Hyzon Motors Inc.

Good morning and welcome to the Hyzen Motors second quarter 2021 conference call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. At this time, for opening remarks and introductions, I would like to turn the call over to Darla Rivera, Investor Relations Manager of Hyzen.

Good morning and welcome to Hyzen's second quarter 2021 earnings call. I'm Darla Rivera, Senior Manager of Investor Relations. On today's call are Craig Knight, our Chief Executive Officer, and Mark Gordon, our Chief Financial Officer. We issued our results today in a press release that can be found on our website, HyzonMotors.com, in the Investor section. As a reminder, our comments within this call may contain forward-looking statements. These statements are subject to various risks and uncertainties. These statements include expectations and assumptions regarding the company's future operations and financial performance, including the impact of the COVID-19 pandemic. Actual results could differ materially from those predicted in the forward-looking statements. Hyzon Motors Incorporated assumes no obligation to update them in the future as or if circumstances change. For more information, please refer to the risk, uncertainties, and other factors discussed in our SEC filings. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's press release can be found in the company's definitive proxy statement filed with the SEC on June 21st, its registration statement filed on July 20th, and other documents filed by the company from time to time. During this call, we also refer to certain non-GAAP financial measures, including EBITDA. More detailed information about these measures and a reconciliation to the nearest U.S. gap measures as contained in the press release issued this morning, which is available in the investor section of our website and was furnished on Form 8K with the SEC. And with that, I am pleased to turn the call over to Craig Knight.

Thanks, Darla, and thank you to everyone for joining us this morning for our inaugural quarterly earnings call. Today marks the start of a new chapter for Hyzon as a public company, July was a busy month for us. We successfully completed the merger with Decarbonisation Plus Acquisition Corporation, with 94.8% of the shares voted in favour of the merger, with a meagre 7.4% of common shares being redeemed for cash. Following the vote, we completed our business combination, which resulted in a primary capital raise of $555 million for Hyzon prior to transaction expenses. This remarkable achievement of closing our transaction with such overwhelming support from DCRB shareholders was both a validation of our strategy and an investment in our future. We officially began trading under the ticker HYZN on July 19 on the NASDAQ. With over $500 million of cash on hand, we'll continue investing in our growth as we drive towards a future of net zero emissions. I'm excited for this next chapter and extremely proud of our entire team's tenacity and commitment to get us to this point. We face the future with a strong sense of obligation as a public company. Recapping our commercial status, we expanded our backlog under contract or MOU to $83 million with additional customer uptake in both Europe and Australia. I'm also very excited to announce we delivered two additional municipal service trucks in Europe just last week, making three heavy trucks delivered since the middle of July. These are the seed sales we have always talked about, which lead to much bigger things down the track. We announced just this morning in a separate press release we have signed an agreement with TTSI in California to trial our first Hyzon Class 8 fuel cell electric truck here in the United States. commencing in Q4 this year. It's fair to call this announcement the tip of the proverbial iceberg in relation to negotiations happening right here in the States, and we're extremely confident in the desire of US corporations and government agencies to move towards net zero emissions. This belief has been further validated by the actions being pursued by the Federal Administration to reduce vehicle emissions in the United States. and we're excited to be part of this pivotal moment in the US. We expect Hyzon to be an important contributor towards 2030 emissions reduction goals as they pertain to heavy vehicles. Hyzon has also announced several strategic partnerships to enhance our portfolio and further develop and deliver on our business model. Our latest investment of $2.5 million in Raven SR will allow us to secure negative carbon score hydrogen supply from up to 250 hubs. We remain committed to facilitating the build out of hydrogen production hubs across the US to enable the quick and easy adoption of hydrogen powered commercial vehicles operating in a back to base mode. Hyzon is also broadening our addressable market by targeting very high power on- and off-road applications and very long-distance heavy trucking, as illustrated through the recently announced partnership with Chart Industries relating to on-vehicle liquid hydrogen systems. As mentioned earlier, we expect that our cash on hand of over $500 million will enable us to advance our plans to ramp up our operations globally. We believe our manufacturing scale-up in New York and Illinois remain on track to be fully operational in the first half of 2022 as we build out our capabilities to bring American-made heavy vehicle fuel cell systems to the market, which we believe will allow us to be at the forefront as fuel cell electric commercial vehicles are adopted to meet increasingly aggressive transition plans. We believe the decarbonisation of commercial transportation is dependent on hydrogen-powered electric propulsion. With that, I would like to turn the call over to Mark Gordon, our Chief Financial Officer, to comment on our quarterly financials. Over to you, Mark.

