Good afternoon, and welcome to the Electric Last Mile Solutions Second Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask Please note this event is being recorded. I would now like to turn the conference over to Eric Grossman, Director of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us for Electric Last Mile Solutions' 2nd quarter 2021 earnings call. Before we begin, we'd like to remind you that remarks made on today's call may include forward looking statements. These are based on our predictions and expectations as of today. Forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our most recent SEC filings.
Joining me on the call today are James Taylor, Co Founder and CEO of ELMS Jason Law, Co Founder and Executive Chairman Albert Lee, CFO and Rob Song, Deputy CFO and Treasurer. Management will make some prepared remarks, and then we will open the line for your questions. Now I'll turn the call over to James.
Thank you, Eric, and thanks, everyone, for joining us today. We had a momentous second quarter in which we made great strides in our mission to redefine productivity for our customers with intelligent eMobility workstations designed for the last mile. In short, we completed our business combination with Forum Merger 3 Corporation and became the 1st publicly listed EV company focused exclusively on the Class 1 to 3 commercial segment, which we call the last mile segment. We acquired our EV manufacturing plant and our engineering program is on track. Demand continues to be strong and we are now actively working with customers to finalize their order commitments And we are affirming our plan for SOP of the urban delivery by the end of the Q3 this year.
This keeps us on track to be a 1st mover in the Class 1 Commercial EV Space. And this is our first earnings call. I'll begin with some company background, then provide details on our business updates and outlook, and lastly, I'll turn things over to Albert to discuss our Q2 financials and outlook. At ELMs, we saw the opportunity to serve the underserved. The businesses of this country from trades to Fortune 500 fleets who have lacked the proper sustainable and intelligent productivity solutions, Solutions that are profit drivers, not cost centers.
And we identified a white space, The Class 1 Commercial EV segment and we expect to benefit from several major tailwinds. 1st Is the enormous demand for commercial vehicle solutions driven in large part by the exponential rise of e commerce. Then there is the green tidal wave led by both companies seeking to meet aggressive ESG targets and the government, which is pushing and in many cases mandating the adoption of sustainable solutions such as commercial EVs and working to There are few, if any, commercial EVID options On the market today to meet that demand, here lies our opportunity. There are many new entrants and existing players who have announced Commercial EV Products, but we believe those deliveries are in general some time away. HELM's is coming in the very near future and we plan to ramp to mass production levels.
And we will start in the Class 1 segment Where we expect to be a first mover and then expand into the Class III segment as another early EV entrant. Our key differentiator and enabler is our unique business model. By leveraging existing and market proven components, We can quickly get to market with reliable products at an exceptional speed by industry standards. The use of an EV ready facility and market proven components dramatically reduces our costs and allows us to provide what we believe will be one of the lowest total costs of ownerships. And as a solutions provider, We're not just delivering the hardware, but also customization and digital solutions that will enable our customers to do more.
And our products, the Urban Delivery and Urban Utility are segment defining. We expect both to offer at Or near acquisition pricing, including federal incentives versus competing ICE vehicles, as well as more cargo volume, which to our customers It's far more important than weight. And we're excited to be making these EVs here in the U. S. And help make this country the center of EV design and manufacturing.
With that intro, let me now give you an update On our business activities to date and our outlook for the rest of the year. In June, we completed our business combination with Forum, which resulted in a total capital raise of $294,000,000 more than sufficient funds to execute our business plan. We also acquired our fully capable EV factory in Mishawaka, Indiana and are rapidly progressing towards production readiness. We enhanced our global organizational capabilities by expanding the leadership team with key personnel across Digital Solutions, Engineering, Operations, Finance and Sales and Marketing. Recent additions include Chief Strategy and Digital Officer, Jonathan Balan VP of Engineering, Praveen Cherian Adam Du, Director of China Operations Deputy CFO and Treasurer, Rob Song Chief Revenue Officer, Ron Feldeisen.
