually another hub. We haven't determined where it will go exactly and that's because there are a number of different sites that are competing for it.

But what I would point out is that the CapEx for the Raven Blues is very, very low and they can produce 5 tons of hydrogen per day, each Raven Blue, and we have the right to 150 of those hubs. So, that is effectively another hub that in the last quarter we were not talking about, but which is new and we anticipate coming online next year.

Okay, thanks for that. It kind of somewhat dovetails -- and these are US-based hydrogen, so -- and the first one being in California. I'm really trying to understand, it seems like you have some supply constraints, maybe shipping some of your trucks from Europe or the US in 2022 and you are making up with China. That's reasonable.

But I guess my question is -- is it supply constraints that's maybe holding back? Is it truly supply constraints or have you seen any slowdowns from Europe or US based off of maybe concerns around these short reports?

I guess really what I'm getting at, I think you were supposed to have some sort of trial especially in the US for one of these port customers? Is that still on track or is that going to ship into next year? I'm just trying to understand some of the ramifications of some of the -- well, sort of supply and demand statements.

Trials, the first trial will still start this quarter in California. And of course nothing has happened as fast as we would like in 2021. It's definitely been quite a year in terms of supply chains, as everybody knows very well. So yes, some things have slipped. As I said earlier, that relates to some slippage around our own capacity to buy parts and materials, but it also sometimes relates to the capacity of infrastructure to be built because they also have parts and materials lead-time issues.

I don't believe that there's really any meaningful slowdown in the end-user interest and commitment and buy-in to what we're doing. It's just a mixture of those factors around some delays on some supply chain factors and all the rest of it. And to back up what Mark said earlier, the backlog hasn't -- no parts of the backlog have evaporated.

The timeframe in which we're delivering against some of the backlog has changed a little, but we don't see -- we don't see any reduction in interest or commitment from customers. It is just continuing to increase all the time. We are definitely very inspired by the current round of conversations we're having with the customers in North America, in Europe and in Asia Pac.

And you mentioned specifically the short report basically wasted three weeks of management's time, but it has not changed our reception in the marketplace. And we have a whole host of agreements and partnerships and sales that we anticipate to announce over the coming weeks and months.

Dan Ives, Wedbush.

Thanks, can you just talk about -- Craig, with your conversations, or Mark can chime in -- how key is it to have an actual truck on the road? Obviously verse competitors the talk about in a PowerPoint, can you just talk about that in terms of in your customer conversations how big that is with driving pipeline demand?

Hey, Dan, it's Craig. Why don't we turn the question around and ask yourself and some of the other folks on the line how their perception of this stuff changes when they get in and drive a fuel-cell truck?

Well, I think that video maybe highlights it.

But you cannot replace the personal experience of driving in these trucks, physically seeing them work, etc. And that's one of the reasons why we continually host customers to our facility in the Netherlands, and we had over 20 folks from the UK visiting the Netherlands earlier this week for in person drives and also some walking around to see what goes into a fuel-cell electric truck for example.

So, we've had a lot of major fleet operators and some hydrogen infrastructure partners come visit us from the UK, as I said, just this week and the reaction is it is very consistent. And you saw for yourself, Dan, the reaction of professional drivers in these vehicles too. You can put basically any professional driver that's lived with diesel trucks into one of these trucks and, without any kind of coaching or any kind of training, they just get out and they say how great it is.

I mean it's quiet, it doesn't vibrate, it doesn't smell, it's got better acceleration, it feels more comfortable, more powerful and therefore more safe in merging in traffic and all the rest of it. There's nothing like getting your hands on a vehicle frankly. So, that's one of the reasons why we are so determined to be first mover in many different markets, because what it will do is it will dramatically facilitate the uptake.

So, that's why it's really important we get these trials started in different corners of the world. And those seed sales are being talked about and then we can move on to substituting diesel trucks and fleets at volume. And that's really the goal here. Really the goal is to accelerate the rate at which diesel trucks can be replaced with zero emission trucks, but zero emission trucks that don't come with compromises.

And as a follow-up, I mean now that you are on track to deliver the 83 to 85 by the end of the year, do you view that -- and from your conversation -- it's just going to enable you to go back to prospective customers and be like we delivered them? Does it feel like that's going to be another cascading positive event?

