Thank you for standing by. This is the conference operator. Welcome to the Westport Fuel Systems fourth quarter and full year fiscal 2021 results conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Christian Tweedy , Westport's investor relations representative. Please go ahead.
Good morning, everyone. Welcome to Westport Fuel Systems fourth quarter and year-end 2021 conference call, which is being held following our press release yesterday of Westport Fuel Systems financial results. On today's call, speaking on behalf of Westport Fuel Systems is Chief Executive Officer, David Johnson, and Chief Financial Officer, Richard Orazietti. This call is open to the public and the media, but questions will be restricted to the investment community. You are reminded that certain statements made in this conference call and the responses to various questions may constitute forward-looking statements within the meaning of the U.S. and applicable Canadian securities laws. As such, forward-looking statements are made based on our current expectations and involve certain risks and uncertainties. With that, David, I'll turn the call over to you.
Thanks, Christian. Good morning, everyone. Thanks for joining us to review Westport Fuel Systems results for the fourth quarter and full year 2021. 2021 was a good year for Westport Fuel Systems. Despite lingering COVID restrictions, supply chain challenges, and rising commodity prices, we continued our recovery from COVID-19. We set a new annual revenue record of $312 million, driven by the strength of our OEM business, which was up 31% year-over-year due to record HPDI system sales, combined with strong light-duty OEM sales, especially in India. Our profitability improved year-over-year, and we look forward to further improvement as our production increases and economies of scale and operating leverage are realized.
In addition to the positive financial results that demonstrate our resiliency in the face of global challenges, during 2021, we also made significant progress developing and positioning our company for future success. For example, our purchase of STAKO, completed in May of last year, STAKO, based in Słupsk, Poland, is a world leader in LPG fuel storage systems. Their comprehensive product portfolio adds to and complements our existing product lines and manufacturing capabilities. STAKO's products serve the OEM and independent aftermarket, as well as other markets like recreational vehicles and material handling applications. We recognize a $5.9 million gain on the purchase. In 2022, STAKO will contribute a full year of operating results to our P&L.
Another 2021 accomplishment was the strengthening of our balance sheet by way of an equity raise and by restructuring our debt to lower costs and to align repayment terms with our business plan. With the successfully negotiated exit from Cummins Westport, we've further strengthened our cash position. Also in 2021, we had our initial demonstration of hydrogen HPDI. This technical success has led to new hydrogen HPDI projects with Scania, AVL, and TUPY, and as announced in February, now also with Cummins. In our view, the demonstrated capability of HPDI is a hugely important development for Westport Fuel Systems, which dramatically improves the potential for our near-term and long-term success with HPDI.
Internally in 2021, we brought the company together into a single global organization so that we're poised to bring all our capabilities to all our customers in markets around the world with efficiency and effectiveness enabled by unlocking synergies throughout our global team. Despite the various challenges we've faced over the last two years, and despite the challenges we face today and the new challenges that will come tomorrow, fundamental market drivers continue to support a positive outlook for Westport Fuel Systems. The climate crisis is still a priority. Clean air is still a priority. Affordable transportation is still a priority. COVID, supply chain problems, inflation, and even war, none of these diminish the challenge we face to keep the world moving without fouling the air and endangering our lives, our climate, and our planet. We owe this to society and to our children.
Global transportation is responsible for roughly a quarter of greenhouse gas emissions, so we must continue to use all available options to clean the air and to reduce CO2 emissions from transportation. We must do so quickly and effectively. To move quickly, we need clean technology now. To be effective, we need scale. To achieve scale, we need practical, affordable solutions. Westport Fuel Systems products are affordable, effective, practical, and available now. Our strategy stands on three pillars that enable progress towards our financial goals of $1 billion in revenue, 20% gross margin, and 10% operating margin. First among them, principled growth. Growth that's realized through a diverse portfolio of technologies, products, and services delivered by a team that's focused on doing the right thing in the right way and making a difference in our world.
We're focused on satisfying the demand for clean, low-emission transportation in Europe, India, North America, and China. As we've done in the past, we'll continue to complement our organic growth by adding products and scale through relevant M&A activities. Second, quality and reliability are fundamental to our performance as a leading tier one supplier of clean, affordable fuel systems. We must reliably deliver high-quality products with high production efficiency to enable low cost and to achieve the scale necessary to make a difference in our world and for our stakeholders.
