Earnings Call: Q1 2021

May 23, 2021

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 speakers' presentation, there will be a question and answer Please be advised that today's conference may be recorded. I would now like to hand the conference over to your host today, Carter Driscoll, Head of Investor Relations, please go ahead. Thank you, operator. Good afternoon, and thank you to all for joining Lordstown Motors' 1st 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 as 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, We'll provide our outlook and closing remarks. With that, I'd like to turn the call over to Steve Burns. 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 in electric Endurance work truck is on track to start limited production in late September And we expect to start deliveries later in Q4. As a reminder, the Endurance is a full size pick 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. To date, the Endurance has met the front impact federal motor safety standard, which is FMVSS 208 and the side impact FMBSS-two fourteen requirements through these actual crash tests held at the federally approved TRC test facility in Ohio. These are the 2 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 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 including strategic capital. As the automotive world speeds towards vehicle electrification, it's starting to be clear to many And 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 Endurance at such a competitive price point? Well, we have 2 major advantages that have enabled us to reach our 1st is our innovative technology. We believe that the Endurance will be the simplest mass produced truck ever made are simpler and smarter 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 or power to each wheel. The result is a smart pickup truck that is robust enough to handle the most demanding duty cycles, But easily field 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 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 train, we had no mechanical issues in the race And we're able to accomplish 2 important goals. 1, validate our hub motors, frame, thermal management system And battery pack. And 2, 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 4x higher coefficient of friction than a paved road does. Our energy usage was on par with our simulations, increasing our confidence that our vehicles range will meet the 250 mile target for an average customer duty cycle. Finally, 40 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 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 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 1,000,000,000 of One very important production note we want to remind you of is our 800,000 square foot propulsion and the largest hub motor facility globally. This will be an amazing accomplishment and we fully expect our investments And 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 PACCAR line is installed and is being tested currently. The line will make battery modules that contain over 6 1,000 individual cells that are assembled into every Endurance and 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 21. 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 frame. Although COVID has constrained the automotive Supply chain globally and has caused material increase in our R and 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 Discuss our progress on production, engineering and regulatory compliance. Thank you, Steve, and good afternoon to everyone on the call. I am Rich Schmidt, 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 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 'twenty one for testing and the rest for production validations. Crestlet tests are used by the industry to verify that the airbags, Seatbelts and pretensioners work within the Endurance interior for the CAE civilization 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 5 star rating. We are retooling the plant to be flexible, to enable us to build multiple vehicle platforms inexpensively from trucks to cars. We believe 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 began reconditioning and proving out our robotic body shop, The most expensive tooling of our plant is up and running, including the laser roof wells. 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 1st electric hub motor line on-site in July. It is currently being validated by our partners. We anticipate commissioning the 1st motor line before the start of production in late September. We believe that once all lines are building commission That we should be the largest manufacturer in automotive motors in the world. And with that, I will hand over to Julio to take you through the financial results. Thank you. 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 Q1 2021 results. As you may have seen, we published an 8 ks on May 11 that addressed the recent statements levied by the SEC regarding the accounting treatment for warrants issued by SMACS. We are continuing to work on completing the restatement and expect to be in a position to file our Form 10 In the Q1 of 2021, we recorded an operating net loss of $106,000,000 Our expenses consisted of $14,000,000 In selling and administrative expenses and $92,000,000 in R and D, of which RMB1.9 million is stock compensation expense. The higher than expected R and D expense It's largely from higher fire 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 Quarter of 2021 with a total cash position of $587,000,000 We have total assets of $779,000,000 largely consisting of our cash position, plus 100 and $55,000,000 in PP and E, dollars 76,000,000 in total liabilities, mainly accounts payer And $703,000,000 in shareholders' equity. From a cash flow We used $72,000,000 in cash from operations, used $53,000,000 in investing Activities from purchases of capital assets and generated $83,000,000 from financing activities, mainly from Warren Exercises. Our combined cash used in operations and investment was $125,000,000 excluding the $82,000,000 in cash we received from warrant exercises. We ended the quarter with approximately 177,000,000 shares. If all outstanding warrants were converted today, We will have approximately 180,000,000 diluted shares outstanding, not counting employee stock Thank you. And I will turn the call back over to Steve, who will provide our outlook and closing remarks. Steve? Thanks, Julio. As we discussed in our last earnings call, in response to the short sellers 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 Q2. 