Look, Dan, we feel the -- the markets are quite localized. So, for example, the customers in Europe, they want to come and see us putting trucks together in Europe. The customers in China learn from the other customers in China what's going on there. Customers in Australia are starting to get interested because now that we've been driving our hydrogen coach around down there and demonstrating for some people there, they're starting to relate more to it.

And demonstrating trucks at the ACT clean fleet Expo in early September was also a great experience in North America for people to see and feel the trucks. We find it is quite localized. We don't see a lot of translation when someone in Europe is working with a truck and saying how great it is. We don't see that translating easily across the Atlantic. People want to see stuff in their own back yard and they want to relate to it. And it helps them believe in it when it's operating down the road or in the next state.

Mike Shlisky, D.A. Davidson.

I wanted to ask quickly on the TC Energy announcement. One of your competitors also has a deal with TC Energy to make hydrogen hubs of their own. And if I read them correctly, you have smaller hubs planned than they do. And that might be because you want to get close to your fleet customers -- closer and maybe keep the transportation costs to a minimum. But I'm just curious how is this going to work?

Are you guys going to have any issue in infrastructure with your competitors that are also working with TC? Or anything we should be thinking about as to they own the offtake to the hydrogen hubs that they're going to build and you'll own all the offtake of yours? Are there plans to maybe sell that to the grid? Just some of the things you know that might be different between what your deal is and what their deal is.

I'm going to hand over to Parker in one second. But by way of background, obviously hydrogen is not yet a common fuel, but it increasingly will be a common fuel. And with fuel inevitably in a distribution and local supply, you need a lot of relationships and interconnections and swap deals and all that sort of stuff to be able to supply everywhere it's needed.

So, I will just say that while hydrogen doesn't travel easily, there's absolutely no reason why -- models around leveraging non-exclusive supplier fuel where it makes sense. There's no reason why that doesn't work just as well in hydrogen as it does in anything else that's a fuel. But I want to hand over to Parker because you're asking very specific rationale for the way that we go about our hydrogen infrastructure efforts and some differences with what some other proponents of hydrogen infrastructure are doing.

Yes, thanks, Craig, and thanks, Mike, for the question. So, I won't comment on TC's relationship with other parties, but I will say -- answer your question on our strategy versus other large-scale projects. I think you see the difference between what you are referencing and the announcement and the scale of the hubs. As I mentioned in my commentary, our view is clear. On the lowest TCO -- lowest carbon intensity approach to provide fuel to our fleet is as close to the fleet as possible.

The issue is when you start moving hydrogen around, even with the most efficient liquefiers today, you liquefy and you ship it long distances, which when you're talking about a scaled hydrogen production at the scale of some very large hubs that others are thinking about, we see a liquefaction cost, a distribution cost to get it to the same pressurized endpoint. Which is not yet to dispensing, that we will have at our production site easily can add $2 a kilogram, if not more, before you even get into the cost of actually producing and dispensing.

And given that diesel parity needs to be, in our view, conservatively $4 a kilo delivered into the vehicle, if diesel stays where it is, which it may or may not, we find it very challenging to think about large-scale projects and moving molecules over a very, very long distance.

So, we are very excited about the collaboration and the partnership with TC. We think their backbone of feedstock supply to their R&G interconnects and other assets, their appetite to drive into low to negative carbon hydrogen with us, and vision of how that model fits very nicely with the transportation market and the TCO needs to make this case work -- along with just the build times.

I mentioned before a large part of my career has been in design and construction and any capital project that goes over $100 million of CapEx on a single location, the chances of success in cost and schedule and the risks of that project go up significantly, particularly when you're talking about projects that have production and then long large distribution that's going to cause (inaudible) to the pipelines or other supply chain assets to manage.

So, for lots of reasons we see the smaller scale modular decentralized model as absolutely the best answer both for TCO and cost and also ability to leverage local feedstocks.

And the last thing I'll say is what's also exciting about that approach is it's amazing how many customers we talk to where the conversation starts about trucks. And then we get into their operation and we realize they're producing tens of tons of waste per day. And we can actually point to their waste and say, you know what that is, that's fuel, and we can build it right here for you.

