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spk01: Ladies and gentlemen, thank you for standing by and welcome to the Lordstown Motors first quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, Carter Driscoll, Head of Investor Relations. Please go ahead.
spk12: Carter Driscoll Thank you, operator. Good afternoon, and thank you to all for joining Lordstown Motor's first quarter 2021 earnings conference call. To supplement today's discussion, please go to our IR website to view our press release and investor deck. Before we begin, I want to call your attention to our safe harbor provision for forward-looking statements that is posted on our website and is part of our quarterly update. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements for the reasons that we cite in our Form 10-Q and other SEC filings, including uncertainties posed by the difficulty in predicting future outcomes. Joining us today will be Lordstown Motors founder, CEO, and Chairman Steve Burns, President Rich Schmidt, and CFO Julio Rodriguez. Steve will provide a strategic update on the business, followed by Rich, who will give a more detailed update on production, and then Julio will cover the financial results, followed by Steve, who will provide our outlook and closing remarks. With that, I'd like to turn the call over to Steve Burns.
spk10: Thanks, Carter, and welcome to everyone. Our mission here at Lordstown Motors is to be the leading manufacturer for electric light duty trucks in the United States. Our first vehicle, the all-electric endurance work truck, is on track to start limited production in late September, and we expect to start deliveries later in fourth quarter. As a reminder, the Endurance is a full-size pickup truck that we believe can achieve the equivalent of 75 miles per gallon and travel up to 250 miles on a charge. Today, I'm very excited to announce a major milestone. We have started physical crash testing of our beta vehicles. We have passed every test we have taken. on the first attempt, including the full-speed frontal and the side pull test. The data results from the physical crashes correlates very closely to our software model, and we are therefore reiterating our belief that we can achieve a five-star safety rating, front, side, and rear, for the final version of the Endurance. To date, the Endurance has met the Front Impact Federal Motor Safety Standard, which is FMVSS 208, and the side impact FMVSS 214 requirements through these actual crash tests held at the federally approved TRC test facility in Ohio. These are the two most difficult tests for any vehicle, and we pass the requirements with our beta vehicles. These are critical milestones for us and remove some of the biggest technical barriers. This provides us a solid foundation as we complete our development and validation work. We are continuing to work on establishing relationships with fleet management companies that we believe can be the basis for meaningful revenue once the truck is ready for sale and we can demonstrate that it performs to our expectations. These include our previously announced series agreements with Holman, as well as a recent agreement we've entered into with Pride Group. We are also in discussions with several charging companies and infrastructure providers to help us provide a simple, seamless solution for our potential customers. Our ability to produce enough vehicles to satisfy our expected market demand depends on many variables, such as suppliers and passing all required regulatory hurdles, and also our access to capital. Our research indicates a very robust demand for our vehicles. However, capital may limit our ability to make as many vehicles as we would like. And as such, we are constantly evaluating our capital needs and the various types of capital available to us, including strategic capital. As the automotive world speeds towards vehicle electrification, it's starting to be clear to many that an electric full-size pickup truck with a 250-mile range is going to be quite attractive to a large portion of the market. As a new OEM, we are often asked, how we are able to be first to market in the highly competitive pickup truck category in the U.S., and how are we able to offer the Endurance at such a competitive price point? Well, we have two major advantages that have enabled us to reach our progress to date. First is our innovative technology. We believe that the Endurance will be the simplest mass-produced truck ever made. Far simpler and smarter than than any internal combustion vehicle, and even simpler than any EV on the road today. Our innovative hub motor-based architecture enables us to use advanced proprietary software-based motor control rather than mechanical routing of power to each wheel. The result is a smart pickup truck that is robust enough to handle the most demanding of duty cycles, but easily fueled, maintained, and serviced and yet can be offered at an attractive price point to our customers. And this is just our first model. Our goal is that subsequent options will include things like advanced informatics and crash avoidance features that we offer through over-the-air software updates. Another expected benefit of the physical simplicity of our vehicle is increased uptime for our customers. which translates into a lower total cost of ownership, the key metric that drives customer demand and product loyalty. We have been conducting robust testing of electric hub motor and vehicle design over the last year, including entering the Baja race. The race allowed us to validate our vehicle performance in literally the harshest of environments. While we are still learning how to optimize fast charging in such a terrain, We had no mechanical issues in the race and were able to accomplish two important goals. One, validate our hub motors, frame, thermal management system, and battery pack. And two, advance our DC fast charging capabilities. We learned that our production hub motor design is well suited to perform in low traction environments like Baja sand. And our battery pack is resilient to high torques and high impacts. We also learned that our thermal management system was able to compensate in the demanding Baja race environment. For DC fast charging, the race requirements for quick recharging prompted us to modify our DC fast charging capabilities months earlier than we had planned. As a point of clarification, our production battery pack worked to the expected range, and its mechanical performance was flawless. The reality of any battery pack is that it has a fixed amount of energy. Relative to the energy consumption of the vehicle, sand and loose soil has four times higher coefficient of friction than a paved road does. Our energy usage was on par with our simulations, increasing our confidence that our vehicle's range will meet the 250 mile target for an average customer duty cycle. Finally, Forty miles of Baja is enough evidence that our thermal and powertrain performance assumptions are correct in such extreme use case. Final testing and validation for our production vehicles will be completed at greater than 500,000 miles of paved and hard-packed dirt roads. The endurance customer will receive a vehicle with amazing performance and safety pedigree. In addition, we are thrilled to have the opportunity to illustrate the capabilities of our endurance demonstration vehicle to the United States Army as a potential vehicle for the ELRV, which is Electric Light