Third, through innovation and technology, we deliver transportation solutions that power a cleaner future. Advances in our HPDI fuel system technology, including HPDI 3.0 and hydrogen HPDI, will lead to growth and prosperity, including the ability to reuse our customers' capital investments in manufacturing supply chain infrastructure while achieving their goals to satisfy their customers' needs and government regulations while reducing carbon emissions. Ultimately, the foundation for our strategic pillars is the continued strength of our organizational capability and a focus on operational excellence. Our people are at the heart of what we do. We are one company working together to deliver valuable, impactful products and services to customers around the world, enabling an affordable transition to a decarbonized transportation sector.
In the marketplace around the world, we continue to see evidence that clean, affordable gaseous fuels are a growing part of the transportation marketplace, even in, or rather, especially in challenging economic times. LPG, CNG, LNG, biomethane, and soon, if not already, hydrogen, will add resiliency to our global transportation system and do so cleanly and affordably. Global emissions regulations demand clean vehicles. Customers demand practical, affordable vehicles. Let me share a few examples. Markets are responding right now by adding more refueling infrastructure, like in Europe, where the number of LNG stations doubled in just the last two years. Today, there are 521 LNG stations according to NGVA Europe. The fuel in those refueling stations is getting greener as biogas continues to grow. More than a quarter of the gas used in road transportation in Europe today is from renewable sources.
Likewise, in India, we also see compelling growth for natural gas vehicles. Infrastructure there has recently doubled to more than 3,200 stations, and the government continues to champion their plan to reach 10,000 stations within this decade. OEMs in India are dropping diesel engines and moving to natural gas at a rapid pace. Westport Fuel Systems is well-placed with the right products to support the growing demand. Another example, government support. The European Union has just recently added natural gas as part of its taxonomy, a significant endorsement that can help make the EU more efficient in the use of energy and more resilient to energy price spikes while providing affordable and clean energy to end users. Another form of government support, incentives.
We observed in Italy late last year that the Italian Transport Ministry announced its decision to confirm, increase, and expand incentives for the purchase of LNG trucks. The decree for highly sustainable investments makes EUR 50 million available to transport companies through 2026, exclusively for the purchase of new ecological alternative fuel vehicles, including LNG powered trucks. Another one, renewables. We have seen encouraging biogas developments in the past few months. In Germany, the share of biomethane supplied at stations has already reached 80%, moving towards 100% in 2022.
Swedish Biogas, a leading provider of biofuel in Scandinavia, saw increased sales to the haulage sector of 145% in 2021 compared to 2020, citing a 30%-35% price differential for heavy-duty trucks, a significant cost reduction, and a solution available here and now for long-distance heavy transport that wants to switch to fossil free transportation. Finally, ultimately, market share growth. Earlier this month, the European Automobile Manufacturers' Association, that is ACEA, published vehicle registration statistics for 2021. Alternative fuels, which include natural gas, LPG, biofuels, and ethanol, accounted for the vast majority of the alternatively powered trucks sold across the EU in 2021, with a total market share of 3.6%, up 40% from 3% in the prior year.
While at the same time, the registration of hybrid electric trucks was down 55% versus the prior year. We're seeing a growing number of stories and advancements like this in our space, creating a very encouraging outlook for our product portfolio. OEMs without LPG, CNG, or LNG options today are at a disadvantage that our clean, affordable product can help them overcome. As you know, HPDI has been and will be a critical part of our path to growth to profitability. Let me point out some of the key developments. First, production sales of HPDI 2.0 continue to increase as evidenced by our top line growth and increasing weight of our OEM businesses, which reached 62% of our revenue in 2021. Second, we're developing HPDI 3.0 for our customers.
This next step for HPDI enables the use of HPDI with next generation engines that use higher working pressures to achieve even higher efficiency and higher performance. Third, we're developing HPDI with hydrogen. This combination of our technology with green hydrogen offers more power, more torque, and more efficiency than an IC engine fueled with either natural gas or diesel. We've demonstrated and documented this performance, including the economic advantage that hydrogen HPDI offers as compared to fuel cell technologies in heavy-duty long-haul applications. Hydrogen HPDI lengthens and broadens the appeal of our proprietary HPDI technology, reaching all the way to zero carbon green hydrogen future that so many are pursuing today with massive financial commitments from both government and private sources. We're pleased with the developments we've already concluded and those we have underway, and look forward to sharing more data with you later this year.
In the meantime, I point you to the white paper analysis we recently posted on our website showing our expectation to achieve 52.5% brake thermal efficiency using hydrogen HPDI on a state-of-the-art 13-liter truck engine. This 52.5% BTE figure corresponds to a 5% reduction in energy consumption relative to the same engine platform operating with diesel fuel. This is a big deal. This will make IC engines with HPDI the best way to use green hydrogen for long-haul heavy-duty transportation applications. I'd also like to provide an update on China, where HPDI powered vehicle models have been certified and field trials are ongoing. We're continuing to work with our partner to launch our HPDI 2.0 product successfully with their OEM customers. Multiple OEMs are working to integrate HPDI equipped engines into their trucks and bring those trucks to market.