To further advance our global engineering operations and OAXESS talent And Global Suppliers, we have plans in place to expand our office locations to include Shanghai and San Francisco. On the customer front, we announced earlier this year that we have received more than 45,000 pre orders for just the urban delivery. And we're very excited to announce that we are working with customers and our distributor partners to finalize order commitments With targeted end customers, including FedEx independent contractors, Amazon Delivery Service Partners, On demand cargo van rental companies, universities, HVAC Companies and many others. Our customer engagement is simultaneously continuing at a rapid pace with more than 35 scheduled trials for potential customers across verticals, Again, spanning parcel delivery, telecoms, home improvement, vehicle rental, ports and so on. We are also directly engaged in discussions with numerous fleet management companies.
These are an important go to market channel in the commercial vehicle industry. The top 10 U. S. FMCs, as they're called, alone oversee more than 1,900,000 vehicles. One example of these engagements includes Merchants Fleet, the nation's fastest growing FMC and a leading driver of fleet electrification.
As part of its Electrify Fleet initiative, Merchants Fleet has announced a commitment to have 50% of its mobility fleet Electric by 202550 percent of its managed clients' fleets electric by 2,030. We also announced a partnership with Trane Technologies Thermo King unit, the global leader in transport refrigeration To build a first of its kind, all electric, refrigerated delivery vehicle prototype to demo with customers. This highlights our capabilities to deliver upfitted solutions across a number of industry verticals. In this case, the delivery of perishables from food and beverage to vaccines, while providing customers with green products That will drive them towards their sustainability targets. This is really a great application for our product.
If you think about the current gas and diesel refrigerated vehicles out there today, they're constantly idling, Wasting Energy and Spewing Pollutants. And this is the kind of product that shows how we can make the entire supply chain cleaner, More sustainable and at a lower total cost of ownership. This is just one example of the end use cases and verticals we can touch, We'll provide more details as we finalize our arrangements with other targeted upfitting partners. Importantly, we will shortly be initiating customer pilots with our second vehicle, the Urban Utility, our all electric Class 3 medium duty truck. As with our urban delivery, we believe the urban utility will be very competitive across both price and cargo volume versus both existing ICE competitors and new V Entrance EV Entrance in the segment.
Customer demand for the urban utility has been incredibly strong And companies are eager to have our demo vehicles in hand. At that point, we will begin to take reservations. On the back of the urban delivery, we believe the launch of the urban utility will provide ELMS a strong portfolio position across the Class 1 to 3 last mile segment. We don't see any other OEMs getting the kind of EV foothold as quickly as we anticipate entering the market. We've also announced a strategic distribution partnership with Randy Marion Automotive Group, one of the largest commercial automotive retailers in the country.
We feel very good about this partnership, which unlocks another important and high volume go to market channel. We now have an order commitment from Randy Marion Automotive Group, representing nearly $200,000,000 over the next 12 months. And to support our customers and maximize uptime, We're putting in place a service ecosystem to offer complete coverage and deliver service in the most efficient manner possible. We plan to use elmsair fleet monitoring system, which will include over the air update capabilities as well as incorporate All of the dealer service partners as well. In May, we also announced a service collaboration With Cox Automotive to give our customers access to Cox's end to end fleet service, including 6,000 service locations, 3,000 partner locations and Dickerson Fleet Services network have more than 800 mobile technicians.
Our partnerships with Randy Marion Automotive Group and Cox Automotive are specific examples of how our ecosystem approach enables speed to market And derisks our launch with both distribution and service covered from the onset. What I'm not doing is going dealer to dealer I'm trying to build my service network up from scratch. When it comes to launch readiness, we've made great progress and are definitely accelerating efforts Here, where we can recover from the delay in the merger closing as well as all of the other challenges that the industry is experiencing. Most visibly, we acquired our EV Ready manufacturing plant in Mishawaka, Indiana. This is a phenomenal plant, one I've had a long history with that has proven itself flexible for quick ramp and launch of different vehicle platforms From the Hummer H2 to the Mercedes vehicles, there are a couple other major benefits from this specific plant.
First, the previous owners made significant investments in the facility to retrofit it for EV production. This means that we have limited retooling required for launch, in fact, less than $10,000,000 a fraction Avoda would typically cost OEMs to retool a plant. This plant also has an estimated annual production capacity of 100,000 units, which supports our business case as a mass production EV OEM and equips us with the ability to satisfy the enormous demand we are seeing On the commercial EV front, we benefit also from an experienced, ready and highly motivated workforce, Many who have actually previously worked at this plant and went through extensive EV launch training. In addition, we have strong support from the Indiana Economic Development Council, which has offered us up to $3,000,000 in conditional tax credits and training grants. Our engineering activities have also advanced at a great rate, in part due to our business model that leverages many existing, Validated and market proven components.