Reconnaissance Vehicle Program. And we look forward to working with the U.S. Army should the opportunity present itself in the future. Our second advantage is in the production readiness for scale. Our former GM facility has now been upgraded to EV readiness with full stamping, robotic body welding, assembly, and paint. This plant would normally have required billions of dollars of investment to build as a greenfield. Our team is very proud of the betas we have built here, proud of their quality, safety, and drivability. One very important production note we want to remind you of is our 800,000 square foot propulsion facility, which will manufacture our battery packs and electric hub motors. And it will be one of the largest battery pack lines in North America and the largest hub motor facility globally. This will be an amazing accomplishment, and we fully expect our investments in our battery pack design and its automated production to provide us with a key competitive edge, both in cost control and pack quality. The first phase of the pack line is installed and is being tested currently. The line will make body modules that contain over 6,000 individual cells that are assembled into every endurance, and it will do so without human hands ever touching the cells. It is a mechanical wonder, and we believe will be a huge strategic advantage for us. Next, we will be building out our hub motor production line this summer. We can't wait to show everyone our vertically integrated factory during Lordstown Week starting June 21st. In addition, we have established in-house production of key components and secured critical supply chain partners to support our ability to scale. This includes agreements with semiconductors, inverters, cells, and frames. Although COVID has constrained the automotive supply chain globally and has caused material increase in our R&D expenditures, we have been proactive in this effort. Finally, I want to remind everyone that we have begun work on our second vehicle, an all-electric van. It's built on the endurance chassis, which leverages many of the same parts, engineering, and existing supplier agreements. And we will share a prototype with you this summer. Our hub motor-based skateboard is especially well-suited for a van because of the lower floor height that results in more cargo space and has easier access and regress. Leverage is the way to build a strong, multifaceted automotive company, and we are leveraging much of the endurance technology in the van and all our future vehicles. With that, I will turn the call over to Rich to discuss our progress on production, engineering, and regulatory compliance.
spk08: Thank you, Steve, and good afternoon to everyone on the call. I am Rich Smith, president of Lordstown Motors, and I'm happy to provide an update on production, engineering, and testing. First, I will update you on the betas, followed by progress on the plant retooling and propulsion build-out, and finally, provide some context on our early crash test and other vehicle validation efforts. First, the endurance betas. As Steve said, we are firmly on track with our beta builds and are close to completing this program made up of 21 for testing and the rest for production validations. Crash-led tests are used by the industry to verify that the airbags, seatbelts, and retentioners work within the endurance interior for the CAE symbolization predictions for FMVSS performance. We have also begun durability testing, understanding how hard it is to pass crash tests. The requirements for selling vehicles is to meet FM and VSS regulations, which we expect to pass without issues. The objective is to achieve competitive NCAP test star ratings, which are not mandatory at this point. We do not see any impediments to meeting our NCAP targets. Again, based on early results, we are excited to report that we believe the endurance remains on track to achieve five-star rating. We are retooling the plant to be flexible to enable us to build multiple vehicle platforms inexpensively from trucks to cars. We are still on track to build pre-production vehicles, known as PPVs, in July. PPVs have the battery packs of motors built in-house, as well as paint, sub-assemblies, frames, all completed in our plant. As we complete PPVs, some will be heading to conduct their crash and engineering validations by the National Highway Transportation Safety Administration, NHTSA, in late summer as one of the final steps before production. Now let's talk about the retooling for stamping. All four stamping presses are up. We begin reconditioning and proving out. Our robotic body shop, the most expensive tooling of our plant, is up and running. including the laser roof welds. The paint shop is on schedule and is virtually complete. General assembly is also on track. And finally, we have started to install the new chassis marriage line. Shifting focus to propulsion, we are due to start building the first electric hub motor line on site. And in July, it is currently being validated by our partners. We anticipate commissioning the first motor line before the start of production in late September 2021. We believe that once all lines are built and commissioned, that we should be the largest manufacturer in automotive hub motors in the world. And with that, I will hand over to Julio to take you through the financial results. Thank you.
spk05: Thank you, Rich. Good afternoon, and I also want to thank everyone for joining today's call. I am Julio Rodriguez, the Chief Financial Officer, and I will review our first quarter 2021 results. As you may have seen, we published an 8-K on May 11 that addressed the recent statements levied by the SEC regarding the accounting treatment for warrants issued by SPACs. We are continuing to work on completing the restatement and expect to be in a position to file our Form 10-K-A and Form 10-Q soon. Now, turning to our financials, All our financials are presented in accordance with GAAP. In the first quarter of 2021, we recorded an operating net loss of $106 million. Our expenses consisted of $14 million in selling and administrative expenses and $92 million in R&D, of which $1.9 million is stock compensation expense. The higher-than-expected R&D expense is largely from higher part costs from a supply chain that remains under duress from COVID issues and which impacted our beta costs, higher costs of shipping, including expedited shipping, and greater use of temporary external engineering firms. For the balance sheet, we ended the first quarter of 2021 with a total cash position of $587 million. We have total assets of $779 million, largely consisting of our cash position, plus $155 million in PP&E, $76 million in total liabilities, mainly accounts payable, and $703 million in shareholders' equity. From a cash flow perspective, we used $72 million in cash from operations, used $53 million in investing activities from purchases of capital assets, and generated $83 million from financing activities, mainly from warrant exercises. Our combined cash used in operations and investment was $125 million, excluding the $82 million in cash we received from warrant exercises. We ended the quarter with approximately 177 million shares. If all outstanding warrants were converted today, we would have approximately 180 million diluted shares outstanding not counting employee stock options. Thank you, and I will turn the call back over to Steve, who will provide our outlook and closing remarks.