Thanks, Craig. Good morning, everyone, and thank you for joining us today for our first earnings call. We finished the quarter with total operating expenses of $9.3 million and a net loss of $9.4 million, resulting in a net loss of 10 cents per share. Our second quarter operating expenses comprised of $3.5 million in R&D and $5.8 million in SG&A expenses, which were both significantly below the internal plan as we prioritized cost control with the merger closing two months later than originally expected. Hyzon also reported EBITDA of negative $9.1 million, significantly above our plan as we manage costs and focused on business drivers to execute on our commitments. Hyzon management comes to the public market with nearly a two-decade history of prudently managing costs, both operating and capital, on behalf of our shareholders. We intend to continue this tradition and we expect to reach free cash flow by 2024 without needing to sell additional equity. Our asset-light business requires substantially less capital than some of our peers and we are grateful to have a fully funded business model. As Craig mentioned earlier, we have cash on hand in excess of $500 million in no debt. The cash will be deployed to scale up our operations globally and build out our teams as we remain on track to reach our forecast of 85 vehicles shipped by the end of 2021. We look forward to achieving our goals and anticipate recording our first revenues in the third quarter. In the last six months, our backlog under contract or MOU has grown from $40 million to $83 million and we fully expect it to grow further. We believe the momentum towards hydrogen continues to accelerate and that we are fortunate to be in a leadership position. The first Hyzon development vehicles built with U.S. sourced vehicle chassis are currently under test and the first Class A demo trucks are slated for trial in Q4 to North American customers. The feedback from early customer deployments in Europe and professional driver engagement in the US has been excellent. Three points of note. First, the driving experience for truckers is a large improvement over diesel, with the vehicle providing a silent ride and superior acceleration. Second, we are well on the way to reaching total cost of ownership parity with diesel, And in the state of California and in Europe, with the various subsidies and escalating cost of diesel, we believe we are there now. And finally, our fuel cell electric heavy vehicles are green, with the only emission being water. The Biden administration's focus on the transition to electric vehicles is a positive development for the United States, and we intend to be a leader in this transition with our hydrogen-powered fuel cell electric vehicles. Our investment in Raven SR will enable us to create hydrogen from municipal waste with minimal to no dependence on the electric grid, as well as with natural gas prices and coal prices making new highs as we speak, we believe an energy transition solution which is not dependent on the already strained electric grid will become increasingly important globally. Over time, we believe the market will recognize the unique solution Heisen brings to decarbonization. Our equity now trades at just three times the cash we raised in our SPAC merger. We are committed to controlling our cash spend and anticipate delivering free cash flow in just a few years. Over time, we believe the investor universe will recognize and reward us with superior relative and absolute stock performance. We believe our stock's recent downward movement is completely unwarranted, and Hyzon is significantly undervalued compared with peers. I encourage you to look at the video posted to our website this morning to see the Class 8 truck pulling a trailer in upstate New York. We are excited to be a leader and first mover in zero emission heavy duty commercial vehicles. Now I'll turn it over to Craig for some closing remarks.

Thank you, Mark. So while the past year has been transformational for Hyzon and we're excited to further build out our global management, technology, development and operation teams, I'll provide an update on some recent hires. We recently appointed Parker Meeks, a former McKinsey partner and seasoned energy professional as chief strategy officer to lead our hydrogen supply strategy. We also appointed Shinichi Hirano with over 30 years of experience in automotive fuel cell technology as chief engineer. In addition, we have added seasoned professionals in both Europe and Australia as those markets are moving at a rapid pace and we need strong local teams to catch those waves. I'm very confident in our teams who are instrumental in achieving and delivering on Hyzon's plan as we collectively have hundreds of years of experience in hydrogen fuel cell technology and heavy automotive. Hyzon's technology positions us to be a first mover in net zero emissions commercial transportation. We are committed to enabling our customers to achieve their sustainability goals and drive towards a cleaner future with vehicles on the road today and anticipated shipments in four continents scheduled to take place by the end of the year. That's this year. As laid out, Hyzon has much to execute on several impactful events yet to come in 2021, and we remain committed to our 2021 sales outlook and shipping 85 vehicles by the end of the year or more, while proactively dealing with the challenging global supply chain issues and COVID-19 resurgences with the Delta variant increasing around the world. Thank you all for being part of our continued success, and we look forward to continuing our nearly 20-year journey to decarbonize the commercial transport industry. We appreciate your support and attention.