We're confident that HPDI equipped trucks will enable substantial market growth in China, increasing the share of natural gas in Chinese trucking market beyond today's already significant 10% market share. Westport Fuel Systems looks forward to being part of that growth. We are in parallel continuing our discussions with other potential partners in China as the interest in HPDI, particularly hydrogen HPDI, is growing in China too. Just recently, China National Petroleum Corp launched a roadmap for the country's energy sector to meet goals of carbon peaking by 2030 and carbon neutrality by 2060. They forecast a transportation energy mix, including hydrogen at 23.7% and natural gas at 10.7%. A strong endorsement for these two fuels. Before Richard takes us through the financials, let me address the proverbial elephants in the room.
I'm talking about Russia, Ukraine, and fuel prices. You may have noticed in our press release that Russian market is relevant for us, representing 10%-15% of our light-duty business through both our aftermarket and OEM channels. We expect this will be directly affected by the conflict, and I've already seen the beginning of those effects, including reports of shortages affecting production and delayed processing of transactions through the financial system. In addition, the conflict in Ukraine seems likely to further exacerbate the supply chain issues we face, as well as put pressure on fuel availability and pricing. I want to call out three factors that don't all point in the same direction, making near-term future rather unclear. First, higher fuel prices. Commodity fuel prices are up dramatically, including crude oil and LNG.
Higher fuel prices tend to be positive for our business as it intensifies the search for products and technologies that can reduce fuel expenses. Gaseous fuels have often been the remedy for high diesel and high petrol prices. Second, though, fuel price differentials. When gaseous fuel prices are lower than petrol and diesel, then our markets strengthen. When gaseous fuel prices are higher than diesel and petrol, then this is a headwind for us. We're seeing both effects now. In some markets, for some fuels, we have an advantage. While in others, we have a disadvantage. Of course, what matters is what drivers see at the pump, which has some relation to commodity prices. Third, volatility. As prices change, market participants can pause their decision-making, waiting to see what the new normal will be. This is categorically unhelpful to all of us.
While it's hard to predict the future, especially these days, we remain confident that our products will continue to deliver and expand our market share in response to the persistent need for clean, affordable transportation. We saw this through COVID, and we expect to keep seeing it through the current challenges. We're keeping our focus on this long-term outlook while we work to mitigate the near-term challenges as we have successfully done before. With that, let me hand it over to Richard.
Thanks, David. In the fourth quarter, we generated revenues of $82.7 million, which decreased year-over-year by 1.4%. The decrease was mainly attributable to slightly lower heavy-duty OEM sales volumes and a contractual price reduction to our initial OEM launch partner. Lower heavy-duty OEM revenue was partially offset by the addition of fuel storage revenues from the acquisition of STAKO in the second quarter of this year. The fourth quarter was challenging for gross margin as we generated $9.3 million, which was a decrease year-over-year of 28.5%.
Besides the impact of lower heavy-duty OEM sales volumes and the price reduction, gross margin was pressured by lower sales volumes affected by the elevated and volatile fuel prices, lower margin sales mix to emerging markets in both light-duty OEM and independent aftermarket, and higher material costs resulting from global supply chain disruptions and inflation. Net income was $5.4 million for the quarter, an improvement of $1.3 million year-over-year. The CWI joint venture had a stronger than expected fourth quarter, generating $15 million to our account, which primarily drove the increase in net income and was partially offset by the lower gross margin.
Revenues for the full year of 2021 increased 24% to $312 million due to the continued recovery of sales volumes in our OEM and independent aftermarket businesses and the addition of $13.8 million in revenue from our fuel storage business. In 2021, we generated 21% higher sales volumes to our initial OEM launch partner in heavy-duty OEM. We saw rapid growth in our light duty OEM sales volumes in India and experienced a recovery in sales volumes in independent aftermarket, notwithstanding the headwinds from the pandemic, supply chain disruption, and fuel price volatility. Further, we are seeing growth in our newer businesses in electronics and hydrogen. Gross margin increased significantly year-over-year by 22% to $48.2 million, mainly due to higher sales volumes across all our businesses and the addition of the fuel storage business.