spk10: Steve? Thanks, Julio. As we discussed in our last earnings call, in response to the short seller's report, our board of directors established a special committee of independent directors to investigate the allegations made by the short seller. The SEC has also commenced an investigation and has sought information from us, and we are cooperating with that investigation. The special committee's review is ongoing, and we expect that the special committee will be in a position to report on the results of their review of the allegations in the short seller report prior to the end of the second quarter. Pending the release of those results, neither the special committee nor the company is in a position to comment further on the short seller report. Now, on to guidance. As we have already indicated, our costs have exceeded our prior expectations for the reasons laid out earlier, and the pace of our production ramp will depend on our ability to secure additional funding. We are updating the outlook for 2021 that we provided last quarter. We continue to expect between $250 and $275 million in CapEx. On the operating front, We now forecast $55 to $60 million in SG&A, of which $4 million is stock compensation expense, and $280 to $290 million in R&D, of which $7 million is stock compensation expense. We now forecast a net loss of between $360 and $380 million, or approximately $2.05 to $2.15 in loss per share using the $177 million basic Class A shares. Let me explain a few additional key assumptions in this guidance. These forecasts would allow us to finish the year with approximately $50 to $75 million in cash without any additional funding. But in order to do so, we would be pursuing a conservative budget, reducing costs, and delaying investments, and the production would start in September would be at best 50% of the prior 2021 unit expectations. We are currently in discussions for an asset-backed financing opportunity that is at the preliminary stage. In addition, we also remain in due diligence for an application for the ATVM loan. Furthermore, we intend to engage in discussions with strategic investors, and we continue to seek and pursue opportunities in other tax credits and grants across multiple jurisdictions. We want to thank all our talented employees for their hard work and dedication across our offices in Lordstown, Ohio, Farmington Hills, Michigan, and Irvine, California. We are proud to be part of the Voltage Valley Renaissance in Ohio and part of the solution to addressing the climate change and sustainability issues we all face. In summary, our mission is to bring to market the first full-size electric pickup truck and deliver on our commitment to safety, sustainability, and efficiency in the automotive landscape. We want to reiterate how delighted we are by the performance of our truck in these crash tests. These are major milestones that we have achieved on our road to production. Every member of the Lordstown team is laser focused on bringing the endurance to market as soon as we can using our innovative and disruptive technologies. We want the Lordstown Endurance to be the first mass-produced full-size electric truck in the world. Thank you for your time, and we very much look forward to welcoming you here in Lordstown the week of June 21st.
spk12: Operator, we will now take questions.
spk01: Thank you. As a reminder to ask a question, you need to press star then 1 on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Thank you. Our first question comes from a line of Greg Lewis with VTIG. Your line is now open.
spk13: Yeah, hey, thank you, and good afternoon, everybody. And, yeah, Steve, hey, you know, congrats on moving forward with the beta testing. It seems like it's kind of progressing nice. I did want to dig in a little bit, you know, into the additional CapEx requirements Kind of walking through and looking back at the previous quarter's press release, it looks like about 100 plus of that was related to R&D. Could you kind of walk us through some of those changes and what is kind of driving that incremental capital requirement on the R&D side?
spk10: Yep. Thanks, Greg. And by the way, just before I jump in, I want to make sure everybody knows we have Darren Post, our chief engineer here, and John Vo, our VP of propulsion. Just want to be able to answer any questions you get asked. You know, the 50,000-foot view there is we've had to, because of supply chain, we've had to bring a lot more stuff in-house, right? Hurts you up front because you've got a tool for that. You've got an engineer for that, right? But it helps you in the long run. It definitely helps you as the endurance volumes go up and as we layer in the additional vehicles like the vans. So the engineering, for example, a lot of people don't realize, all the betas, right, those aren't inventory. Those are treated as R&D. So as we marched through everything, some things were a little more expensive than we thought. Some things we had to go outside for validation, like the brake testing and things like that. And a lot of it's just how we're going to make these parts inside rather than purchase them. So that kind of all dovetails into that.
spk13: Okay, okay, great. Thank you for that. And then just, you know, I just did want to follow up. I mean, it looks like you're progressing through on, you know, making it through forward on the crash test. What else, what other kind of hurdles should we be looking for over the next couple months kind of ahead of moving into pre-production in July?
spk10: Right, great question. So obviously crash testing is a huge gating item, right? If that doesn't go as you think or if it goes really sideways, that can cost you a year and hundreds and hundreds or a billion dollars. So that is why there are no small car companies usually in the United States because of that. So to get past that gating item really should lower execution risk for anybody thinking about, are we going to get to September? The other thing is, as we've been making estimates over the last year, you know, as you get closer to production, obviously the number of variables decreases. So you start to dial it in more and more. Of course, you know, could supply chain continue to evolve? Yes. But we have taken the liberty of securing the things, the big things that we can see that we wouldn't be able to pivot. So, for example, we have our cells sourced from two different vendors. So we have enough cells contractually to make it all the way through, you know, our foreseeable future. We, electronics, you know, the chip shortage you hear about all the time, we went ahead and up front bought those enough to get through this year so that we're not constrained that way. Frame, we had to bring the frame in-house because that was at risk with suppliers. So things like that. But I think in general, look, this is costing us more than we thought, but relative to You know, the conventional thinking, we're moving very quick and, you know, really doing this for, you know, a good pricing. So we're very happy with it. We don't like that it's moving, the target's moving a little bit. But we've taken the attitude of first to market is everything. It's really starting to evolve that, you know, a vehicle like this, this size, this bed, this cab, this range, this price point, is a very popular item. Kind of with the events of last week, it's not just a niche item now, it's really gone mainstream. And so we think first mover advantage is very important. So we have, you know, always sided on the fact of how do we maintain September.
spk12: And Greg, just to drill down on your point about what's left to do.