While we are engaged in a number of standard OEM engineering activities From software development to validation testing, we have a lot of focus on our vehicle integration and homologation efforts. We are on schedule to finalize our testing and meet U. S. Regulatory requirements. Our IP portfolio continues to grow as well, and we recently filed, For instance, a patent for a proprietary Class 1 commercial EV frontal impact absorption design As part of ELM's proprietary EV crash protection system, we've tested the technology in this patent application in crash testing and the results were extremely positive.
We're confident with our progress to date and are now proceeding with final confirmation testing For the body structure, we expect that to occur this month. I feel very positive about our supplier ecosystem to support our launch. Last week, we held our 1st summit with key strategic suppliers to align on their individual capabilities and launch readiness. This was also an opportunity to ensure that all communication channels are open as we approach start up production. As you're all aware, battery supply is a high profile subject at a national level and in the total EV business.
On that front, back in February, we announced that we secured a battery commitment from CATL, the largest global battery company. We also signed a binding supply agreement with Wuling Motors, a leading automotive manufacturer of electric cargo vans. This broadens our supply base for market proven components, and we'll be working with Wuling as our primary supplier Body and chassis components for the launch of the Urban Delivery. Elms has been driving the overall vehicle design based on U. S.
Customer requirements and engineering specifications. Finally, I'd like to discuss now our outlook through the end of the year. First, we are affirming our plan for SOP by the end of the Q3 for the urban delivery. We've also set our production schedule for 2021 with a target of 1,000 vehicles. We set this, we believe, in spite of the delay in the close of the merger, COVID-nineteen disruptions, industry wide supply chain challenges, and now what appears to be the biggest of all challenges, logistics.
We believe that this target was important to set for several reasons. First, we have such strong demand from customers that we need to get to market quickly and as great a scale as possible in the near term. By hitting production this year, we see an opportunity to establish long standing customer relationships We'll separate ourselves from a crowded space full of new entrants who will not enter the market for some time, many for several years. 2nd, we needed to align all our suppliers and partners and get their commitments, which we now have in place. Now, I want to remind everyone again that there are definitely challenges in front of us.
I've just mentioned some of them, the delay in the deal close, COVID-nineteen, part shortages, supply chain complications, logistic challenges and rising freight costs, increases in prices of raw materials And so on. We are not alone in experiencing a shortage in containers and a 4 to 5 times price increase in container costs. We're doing our best to offset these, but these challenges are real. All of this is on top of the normal challenges that come with launching a vehicle and ramping production. We're fortunate that the ELMS team has a tremendous amount of experience launching many vehicles.
So we're pushing ahead to reach our target of 1,000 units this year. To summarize, We believe we have all the pieces in place to launch this year and take advantage of a tremendous market opportunity. How often in life does a business come around that has white space, customer demand, business and government alignment And solves an enormous environmental problem. I believe we are positioned to be a major contributor to the solution, Not in several years, but starting this year. And even if we were to capture only a fraction of the total addressable market, Just 5% by our estimates.
That is enough demand for us to produce tens of thousands of vehicles annually. Our goal, of course, is to capture far more than a fraction, and we believe that our launch this year and 1st mover advantage will provide us a solid footing To establish ELMS as the leading provider of last mile solutions, we are at an inflection point in commercial EV adoption and ELMS is positioning itself to capture that demand. We'll have more developments to share over the coming months as we approach our start of production, And I look forward to updating you on our progress. Now I'll turn it over to Albert to go through our financials.
Thank you, Jim. We completed our business combination on June 25. The transaction resulted in approximately $294,000,000 Capital raise sufficient to execute the business plan and achieve positive cash flow. As part of our business combination, We entered into an agreement to acquire our EV manufacturing plant in Mishawaka, Indiana for a total of $145,000,000 At closing, we made an initial payment of $30,000,000 and the remainder will be paid in accordance to agreed schedule. Moving on to 2nd quarter results.
