Canoo Inc.

Greetings and welcome to the Canoe Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Kunil Bala, Senior Vice President of Corporate Development and Capital Markets. Thank you. You may begin.

Thank you, everyone, for joining us on our Q2 2023 earnings call. During the call, Tony will update you on our business. Ken will provide an update on our capital raise plans. And Ramesh will go over the Q2 financial results. We will then open up the call for questions. Please be advised, we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and on our most recent Form 10Q and 10K and other reports that we may file with the SEC, including Form 8Ks. All of our statements are made as of today and are based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we'll discuss non-GAAP financial measures. You can find the reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website. Now, please navigate to the webcast landing page and access the video link towards the bottom left of the page. We will pause briefly while you watch the video.

Over to you, Tony. Thanks, Kunal, and welcome, everyone. Let's start with legacy matters. On August 4th, 2023, the company has finally settled the SEC matter regarding the acts of former executives. This has been a significant burden on the company's time, resource, and the process has taken us 28 months and millions of dollars, which reduced our ability to access the capital markets into higher cost channels during this period because of perceived uncertainty. We now look forward in moving past this matter. Putting it to an end is a welcomed and liberating event for us. As we now move to change in our reporting Let me give you some highlights from Q2 and the recent quarter. What you guys are going to see is we'll start to report very similar to all other public companies where we'll be giving you guidance, and I think you'll like what you see and hear in today's call. We are focused on continuously iterating and refining our product. With our customers and internally, look, everyone is fighting through a lot of recall problems because testing and durability are two different things. And I'm talking about long-term durability. What the customer's durability requirements are, coming out of my past and after sales, we always saw the aftermath of these issues. which is why we have been testing these vehicles with our customers for over a year in real-world conditions and extreme weather conditions under customer use cases. It's not theoretical what we have done. On May 15, 2023, we completed our LDV-130 with customized cargo use cases for customer evaluations. On July 20, this year, completed annual summer testing in record 120 degree heat. As we all know, the impacts of this summer have been extreme, and we've taken advantage of that doing real customer testing. On July 31st, we completed all compliance activities for FMVSS and CARD certification for LDB, in addition to previously announcing EPA certification. Our sales strategy has been one fleet sale equals hundreds or thousands of vehicles sold on a multi-year delivery with high-grade credit and long-term partnerships. To build these businesses from scratch is not easy. You can't just appear as a consumer brand. You can't appear as just a brand even within fleets. You must prove yourself. We have a $3 billion order book, and 70% of that is commercial customers. 1.6% growth in the quarter on stage two and three orders. We are slowing down the amount of orders with the $3 billion order book. We're being very methodical about our allocation with customers, their credit, and so on as we look to use different kinds of non-diluted financing with binding orders. We have $500 million in binding contracts which aligns our order book ramp with our production. I think this is a big thing a lot of people struggle with, was to build the big 150,000 unit box. And we thought, you know, very differently. I know it's been a subject of many discussions, but those that get it understand why we're doing it. And I think in these times, it's proving why it's best to align to your book. We have 750 million plus in those committed orders, and that gives us the ability to not be building units and then trying to sell them. We have a very different strategy. That gives us about 18,000 units committed orders. We can start to focus on now 24, late 24, 25 customer allocations. On August 11th, closed another Fortune 100 customer agreement to purchase vehicles for their national fleet. We'll do the same as we've done with the existing customers like Walmart, where we've tested the vehicle extremely, and then we are going to build it. We are very focused on having a low recall rate, a low warranty impact, and we're very focused on battery performance. Moving to manufacturing progress and readiness. All the equipment is now at our facility in Oklahoma City. We have implemented a combination of in-house hybrid and outsource strategy to support our 20K runway. Our initial focus has been on process repeatability and enhancements, harmonizing our supply chain and our product readiness. As we have discussed, unlike other EV companies who are bearing the cash burn of this low capacity utilization, our manufacturing capacity is harmonized with contracted demand for our vehicles