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 $250,000,000 $275,000,000 in CapEx. On the operating front, We now forecast $55,000,000 to $60,000,000 in SG and A, of which $4,000,000 is stock compensation expense and $280,000,000 to $290,000,000 in R and D, of which $7,000,000 We now forecast a net loss of between $360,000,000 $380,000,000 were approximately $2.05 to 2 $0.15 in loss per share using the 177,000,000 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 Reducing costs and delaying investments in 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 load. Furthermore, we intend to engage in discussions with strategic investors and we continue to seek and pursue opportunities and 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 1st full size electric pickup truck and deliver on our commitment to safety, Crash test. These are major milestones that we have achieved on our road to production. Every member of the Lordstown We want the Lordstown Endurance to be the 1st 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 21. Operator, we will now take questions. Thank Thank you. Our first question comes from the line of Greg Lewis with BTIG. Your line is now open. Yes. Hi, thank you and good afternoon everybody. And yes, Steve, 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 in though into the additional CapEx, 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 and D. Could you kind of walk us through some of those changes and what is kind of driving those incremental capital requirement on the R and D side? Yes. 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 Bowe, our VP of Propulsion. Just want to be able to answer any questions you could ask. 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 upfront because you got a tool for that, you got an engineer for that, right? And but it helps you in the long run. It definitely helps you as the It helps you as the Endurance volumes go up and as we layer in additional vehicles like the van. So the engineering, all For example, a lot of people don't realize all the betas, right, those aren't inventory, those are treated as R and D. So as we march 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. Okay, great. Thank you for that. And then just I just did want to follow-up. I mean, it looks like you're progressing through on making the proof forward on the crash test. What else what other kind of hurdles should we be looking for over the next couple of months kind of ahead of moving into Moving into preproduction in July. 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 100 and 100 or 100 or $1,000,000,000 right? 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, as you get closer to production, obviously, the number of variables decreases. So you just start to dial it in more and more. Of course, 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 sales sourced from 2 different vendors. So we have enough sales contractually to Make it all the way through our foreseeable future. We electronics, the chip Shortage you hear about all the time. We went ahead and upfront 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 the conventional thinking, we're moving very quick and Really doing this for a good pricing. So we're very happy with it. We don't like that it's moving. The target is moving a little bit, but we've taken the attitude of first to market is everything. It's really starting to evolve that 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 cited on the fact of how do we maintain September. And Greg, just to drill down on your point about what's left to do. Yes. Darren Post here. 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 FMBSS 100 Series, which are the non crash Regulatory tests that we need to do with the PPVs. That will start at the end of the second. So the short answer, again, Greg, I think is Regulatory is a big part of this business, right? And 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 physically is attractive to folks and also 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 2 and we wanted to get those upfront. 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. Okay, perfect. Thank you very much and look forward to catching up on a couple of weeks. Thanks, Eric. Thank you. Our next question comes from the line of John Murphy with Bank of America. Your line is now open. Good afternoon, guys. I just wanted to ask a first question. I mean, obviously, you're 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 plants, what would the borrowing base be on that? Because I mean, you've talked about, I mean, that being 1,000,000,000 of dollars, I think $2,000,000,000 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 discussion so far and how big could that be? Good, great question. And obviously, we're looking at all types Capital, but non dilutive like that is that in strategic is very important to us. But we have 0 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 it's 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? Yes. And we have $1,000,000,000 in assets That we can use for and but we want to do capital financing of the new or next Capital expenditures that we are going into. 