As of June 30, the company had a cash balance of $217,000,000 We also reported a net loss of $8,600,000 or a loss of $0.10 per share. We did not report any revenues And we do not expect to have any revenues until our first urban delivery vehicles are produced and sold, which we expect to happen towards the end of Q3 this year. Operating expenses were $7,500,000 Consisting of $2,400,000 of research and development expenses in development services, testing and prototype expenses and $5,100,000 of G and A expenses for personnel, legal, consulting and marketing expenses. For the full year 2021, total CapEx is expected to be in the range of $25,000,000 to $30,000,000 Bulk of this is expected to incur in the second half of the year. Our reduced investment level As compared to other EV companies, it's due to our efficient business model that leverages an EV ready production plant and market proven EV components.
We also project our total operating expenses For 2021 to be in the range of $75,000,000 to $80,000,000 This concludes our prepared remarks. We now open the lines for questions.
We will now begin the question and answer session. Our first question today comes from Mike Slusky with D. A. Davidson.
Hey, good afternoon, guys. Can you hear me okay?
Yes, Mike.
All right, great. I wanted to ask About your production outlook and then your and compare that to your sales outlook. I'm curious, do you expect to sell all that you produce this year? And can you give us a sense as to who the recipients of these production vehicles might be? Is it your larger distribution partners or will some of these vehicles go direct to of the fleet from that line of the order may direct.
Let me take the first one first. It's a short answer is yes. As you know, with the amount of demand we have, everything that we produce will go straight through one of the distribution channels we've lined up and I'll come back to the second part of your question. And I'd say instantly arrive at the customers. So there'll be a straight through.
We don't anticipate any inventory at our plant or any inventory at the Distributors, to pick up on your second part, Mike, we will be selling those first vehicles through the various distribution channels. And as you highlighted, That would be, for instance, our distributor Randy Marion, but also the FMCs because they're part of that initial allocation for us to go through to them. And as you know, ultimately to the end customers that would be the final users of those vehicles. So they'd be going through both those channels.
Okay, got it. And then for my follow-up, maybe I can ask about Your readiness to produce this quarter, a little bit about just some of the confidence behind that. Have you actually finished all the crash testing and all the safety testing? Are you kind of ready to go? And now it's just time to get the right people on board?
Or are we still waiting for the final results before you can officially turn on the switch?
Let me kind of walk it back up again. From an overall plant readiness standpoint, we have to have, of course, Several simultaneous things in place. So first is the product readiness. I'll come back to that. As we mentioned in my remarks, the supply chain readiness And we have the suppliers in place that we need for the initiation of our start of production at the end of September.
Readiness, of course, is key. In that regard, as you know by our business model, we started with already a very ready plant, EV ready plant and there was Just a small amount of labor additions that were required at the plant to get us into a position to be able to manufacture the first we've got. I talked to Brian this morning about 3 quarters of those people hired already since the closing. And then obviously at the other Customers waiting to receive those vehicles. So, of all of those, the one that you mentioned is in the product readiness itself.
And as you're aware, we have different customer requirements and different channels that those vehicles will be heading to. So in the first launch, Again, to control our risk and to make it a manageable launch, we have different customer Expectations, let's say requirements, specifications needed. So in that first group of those, the full Vehicle crash testing, as you call it, is not necessary. So we're in a position already with the specifications of the vehicle as they stand today to ship to them. And then as we complete our final verification and compliance testing, then we'll open up the 2nd channel And also ship them and call it Phase 2 later in the quarter.
Outstanding. I'll pass it along. Thank you.
Our next question comes from Stephen Volkmann with Jefferies.
Hi, good Maybe just sort of starting with that, when James do you expect to pass those Turtles relative to certification that gets that second channel open to you. Is that a 2021 event or does that happen in 2022?
I'll pass it, if you don't mind. Steve, obviously, Jason is our safety expert, so I'll let him go into some detail on that. Yes.
As I said, we have experienced Steve Rong, one of the largest safety companies, so I call myself safety experts. So, out of totally, For the federal requirement, total 41 tests, 24 for the funko, 14 for the size. So far, we've done numerous crush tests. In this month, we're going to have the 3 vehicles, 2 in the U. S.