We can use your waste and your operation, which that only, again, saves cost in terms of the total delivered cost of the vehicle plus fuel. Also helps customers with their end-to-end sustainability story. So, I hope that answers the question, Mike.

Yes, that's good color, Parker.

And Mike, one other point just kind of holistic. Clearly increasing announcements by some of our partners who are also working with other groups around collaboration models -- and there was an announcement recently between Total and Daimler on our chip supply as well. Obviously we have relationships with Total.

None of this is exclusive because we're all trying to create a market here, we're trying to grow this -- we want to try and build this momentum I should say towards this energy transition, this tipping point and it's only at scale that we'll see that happen.

So, as far as I am concerned, every announcement I read about one of our direct competitors or one of the competitors of our hydrogen production partners or any of these guys doing more projects, throwing more capital at the same end goal, the happier I am. The more I know we're in the right place, we are investing our energy on the right things and that we will make this happen, we'll be able to facilitate this energy transition if there are enough people pulling on the same rope in the same direction.

But it takes a lot of people to make it happen. It's a very big change. As I like to say to people, we've got 100 years of incumbency that we're trying to unwind in 15 years. This requires not one successful fuel-cell vehicle company; this requires a concerted effort by hundreds of successful companies with technologies, hundreds of successful companies with hydrogen infrastructure, hundreds of successful companies with fleets operating on zero emission. It requires very, very big shift.

Got it. Thanks for that color. Can I also ask -- I wanted to ask about the 83 units you've got planned for the fourth quarter here. Can you help us characterize what vehicles are in the build plan? Do you need to have an additional order from Shanghai HongYun to fill the full 83?

Or are there other -- can you maybe tell us if there are other vehicles that have been announced and are going to be delivered in the quarter like Korea Zinc or other customers that are already announced? Can you tell us whether those folks are in the plan for the near term here?

Yes, there are some revenue recognition events that are going to happen with some of the partnerships we've announced. If you kind of look back through some of our press releases you would remember probably some European retailer and European industrial customers and some other European customers that -- some of which would probably have liked to have their hands on trucks by the end of this year, Mike, but it didn't quite happen.

Things didn't go as planned in some ways, as we have spoken about. But some of those are definitely going to occur in fourth quarter, but some will move into next year. So, also there are more orders expected in Asia as well.

But you asked do we need another order to make the sales forecast. And the answer to that is, no, we do not need another order to make the sales forecast (multiple speakers). We have the orders we need to make the forecast. There is no issue with that. Now it's just a matter of execution.

Yes, (multiple speakers). Sorry, Mike, it's all about delivery.

Steven Fox, Fox Advisors.

Hi, good morning. Two questions if I could. First of all, just getting back to the infrastructure bill. Craig, what do you think the rough timeline is for some of these funds to, one, inspire companies to maybe investigate, one, the hub side of it and also trucks; and two, how quickly that could turn into orders; and then three, when would it generate revenues for you guys?

What would be a reasonable timeline for that? And then as a follow-up, can you -- you mentioned the goal of having -- specialized parts being 70% of cost of production. Can you just give us a sense where you are at now? And from now at 70% what does that do to margins? Thanks.

Excellent question. So, the first one, if only I knew how quickly we could make some of that stuff happen. But the good news is, Steven, in terms of major corporations and big fleet operators looking at the option to go to zero emission with hydrogen, obviously there have already been some very interesting conversations that now are accelerated or enabled by some of the infrastructure build initiatives.

So, we don't need to start from square one with those conversations. There are already some very interesting conversations underway naturally. So, that's one thing. It's really an accelerator of conversations that are already happening. Now how quickly does that materialize into big fancy orders and lots of deliveries and lots of hydrogen hubs on the ground chugging out hydrogen? That's a little harder to anticipate, of course. We would hope -- yes.

I was just going to say, Craig, one thing we expect though, as soon as the first Raven waste to hydrogen hub is up and running and as soon as the first Raven Blue is up and running, we expect to be able to raise large amounts of debt finance. So, that will be sort of an inflection point and we think we will accelerate quickly after those events happen. So, that will be late next year.