With that, operator, we can open the call up to questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. Your first question comes from the line of Rob Wertheimer from Milius Research. Please go ahead.

Hi. Good morning, everybody.

Good morning, Rob.

So I had a question first on supply chain, which you just touched on, Craig. 85 trucks this year. Do you have line of sight on acquiring the chassis and what is the risk points that you see around that, whether for your own technology solutions and or the actual trucks that come in?

Sure. Obviously, no call at the moment with anyone manufacturing anything would be complete without some questions on supply chain challenges. They're not insignificant. However, some of these challenges started to emerge you know, earlier in the year. And we started taking proactive steps to order chassis, parts, components, sub-assemblies earlier than planned. So at the moment we believe that the shipment of at least 85 vehicles is not a great risk for us because of inventories we've already secured. and deliveries to us from our vendors that are expected to take place over the next month or two, given very early order confirmation. Most of the work in progress orders go back to around April for us. We didn't wait until the transaction closed to deal with sourcing inventory. We were getting ahead of that curve in Q2, early Q2.

Okay, perfect. And if I can ask you another one, obviously we all watch the orders and MOUs that come in through the quarter. I'm curious if you can just characterize what your conversations with customers are like. We've seen, you know, on the battery electric side, I think there's some, you know, maybe some limitations or just some specific, you know, builds that need to be made to handle a duty cycle of a specific order. Maybe that leads to some real test orders and people just feeling things out. I guess, are your customers just purely curious about hydrogen or are they looking... you know, to do a test order and actually really follow it on with something. They're looking for something that really can scale in the next year or two. And then just your thoughts on where you're competing well against battery electric. And I will stop there and get back in line. Thank you.

No problem, Rob. Obviously, the comparison with battery electric is an important one because ultimately this transition from fossil fuels to, you know, electrified non-fossil-fueled vehicles is a great challenge for everybody. With the billions of fossil-fueled vehicles around the world, we do believe that the world and fleet operators need every possible successful or capable solution to be part of the future vehicle systems. So we definitely believe that there is a place for battery electric vehicles in the future vehicle landscape. However, it's our view that all of the high utilization commercial vehicles will move to hydrogen, starting with the heaviest high utilization, payload imperative type scenarios. And then as hydrogen is more available and provides a very affordable driven mile cost on commercial vehicles, the lighter vehicles will gradually shift to hydrogen as well. So our thesis is that while we target the really low hanging fruit in the near term, those very heavy high utilization vehicle scenarios operating in back to base modes, we target them first. What we do by penetrating those segments is we make adjacent and additional vehicle segments much more attractive by essentially underwriting the adoption of the infrastructure So we believe that we'll progressively penetrate more and more of the vehicle applications. And to your question about whether or not you need very specific vehicle specifications kind of customization on a kind of use case by use case, it's a little different for hydrogen fuel cell electric vehicles simply because they function a bit more like a traditional vehicle. The power is determined by the fuel cell. working with the battery and the electric motor. And the range is determined by the amount of energy stored in the vehicle, which is a simple function of the fuel tank. So therefore, the way we design and deliver vehicles is not quite as specific as the way that the battery electric vehicles might be designed and delivered really specifically for the customer use case, because carrying extra range capacity on a battery electric vehicle adds a lot of extra weight and makes the whole operation less efficient.

Okay, thank you. I guess so you don't – the entitlement of hydrogen as it looks like right now in the market, is that limited to freight hauling? I know you've had a refuse announcement. So that heavy-duty cycle, I guess some of us probably thought it was freight a year or two ago when we thought about hydrogen, and I don't know how much you feel like it's freight versus – a variety of video cycles now, and I really will stop.