spk04: Yeah, so Darren Post here. A couple of things. We go from beta where we have production intent designs with more prototype parts. But as we go to PPV, we go to production intent parts off production tools. So that's going to be the big change that happens in the PPV build. As we do that, we'll be continuing deeper into our durability testing, our brake tuning, steering systems, and vehicle dynamics work. So that's a big milestone as we move forward. And then that sets us up for FMVSS 100 series, which are the non-crash regulatory tests that we need to do with the PPVs. That will start at the end of this segment.
spk10: So the short answer, again, Greg, I think is regulatory is a big part of this business, right, as you can imagine. It's supply chain and regulatory. Once you get your recipe and your engineering done and you've got a vehicle that, you know, physically is attractive to folks and also, you know, the specs meet their needs, Then it comes down to regulatory and supply chain and your in-house production. So obviously in-house production we pretty much control, but regulatory is a big part of U.S. automotive. We've, again, passed the biggest gate there is. These two tests that we've passed are the toughest two, and we wanted to get those out front. The fact that the test matches highly correlates, as they say, to our software emulation. So it basically did exactly what we thought. It's quite remarkable to be at this stage.
spk13: Okay, perfect. Thank you very much, and look forward to catching up in a couple weeks.
spk10: Thanks, Freddie.
spk01: Thank you. Our next question comes from the line of John Murphy with Bank of America. Your line is now open.
spk03: Good afternoon, guys. I just wanted to ask a first question. I mean, obviously, you're commenting that you're going to raise capital sooner rather than later, and you made mention on the call of an ABL or an asset-backed line or other structure. I'm just curious what you would put into that, and maybe if you could consider the Lordstown plant's you know, what would the borrowing base be on that? Because, I mean, you've talked about, you know, I mean, that being billions of dollars, I think $2 billion plus in replacement value. So that would give you a lot of runway. I mean, how do you think about potentially pledging the Lordstown plants? And is that part of the, you know, discussion so far? And, you know, how big could that be?
spk10: Good, great question. And obviously we're looking at all types of capital, but non-dilutive like that is, that in strategic is very important to us. But, you know, we have zero debt. And we have a lot of assets. So it lends itself. And we're buying a lot of parts. And so all that, there's folks that want to finance that. So we're pretty mature on some of the discussions. I mean, they're early. But we feel it's a prudent thing to do. So we're spending time on that. Julio, did you want to say anything about that? Yeah.
spk05: And we have a billion dollars in assets that we can use for. But we want to do capital financing of the new or next capital expenditures that we're going into.
spk10: Right. So there's a lot of folks that, not a lot of folks, there are folks that make a living out of financing CapEx, and then it always helps if you've got extra collateral above and beyond that.
spk03: Got it. Okay.
spk10: And then just a second question.
spk03: Steve, you were mentioning bringing or insourcing some parts because the supply chain was not necessarily ready or disrupted by COVID, and that's part of the reason the expenses in CapEx went up. I think you said something about insourcing the frame. I'm just curious, you know, when you think you need to make decisions because the frame is a big issue. It's a big capital commitment and an R&D feat on your trucks and any vehicle, for that matter, that has a frame. What other parts are being insourced, and when do you kind of pull the trigger and do that? Because that seems like a pretty quick turnaround if you were to insource the frame since the last conference call. I'm just trying to understand how this is working.
spk10: Yeah, and just for those that don't know, we are a body-on-frame vehicle, like all trucks or most trucks. And so the frame is where our truck gets its rigidity, its strength. We also have the thing that most people don't have to consider when they're engineering is we have a big battery pack in between that frame. And just again, a quick note on the frontal crash test, it did not penetrate, didn't touch the battery pack. So those are the kind of considerations that go into your frame. And the vendor that we had laid out for the frame suddenly was going to be able to, or was going to have to charge us more, and we just decided to take it in-house. It's constantly a, you know, do we pay more for the part and hurts our profit margin, or do we source it inside? And sourcing inside, of course, like I said, this frame will be very similar to the frame for the van. And, you know, we start to, when you're going to be a multi-vehicle platform and you really can get those kind of leverages, it starts to change your decision process. And the van is just looking more and more like a winner for us. So that affects it. So I'll let Rich maybe jump in a little bit there.
spk08: Yes, so John, like Steve said, when we source stuff, we do, of course, have multiple suppliers. We had three different suppliers on the frame. Some of it was based on timing. Some is based on cost. And a lot of it was based on the timing schedule of the launch of the vehicle. Some of it was based on cost. But once we do the return of investment and the timeline of launching the endurance in the fall, It came down to the best option for us was to insource the frame, and as Steve said, it gave us the flexibility to go to market on multiple vehicles quicker as well. And, of course, we have our own stamping plant, and we have a lot of spare robots with the size of the facility that we've got from General Motors. So it allowed us to put a lot of those processes in place, and it was the best business decision for us to insource the frame. So that's the decision we went with as a business.
spk03: Richard, how fast can you make that decision? I mean, we're talking about a big decision, and if you've got the stamping presses and the robots, you know, the weld shop to do this, I mean, that's pretty impressive, and it seems like maybe you should have been thinking about doing that before. I mean, if you had all that stuff, you know, that capital, I mean, how fast do those decisions get made?
spk08: It took us about – we didn't really want to make that decision up front because of the capital investment, as you said. It was about a three-month decision that we really didn't want to have to do in the beginning because we were trying to save the capital. But at the last minute, as Steve said, we had a supplier kind of pull back, and then the other supplier, let's say supplier B and supplier C, the price was very drastic to our BOM cost and timeline. So we had to choose to bring it in-house at that point.