and key components. And we will only build what we have sold. Now, we have to stay long ahead of that curve so that we're similar to what we've done in our other companies. is to be able to project revenues longer than 12 months with committed customer orders. We feel strongly about our phased ramp approach. I do believe it to be the lowest cost capital approach. While it does create some friction in the timing and delivery and the phasing in of additional equipment to increase your capacity, we just believe in these capital markets, it's prudent as well. On April 10th, the OKC facility was acquired. On May 17th, general assembly line was all started its installation. On June 15th, the low volume GA line validation completed. On July 27th, 20K run rate for our battery module line at Pryor, Oklahoma. This allows us for other revenues with people like the Department of Defense and other people which need our modular battery technology. On July 31st, 20K run rate for robotics and assembly line for our ladder frame equipment at Oklahoma City. And so that makes substantially for this phase, at this run rate, our machinery and equipment in Oklahoma City and prior. Next, our government relations team has worked systematically to leverage all relevant federal, state, and local tax credits, grants, and other incentives to support electric vehicle and battery modular manufacturing in Oklahoma and to deploy these technologies nationwide. Like any company, as it becomes to market, it zigzags a little bit and we have had the great support as we tried to figure out the best way for us to move forward in Oklahoma to get the support of the Oklahoma legislature and the government, the governor himself. On August 9, 2023, we signed agreements with the Cherokee Nation to invest thousands of dollars in each worker development to help us hire trained, skilled workers within their reservations. for battery module manufacturing at our prior Oklahoma facility. This is very helpful to us, and we create jobs, advanced manufacturing jobs, in an area where it's needed badly. And with the Cherokee Nation's support, it helps us align with executing their vision and ours. On August 13th, We contracted up to $113 million of our state of Oklahoma incentives to create 1,360 advanced manufacturing jobs in Oklahoma, which spans across Oklahoma City and prior Oklahoma. In the quarter, we moved to revenue generation, which is a big milestone. Ramesh will cover our enhanced approach to reporting. as a revenue-generating company. Additionally, our investment in democratizing our IP will allow us to generate other revenue with high margin to various customers, including but not limited to the government, which have a serviceable, obtainable market of what we see in the current purview of about $650 million. On July 10, 2023, we signed with the Department of Defense Innovation Unit. We moved to phase two of the High Power Battery Pack Development Agreement. July 12th, we delivered to NASA the first three crewed transport vehicles. This has been a very discerning customer. They've been extremely helpful with us in design areas, particularly in interior efficiency. and ergonomics within the cabin. And this will help us as we move forward tremendously. So we're very, very grateful for the partnership and the purchase from that. Early today, we introduced the second derivative of the LDD line, the LDD 190. This specifically aligns to our customer needs, as we learned in all the testing and performance data we saw with our customers. And we designed the MPP-1 to be able to have derivatives. So it's pretty low cost. Gives much more customer optionality. And this particular derivative picks up 30 plus percent more cargo utilization. And 95% of all the space in this vehicle is usable. While maintaining high worker ergonomics, and productivity for ingress, egress, and load and unload. May 11th, we completed the LDV 190 pre-production build. On August 14th, unveiled the LDV 190, the derivative of the original LDV. Again, you know, having these platforms that you can deliver derivatives and democratize technology so you can get an opportunity to use That for other use cases like the Department of Defense and others, we have found this to be similar to what we've seen in companies like Tesla and others. With that, I'll cover some more in Q&A. Ken, why don't you give us some information on the capital markets?

Sure. Thanks, Tony. So on the capital side, total capital raised since Q1 was approximately $132 million. through a combination of $100 million from convertible ventures, $21 million in warrants, and cumulatively $11 million from pipes placed with AFV partners. Ramesh will shortly give guidance on our capital needs for the rest of the year to achieve our manufactured readiness targets. The capital required will come from a combination of new and proven sources. Over the past several months, We engage with new potential capital sources and have received LOIs, term sheets, including asset-backed proposals, which collectively represent a coverage ratio of over 1.5 times of the required capital. We will provide additional details in the coming weeks as we execute on our capital plan. Ramesh will now walk through the results and updated guidance. Over to you, Ramesh.