Yeah. So for us, Rob, it's all about availability of hydrogen in the near term. So you asked about customer adoption. Sorry, I didn't answer that well. Many customers are getting their hands on their first fuel cell vehicles, the first fuel cell vehicles they've ever seen here in the next six to 12 months. That is a genuine kind of technology validation process, and the customers need to feel comfortable the vehicles function well in their use case. In terms of the nature of the use cases, freight haulage long distance is not really a target for us right at the moment because that opens up a greater challenge for hydrogen availability. Back-to-base operations such as concrete trucks, refuse trucks, urban transit buses, refrigerated food delivery trucks, Port drainage trucks like, for example, in this morning's press release, we talked about the TTSI agreement. This is port drainage. This is very high utilization. You wouldn't call it a general freight application because the trucks really don't leave the region. But they run many, many hours of the day and they're typically quite heavy. So it's a good application for hydrogen. And we're not introducing the complication of having to find hydrogen stations across the country. And that's our typical focus area, are those back-to-base type operations, rather than general freight.

Thank you.

Your next question comes from Mike Chilsky of DA Davidson. Please go ahead.

Yes. Hey, guys. Good morning. Can you hear me OK?

All right.

Great. I want to ask first about the TTSI order. Very exciting stuff. They have placed at least one other large order with one competitor already for both fuel cell and battery trucks. Of course, those other folks won't be delivering their fuel cell trucks for quite some time. But I'm curious as to what is their strategy over at TTSI. Are they looking to pit people against each other? Could they come out with a mixed fleet of different fuel cell trucks when all is said and done, you think? And what is the potential size range maybe over the next couple of years you think that they might – what percent might end up going –

So specifically about TTSI and port drainage, right, Mike?

Exactly.

Right. Sorry, your sound wasn't great, so I was listening hard to try and follow. But on the TTSI situation in particular, TTSI is one of several companies serving the port drainage, the LA Long Beach area port drainage application. These trucks you know, run many hours of the day. Typical is two driver shifts every day, so somewhere around 18 to 20 hours of driving each day. And basically, TTSI is of the view that to shift those, you know, two driver shifts a day truck operations off diesel, they really need hydrogen. They don't anticipate that battery electric vehicles will get them there. Now, there could be some operations that can be done with battery electric vehicles within the context of the TTSI business model. I just know that for their highly productive trucks, they're two driver shifts a day, and they are very, very busy indeed. So in our view, those are the types of applications that are natural for hydrogen. And TTSI's ambition is to understand all of the technology choices, and they have been an early adopter of fuel cell technology of natural gas technology, of battery technology, all of these various technologies, because especially being based in California and in an area with a strong mandate on air pollution abatement, TTSI has been very proactive in evaluating all of these various options to reduce local air emissions in particular. and they're obviously carbon footprint as well. In our view, the fuel cell electric trucks will prove this use case very handsomely compared to any battery electric alternative. And the trial will start in Q4 this year with TTSI, and only they know what the future of that looks like in terms of uptake. But with over 13,000 trucks going in and out of the LA Long Beach ports with drainage every single week, We do believe that this is a natural application and a fantastic near future ecosystem for hydrogen.

Got it. Thank you. And speaking of California, we had a big day yesterday over there with the voucher and subsidy releases. Can you update us on whether or how far along you are in getting your truck approved for subsidies in California?

Yeah, that's a fair question. There is a certification process. We need to have CAB certified vehicles to be able to claim subsidies. This is a process. It does generally involve getting some outside help, some professional help. So we've taken those steps. We have an engineering team working with consultants on this process. it's not overly daunting. It's just a process, and it requires documentation, requires back and forth, and it's a typical process that, you know, could take somewhere between six to 12 months. It's already been started, so when exactly will it be complete? I can't tell you because I don't kind of control the outcomes of the process, but it's definitely underway, and it will be no more than, you know, I wouldn't think six to nine months away.

So you hope to be on the list for next year's vouchers?

We do expect to be approved in 2022, yes. Excellent.

Can you also give us some sense, now that you've gotten your funding from the merger, what the go-forward cash burn might be on either a monthly or on a quarterly basis?

Okay. Mark, I might hand over to you on the finance question. I will just say that, as Mark mentioned in the introductory comments, we are very focused on managing costs. We're also very focused on earning reasonable margins. We are very focused on ensuring that all of the work we do earns a decent gross margin because it's only through decent gross margins sustained in the business from day one that you'll have a sustainable business. And we will never stand here and talk to you about growing revenue without margins. Mark, do you want to talk about our spend rates? Sure.