So, I need China to get crushed, which we call the confirmation test For the order structure integrity and also the safety measure we put into the place, including the Side protection, front protection, knee protection and also battery protection, as you believe. So with that, we finished And which so far, our indication showing very positive. And with that, we'll be I call it, use an engineering term. We freeze engineering terms And we're turning our finish our crush pause with Kanzi on the controller. Now I'm going to go into a little bit detail now.
With that, we'll be go over On the our starting target by November for that?
I think the short answer, Steve, is yes, 2021, not 2022.
For sure. So does that answer your question?
Yes. Yes. No, I Yes. I can go into
detail as detail as you can.
I appreciate the long answer actually, James. But for my follow-up, How should we think about I guess I'm trying to figure out if you guys ship 1,000 units this year, what should we be thinking about From a revenue perspective and what I'm really asking is given the inflation that we've seen in various parts And also logistics, I think you called that out, James. Is there an opportunity for the unit pricing
Yes. Emily, work our way backwards. You're absolutely right. First off, as you know, with being first mover, nobody in the space. And as we've originally marketed the price of our vehicles, to be honest, at 32.5, as you know, when we now are approaching the customers move that to 34.5, There has not been any pushback.
And so we're also looking, As you said, an even more opportunity for upside. Of course, we got the opposite, call it, headwinds that says on our cost side, That would address revenue, but on the cost side, of course, these transportation costs and the overall logistics systems have gone the other way on And so we need to balance those to come out to our net profitability. But I agree with you, certainly there is an upside in our revenue.
Great. Thank
you. Our next question comes from Daniel Ives with Wedbush.
Thanks. So Jason, could you could we just go through the timeline just kind of on the last question? So Safety seems like everything is tracking according to plan. So assuming that happens, I guess like the November timeframe, could you then talk about that happens and then what the next step would be in terms of the plant in Indiana? Yes.
James, maybe you could hit on that kind of the 1, 2, how that would work?
Okay. So, I As we are trying to hit the market as quick as we can, right? So, I just mentioned earlier about next three vehicles, we lined up Actually, one test in China, one, 2 testing here, which so far The previous test indicated pretty positive. So, we finalized our EU code structure engineering phase, as Jim mentioned earlier. With that, so we started to in the next 60 days, we are going to finalize, We called the engineering to incorporate into the existing manufacturer the parts because needed some change.
So we're going to make some change for the parts To reflect the testing results, we confirmed. And of course, as we install the airbags, install the safety equipment Going through that, and we're going to have the you call it the certification test, which is, as you know, for the OEM Automotive, guys, you do it yourself for the safe to self certification, which is probably more like a November time frame with all the PPAP parts, you go for that. And in the meantime, I will answer for Jim. And we are Ramping up the manufacturer of people inside of the plants and give all the experience we have. I would say make your mistake as early as possible.
So this way, you don't have to dealing with when your volume go up go much higher. So with that, we're ramping up probably sub-fifty vehicles in the September And gradually increase to training labor, also, supplier base, supply chain The quality of the manufacturing system, including softwares, including the MES, including training, including the delivery, Everything we go through the, I call it, multiple tests in next, I call it, launch plus 90 days, if I use the Detroit word, To make sure we make all the necessary mistakes and get our because the lower speed of vehicle, The changes are much, much smaller, so allow us to get our total system trained. With that, As of November, we finalized everything for the True production going to this Ford certified vehicle, which that means we're going to be ramping up right to, I think, If I'm correct, 500, somewhere in that number, because this way, after 90 days, our Whole system supply chain is ready. So we can hit to 500 up to round rate to about 1500 Right into the Q1, that's kind of what we're looking at. Does that answer your question?
No, that's great. That's great. And Jim, maybe like Just going on that to the plant in Indiana. So like where in terms of like How many employees so far have been hired? Can you just talk about like the hiring plans between now and kind of full ramp as we go into Later this year, early 2022.
Sure. Well, just as you remember, Dan, the plant that we had Stations laid out there and again to control our risk and to make this a manageable launch, when we initiate the first vehicles in September, We really just need 6 stations on the assembly line there. So again, it's a very low, let's say, labor requirement for us to be able to hire our team. So We'll be initiating the plant launch with about 35 people and that includes both the course of salary As well as skilled trades, the support team and the operators themselves. So when I talked to Brian earlier today, you just 3 or 4 short of hitting that number.