This was partially offset by the HPDI price reduction, a lower margin sales mix in independent aftermarket, and higher material costs caused by the supply chain shortage, which we were not able to pass on effectively to our customers. Fiscal year 2020 also included large COVID-19 related wage subsidies that were partially offset by a $2.4 million field campaign charge. We reported net income of $13.7 million for the full year 2021 compared to a net loss of $7.4 million for the prior year.
The improvement in net income was driven by several factors, primarily the increase in gross margin of $8.7 million, $9.7 million in higher income from CWI, an income tax recovery of $8.9 million related to an Italian government COVID-19 tax relief program, and a bargain purchase gain of $5.9 million on the acquisition of STAKO. This was partially offset by $5 million less in government subsidies received compared to 2020. Adjusting for non-recurring items per our definition of adjusted EBITDA, we generated $17.5 million in adjusted EBITDA in 2021 compared to $14.7 million in the prior year. Turning to our business segments. OEM revenue for the fourth quarter of $57.4 million was marginally lower than $58.8 million in 2020.
Revenue decreased by $1.4 million in the fourth quarter due to lower HPDI sales volumes to our initial OEM launch partner and the negative impact of the price reduction given at the beginning of the year. Delayed OEM revenues were also worse year-over-year due to lower sales volumes caused by supply chain shortages of vehicles to convert from our OEM partners. This was partially offset by additional revenue of $6.7 million from our fuel storage business. For the full year, OEM revenue of $195.5 million increased by $45.9 million or 31% over the prior year. The increase was mainly due to the aforementioned higher sales volumes in our heavy-duty and light-duty OEM businesses, $13.8 million in fuel storage and increased sales growth in our electronics business.
The impact of COVID-19 was significant in the prior period, which was impacted by plant shutdowns combined with lower light-duty OEM sales to German and Russian OEMs. Although heavy-duty OEM revenue was higher year over year from better sales volumes, the positive momentum on customer demand was impacted by manufacturing delays caused by the shortage of semiconductors on our initial OEM launch partner. Although the long-term outlook for HPDI sales volumes is positive, there's also near-term pressure on sales volumes caused by the rapid increase and volatility in LNG prices. For the fourth quarter of 2021, gross margin decreased year over year by $1.5 million to $5.1 million or 9% of revenue, compared to $6.6 million or 11% of revenue for the same prior year period.
The decrease in gross margin and gross margin percentage was mainly due to an increase in material costs stemming from the global supply chain disruption across all business segments, increasing sales mix of light-duty OEM sales to India and the aforementioned HPDI price reduction. This was partially offset by the additional gross margin from the fuel storage business. As India will play an important role in our light-duty OEM growth strategy, we are evaluating opportunities to localize production and other value creation initiatives to improve our margins. Turning to independent aftermarket. Revenue for the fourth quarter and full year 2021 were $25.3 million and $116.9 million, respectively, compared to $25.1 million and $102.9 million for the same prior year periods.
Revenue growth in 2021 was primarily due to higher sales to African and South American markets, offset by softness in demand from the Russian and Turkish market due to the rapid increase in LPG prices. We expect to see continued improvement in revenues from the independent aftermarket business segment for the full year of 2022, but temper expectations in the near term due to volatile LPG prices in our key markets and disruption from the Russia-Ukraine conflict. Gross margin decreased significantly year over year by $2.2 million to $4.2 million or 17% of revenue this past fourth quarter, compared to $6.4 million or 25% of revenue for the same prior year period.
The decrease in gross margin and gross margin percentage was due to the evolving change in sales mix toward lower margin African and other emerging markets, slower than expected recovery of sales volumes in Western Europe, and higher material costs due to the global supply chain disruption. The prior year also benefited from government subsidies, which resulted in a higher gross margin percentage. To counter this margin pressure, we are actively pursuing cost rationalization, manufacturing productivity enhancements, and sales volume growth. Turning to liquidity. As we have discussed over the quarters, we have made great strides to strengthen our balance sheet and liquidity to fund the growth in our heavy-duty OEM and other businesses through raising equity and refinancing our debt to better match the expected organic cash flow profile to the debt repayment.
As at year-end, our cash position was $124.9 million, and our debt was $79 million. During the fourth quarter, we closed the refinancing of our loans with our banking partner, Export Development Canada, into $120 million term loan repayable over five years. We are very appreciative of the support and relationship EDC has and continues to provide Westport Fuel Systems. Another significant boost to our near-term liquidity was derived from the termination of the CWI joint venture. On February 7, 2022, we agreed to sell 100% of our shares in CWI to Cummins for proceeds of approximately $22.2 million. Along with our interest in the joint venture's intellectual property for an additional $20 million. We received proceeds of $31.4 million, net of a $10.8 million holdback after the closing date.