spk10: The other decision that went into it is, you know, where are we going to have to change it? What if the crash test didn't go well? We're going to have to change it. If you've got an outside vendor making it, You know, they're not as quick to respond. Now, it did great in the crash test, but we, you know, we're just, it is constantly a buy versus make conversation. It comes down to usually, you know, it's a little more expensive up front, of course, but pays off in the long run. And, you know, as an early OEM, right, we're really cognizant of, you know, there are some people that sub everything out. right? Some small, some EV startups just say, I'm subbing everything out. And, you know, we have a lot of folks here from Tesla, for example, and they know a new OEM, whoever you are, you're going to have early issues and you want to be able to deal with those quickly, not having a third party taking their time or busy with another client or, you know, that sort of thing. So big things like frame, we just started realizing we should have in-house in addition to the economics. It's also being able to You know, we want to make sure that any early teething problems that we have as a new OEM, we're in position, right? Our battery packs, we're making the pack, we're making the hub motor, we're making the frame. The biggies, you know, are in our control.
spk03: And then just lastly, real quick, I mean, one of the appeals of the business models that you're getting out there in front of potential established competition, and we've heard news about the F-150 Lightning. Price point is relatively, surprisingly low, below $40,000. So, I mean, as you think about the competitive, you know, environment and the potential slowdown in your production ramp, how concerned are you in that, you know, putting you sort of on your back foot in the competitive environment? And or if you raise enough capital, could you re-accelerate the, you know, your production, you know, ramp curve?
spk10: Oh, yeah. Everything we're doing is to enable us to when we receive the capital where we're looking at to, to be able to have it all the pent up, you know, system ready to go. I think the competitive landscape is, is the most important part of our conversation here. Uh, you know, we're just, you know, the, the fact that the competitor who's very established, uh, automaker and has been working on this for several years and didn't come out with a 600 mile truck or a flex capacitor or a, a wild-looking vehicle, right? A frunk, same bed, same cab, about the same range, about the same pricing. So it's quite remarkable that we are on par with somebody like that at this point, and we're getting the market faster. But we sure are always cognizant of there just seems to be such a market demand for us. And now that it's gone mainstream, not just niche, we want to be ready to pounce if the if the market demand is what we think. So we're, we're always keeping that in mind. It would be crushing to, to have, have the lead, have the first market mover and not be able to fulfill. I mean, obviously you can't just move on a dime in this business, but we're, every decision we make is trying to, you know, make sure we can, we can satisfy and take, you know, we run as many people buying our vehicle while we're the only game in town and, And that will just give us, we want to be on version 2.0 when somebody else comes out with version 1.0.
spk03: Great. Thank you very much, guys.
spk12: Thanks, John. Next question, please.
spk01: Thank you. Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open.
spk07: Yes, good afternoon, and thanks for taking the questions. The first question is on the liquidity target that the company articulated by year end. Can you provide more details on what you're thinking in terms of working capital that may need to be invested this year to support the ramp and also support the sales and operational parts of the business, what's embedded within that liquidity target?
spk10: Good. Well, I'll start off here, and then I'll turn it over to Julio. We just wanted everybody to know that with no funding, we can get trucks out this year, which, again, we think is paramount. And so we're expecting to receive funding in the various manners in which we've discussed, and we expect the ramp to be basically what we had hoped, but we have to put the asterisk of you know, it's going to require us to be successful in our fundraising, which, again, we are, you know, going to be the only electric pickup truck market, as far as we're concerned, just got a huge boost last week, right? And to have our model be almost the same, we feel that we should keep our ramp and that we have, with being debt-free and ATVM loan optionally we feel will be there. But we wanted to make sure everybody knew that worst, worst case, we are still making pickup trucks this year.
spk05: Yeah, I think the key item of the working capital, obviously, is inventory. And, I mean, slowing down the ramp save us in inventory. But, I mean, we obviously, I mean, we need to get working capital financing. And so, I mean, that's what we're pursuing. So as soon as we get the capital financing, definitely we're going to start ramping up again.
spk07: Got it. Okay, and my second question was on the ATVM loan opportunity, and you spoke a little bit about that on your last earnings call, and then you talk about in the press release today about hoping to complete that in the next few months. I think you said before, I mean, this is a pretty extensive diligence process that the government goes through, so maybe you could talk a little bit about what they may have already done in terms of their diligence process and what they may still need to do and kind of where that next few months – potential timeframe is coming from. Thank you.
spk10: Okay. I'll jump in and let Carter take it. But of course we've got to be sensitive to their confidentiality, but I don't think it's a secret that they look technically at you. They look financially at you. They look EPA wise at you. They look at market demand for your product. They're very, these are senior folks, right? They've been doing this for a long time. I don't think there would be a Tesla if they didn't get this loan back in the day. Right? So they're very conscious of, of, all of it. And I think it's important to note they have not made a loan in a while. So the fact that we're this knee deep with them is really encouraging to us. And we, you know, we, I don't know if I'm allowed to say we're optimistic or not, but we feel good about it. Carter? Yeah.
spk12: So Mark, just to tie it into your liquidity question earlier, so that it doesn't play any role in the liquidity numbers that we provided you with our, you know, modified production ramp They've done, as Steve said, several rounds of diligence. We believe that so far they've been favorable. We cannot comment on any timing, but we believe that we're progressing at the timeline that we originally thought we would, and we're hopeful that we will reach a stage such that we could potentially come to terms. We can't comment on the timing of the application. Got it. Thank you.
spk06: Operator, we'll take the next question, please.
spk01: Our next question comes from the line of Harry Nickel with Wolf Research. Your line is open.