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 got extra collateral above and beyond that. Yes. Got it. Okay. And then just a second question. Steve, you were mentioning bringing or in sourcing some parts because the Supply chain was not necessarily ready or disrupted by COVID, and that's part of the reason the expenses and CapEx went up. I think you said something about in sourcing The frame, I'm just curious, when you think you need to make decisions because the frame is a big capital commitment and an R and D Pete, on your trucks and any vehicle for that matter that has a frame. What other parts are being in sourced? And when do you Kind of pull the trigger and do that because that seems like a pretty quick turnaround if you were in source of the frame since the last conference call. I'm just trying to understand how this is working. Yes. And just for those who 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 We also have the thing that most people don't have to consider when they're engineering it 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 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, 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 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 we That affects it. So I'll let Rich maybe jump in a little bit there. Yes. So John, like Steve said, we do when we source stuff, we do, of course, have multiple suppliers. We had 3 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 the launching the Endurance in the fall, it came down to best option for us was to in source the frame. And as Steve said, it gave us Flexibility to go to market on multiple vehicles quicker as well. And then of course, we have our own stamping plant and we have a lot of spare robots with the size of So it allowed us to put a lot of those processes in place and, it was the best business Decision for us to in source the frame. So that's the decision we went with as a business. And Rich, if I may just follow-up, I mean, how fast can you make that decision? I mean, because that means that we're talking about a big decision and if you've got the stamping presses and the robots, 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, if I mean if you had all that stuff that capital, I mean, how fast will those decisions get made? It took us about we didn't really want to make that decision upfront because of the capital investment, as you said. It was about a 3 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 Supplier kind of pulled 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. The other decision that went into it is, Where we're 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 got an outside vendor making it, they're not As quick to respond. Now it did great in the crash test, but we're just it is constantly a buy versus make Conversation comes down to usually it's a little more expensive upfront of course, but pays off in the long run. And As an early OEM, right, we're really cognizant of there are some people that sub everything out, right. Some small So some of these startups just say I'm subbing everything out. And 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 have a third party Taking their time or busy with another client or that sort of thing. So big things like Frame, we just started And we should have in house in addition to the economics, it's also being able to 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 are in our control. And then just lastly real quick. I mean, one of the appeals The business models that you're getting out there in front of potential established competition and we've heard news about the F-one hundred and fifty Lightning, Price point is relatively surprisingly low below $40,000 So I mean, as you think about the competitive Your environment and the potential slowdown in your production ramp, how concerned are you in that Putting you sort of on your back foot in the competitive environment and or if you raise enough capital, could you reaccelerate Your production ramp curve. Yes, everything we're doing is to enable us to when we receive the capital, we're looking at To be able to have it all the pent up system ready to go. I think the competitive landscape is the most important part of our conversation here. We're just the fact that the competitor who's a very established Automaker has been working on this for several years and didn't come out with a 600 mile truck or a flex capacitor or A wild looking vehicle, right? A frunk, same bed, same cab, it's 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 to 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 market demand is what we think. So we're always keeping that in mind. It would be crushing To have the lead, have the 1st 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 make sure we can satisfy And take we want as many people buying our vehicle, why we're the only game in town and that will just give us we want to be on version 2.0 when somebody else Great. Thanks very much guys. Thanks, John. Next question please. Thank you. Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open. Yes. Good afternoon and thanks for taking the questions. The first question is on the liquidity target that the company articulated by 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? 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 Manors 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 it's going to require us We're successful in our fundraising, which again, we are going to be the only the 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 up Optionally, we feel we'll be there. But we wanted to make sure everybody knew that worst, worst case, we are still making pickup trucks this year. Yes. I think the key item of the working capital obviously is some 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 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 talked 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 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. Okay. I'll jump in and I'll let Carter take it. But of course, we got to be sensitive to their confidentiality. But I don't think it's 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 test if they didn't get this loan back in the day, right? So They're very conscious 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 just knee deep with them is really encouraging to us. And we are I don't know if I'm allowed to say we're optimistic or not, but We feel good about it. Carter? Yes. 