Thank you, Ken. Before I move into Q2 23 results, I wanted to share a reflection regarding the SEC matter. One of the more positive aspects that came out of our work internally to address it was to examine how best to improve our accounting systems. Our new accounting function is more mature and we are confident that we have the right processes, policies, expertise, and controls in place as the business grows. Now, Let me walk you through the results of Q2 23. Turning to cash flow. We ended the quarter with $5 million of cash and cash equivalents. After giving effect to the issuance and sale of the second and third Yorkville convertible debentures for a total of 53.2 million and proceeds from the August pipe of 3 million, our cash balance would have been $61.2 million on June 30th, 2023. Cash used in operations for six months ended June 30th, 2023 was $129.5 million compared to $237.6 million in the prior year period. Our capital expenditures of 33.9 million for the six months ended June 30th, 2023 compared to 65.4 million for the six months ended June 30th, 2022. Net cash provided by financing activities for the six months ended June 30th, 2023 was $132.2 million compared to the net cash provided in financing activities for the six months ended June 30th, 2022 of 92.6 million. Our monthly cash flow in Q2 of 2023 was approximately 38% lower than our average cash flow per month in 2022. We continue to optimize cash as we move into Q3 of 2023. Moving to the income statement, our second quarter 2023 results are as follows. Research and development expenses, which include investing in manufacturing activities, totaled to $38.6 million for the quarter, compared to $115.5 million in the prior year period, a 67% reduction from Q2 of 2022. SG&A expense was 30.4 million for the quarter, compared to 55.2 million in the prior year period, a 45% reduction from Q2 of 2022. GAAP net loss was 70.9 million for the quarter, compared to GAAP net loss of 164.4 million in the prior year period. Adjusted EBITDA was negative 62.3 million for the quarter, compared to negative 149.8 million in the prior year period. Moving to our guidance. Our guidance for the second half of the year is as follows. Adjusted EBITDA of negative 120 million to negative 140 million. CapEx, $70 million to $100 million. Our 2023 second half adjusted EBITDA guidance of negative $120 to negative $140 million will bring our full year adjusted EBITDA guidance to negative $235 million to negative $260 million, which is a 40% to 45% reduction from the prior year, demonstrating our relentless focus and discipline of expense management as we prioritize manufacturing. This focus will ensure that we have the necessary capital to deploy as we execute our plan to achieve a 20,000 unit run rate per year manufacturing readiness. The result of this alignment continues to be reflected in our second half guidance as follows. A 20 to 30% reduction in second half operating expenses excluding depreciation and stock-based compensation compared to second half of 2022. primarily resulting from increased focus on our objectives. Some of these reductions include a 15 to 20% reduction in professional fees, a 35 to 40% reduction in travel-related expenses, and a 20 to 25% reduction in human capital costs for workforce transition to support manufacturing in Oklahoma, labor arbitrage benefits, and change in labor mix. Our focus on conformed multi-year commercial fleet orders with less manufacturing complexity allows us to achieve positive margins sooner than and requires lower capital expenditure and working capital needs compared to others in the industry. The approach that Tony took coming in and refounding the company is becoming clearer and clearer. Our investment of $1.5 billion to date is attributable to the results. To quote him, he reminds us that we are like Henry and Ferdinand and not like Ford and Porsche. In summary, let me explain to you our strategy with the sole focus on a double-digit return on capital and shareholder return. We build to deliver and we do not build to sell. With our focus on fleet and commercial orders and over 18,000 units or $750 million of binding commitments from our fleet customers, we have de-risked our revenue model. Every vehicle that is built is earmarked for a specific customer. On a comparative basis, some companies in this industry are faced with declining demand as they have prioritized consumer reservations which have a higher risk. These companies also have inventory on hand ranging from approximately 40 to 300 days and are exposed to large declines in value of inventory resulting from the lower of cost or net realizable value adjustments. Whereas our finished goods on hand will be significantly lower in days to weeks, depending on customer acceptance of delivery. In the upcoming quarters, we will be reporting our revenue streams split into vehicle revenue derived from free solutions and other revenue. Our sources of other revenue include upfitting, software, battery modules to potential customers that may or may not be publicly announced. Phased manufacturing ramp approach reduces risk of idle capacity. As mentioned before, we plan to use a combination of in-house, hybrid and outsourced manufacturing strategy, along with the phased ramp approach and keeping the core IP operations in-house. On a comparative basis, other companies in this industry have large manufacturing facilities with idle capacity ranging between 60 to 70% in 2023 with front-loaded CapEx investment. Additionally, The total CapEx investment by these companies from inception to break even is expected to range between $3 billion to $6 billion. However, under our phased ramp approach, we could operate in a near full capacity utilization of our manufacturing facilities with only 25% to 35% of the CapEx investment. Even companies that work on an asset-light model are still expected to spend approximately 55 to 65% of our expected capex investment to get to breakeven. In the previous quarter, we shared our guidance for additional capital expenditures to reach to a 20K run rate and a 40K run rate in-house manufacturing readiness. We plan to reduce the previously anticipated $140 million to $200 million in additional capital expenditures to reach the 20K run rate in manufacturing readiness to a range of $80 million to $110 million by leveraging a combination of in-house, hybrid, and outsourced manufacturing strategy as we continue to refine our anticipated spend across our vendors and long-term partners. Further, we maintain the projections to achieve a 40K run rate by 2024 with an incremental capital expenditure of $90 to $120 million, thereby allowing us to target gross margin positive in 2025 based on our current pricing. Paths to profitability and cash invested to gross margin breakeven. Our investment of approximately $1.5 billion to date on developing our product which includes our multi-purpose platform, allows us to develop several derivatives with little incremental investment, combined with a phased manufacturing approach, allows us to exit 2024 with a 40K run rate on manufacturing readiness. Other companies have invested approximately $8 billion to $23 billion of cash to date, with some expecting breakeven in 2024, while others not yet. seeing breakeven in sight. Let me turn it back to Tony for closing remarks.