I'm just going to follow up on your margin point first, Craig, just because I think it's important and I want everyone to understand this. When you look at how we've guided for margins, you can see that our gross margin floats around 30%. I mean, it might be lower than a quarter because of mixed shifts in sales in the business, but around there. And we start off with a very high gross margin, and that's because our price point initially of the trucks is higher than you might anticipate because customers are willing to pay up for the trucks to get them now, but we anticipate the ASP falling dramatically over time, and we anticipate fixed cost leverage in the business. That's why we have the gross margin starting high and staying high. Now, looking forward, as Craig did point out, we are very proud of our results this quarter. We were substantially ahead of our internal plan in terms of costs. and we anticipate a really modest cash burn going forward. So for the rest of this year, we think it's going to be order of magnitude less than $50 million.

Is that for the whole last six months? Yeah, correct. Okay, well, thank you so much. I'll give someone else a chance. I appreciate that.

Thank you, Mark. Once again, to ask a question, please press Par 1 on your telephone. Your next question comes from Steven Fox of Fox Advisors. Please go ahead.

Thanks. Good morning. A couple of questions for me, if I could. First of all, Craig, the company has highlighted a bunch of road tests and seed sales. I don't know if there's sort of a way to put a rule of thumb around how long those usually take before they turn into more volume orders and whether that's changing with sort of the landscape. But that was sort of the first question I had, and then I had a follow-up.

Okay. So I wish there was a simple rule of thumb. There's not. What we're seeing, though, is a clear pattern emerge. in Europe in particular, where the availability of hydrogen is a totally different level to what it is in the US. We're now seeing the pattern of adoption change quite a bit. So we've had some pretty interesting commercial anecdotes pop up in the last month or so, whereby doing a deal and supplying a truck to a certain customer generates a lot of FOMO with either competitors or similar government, for example, agencies. And it's very interesting to see the rate of inquiry from competitors. But sometimes it's not just the fear of missing out. Sometimes it's genuine competitive issues. So we're seeing companies in Europe start to use their decarbonisation efforts as commercial credentials in various ways. So infrastructure contractors can qualify for bonus points on tenders and this sort of thing, thereby improving their competitiveness by buying our vehicles. So I do actually think that our earlier assumptions around technology evaluation from those early seed sales through to kind of fleet conversion type of buying I do believe that those processes are compressing. So whereas earlier I would have said it's kind of a 12 to 18 month process to go from getting your first fuel cell truck and trying it out and then maybe getting a few more and figuring out what fleet conversion will look like over time and then kicking off that kind of fleet conversion process. I actually think that's compressing. It's certainly compressing in a market like Europe. I think it's probably still valid in, for example, in the US. So I think 12 to 18 months from seed sales to a reasonable level of fleet substitution is probably a realistic timeframe.

Thanks for that. That's really helpful. And then just as a follow-up, kind of a related question, in terms of the capacity expansion plans in the U.S., how far ahead do you have to get with capacity in order to ensure the volume sales? And if you could maybe just weave in sort of an update on the Gen 3 Titan stack for next year and how that plays into what you're planning to add in terms of capacity. That'd be helpful. Thank you.

