Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Lion Electric Co (LEV, Financial) has implemented a batch size manufacturing approach for electric trucks to optimize liquidity and align production with demand.
- The company is transforming its battery operations into a product line, aiming to sell battery packs to third parties, which is expected to contribute to revenues and cash flows next year.
- LEV has certified its second model of battery packs, the Lion HD battery, and is working on integrating these packs into all vehicles and selling them to third parties.
- The company has reached an important milestone with the EPA clean school bus program, finalizing agreements for purchase orders representing $77 million in potential upfront payments.
- LEV has made significant progress in inventory reduction, achieving a $20 million reduction year-to-date and aiming for a $50 to $75 million reduction over 2024.
Negative Points
- The Lion Electric Co (LEV) faces continued challenges with cash flow management due to delays in the Canadian Federal DTF program and a slowdown in US EPA program deliveries.
- Lower deliveries have negatively impacted revenue, profitability, and liquidity, with Q2 revenues at $30 million and a negative gross margin of $15 million.
- The company is reducing its workforce by approximately 200 people to align with current demand, which will impact employees and incur severance costs.
- LEV is subleasing a significant portion of its Joliet plant due to excess capacity, which indicates underutilization of resources.
- The electric truck market demand has been significantly lower than expected, leading to cancellations in the order book and a need to adjust manufacturing strategies.
Q & A Highlights
Q: Can you provide more details on your plans to sell batteries through the new division? What types of batteries will you be selling, and will there be any software or subscription services included?
A: Marc Bedard, CEO, explained that Lion Electric will offer two battery packs: the MD pack (70 kWh) and the HD pack (120 kWh), both using NMC chemistry. These will include Lion's own Battery Management System (BMS) and potentially the PCMS. The batteries are suitable for various markets, including aerospace.
Q: Is there any tax benefit or subsidy that might be affected by reducing your presence at the Joliet facility?
A: Nicolas Brunet, CFO, clarified that there are no penalties associated with reducing their presence at Joliet. The subsidies are in the form of tax credits related to employee numbers, which have not been fully utilized.
Q: Given the challenges in converting market opportunities into your order book, do you need to change your sales tactics?
A: Nicolas Brunet, CFO, noted that demand in the school bus sector is driven by government programs and subsidies. The timing of these programs affects purchase orders. Lion Electric is focused on converting applications into orders and is actively engaging with potential customers.
Q: Can you quantify the estimated savings from your cost reduction initiatives, such as workforce reduction and subleasing facilities?
A: Marc Bedard, CEO, stated that previous cost reduction measures resulted in $40 million in savings, with $10 million recurring savings starting this quarter. The recent announcement will add $25 million in savings annually, with immediate impacts. Additional savings from subleasing facilities are expected but not yet quantified.
Q: What are the steps required to receive the expected $77 million in upfront payments from the EPA programs?
A: Nicolas Brunet, CFO, explained that for the grant round, formal purchase orders are needed, and for the rebate round, administrative processes like purchase orders and project planning are required. Payments are made before the installation of charging infrastructure, and requests have already started.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