Thanks, Ramesh. In closing, we are very proud of our first deliveries to NASA. Our manufacturing is progressing. Our vehicles are proving themselves in customer hands. Demand is strong and growing. And we are fortunate to have dedicated partners championing our success. I want to thank our suppliers, our partners, our customers, and the canoe team in getting us to this stage. A re-founding is not easy. We have put a difficult chapter behind us in this corridor from the past, and we are now looking forward and focused on delivering what we have laid out in today's call. We appreciate everyone's continued support. With that, I'll turn it over to the operator for Q&A.

Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you'd like to ask a question, you may press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, you may need to pick up your handset before pressing the star key. Our first question comes from the line of Amit Dale with HC Wainwright. Please proceed with your question.

Thank you. Good afternoon, everyone. Tony, to begin with, could you maybe give us some additional color on this hybrid manufacturing approach? What will be done in-house and what will be outsourced?

Yeah, so hi, Amit. How are you doing? So what we've What we concentrated on was getting alignment with some partners for the stamping and the cabin activity as well as e-coat. Those are big lead time items. And find alternative technologies with our partners to be able to kind of reduce the amount of capex we need. So we focused on primarily outsourcing some of the cabin work. And in addition to that, you know, the e-coat and spray, final finish elements, those are the biggest areas that we worked. Everything critical we kept in-house, like the MPP-1, you know, the capacity of that line could go up to 75,000 already. And, of course, that helps with our geographic extension, but that's how we're doing it. And then as our order book, and our ability to deliver on that order book aligned will bring more of those pieces in-house. Otherwise, we have to put too much capex up.

Yes, understood. But eventually, this could be brought in-house, or will you sort of play it by ear to see how you are amping and allocate capital accordingly?