Moving away from financing activities, net cash used in operating activities was $43.8 million in 2021. The use of cash is driven by operating losses of heavy duty OEM business due to the lack of scale and a large increase in working capital, specifically inventory caused by a buildup of heavy duty OEM inventory for customer growth, supply chain disruption and inflation. We are proactively managing our working capital to monetize the inventory and optimizing purchasing levels in the evolving supply chain landscape. Risks from the Russia-Ukraine conflict and volatile fuel prices will also cause near-term pressure on revenues and margins. Although the headwinds in 2022 are very challenging, we believe in the long-term fundamentals of our products that deliver affordable, clean transportation solutions will prevail. With that, I would like to turn it back to David.
Thank you, Richard. To recap, I'm proud of our team. We made important progress in our strategic positioning for the long term, and we recovered from the pandemic and supply chain challenges in the last two years. Despite the new challenges facing us in 2022, we see the need for our product and the need to decarbonize transportation will persist. In the coming months, you'll find us participating in various investment conferences including, but not limited to the Cormark Inflection Conference, Oppenheimer's Annual Emerging Growth Conference, and the RBC Capital Markets Automotive Conference. We'll be participating at the ACT Expo in Long Beach, California, in May. This is North America's largest clean transportation technology and clean fleet event, where we'll be providing an update on our latest development with hydrogen and HPDI. With that, I'd like to turn it back to the operator for your questions.
Thank you. We will now begin the question-and-answer session. Analysts who wish to join the question queue may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you are using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then two. We will pause for a moment as callers join the queue. Our first question comes from Eric Stine of Craig-Hallum. Please go ahead.
Hi, David. Hi, Richard.
Good morning.
Good morning. Maybe just to start with, HPDI 3.0, you know, if you could give a few more details there. I know you mentioned performance benefits. Curious if those are HPDI related or because it's on the, as you said, the next gen engine platforms out there. Then just wondering, you know, what your activity level is with this technology to date, whether you've got current development programs going on right now.
Yeah. Excuse me. Great question. So glad to talk about HPDI 3.0. I think the context to just paint the picture of that needs to be real clear. You know, in the market, in the media today, many people think the internal combustion engine is going away. But yet, we see with our partners around the world that people are continuing to invest in advancing internal combustion engines. The development of internal combustion engines is far from complete. There's always more improvement that can be made. Fundamentally, in this day and age, that means lower emissions from the base engine and more performance, more efficiency from the base engine. For us, as a fuel system supplier, that means that we need to upgrade our fuel systems to match the engine improvements that are being made.
Very specifically, basically, to make cleaner, more efficient diesel engines, you up the working pressure in the combustion chamber. As the working pressures go up, the pressures for our fuel system need to go up to match and keep pace. That's what we're doing. The work to basically increase the capability of our systems to match and complement the upgrades to the base engines. We see this across the industry in the work we're doing with the various customers for applying our technology, whether it's with hydrogen or with natural gas.
Okay. That's helpful. Maybe just turn into hydrogen a little bit here. I know HPDI, along with the rest of your business near term, it's a little tough to call given a lot of cross currents. As you think about hydrogen in the HPDI version, just curious how that might be helping the LNG HPDI version or discussions with OEMs given that, you know, maybe they don't hesitate to go HPDI with LNG, if they have the potential to migrate to something down the road. Obviously everyone's got to be looking at hydrogen.
The process our customers and OEMs around the world are going through evaluating different technologies and trying to choose the path forward. If they could put all eggs in one basket because they were sure of what the future lay ahead, this is an ongoing evolving process as they learn about different technologies. When I talk about different technologies, I'm including the full list of electrification and fuel cell and even autonomy, all the things that you read about and hear about in the industry today. With respect to our hydrogen developments, we see this as helping our customers to understand the potential for a green hydrogen future in long-haul trucking and what that economic and technical equation looks like.
As per the paper that we published last year with, in combination or partnership with AVL, we see our HPDI with hydrogen as a very economic and really an easy path forward to use green hydrogen very effectively because we have this significant efficiency improvement versus diesel and natural gas on an internal combustion engine using hydrogen HPDI, but also offers more performance, more power, more torque. Better efficiency, more power, and more torque gives it an advantage that even extends its lead over other technologies from a technical standpoint and also a commercial standpoint, where it's very affordable to adopt HPDI onto an internal combustion engine as compared to the alternative of creating a fuel cell vehicle.