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 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 Time line 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. Operator, we'll take the next question. Our next question comes from the line of Harry Niccol with Wolfe Research. Your line is open. Hi, guys. Thanks for taking the question. I think the first thing I wanted to talk about was just how we think about costs on the BOM going forward. In your first investor deck, you talked about a $42,000 bond now and a $37,000 bond in 2024 when When you get to 107,000 units, obviously, just sourcing expectations have changed. You brought a lot in house. Can you just talk about how you're thinking about the bomb now and how you're thinking about the bomb in 2024 and what all the moving parts are there? Sure. Hi, this is Steve Harry. Just to put it in context, we have probably 3,000 parts in the vehicle, 2,000 of them we purchased, right, just to kind of frame it up. We have we're the only full size electric coming out with 4 electric motors. Everybody else has 2, right? But we don't have things like drive shafts 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 is 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 costs. And we know all this Upfront, 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 time because the supply chain is ramping up, right? It floats all boats when somebody is making an electric air conditioner For somebody that's going to do 1,000,000 gasoline trucks, But it's an electric air conditioner, so we get to use it as well. So even gas trucks don't like to have a fan belt With a 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's unique to us, but we buy a lot of stuff and even the sales, of course, I think everybody is aware that Sales continue down. We're working on our own sales even that and lots of people are working on their own sales for 3 or 4 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 and some of the components, everything is moving directionally correct. I mean electrification of trucks Is happening in America. 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 supply industry wide supply issues, so comparability is difficult at this point. Yes. But you have to pull that level out. That's going to subside. No, totally. I mean, so at a high level then maybe the bomb is a little bit higher now. Do you think about the mid decade bond materially different from that 37,000 number that you've given pre COVID since it does seem like Since there are prelaunch issues? Yes. 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 conditioner. 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 is going. Again, What happened last week really changed that was a watershed moment. We think it's just going to be 2 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 1 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 1,000,000 gas vehicles, but they're making the same number of electric It levels the playing field a lot. Yes. Understood. That's helpful. And if I can just ask one more, like obviously the cash burn picked up a bit this year. Can you potentially provide some color on how we think about Free cash flow breakeven, 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? Yes. Remember, Harry, this is Carter. To keep this in context, we do believe the phenomenon with the supply chain is temporary. We're not ready to give an update on a specific breakeven target, but we don't think it necessarily differs from what we'd originally thought going into plan We believe this will subside. Okay. That is helpful. Thank you for clarifying. That's all the questions from me tonight. Thanks, guys. Thanks, Harry. Thank you. Thank you. Our next question comes from the line of Adam Jonas with Morgan Stanley. Your line is now open. Evening, everyone. First question is regarding preorders. I believe the last update was in January, Early January when you shared the over 100,000 preorder milestone, can you provide an update of where we are today? Yes. Hi, Adam, this is Steve. 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 of we don't have the vehicle Done and through regulatory, 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 was telling me I'm a little low on 23,000. It's really around 30,000. And those that around $30,000 they do include some form of a down payment or some of them do? 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 times and more of a conventional Model. Okay. And just a final one for me, Steve, 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. 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, right, 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 Well, it is 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 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 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 we have with or without financing. We're not putting anything out that We're really bent on 5 Star, maybe the safest pickup truck ever into the wall and 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 the hubs motors Are very, very good. 4 motors, of course, is always better than 2. 