Look, I think as everybody's out there trying to figure out the model, it's tough to wake up and, as Vish quoted Mike, My comment, it's tough to wake up and be Porsche or Ford. And we're not. We're just waking up being Henry and Ferdinand and being creative, being entrepreneurs, finding ways to use the least amount of money with the maximum result for manufacturing. That's how all these companies are built. So that's really what we've been very focused on is to be able to find that creative way and then figure out with our partners which ones we're going to keep on the outside versus what we're going to bring in. Obviously, studying the economics as well and getting harmonized product and supply is one of the big tricks in this industry.

Understood. Thank you for that. The new Fortune 100 customer, Tony, can you help us or give us any color on Which vertical, is this like a logistics player or a retail player, any color on what type of industry this fleet customer is part of?

Yeah, it's an industrial customer. They want to keep these customers like elements of surprise. So similar to what we did with our other large customers is we want to prove it before they actually commit to large orders. And so we'll go into a series of testing in the community. Eventually those pictures will get out into the communities that we test them in. And then that particular customer is targeting 10,000 units, which is not reflected in our order forecast.

Thank you. Any, you know, any updates on sort of firming up pricing, you are close to sort of making deliveries now. Any range on the pricing front that you might have an update for us on?

Yeah, so we saw, so, you know, I think if you look at, you know, everybody kind of had to like really push their price up and then now they're pushing it down. And we didn't take that approach, as you notice. We stayed firm where we were. We focused on a fleet customer use case. Um, and cause interiors are very painful in this industry. And so we, by focusing in on that, that, that helped us as well as the demand for this segment, especially with the one 90 derivative coming out with 95% usable space, we're coming in, in the, you know, sixties range. on mixed pricing when a customer orders both. And, you know, the return on capital per square footage is extremely competitive. Got it. Thank you.

Yeah, I'll stop here and, you know, take my other questions offline. Thank you, guys.

Okay. All right, man.

Thank you. Our next question comes from the line of Stephen Gingaro with Stiefel. Please proceed with your question.

Thanks, and good afternoon, everybody. I think first, you talked about the second half EBITDA guidance. Can you give any color around volumes or the top line as we think about the second half heading into 24?

Yeah, so this is a low volume scenario. I mean, I think what we've done here is we didn't try to You know, we want everybody calibrated to the ramp. That's why we focused on run rate. But it'll be a low volume number of units that we are delivering in that time. You know, call it, I don't know, if everything goes as planned on the inside, well above another 20 or 30 vehicles as we finish out this year.

Okay, great. Thanks. Any updates on either, especially with the conclusion of the SEC stuff, anything on grant subsidies and or anything around the potential for a DOE loan?

Look, obviously the SEC was a significant overhang for us to go after great incentives like the DOE loan and others. Obviously, we now enter a new era. I'm not making any comments on that but for sure we're looking at all avenues I can rest you assured that that gives us access to non-dilutive capital and being of the kind of business they want to put their money behind in helping communities in delivering vehicles that make a difference to the admissions and you know so we're targeting what is important to them and And we believe we've achieved a significant part of that. And of course, you know, we'll be seeking all funding opportunities we can now that, if you will, the gloves are off for us.

Thanks. And then two more for me. One is around gross margins. You mentioned gross margin positive as a potential for 2025. And I think as you cross the 20,000 unit mark, it starts to get at least positive from a contribution margin perspective any thought process on kind of when we what the volume needs are to get to gross margin positive yeah so so look we if you can tell you know by what we focused on is we focused on being able to have these this platform

These fleet-centric and government-centric vehicles, these facilities can break even at $40,000 or slightly below and have free cash flow. So obviously, the configuration of the vehicle helps because we have much higher margin as we do the updating for their use cases. But it's a different model, right? I mean, you have to think of us more like, you know, we're a lot like an aviation defense contractor as well as like an Oshkosh more than we are like a Ford because we're building sold units. We're building on contracted units. And so obviously that gives you a better insight. In addition to that, we're not projecting our software revenues or any of those items. And as we saw with our recent deliveries, those customers wanted software services. We built a complete, you know, workflow back end on these, on our platform. So we'll be talking about that more in the future. But yeah, we're very focused on 2025 because at that point, you know, we've crossed over into the 40,000 plus range in capacity.