spk09: Hi, guys. Thanks for taking the question. I think the first thing I wanted to talk about was just how we think about costs in the BOM going forward. In your first investor deck, you talked about a $42,000 BOM now and a $37,000 BOM in 2024 when you get to 107,000 units. Obviously, just sourcing expectations have changed. You've brought a lot in-house. Can you just talk about how you're thinking about the BOM now and how you're thinking about the BOM in 2024 and what all the moving parts are there?
spk10: Sure. Hi, this is Steve Harry. You know, just to put it in context, we have probably 3,000 parts in the vehicle, which is very low for a vehicle. 2,000 of them we purchase, right, just to kind of frame it up. We're the only full-size electric coming out with four electric motors. Everybody else has two, right? But we don't have things like driveshafts and U-joints and gears and differentials. So it's a trade-off back and forth. We make our own motors so that we can control the cost of them. We expect to drive that down significantly over time, right? We make our own battery packs so we can control the cost of those. We have our cell deals But the pack's a big part of it, the physical pack. And I don't know if you heard on there, but the 6,000 cylindrical cells that go into every endurance, our goal is not to have a human hand touch those. So that, of course, dramatically starts to lower your cost. We know all this up front. We know aspirationally we wanted to get there. We're pleased that we are on course to do all that. So while we don't talk directly about our BOM, I think electric vehicles are going to be less expensive than anybody dreamed going forward here over over time because the supply chain is ramping up right it floats all boats uh when somebody's making an electric air conditioner for somebody that's going to do you know uh you know a million uh gasoline trucks but it's an electric air conditioner so we get to use it as as well you know so even gas trucks don't like to have a fan belt with a with a uh compressor on it anymore, like the old days. So all the supply chain moving towards electric as it starts to become more and more kind of generally known that everything now that the number one vehicle in the planet is going electric, it's even it just moves the needle. So we try to control everything we can that you need to us. But we buy a lot of stuff. And even the cells, of course, I think everybody's aware that Sales continue down, we're working on our own sales even, and lots of people are working on their own sales for three or four years down the road. And they're just coming down, they're getting safer, they're getting more dense, and they're coming down in price. So everything's moving directionally the right way. I've been in businesses where things are moving the opposite way, but here, price-wise, quality-wise, the number of choices we have in some of the components everything is moving directionally correct. I mean, electrification of trucks is happening in America.
spk12: Don't forget, Harry, those numbers you cite were pre-COVID, so it's really not apples to apples to where we are with the industry-wide supply issues. So comparability is difficult at this point.
spk10: But you have to hope that's going to level out. That's going to subside.
spk09: No, totally. I mean, so at a high level, then maybe the bomb's a little bit higher now. Do you think about the mid-decade bomb materially different from that 37,000 number that you've given pre-COVID since it does seem like some sort of pre a lot of these issues?
spk10: Yeah. Mid-decade, of course. Again, What we're doing with our motors and our power electronics that run those, the big costs in an electric vehicle are the drivetrain and the battery, of course. Everything else is not too far from a conventional vehicle, especially now that conventional vehicles are using things like electric air conditioners. So I think it's going to be better than we forecasted, but that's just kind of globally looking at the way the world's going. Again, What happened last week really changed. That was a watershed moment. We think it's just going to be two full-size electric trucks for a while, for years to come here. And we're right with them competitively price-wise. So the temporary increase from COVID and everybody, even gas vehicles, all increased their prices this year. So we think that will subside over time. We don't think it's going to have a long term. But I think a much bigger driving force than that, the temporary issue of that, is these tier one suppliers, there's just more and more of them, and that creates a horse race, and they're competing on price. We're doing as many electric vehicles as anybody in the truck space. So the old model where somebody was making a million gas vehicles, you know, but they're making the same number of electric vehicles than us. It levels the playing field a lot.
spk09: Yeah, understood. That's helpful. And if I can just ask one more, like obviously the cash runs picked up a bit this year. Can you potentially provide some color on how we think about free cash flow break even just in terms of units or how we think about where volumes need to go for the company to start generating free cash flow? given the cost structure, given everything that's going on right now?
spk12: You know, remember, to keep this, Harry, as Carter, you know, to keep this in context, we do believe the phenomena with the supply chain is temporary. So, you know, we're not ready to give an update on a specific break-even target, but we don't think it necessarily differs from what we'd originally thought going into plan because we believe this will subside.
spk09: Okay, that is helpful. Thank you for clarifying that. That's all the questions from me tonight. Thanks, guys. Thanks, Harry. Thank you.
spk01: Thank you. Our next question comes from the line of Adam Jonas with Morgan Stanley. Your line is now open.
spk11: Evening, everyone. First question is regarding pre-orders. I believe the last update was in January, early January, when you – shared the over 100,000 pre-order milestone. Can you provide an update of where we are today?
spk10: Yep. Hi, Adam. This is Steve. You know, I think we articulated that that was a nice round number, and now that the betas were out, we've stopped at that 100,000, and we are converting folks over to what we call now vehicle purchase agreements. I think last time we announced we had 20,000 of those or so. That's up to north of 23,000, I think. These, although still can't be order orders because we don't have the vehicle done and through regulatory yet. You're not allowed to take orders. But they have a lot stickier things. Some of them have down payments in them as we get close. When we got to start spending the money to make the vehicles, we're demanding down payments, things like that. So a lot more teeth than the old days. Tom Kniep is telling me I'm a little low on $23,000. It's really around $30,000.
spk11: And those, that around $30,000, they do include some form of a down payment, or some of them do?
spk10: Most of those. All the new ones do. And when we get, I think it's within, when we get 90 days from building, right, then down payment is due, right? That takes the onus off of us to buy those parts ahead of time and You know, more of a, you know, a conventional model.