This really is an education process that as we generate more data and demonstrate to customers like the partnership and project that we're doing with Scania, this then factors into their work and their decision making on where to place their bets and what priorities to make internally for future technology. I'll say seeing that HPDI can take an OEM all the way to zero carbon hydrogen with more power, more torque, and more efficiency than they have today on their engines is a really compelling vision that allows them then to think about, okay, let's consider HPDI even sooner, and we can use it today with fossil natural gas and biogas.
This trend I mentioned a few moments ago about the biogas increasing as a share of the fuel supply to the marketplace is really important for everybody's mission to try and clean up transportation. Reusing natural gas or methane that would otherwise go into the environment is a truly beautiful environmental reuse scenario that HPDI enables.
Okay, great. Thanks on that. Maybe last one for me, just you know, just some thoughts on plans in North America. I know it's you know, it's only been, what? A month and a half since or a couple months here since the end of CWI. Just maybe what your current thought process is on North America.
Yeah. The North American business case for natural gas is also improving right now. I mentioned in my comments that you know, these fuel price differentials are really the driver of our business. We see a widening gap where basically in North America, diesel prices are going up more than natural gas prices. The advantage for natural gas is growing in this moment. That's a positive sign. Additionally, as mentioned in my comments, we'll be going to the ACT Expo this year. We really look forward to joining that, let's say on our own as Westport Fuel Systems this year and showing the trucking industry what we have to offer with HPDI for natural gas, HPDI for biogas, and HPDI with hydrogen.
These are really great combinations of fuels and our technology that could be an important part of what trucking does in North America. We're eager and excited. We recognize at the same time there are steps that need to be taken. Some of our customers around the world, of course, are already present in North America. We're hopeful that could accelerate the path towards commercialization in the near future.
Okay. Thanks, David.
Thank you, Eric.
Our next question comes from Rob Brown of Lake Street Capital Markets. Please go ahead.
Good morning. Thanks for taking my call. The question is around the EU market and what are you seeing in terms of visibility now in the HPDI heavy duty market in terms of demand with pricing? You know, how much are you seeing it decline? Has it happened yet or are you just sort of getting cautious on it? Just some color about how that market is trending now with the pricing environment.
Yeah. Good morning, Rob. Thanks for your question. In the E.U. market right now, we are facing higher LNG prices than we have historically, and that is for sure some headwind for our business. Additionally, the Russia-Ukraine conflict and you know the shut off of or the not realization of Nord Stream 2, all these things weigh on the marketplace relative to our products. We have seen some moderation of demand, let's say. We're hopeful that that's a temporary thing. You know, in the end, I can remember two years ago when the COVID was being unleashed, we saw a moderating of demand then as we worked through kind of what's the new normal gonna be? What's required in the future?
My expectation is that this is temporary. In the end, I'm very comfortable with the fact that we need to move goods, and we need to do it cleanly, and our systems enable that in an economic way on an ongoing basis. We'll have to see where it all shakes out, but in the near term, some moderation and hopefully recovery in the coming quarters.
Okay, good. I think Richard said that you expect the independent aftermarket to grow in 2022 despite these headwinds. I just wanted to clarify that. What's your sort of view on growth in the independent aftermarket in the current environment?
Yeah, I would tell you that the independent aftermarket is already a sizable business around the world for us, on the order of 1/3 of our revenues. We're not expecting, you know, super strong doubling or tripling type growth. Nonetheless, we do see opportunities in various markets around the world that really are opening up and becoming new markets for us. You know, we've mentioned in prior discussions Egypt, Algeria, India. We had currently in the last period seen some softening in places like Turkey and Poland. Now with the outbreak of the conflict, you know, I think LPG becomes increasingly something that, let's say local governments have and can make available.
We have some of the largest price differentials today between petrol and LPG in various markets in Europe. We do expect that to persist and to drive our growth in those markets. We're hopeful and our outlook is positive with respect to the aftermarket business continuing to be an important part and a growing part of our business.
Okay, great. Thank you. I'll turn it over.
Thank you, Rob.
Our next question comes from Amit Dayal of H.C. Wainwright. Please go ahead.
Thank you. Good morning, everyone. David, just with respect to, you know, the macro developments in Russia, E.U., et cetera, you know, are there any accounts receivables or funds tied to, you know, those markets that may be at risk?
Yeah. We're monitoring this very carefully. You can imagine with respect to our business in Russia that with all the sanctions being put in place, there's a high degree of anxiety and let's say, additional friction in the system so that I mentioned in my comments, you know, some slower payments. I think that's just the banks being careful to make sure that they follow all the sanctions precisely. We're not doing business today with any government entities in Russia, but yet we have customers in Russia who are seeking clean transportation, affordable transportation. We aim to continue to help those customers access those. It sure is getting more and more challenging as the days of this conflict roll on.