Yes, sorry, you met Brian. Yes, for everybody else in the line, Brian Tim, our plant manager. And then as we went through again the fall, we'll grow that Total number up 50 to 75 as we get into the higher rates of production that Jason was mentioning. And then also We grow into, as you saw in the plant, about 17 stations that will receive 15 modules for the final assembly. So Again, on a relative basis compared to other launches and other assembly plants that might be getting in literally hundreds of modules and thousands of part numbers, This has been part of the plan from day 1 is part of our unique business plan to have a very, very, call it simple on a relative basis manufacturing launch.
That's awesome. Thanks.
Our next question comes from Greg Lewis with BTIG.
Yes. Thank you and good afternoon, good evening everybody. James, our gem I know you spent too much time kind of detailing out the customer backlog. Any kind of color you can give us on maybe how that is evolving now that it's now that I guess the for a month and vehicles are I imagine customer visits are starting
Hey, Greg, you cut out. We lost you about halfway through that question. I think I knew where you're going, but try it again.
Yes. I was just more curious about, I mean, post With the SPAC and I imagine customer visits to the facility are picking up, more people are getting more access to the vehicle. Any kind of updated color you can give us kind of around the backlog and maybe potential?
Okay. Well, I think I got enough to answer your question. It cut out again, but I definitely can fill in all of that. But you're absolutely right. As we talked earlier in the year, it was tough for us to schedule the test drives.
A lot of the companies, of course, had their own COVID restrictions as to accessibility to them and that world is thankfully opened up Somewhat we've had to date a little over 30, 32 drive events at different locations for different customers. So that's picked up. We've got right now, as I said in my notes, over 30 pending trials of people that confirmed, please bring it to my location, let my drivers test it, Some of them per day, some per week, some for 2 weeks. So we have those scheduled out in several of the verticals also, the telecom, home improvement, Of course, package delivery and things across those different areas. And also some of the other use cases we talked about, universities, airports, ports Some things like that.
And so we'll be working through each of those as those pilots are able to occur, we're quite confident that then that's going to start falling through, let's say, the bottom half of the funnel very quickly. And I think just build on that, we've been able to, I think, now to start merging back in with What I call more of a standard industry practice as far as the way that we would interact with these Potential customers and that they're used to a certain set of paperwork and commitments and trials and of course, ultimately leading the purchase So we initiated this with the so called preorders, but now we're merging down into, I'd say, a more standard normal process that other Large volume OEMs are using and also what the industry is used to as well.
Okay. And then on the Thermo King announcement, realizing that The ink is still wet on that press release. Any kind of color you can give us in terms of maybe What the lift price of that vehicle is going to be? And then just as we think about maybe what that addressable market looks like, Realizing you probably did a lot of diligence as you thought about doing that partnership and moving that project forward.
Yes, our first step is to take actually that unit itself that's been built up and we've got already I forget the name of it, it's up in the Northeast, some really large food trade show that's an annual show to show the vehicle and gauge consumer interest or customer interest. So Until we get some of that early feedback, obviously, Thermo King is very optimistic or they wouldn't have in fact invested to get the unit built. But once we come out of that, I think we'll have a much better read for the answer to your question.
Okay, great. And then just one more for me. Realizing that The initial 1,000 production for this year It's kind of we're going to get these units off the line and into kind of the suite managers' hands and end users. And any kind of color how we should start thinking about, I know part of the long term plan is To start doing some of the upfitting at the Indiana facility, any kind of progress there and then when we should think about Elm is starting to actually do some of the off setting at its facility.
Yes. I'll give you a little color on Couple of fronts. On the one, I'd say sort of premeditatedly and a little bit selfish to simplify our launch. Some of these early orders that we've taken in have very, Call it light upfitting, as you imagine with some of the package delivery, just some very basic shelving and trying to complicate our factoring process to get these early units out, simplify our quality process and things like that, and then move into the more complicated upfitting in the Q1. As far as the upbidders themselves, as you know, we've been working with several of them.