And probably important to note as well, Steven, on top of Mark's comment about how quickly we can make some of that happen towards the end of 2022, obviously the Hyzon offering of the vehicle with the service, zero emission mobility as a service if you like. The ability to offer fleet operators the flexibility and the low risk option of both a vehicle that they don't necessarily need to pay for on day one. But they can subscribe to on a monthly basis for instance, combined with a long-term future locked-in fuel price, this is very attractive to a lot of customers.

So, I don't know anybody who can tell you what the price of electricity will be in three to five years from now, but I can tell you what the price of your hydrogen will be three to five years from now as we sit down and model the project we will do it for you if you are a big fleet operator.

So, this is something that I believe is very attractive for the fleet operators. And I do feel that, as Mark says, as soon as we've got these first Raven hubs running and we are able to just earn a lot of confidence and buy-in from the market when people can physically see that happening, and I believe that we'll get some rapid uptake from probably the first half of 2023.

I'll just add to what you said, Craig, which is looking at the electricity price a couple years out and the hydrogen price a couple years out, what we think is most likely is the hydrogen price will be a lot lower and the electricity and oil price will be higher. That's the way it looks right now. So, our marginal or our economics are improving and the economics for our competitors -- not the hydrogen competitors but other vehicle competitors is getting worse.

And the second question related to the Hyzon content, if you like. So, how much Hyzon content in a vehicle? So, today I think it's probably fair to say that we are operating at 35% to 40% of the (inaudible) cost of the vehicle range would be typical, which is Hyzon content. We're looking at getting that up towards the 70% mark.

And that essentially means that you're replacing a lot of those kind of specialized parts and components we've spoken about. And the commodity parts of the vehicle like the chasses and doors and windows and wheels and brakes and so on, these are sourced from -- obviously from third parties.

It just happens to be that the commoditized parts of the vehicles are also those that usually require a lot of capital to -- manufacturing for those. So, in fact getting into the production and supply of the more specialized components within these fuel-cell electric vehicles is not as burdensome on the capital front as people might think.

So, we believe we can get to a higher content in the vehicle with very attractive capital efficiency. And just like we are able to build our fuel-cell manufacturing, which has a very large barrier to entry technology wise, we're able to build that out with a modest capital commitment. And that's why we don't need billions of dollars to build this business model and this company.

We're very happy with the working capital we've got on hand at the moment. And we believe that we can get up to this 70%-odd Hyzon content over the course of the next two or three years. And what that means for margins, back to your question, is that we believe that it sustains better-than-average vehicle margin for a larger portion of the vehicle.

So, obviously anything you're doing in a vehicle that's got a large barrier to entry or is well differentiated is going to enjoy a better margin than the more commoditized parts of the vehicle.

So, if we're doing the majority of the vehicle and our margins are higher than average for a whole vehicle, and the margins for the commodity parts are lower than the average for the whole vehicle, I think you can see that we're playing towards enjoying sustained margins substantially better than the overall vehicle margins in a non-differentiated vehicle space.

On this margin point -- I want to highlight something on this margin point. If you look at our long-term forecast, we have a 15.4% EBITDA margin in 2025. We think that's a relatively conservative forecast. If you look at the 16 other new vehicle -- new energy vehicle SPACs that went public, we have the fourth lowest margin forecast out there. And we actually have a whole bunch of proprietary technology.

So, we think that the market is not recognizing how conservative our forecast is on a relative basis. We have proprietary technology, as Craig has pointed out. You should have a higher margin, and we do. But we modeled the forecast in a way to leave upside there.

Firstly, trying to earn an outsized margin in an EV car business is very challenging. If you are buying batteries, buying electric motors in Europe, you're really just a designer of the vehicle platform. That's pretty hard to earn an outsized margin unless you have a great degree of internal integration.

And you've seen from Tesla it took them years and years and years to build up a competitive advantage that enables them to enjoy nice and differentiated margins. But you can get there, but look how well integrated they are, everything from the batteries through to almost every part of the vehicle. It's difficult to get to outsized margins unless you've got very differentiated technology.

I'm not showing any further questions in the queue. I'd like to turn the call back over to the speakers for any closing remarks.

Thank you very much. We appreciate your attention and we look forward to taking questions on a one-on-one basis over the coming weeks. We're always open and available to talk to people. Thank you.

Thank you very much, everybody. We appreciate your time.