Great. Now, thanks for all the color and just one final one. Given the topic of the month here, Tesla's network and the next connectors, any comments around that?

So obviously, you saw we're doing some work with the Department of Defense, their innovation unit for battery technologies. We've already... Successfully, obviously, we know how to do democratized charging. And in addition to that, we took the approach that our vehicle will adapt to any kind, our platform. But we're not rushing out there to go sign up some network thing. We're very focused on very specific customers, very specific territories, and the grid available and the predictability in those Again, you know, we've unfortunately been lumped in with some of the different kind of a customer set than we're going after. But to your point, we're focused on our customer need networks, not a consumer network.

Got it. Great. Thank you for all the detail.

Back. Our next question comes from the line of Jamie Perez with RF Lafferty. Please proceed with your question.

Hey, everybody. How are you doing? Thanks for taking my question. So, Tony, can you tell me, I mean, I know you're not the SEC settlement, but over the last couple of months, what were the impacts? And now that the overhang on the stock has gone away, I know you briefly mentioned some customers and financing. What about vendors? And maybe give some color on What's the company's plan going forward after the SEC? And I have a couple of follow-ups also.

Yeah, so now it's really the official re-founding of the company. I mean, we're now, you know, we got that thing behind us, which was painful, obviously, and distracting and, you know, obviously impacted shareholder value and access to capital. But we also took the time to get our product right, to get it tested by customers. And so, you know, we made the most out of the situation. I believe that this is kind of now when the world starts to see us a bit differently as we move to manufacturing and especially being one to step forward and say, you know, we will only build sold units. We're going to be much more, like I said, like a, like a, uh, aerospace defense contractor and, um, and a tech company than we are a typical OEM just pumping out volume for purchase price, we actually get more economies of scale by actually making sure that the customer, the minute they get the vehicle, it can go to work. It doesn't have downtime for upfitting or configuration, all that stuff. This is a very long-term integrated model with the customer's business. And that is difficult to do. And so having those things completed, we're out testing the 190 already in 120 plus degree weather, doing 45 to 50 stops a day. So, you know, we're trying to do this very, very differently and do it very predictable because otherwise you theorize, you engineer, you test, you build, and then the market tells you what you built. We're trying to circumvent that risk coming out of the aftermarket, as you know, Jamie. So I think the significant things are to come forward now, I believe, now that the overhang has. But I think the whole sector has a bit of proving to do. And so we're just now really trying to break out and be identified for who we are.

All right. So on that note, so basically when you build for customers, you don't – and instead of building just a building, you don't have the inventory overhang and just parking lots of cars waiting to be sold. It's more like, so you're going to have luck. Is that the best way to characterize it?

Yeah. The best way to think about it is these will be pre-sold units, which will help us achieve much better financing for the vehicle. In addition to that with, as we now recalibrate our supply chain, they don't have to take risks because it's a binding purchase order. And again, It's about delivery. So they get money, we get money. You know, it's like, you know, it's the way it should be, especially when you're young. You don't have a big balance sheet. You can't take the risk of flooring. You know, I think we've harmonized this to, you know, what Henry and Ferdinand would do if they were in my shoes.

All right. Now, the settlement, I mean, it's one and a half million. As far as peers, I mean, we've heard some settlement. What's the magnitude of it?

Yeah, so look, I think the amount that the company got fined is a testament to the transparency, everything we did. When I came in and didn't understand the model, I told the market immediately. I think it represents kind of how we've been running the shop. It's pretty low when you look at some that have paid hundreds of millions of dollars. Obviously, our legal fees was 30 times more than the fund. But we did the right thing, and as Ramesh said, we took the opportunity to look in the mirror and make sure we're running a real public company. I've ran public companies, and we didn't miss earnings for 34 quarters. We're really trying to build a very strong TEM, technology equipment manufacturer business, and not take the risk of getting it wrong. We're investing capital to get it right.