Our outlook on that business is quite guarded that you know we could see it actually come all the way to a zero in the future depending on what happens. Frankly, we don't know. Nonetheless, we are being very let's say cautious about what we do and changing our terms to our customers so we get paid in advance and things like this. We don't see any significant risk from that perspective, just something to be managed.
Understood. You know, and some of the gaps from that market towards revenues and margins, et cetera, are there other avenues for you to maybe make up some of those? You just have to get through this and, you know, that situation has to normalize before you can, you know, make some recoveries, you know, from those markets?
It's truly hard to say. What I think in general is that, you know, we should expect that our sales in Russia will decline. So that's a pressure on us. Nonetheless, one of the advantages we have as a company is that we are present in 70 markets around the world. Russia and the Ukraine are just two of those markets, we have lots of opportunities in other places. As mentioned earlier, this price differential between petrol and LPG, for example, in a number of markets is widening as opposed to shrinking. We do see some bright spots in the business around the world. We're hopeful those will offset or more than offset any decline that we have in Russia. That will be a challenge for us, but that's certainly our goal.
Understood. That's all I have for now, David. I'll take my other questions offline. Thank you.
Thanks, Amit.
Our next question comes from Colin Rusch of Oppenheimer. Please go ahead.
Thanks so much, guys. You know, can you talk a little bit about, you know, the Cummins testing process and the duration? How long you think that's gonna take before you're able to get some sort of result you can speak about?
Yeah. This for us is specifically on 2020-
Sorry. Yeah. Just specifically around hydrogen. Sorry. To clarify that.
Yeah, no problem. The work we're doing with Cummins is as announced on hydrogen. We are getting that started now, and I expect that to be completed within the year. The actual pace isn't something we control 'cause it's, you know, we do it with our partner. There's, you know, as you saw with our work with Scania last year, there could be some big delays. We don't expect the kind of big delay that we had with Scania to be the case with Cummins. It's to be demonstrated as opposed to known in advance. I think I can say confidently we'll have some progress within this year.
The secondary factor that will matter to you, Colin, in the marketplace is okay, when we finish that work, what does Cummins say allow us to say in the marketplace? Our customers have that important right to decide what we say as a supplier. We have that as the highest priority in our to-do list, if you will.
Sounds good. You know, and then just around the supply chain, you know, obviously you guys saw some of the stuff coming early around, you know, back in 2020 around COVID and pulling things in, you know, to have inventory on hand to navigate that. You know, with some of the things that we're seeing right now in China and, you know, potential for some other disruptions given the conflict in Europe, what can you talk about, you know, vulnerable points in your supply chain now and how you're managing that?
Yeah. I would tell you that we haven't had any severe problems at this point in time, but we're absolutely on top of it with respect to trying to manage the supply chain. You know, these sanctions that come into place are something that cannot be ignored and have to be abided by. That's what we do. At the same time, we're not sourcing any materials from Russia. We don't have really a big exposure to Ukraine. I'd say the one commodity that is kind of challenging for us is steel for our plant at STAKO. This is kind of one example.
Nonetheless, there are other sources, and so far we haven't had any trouble that we haven't been able to mitigate. I would tell you it's yeah, there's some anxiety associated with it because we don't know what tomorrow holds, and we're working very hard to do that without having to increase our inventories the way we did through the COVID period. Hopefully we're in a good place, and we'll manage it day by day.
Great. Thank you so much.
Thanks, Colin.
Our next question comes from Bill Peterson of JP Morgan. Please go ahead.
Yeah. Hi, good morning, and thanks for taking my questions. I know you kind of refrained or wanted to refrain from providing forward guidance, but you know, the Russia-Ukraine kind of started towards you know, the end of February. Can you comment just on the demand trends with the OEM and IAM at least heading into that, at least if not quantitatively, at least qualitatively?
Yeah, sure, Bill. Good to hear you this morning. As a general premise, you know, we had a good fourth quarter, and we've seen a little bit of softness in the first quarter so far. Generally, we have demand and order books that yeah are not as exciting as we'd like to see, but they're okay so far. We have not seen a tail off in demand. In fact, we've seen some uptick in demand in certain markets around the world, as people recognize these big price differentials and customers are interested in our products.
On one hand, you know, super ambiguous answer. I apologize because what we're seeing basically is we're seeing this kind of continuation of recovery trend coming out of COVID that we saw in 2021, it coming into 2022. At the same time now we're seeing this anxiety-driven and volatility-driven fuel price volatility-driven anxiety that kind of tempers the market. Hence, no guidance for today because it's really challenging to see how this will all play out near term and through the later parts of this year. You know, how long will the conflict last, for example, and what will all the actions be taken around the world.