Thank you, Stephen. So in terms of manufacturing, I've always said there are three kind of determinants to capacity to get vehicles in the customer's hands. The first is our own manufacturing capacity of fuel cells and systems. And systems include things like hydrogen subsystems, for example, and some of the powertrain systems. That's one determinant of capacity. A second determinant is the external supply chains. And at the moment, that second category of kind of capacity factors has been the major factor for manufacturers around the world for their ability to serve their customers' needs. It hasn't been unique to us that it's been a challenge. It's been the case for everybody. Typically, we don't expect the external supply chains to restrict us like that longer term. But then there's a third determinant to capacity, which is vehicle assembly. And that's where our you know, relatively asset-like model of using third-party assembly. In the US, we use Fontaine Modification. That's a group owned by Berkshire Hathaway that does custom building and upfitting of trucks, and they can assemble tens of thousands of heavy vehicles a year, plenty of capacity. So that is not usually a capacity constraint in our, you know, near- to medium-term outlook either. So therefore, if you consider those three kind of capacity factors... you would think that the most important capacity factor will be our internal manufacturing after the supply chain issues around the world are resolved. So in terms of fuel cell production capabilities, we have experience. The management team and several of our core people have scaled fuel cell production into the tens of thousands of units a year type of scale already through the parent company's activities, Horizon Fuel Cell. So that's very useful know-how, experience, and real-world experience in scaling that production capacity. You can't underestimate the value of that experience. And then there are other vehicle subsystems which scale without too much complication, like scaling the assembly of hydrogen subsystems and the like. This is not complex. So we feel good about our ability to meet the growing order book. So feeling very confident about our ability to meet the capacity here in the next two to three years. After that, it starts to get more interesting because the scale of the business really gets to the point where you can start to constrain some of the partners, for example, but we'll deal with that a couple of years down the track. You asked about technology development, specifically the next generation fuel cell stacks. We are in the process of validating next generation fuel cell technology with one or two select customers in one or two specific areas. It's not yet being pushed into the standard truck offering. What we are offering in the market is a mature, proven fuel cell design, which is our Gen 2 truck stack, which I think you're familiar with, which has been proven with trucks in Asia and Europe already. And we see no risk to increase the risk of delivering vehicles, working reliable vehicles to customers, we see no point to increase that risk looking for some of the technology and performance advantages of going to the next generation stacks until we are absolutely certain that everything has been validated to the very demanding requirements of commercial vehicles. So it's not only about the power you get from the vehicles, it's very much about the reliability. So we plan to keep using our Gen 2 stacks until thorough validation is done on the next generation stacks. Probably at least into like the end of 2022, early 2023, we would have some, I think, the option to start looking at specific truck use cases that could use that next generation stack.

Great. That's all very helpful. Thank you so much. Thank you, Stephen.

Your next question comes from Mike Schiltke from VA Davidson. Please go ahead.

Mike's back. Yes, I'm back. Thanks for taking my follow-up. I had one more I wanted to ask. Mark your comments about some of the first customers who have just received their vehicles this month. They seem pleased with the way it drives. I was just curious if you could give us any kind of technical feedback as well. Are they getting a lot of check engine lights? Do they have to send people to go fix them at the stability stage? Or are people able to get in, sit down, turn it on? and go without much of an issue in the early stages here.

So, as I said before, your line's not great, Mike, but you were asking about user experience from the early customers?

No, I'm sorry. I was just following up. Can you hear me better now?

Yeah.

Yeah, I was just following up on Mark's comments of how some of the initial drivers were pleased with the way that the truck drives. I was just curious if you could give us some technical thoughts as to whether are they seeing a lot of

check engine lights or other kind of technical issues pretty much get in and go at this point without much of you know technicians from the from the home base in rochester trying to walk them through right right yeah so i mean obviously we would love for every deployment of every vehicle to go smoothly without any issues um but the reality of the matter is you know with with engineering assemblies and all the rest of it, you sometimes do have challenges and problems to deal with. But this is a typical engineered product kind of process. Naturally, we do quite a bit of validation the subsystems in the vehicles and then the full working vehicle itself. One of the nice things about these types of vehicles is that they communicate with you a lot, so you don't tend to have many surprises from the vehicle. So, for example, while there could be something we can observe in the vehicle that requires attention, we'll usually be able to see that remotely from operating data, as opposed to that leading to a situation where a driver has to go into a workshop and say, it stops working or it's making strange noises or it won't pull the trailer anymore. So the way that you're confronted with system problems, we'll call them problems if you like, or issues, is quite different with these electric platforms. As everyone's familiar with, electric vehicles are quite communicative. You can see what's going on in all the various parts of the system, and it's no different between a battery electric or a fuel cell electric. We can see what's going on in all the systems in the vehicle. So we believe one of the great benefits of going from diesel to electric systems generally is that you minimise unplanned time off the road. We had a great anecdote from a commercial driver here in the last week or two that the diesel trucks are so noisy that you don't realise there's something wrong with the truck, some simple mechanical thing wrong with the truck, like something shaking loose or something to that effect, because the truck itself makes so much noise, you don't hear it until it becomes a really big problem. So one of the drivers said, Well, for sure, you'd basically know even if a tie-down strap was loose on these kind of trucks because they make so little noise. You'd hear the strap flapping. So it's really interesting when you listen to commercial drivers that have lived with driving trucks every day and they're familiar with the factors involved. So we were told that not only do we expect that electric drive has less unplanned outages and all the rest of it, but just the fact that even minor mechanical stuff in the vehicle will be detected a lot earlier before it ever became a major problem, unlike is the case with diesel when you're operating a really noisy vehicle.