All right, so let's switch gears a little bit, pun intended. What about the battery? I mean, we've been hearing in the news one of your competitors have problems with the battery. The units have to be recalled, and sometimes you see Teslas going on fire. Could you describe your technology compared to your peers?

Yeah, so look, we would have suffered many of the same things had we not done the type of, and most people test to pass. We actually test to break. It's very different. And so when you do that, especially with these new, you know, dense, high power systems, I mean, it's not an ice engine. You can't be careless about this. This is near nuclear break, you know, energy. So That's the big area. It's around batteries. I think people have been just a little speculative and theoretical. But one of the reasons we focused on Panasonic, because Elon's done a great job working with them to make those cells dependable. We're using the same series. And In addition to that, if we had followed the traditional path, we'd be in the same place all these other guys are. We'd be recalling like crazy. But one of the reasons we wanted to go after the DOD and the very high standards and others is to test the hell out of this in scenarios we can't even imagine. Because once it gets in the hands of customers, what is going to happen is going to come back at you. So that's why we've done what we've done. And I think it puts us in a much better place. Plus, our technology is modular. And it's at the cell level of integration of the tech stack. So, you know, we can, we know something, you know, like the U.S. Army testing and others that have really, I mean, these people test your vehicle. Like, they do things you can't imagine. And In doing that, we get instant feedback from our control tower. And it's highly focused on how the batteries perform and perform in a cell failure. It's not a giant big pack. It's different. And we've concentrated, you know, we're probably on, I would say, generation three of that already.

Okay, that's a good call, and thanks for taking my question.

You bet. Our next question comes from the line of Pavel Malchenov with Raymond James. Please proceed with your question.

Thanks for taking the questions. Can we get an update on what's happening with Walmart and when deliveries to that customer are expected to start?

Yeah, well, we have the 190 being tested right now. You know, once that's complete, we'll finalize the mix and the delivery schedule. That's our focus with them. And make sure we have the configuration right for their needs. I will say that the incredible heat that we've experienced here in Texas has been really good in helping us and helping everyone because I think everybody's crossing into new territories as this global warming and others have effect and electric vehicles have to be considerate to what is happening in order for it to perform to the needs. But this is the approach we're taking with all customers, just so you know, is to really work with them, test it, get it right, focus on a multi-year delivery schedule. And because we have to ramp production, we have to invest CapEx, and we're trying to really balance that now. And that's the model we're going to take and then focus on whatever upfitting elements they need for their business, and then to go ahead and deliver those. We'll have a binding purchase order, and then we build it.

Follow-up question about batteries. It feels like in the last 100 days, battery prices have fallen possibly at the fastest rate since the global financial crisis or certainly the early days of COVID. Number one, are you observing that kind of firsthand in the market? And number two, what do you attribute that to?

Yeah, so look, I think there's always like a bubble in things, right? As we all know, we see in things, which is why we concentrated on saying, look, we're not going to go. And unfortunately, we had to unwind a bunch of stuff that was over commitments of the typical 50, 100,000 commitment to a supplier. We really focused more on the mark to market aspect of things. We believe that things were overinflated. And with a binding purchase order, when you go to your suppliers, it's easy for you to get priority. And in addition to that, our view was that as the US starts to become less dependent on single source environments and the availability of lithium and all these other rare earth materials that are becoming more available, we're finding In Latin America, we're finding in many places there's access to these rare earth materials that are U.S. allied nations. So we think that all those factors are coming together. And the fact that the DOE and the U.S. government is demonstrating an urgency around it, we think that that also helps. And I think some of the softening demand caused people to go, whoa, I don't have a purchase order here. So it drops pricing, right? It's always after the height comes the recalibration.

Understood. Thanks very much.

You bet.

If there are no further questions in the queue, I'd like to hand the call back to management for closing remarks.

I'd like to thank everybody for joining us today. The team's available to answer any questions. I just want to thank all the investors for their support. It's not easy to go through what we've gone through and what you've gone through, but we're here to do our job and build a profitable company. We thank all of you.

Ladies and gentlemen, this does include today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.