Adrian is our lead candidate, let's call it, and We're in the process of finalizing that, but they specialize in certain areas of upfitting and we also talked to several others That we're also in a stage of finalizing agreements with us well. So once we get those inked and completed, we'll also be able to share, I think, more on the Outlook from both revenue as well as the ultimate cash that flows through our bottom line as well. So we'll be updating you soon on that.
Okay, perfect. Hey, thank you for all and answering all my questions. Have a great night.
Our next question comes from Jeff Osborne with Cowen and Co.
Yes, good afternoon. Couple of questions on my end, Jim, on the shipping cost, the logistics that you referenced, great to hear that you might be able to raise Can you just give us a sense of you and your SPAC merger deck had some helpful details as it relates to Cost allocation between raw components, some of from China, some domestic, etcetera, shipping was in there. Should we simply just take what was in that Back merger deck and put a 3x, 4x multiplier on it? Or do you anticipate something below that? I'm just trying to get a sense of Trajectory for gross margins for the initial units?
Yes, I
think 3 to 4 would be low for your model, but I'll pass it over to Albert. He'll give you some more specific Numbers, so we'll give you the right guidance. Go ahead, Albert. Hi, Jeff.
Nice talking to you again. The world It's facing an unprecedented logistic challenge. And Jim mentioned container cost is 4 to 5 times Higher than normal. And the fact is that the containers cost $3,000 to $4,000 now over $20,000 And on top of that, The shipping time has increased significantly from 30 days to over 70 days and they are Very unpredictable. So as we disclosed earlier in prior filings, our gross margin was over 20%.
But because of the very strong headwind on logistics, we're expecting the gross margin to be dropped to low Now we are pursuing many actions to mitigate the risk as well as Recovering some of the margins. For example, we are pursuing contract rates. We're optimizing the shipping efficiency. We are evaluating creative ways In shipping strategies as well as Jim mentioned that we are pursuing pricing opportunities. So we are all working on that.
Hopefully the result will be better than what we have on the books right now.
Well, we've got Jeff, short term It's actually in our model reflecting the cost that we're seeing as we're seeing them. But we're also, of course, not baking In long term, we see that somehow this industry is going to balance out. But I tell you probably in the other people that you talk to in this industry, this As Albert said, it's beyond unprecedented and all my years of being in this business, we've never seen anything as crazy or dynamic as this. We think we have a line of sight on some of these early units. For instance, we're just bringing in this week, we call on Friday and then like Monday, they changed their mind that the The predictability of this entire system even domestically here is just like out of control.
So As I said, we're crisis managers. That's what we do for a living in this business. So we're all seasoned guys that We can do what we can do, but some of it is frankly a little bit out of our control right now. But over time, we've got, call it, a glide path back down to somewhat Normal, so that these short term logistics costs aren't baked in permanently, obviously.
That makes sense. Appreciate the detailed response. And then my follow-up question was on The market for the vehicles that you'll be producing in September October before that November certification, I saw the press release on Notre Dame, Things like zoos, college campuses, people that are on private roads, slow speeds. Can you just articulate what you think the size of that market is? Is it anything that's in your backlog or hand raisers?
And more importantly, What percentage of that is the 1,000 units that you expect for the year in the event that there's a delay in the November Certification, I'm just trying to get a sense of what can be achieved without that certification?
Yes. I think we've been, to be honest, Jeffrey, very surprised how huge this market is because it's Not the mainstream markets, it's not well documented or not much data that records this, but as we just get into a few examples, even just a few of these universities and so how big is Fleet and it turns out 1,000, it's quite remarkable. Then you multiply that by even just in the university vertical, the number of Universities gets up extremely high into 6 figures quickly. Then you go to the ports, then you go to the airports And the leisure facilities, let's call them, and all of a sudden this thing has been mushrooming on us. So what we thought it might be a limited market and might be a limited window of availability.
It's turned out to be a completely parallel market stream for us to address. It's above the typical, I'd say, quality and features of the LSV markets that are there now with these sort of open off road vehicles Into something that's of course more capable like ours. So yes, we're thinking this market is in the 100 of 1,000.
That's great to hear. That's all I have. Thank you.
This concludes our question and answer session. I'd like to turn the call back Over to James Taylor for any closing remarks.
All right. Well, we appreciate everybody We look forward to the next opportunity, the next window for us to talk to you either individually or as a group in our next broadcast.