I just want to add a little color to the driver experience. So we all know that our trucks have much better acceleration than diesel, but this is actually a safety feature of the trucks in a way. I mean, imagine a Class 8 truck trying to pull into traffic they have a hard time doing it, and it's much easier to do it with a hydrogen truck. So with that improved acceleration, the vehicle is actually safer and easier for the drivers to drive.

And then on the noise that Craig... We've had that comment multiple times about it being much easier to pull out of a driveway, much easier to merge. So it just improves the life of the driver.

And then on the noise of the vehicle, you know, a lot of truckers now complain that they can't listen to music, they can't, you know, talk on the phone, you know, hands-free talking, et cetera. But in our trucks, you know, that's something that's really, you know, easy to do because it's completely silent. Even truckers, if there's two truckers and one's trying to sleep in a diesel truck, it's, you know, very difficult to sleep because there's so much sound or noise. And in our truck, you know, they can go to sleep. So really, not only are our trucks green, not only do we believe they're cheaper, you know, than diesel in certain jurisdictions already today, but from a driver's perspective, it's much better. And as you know, we're having a shortage of drivers right now in the country. So we think that, you know, drivers are really going to be, you know, excited to drive hydrogen trucks.

And to Mark's point, some of the commercial drivers we've had come and drive vehicles recently to give us their feedback. Actually, not some. Every single driver says that it'll be much easier for trucking companies to attract drivers if this is the kind of truck they get to drive. Because it's so much easier and more pleasant than a diesel truck.

That's great color, guys. I really appreciate that. I'll leave it there. Thank you.

Thank you, Mike.

Your next question comes from Noel Parks of Stogie Brothers. Please go ahead.

Hey, Noel. Hey, good morning. Good morning. I just had a couple things. I wondered, and apologies if you've touched on this already, but the hydrogen hub build-outs that you're in agreement with Raven on, At this point, can you tell us a little bit more about the pace of the build-out and maybe a little bit more about your commitment under the agreement? In particular, I'm sort of wondering, looking ahead, if there's a point where the involvement with them strategically maybe gives some tailwinds down the road.

Sure. So first off, I'll say we closed that investment a few weeks ago. And we invested alongside a large major oil company and a large oil trading house. So we have real partners in the investment. The first two hubs are going to be in the Bay Area. Hasn't yet been announced where they are exactly, but we anticipate that announcement in the next six weeks. So you'll have a great idea of where they're coming. And we think also that in the next six months or so, there'll be other hubs announced. And as Raven scales up and as we scale up, we anticipate, you know, tens of hubs, to hundreds of hubs, completed with them. In terms of the first two hubs, we are funding a large portion of the first two hubs, and we haven't disclosed the capital that we are spending. But what we have disclosed is we've disclosed that over our plan over the next five years, we're going to spend $150 million on hubs and refueling stations. What we're also anticipating with Raven is we're anticipating after the first couple of hubs that they will be debt financed to a large extent. Because what you have is you have a hub and you have contract with vehicles So you have recurring revenue. It's really a perfect thing to be financed by the debt markets. And each hub will have a separate SPV, non-recourse to the parent. So we're excited about this, and we think it's going to be also an asset-light approach.

Noel, another comment on this approach. Obviously, we've spoken a little about our hydrogen hubs and how we are very strong believers in the localising force of hydrogen and therefore local hydrogen solutions for local vehicle requirements is the best way to start this business and generate scale. And so we like to call each of those hubs very strong nodes of a future network. but you never build out a network that's poorly utilised, has a poor return on investment. You start with very strong hubs that offer really compelling investment returns because we're coupling that vehicle offtake, in other words, a hydrogen demand centre, with the whole investment rationale for the hydrogen hub itself. And so it's really important that that people understand that every one of these hydrogen hub investments is highly viable right off the bat because the vehicle offtake can be secured with major fleet operators who have an extremely predictable use of fuel every single day.