spk11: Okay. Okay. And just a final one for me, Steve. You know, it's a question on providing adequate capital to the company while recognizing the strategic value of your assets, the plant, your tooling, your market position, right, the time to market, all the things you mentioned. Mm-hmm. So I guess if the goal is to add ballast and resilience to the company so that you can ramp efficaciously and be a strong financial partner that your commercial customers would really rely on you to be to see them through for these work trucks, would you consider strategic alternatives, including potentially a sale of the company, as a mechanism to bring that capital in and crystallize that ballast.
spk10: Well, it is, you know, we're in a very capital-intensive business. We think we do a great job of trying to do this for the least amount of capital if anybody's ever tried this before. And again, getting to the milestone of crash test, you just don't see this. The 50 vehicle companies that have gone before us that didn't make it, it's not because it wasn't demand for their product. It's because they couldn't get this far. So we, I don't think we've ever considered selling the company, but we are in discussions with a few strategics, large strategic investors that of course would bring something a lot more than funding. But we do want to be known as, you know, obviously it helps float all boats if we are strong financially, right? So somebody buying our trucks knows we're going to be here to service them. Somebody realizes we've got the wherewithal to test these appropriately, which obviously you know, we have with or without financing. We're not putting anything out that isn't, you know, we're really bent on five-star, maybe the safest pickup truck ever into the wall. And, you know, enough durability testing that we're all confident of how good this is. And as we start to get folks like the Army looking at it, it's starting to be apparent that, you know, the hubs, the hubs motors, are very, very good. Four motors, of course, is always better than two. And so the superior traction thing we have, the simplicity we have, we're starting to get now that we're at beta, we're getting people are starting to realize what we're talking about here. And so we continue to evaluate the strength and what capital is available to us, the ATVM, for example. I think it's fair to say this. This is just my personal feeling. There would be no Tesla. if they didn't get that early ATVM loan, right? And it was a big one. And they paid it back early, and it's a huge success for the ATVM program. And that's the best money you can get, right? It comes with a pedigree of the DOE, you know, doing diligence on you to make sure your technology and your market and your everything is good. And it's a very good price of money. There's other things out there not as good. But, you know, we, in addition to You know, obviously government vehicles are going to start going electric. We want to be a – and government buys a lot of trucks. We want to be right in there. And there's a lot of, you know, obviously the $7,500 tax rebate instantly is great for our customers. Carbon credits are a great way to get us off the ground. But there's a lot of government help as well. So we're investigating all of that constantly, evaluating it.
spk12: Adam, just directly, we have no intention of not being an automotive OEM. There are a lot of ways we can take the facility and different ways we can monetize it, but right now our plan is still to be an automotive OEM, but we will do everything possible to maximize shareholder value, and we'll look at all opportunities, but right now the plan is to remain to be an automotive OEM.
spk10: Adam, I think of all people, we feel like there's nobody... going to come to market soon with a full-size electric pickup truck, right? So there's no small companies coming behind us. We had a big announcement last week that brought the whole thing mainstream, right? The number one vehicle is going electric. The other people that make gas pickup trucks have not, you know, shown their cards yet timing-wise. So, you know, to sell when we're going to be the only two electric full-size pickup trucks on the market for quite some time, no, selling is not anywhere in our vernacular. Thanks, Steve. Okay, man.
spk01: Thank you. Our next question comes from the line of John Lopez with Vertical Group. Your line is now open.
spk02: Hey, thanks very much. I have two, if you don't mind. The first one, I'm hoping you could maybe just level set us because there's been like a bunch of changes in the metrics you guys have offered these last few months. So number one, what were you viewing as the prior 2021 production target? And the commentary you've made today about production, is that only in a scenario where you're unable to get funding? It sort of reads like you're cutting production, but then you also introduce these caveats. So could you maybe just talk about those couple dynamics for a sec?
spk10: Sure, John. First and foremost, we just want to be clear, and maybe we weren't super clear. We are, you know, we're saying, look, if we don't get any funding, which is not in our, you know, thought process, but if we don't, it's always good to know worst case, we might only make half of what we were going to make before, right? Obviously, we don't want to do that with a strong appetite by customers for this vehicle and to be, again, we're really, first mover advantage has proven to be Very, very important in new technology like this. So we intend to bring capital in in one or more of the various ways. And strategic is really attractive to us as well. But we fully intend to capitalize ourselves such that we can make our milestones. And just to refresh you, for 2021, we are at 2,200 vehicles, 2,200 endurances. The van won't come online until next year, and so we're only talking about this year for most things. So in simple math, you know, we're going to be about 1,000 if we don't get any funding.
spk02: Okay, understood. But, sorry, just on the other side of that, if we see an announcement from you in the next little bit that you have secured funding, then we just sort of instantly assume you're back to the 2,200 figure?
spk10: Correct, correct.
spk02: Okay, gotcha. That helps. And then, sorry, just as an adjunct, I guess, to that, do any of these perturbations in maybe the second half of this year, do they have any of the knockoff effects onto what you were anticipating to produce for like 22 or 23?
spk10: I'm not quite following you there, John. I'm sorry.
spk02: I'm sorry. I'm just asking.
spk12: Are you asking the volume target for next year, John?
spk02: Exactly. What I'm asking is, if you make any adjustments to your 2021 production, does that knock off to what you could do in 2022 and 2023?
spk12: It really depends on the timing of the financing and how quickly we can secure. We're not ready to update 2022 numbers right now until we go and check out those different sources and opportunities and see what we can potentially raise, and then we'll update you as soon as we you know, in short order and let you know what we think we can secure and then give you a more robust 2022 forecast update.