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 the pedigree of the DOE Doing diligence on you to make sure your technology and your market and your everything is good. And it's very good price of money. There's other things out there not as good, but we in addition Obviously, government vehicles are going to start going electric. We want to be and government buys a lot of trucks. We want to be right in there. And there's a lot of 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. I mean, Adam, just directly, right? So 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 At Automotive OEMs. Adam, I think of all people, you probably we feel like we're 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 shown their cars yet timing wise. So to sell when we're going to be the only 2 electric full size pickup trucks on the market for quite some time, No, we're selling is not anywhere in our vernacular. Thanks, Steve. Okay, man. Thank you. Our next question comes from the line of John Lopez with Vertical Group. Your line is now open. Hey, thanks very much. I have 2, if you don't mind. The first one, I'm hoping you could maybe just level set us there's been like a bunch of changes in the metrics you guys have offered these last few months. So number 1, 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 introduced these caveats. So could you maybe just talk about this couple of dynamics for a sec? Sure, John. First and foremost, we would just want to be clear, and maybe we weren't super clear. We are saying, look, if we don't get any funding, which is not in our 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 1 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 for to refresh you for 2021, We are at 2,200 vehicles, 2,200 Endurances. The van won't come online till next year. And so We're only talking about this year for most things. So in simple math, we're going to be about $1,000 if we don't get any Funding. 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? Correct. Okay, got you. That helps. And then sorry, just as an adjunct, I guess, to that, Does any of this do any of these perturbations in maybe the second half of this year, do they have any of the knock off effects Onto what you were anticipating to produce for like 2022 or 2023? I'm not quite following you there, John. I'm sorry. I'm sorry, I'm just asking the upside of that. The volume target for next year, John? Exactly. What I'm asking is, if you make any adjustments Your 2021 production, does that knock off to what you could do in 2022 and 2023? 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 in short order and let you know what we think we can And then give you a more robust 2022 forecast update. Okay, understood there. Thank you. Sorry, the second bucket 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 'twenty two and 'twenty three spending look like? Have you front loaded significantly more of what you expected over a multiyear timeframe? Or is this kind of a new base From which we have to think about the next few years layering on. Good. I'm going to let Rich jump on that. But just as an example, right, the We're building a huge battery pack facility here, right? And we've said, I think it's going to be 2nd 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. So or some clarity that we should put port it on full speed. So we just don't want to handicap ourselves if we can. It's not 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. So to answer your question pretty quick, John, because of the timing. But most of the 'twenty two plant is capacitized already for the 30000 The battery, most of the hub motor, the body shop, the paint shop and general assembly is already tooled for that. Where we cut back the tooling cost is mostly the body shop and stamping. So we go to more curve 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 2022. Okay. Okay. I got it. Thanks for the thoughts guys. I appreciate it. Thank you. Operator, do you have any more questions? Our last question comes from the line of Ben Kallo with Baird. Your line is now open. Hey, thanks guys and thanks for going over. I appreciate it. Just on the battery strategy, could you talk a little bit about you guys mentioned maybe bringing sales 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 mentioned 2 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. Yes. And then just finally, I guess, you probably said strategic 14 times. And so I was just wondering for what strategic means to you all. I mean, I think the quick glance would be like an OEM, But should we cast our net broader than that as we think about what a strategic investor would be? Thanks. 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, it could be A lot of parts, we have a GM parts deal, which has been invaluable to us. And we just learned that from that We have learned that maybe we don't do everything by ourselves and there's 100 years of automotive out there And maybe we should if somebody is interested in investing, this could bring more than money. Sometimes It's worth way more than the money. On the when I talk about 1st mover advantage and there will only be 2 of us, I'm talking strictly about a full size work truck. So Rivian, from what I understand, is a midsized 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, Yes. This is John Vo. For the battery cell, we are conducting research and development on that, just like any other serious OEM would have to do. If you look at a story from Tesla Motors, they have all the strategic partnership with Panasonic, LG Chem, Samsung, and pretty similar to them, we have that, but at the same time, and anticipate with the supply demand, right, in the future. And everyone know that the demand for the battery is out much, much higher than what the supply can produce. So We anticipate that we're not going to be exception to that. So that's why we have to anticipate some of the shortage and we're Starting the research now so that down in a couple of years down the road, we don't have a problem. Okay, got it. Thank you, guys. Thank you, Ben. Thank you. There are no further questions. I will now turn the call back to Steve Burns for additional remarks. 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 we're a startup car business, so it takes a little while to explain. 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. Last This 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 we 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 U. S. 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 is a game changing moment. So we and the big if I were 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. You can't Since we're cutting new teeth here, 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 what's So I want to thank everybody again for being on the call and we'll talk to you soon. Thanks everyone. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.