And I'm just going to amplify a point that I made in the prepared remarks. I mean, these hydrogen hubs, you know, this is waste to hydrogen. Raven can also do, you know, flare gas or, you know, biogas to hydrogen. But what's important, you know, from my perspective is really this is a way to make hydrogen that's not dependent upon the grid. And one of the things that we're concerned about is we're concerned about power prices increasing, you know, globally. I mean, you can see it already in Europe. A number of countries are at all-time high power prices with, you know, coal and natural gas making new highs, what that's going to do is it's going to cause power prices around the world to go up. And if we transition as fast as we need to transition and we rely upon battery electric, well, that's going to put a huge strain on the grid, and that's going to cause power prices to go higher, which are regressive tax on consumers. And so what's great about our strategy of waste to hydrogen is that we have a way of facilitating the energy transition that does not strain the grid the way battery electric does. And so we think that we're going to be critical to the future of mobility, not only because hydrogen and fuel cells are the only solution for heavy-duty vehicles, but we also have a solution where the energy is coming in a different way than where it's coming for everyone else.

Thanks a lot. Very interesting point. And just one other thing, I wanted to just circle back to the supply chain again. I guess, do you have a sense, and I imagine it's not an easy thing to pin down, but do you sort of envision a horizon, maybe kind of a worst-case horizon, by which time we'll have turned the corner and essentially... not really have supply chain issues as a major wrinkle. And I guess I'm also curious if, in general, there's a particular component or particular type of component that is sort of the most improved in availability since the issues began, and then maybe what components might be the most challenging still?

So I'll let Craig answer this component stuff. No, but let me just make a point, which is that supply chain challenges are really driven by COVID. So, you know, I don't think anyone dares predict when COVID's over, but that's the driver of it. And once that fixes itself, I think the global supply chain will fix itself.

I'd be reluctant to make a global prediction about the resolution of supply chain challenges. What we've factored in is obviously longer lead times for everything like I think most manufacturers have had to live with recently. But there was a good question in there in terms of what's kind of getting better and what's not. So frankly, batteries continue to be a substantial challenge and some of the power equipment continues to be a substantial challenge. We've started to get a little relief on some of the Some of the chassis supply in Europe, for example, that's starting to improve a little. But overall, we still have this issue that you can have a virtually complete truck that can't go anywhere. And we've had that specific example with a truck that was supposed to go out to demo before the end of Q2 in Europe, a particular truck with a particular spec, that was sitting there waiting on a couple of relatively minor... power-related components from third-party vendors. And because it was a particular truck, we couldn't substitute for another part that we had in that case. So certainly we've been caught with some challenges, et cetera. I mean, it doesn't affect our ability to get that truck out there this quarter, for example. It'll be out this quarter. But it wasn't out when planned. And that's the kind of thing we've been living with. But That's also why back in, you know, March and April when we started to see some of these challenges around delivery times getting pushed out, we started ordering, you know, rapidly ordering ahead of when we were planning to order so that we could get hold of what we need to deliver on our 85 plus legal shipments this year.

Great. Thanks a lot. That's all for me.

Thanks, Noel. Sorry, I'm not the global supply chain guru to predict the light at the end of the tunnel on all of the supply chain challenges. I really hope for everybody that COVID is brought under control globally soon and that we can have a more normal life again.

If there are no further questions at this time, I would like to hand the conference back to our speakers for any closing remarks. Thank you.

Thank you for joining our call and we look forward to hosting you another call in three months.

Craig, do you have any last thoughts? Sure. I just want to say we're literally a few weeks into this new journey as a public company and We have obviously some substantial ambitions. We believe we're well equipped to execute on our plan and we view it as management's job to deal with the various challenges that get thrown in our way. So we'll do our very best to continue delivering the plan. We're going to be making every effort. contingency and pushing everything that can be facilitated to make sure we continue to make plans.

Let me just also add that the ACT conference is going to be in Long Beach at the end of this month. And we're going to have a Class 8 hydrogen truck there for people to see. It drives. It's got a lot of power. It can go up hills. And we highly recommend that people come by and see our truck. And, you know, we're open for business here in North America and all around the world. So we look forward to, you know, accelerating the energy transition and demonstrating our vehicle, you know, on the road now. And let me also emphasize, I said this in opening remarks, there's a great video on our website that we put up this morning that shows our Class 8 truck pulling a trailer. And, you know, that's in upstate New York, and it's really worth looking at. Thanks a lot.

This concludes today's conference call. Thank you for participating. You may now disconnect.