spk02: Okay, understood there. Thank you. Sorry, the second bucket or sorry, my second question, I guess that was all kind of one question. The second one is just, and I guess you were asked this a little bit before, maybe I'll try it this way. Given how far above where you thought 2021 spending was going to land. Can you talk to us even just directionally about what 22 and 23 spending look like? Have you front-loaded significantly more of what you expected over a multi-year time frame, or is this kind of a new base from which we have to think about the next few years layering on?
spk10: Good. I'm going to let Rich jump on that. But just as an example, right, we're building a huge, battery pack facility here, right? And we've said, I think it's going to be second largest in the country when it's fully up and running. We're doing that in anticipate because you just can't move quickly, right? So let's say we get the funding and now we say, okay, now let's do everything we thought. Let's even do more than next year if we can. So we are continuing to keep our powder dry. We're trying to, I think that's a question you're asking. the increased spending, we are trying to keep our, have our cake and eat it too, that if we have to pull a lever for funding and slow down a little bit, it doesn't preclude us from doing what we want to do once the funding is there, right? Or some clarity that we should port it on full speed. So we just don't want to handicap ourselves if we can. It's not a perfect science, but we are trying to maintain the big stuff with the long tent poles, the long lead items, like building out a battery factory. We're continuing down that road so that we are able to execute in what we wanted to.
spk08: So to answer your question pretty quick, John, because of the timing, But most of the 22 plant is capacitized already for the 30,000. So the battery, most of the hub motor, the body shop, the paint shop, and General Assembly is already tooled for that. Where we've cut back the tooling cost is mostly the body shop and stamping. So we go to more of curb sets and soft tools. So we will have to go hard tools, which will be most of that cost. So the frame line and – the body shop and the stamping shop is where we have to add the hard tools to. So that will be where the increase will have to come in 22. Okay. Okay. Thanks for the thoughts, guys. I appreciate it. Thank you.
spk06: Operator, do we have any more questions?
spk01: Our last question comes from the line of Ben Callow with Baird. Your line is now open.
spk00: Hey, thanks, guys, and thanks for going over. I appreciate it. Just on the battery strategy, could you talk a little bit about, you know, you guys mentioned maybe bringing cells in-house and how you're evaluating that decision. My second question is just on competition, going back to some of your earlier comments, you know, you mentioned two, your truck and someone else's out in the market. I just wonder how you, I think you're talking about Ford, but I wonder how you segment Rivian who's coming to market as well as Tesla coming to market in that group. Okay. Yeah. And then, and then just finally, I guess you probably said strategic 14 times. And so I was just wondering, you know, for what strategic means to y'all, you know, I mean, I think the quick glance would be like an OEM, but like, should we like cast our net, you know, broader than that as we think about what a strategic investor would be. Thanks.
spk10: I think you're on the right track there, but it can be many things. A lot of people are in this business that can help us in some capacity. And so when we say strategic, we're not thinking, it's not kind of tangential. It's a direct big thing for us as far as help in addition to money. So it could be many things. It could be engineering, could be you know, a lot of parts, you know, we have a GM parts deal, which has been invaluable to us. Um, and you know, we, we just learned that from that experience, we have learned that, you know, maybe we don't do everything by ourselves and, and there's a hundred years of automotive out there. And, um, uh, you know, maybe we should, uh, if somebody is interested in investing, this could bring more than money. Sometimes it's, you know, it's worth way more than the money. When I talk about first mover advantage, and there will only be two of us, I'm talking strictly about a full-size work truck. So Rivian, from what I understand, is a mid-size truck geared towards the adventure market. And Tesla's Cybertruck, we're not sure what market it's aimed for, but I don't think it's for the worker. So that's what I mean by that. And then I'm going to let John Vo here – kind of talk to you a little bit about our battery strategy, if that's okay. Thank you very much.
spk06: Yeah, this is John Vo. You know, for the battery cell, you know, we are conducting research and development on that, just like any other serious OEM would have to do. You know, if you look at a story from Tesla Motors, they have all these strategic partnerships with Panasonic, LG Chem, Samsung, And pretty similar to them, we have that. But at the same time, we anticipate what the supply demand in the future. And everyone knows that the demand for the battery is much, much higher than what the supply can produce. So we anticipate that we're not going to be an exception to that. So that's why we have to anticipate some of the shortage. starting the research now so that now in a couple years down the road we don't have a problem.
spk00: Okay, got it. Thank you, guys. Thank you, Beth.
spk01: Thank you. There are no further questions. I will now turn the call back to Steve Burns for additional remarks.
spk10: Thanks, Operator. And I really want to thank everybody for, I know we went a little over here, but this is a car business and it's You know, we're a startup car business, so it takes a little while to explain. You know, I think from our point of view, from management's point of view, of course we don't like cost overruns. We don't like supply chain that's bouncing around a bit, but that's just part of this business. What we are extremely excited about is strong demand for our product, and it's been validated now. You know, last week's announcement was basically our truck at our price point. And that's a big move to take the number one vehicle in the country and turn it electric. So really, to be this close to production, to be first in that highly competitive marketplace, I hope everybody can appreciate why we're so excited. Imagine entering into the US pickup truck wars, right? It is fiercely competitive. we are coming in with a 75 mile per gallon, essentially a pickup truck that gets that kind of fuel economy. So that's a game-changing moment. And the big, if we're watching us and trying to figure out if we are on course as we navigate this, to be this close, again, our guesses are getting better as we get closer to production. Since we're cutting new new path that nobody's ever cut before. We think we've been relatively close. And the crash test, right? If we had been really sideways on that crash test, it would set us back. So that is, to us, the largest gating element. We have passed it. And so I think that should help dial in, you know, what's the execution risk of us actually getting there. So I want to thank everybody again for being on the call, and we'll talk to you soon. Thanks, everyone.
spk01: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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