Nonetheless, I guess, you know, my overriding principle here and thought is that, you know, in tough times, people go looking for less expensive ways to move and access to lower cost fuels. I think that price differential is really the key driver of markets around the world for us. It has always been, and I expect it always will be going forward.
No, that's helpful. Thanks for that. I guess maybe just speaking on the cost side and also some of your cash outlays and so forth. Again, I understand you may not wanna provide kind of quantitative, but I guess how should we think about your OpEx trajectory as well as CapEx, given some of the pauses or near-term dynamics? How should we think about that trending through the year for 2022?
I want to weigh in on that one, Bill. Like, in terms of CapEx, we're, you know, within in the range of $15-$20 million, depending on our programs. I mean, we're obviously trying to rationalize our CapEx and be a little bit prudent during this period of time. The HPDI itself there, as David mentioned earlier at the outset of the call, like the HPDI 3.0, there's sort of longer term programs that it'd be foolish for us not to continue. We're on a timeline with our launch partners, so, you know, those things will have to continue. You know, $15 million or so would be, you know, a good number in terms of CapEx. In terms of OpEx trends, you know, we.
Material costs and inflation are showing up and we sort of, you know, provided that guidance in there. Having said that, we're, you know, obviously we're taking actions to offset those through our, just through other productivity initiatives that we had ongoing there. For the time being, I would say, you know, they're relatively stable in terms of percentages. We're spending more on R&D, so you'll see that sort of show up in our P&L. The G&A should be more or less the same, as you see there. Margins are the ones that are coming a little bit more under pressure, and unfortunately, it's a little bit hard to model that just given how many markets we're in. The fourth quarter was particularly bad, we'll say, compared to where our expectations are.
We obviously are working to improve those margins to get to what we'll call more of our targeted rates there.
No, that's good color. Maybe just kind of a big picture question, and again, recognizing it's hard to call some of how some of these geopolitical things turn out. But if we were to reconvene a year from now, like what are the key milestones we should be looking out for? Like, what would you have accomplished during this year that we look back on and call it a success?
Yeah. You know, let me just look back on 2021. I think really important in 2021 were the developments that we started with customers. You know, one of the key markers that I think about is when we're installing our HPDI fuel system on a new engine, almost doesn't matter what fuel we're gonna use. That's a really important step towards starting a program that will lead to production for me. We can't get to the finish line unless we get to the start line and get started. You know, the work we're doing with Scania, the work that we announced with Cummins, the project we have with AVL and TUPY, I expect all of these will have really important milestones through this year.
Some of those milestones will be announced, hopefully, and will show progress towards further commercialization of HPDI. We're still pursuing our business interests in India and in China and see really great opportunities there. I look forward to having more to talk about through this year for both of those markets also. Yeah, I think there'll be some really important business progress that we can share with the market through this year, and you should definitely look for that.
Thank you.
Our next question comes from Mac Whale of Cormark Securities. Please go ahead.
Hi, good morning. I was just wondering, just a little bit of detail on the effect that a narrowing in the spread between gaseous fuels and diesel and gasoline have in terms of, like, how long does it take for that to recover or to kick in when you see that swing from one direction to another?
Yeah. It's a really good question that doesn't have a closed-form answer because frankly, it depends on the products and the markets and the channels.
Okay.
You know, so we sell, right? We sell products for three-wheelers in India that are super inexpensive, and we sell, you know, high-end HPDI systems in the European market for big trucks and everything in between. Every market's a little different, and so we sell directly to OEMs, and we've got this channel through the OEMs where they also have dealers and inventory. I would tell you there's all these lags in the systems that really make it hard to categorize as we see it within three weeks or we see it within three months.
Okay.
In general, the other thing I would point to is that most of the markets around the world have some kind of what they consider normal, right? That, you know, there's kind of a 30% discount on a gaseous fuel versus petrol or a 35% discount to diesel between LNG. And so when that moves, if it moves a couple percentage points, you know, this is kinda normal. We're all used to this. The pump prices move. When you start to notice it, like, "Hey, wait, those prices are close to the same, and they used to be different," that does affect the consumer behavior and the fleet behavior and this comes back through the system to us. The time constants are tough to call and tough to categorize as just one.
Okay. Would you say that that's basically a lost sale? Like, is that a situation where, say, a fleet manager is looking at replacing a vehicle and it's like, "Okay, we're replacing that one this quarter or this period of time," and so you're not gonna see that until that's replaced on the next cycle, or is it a delay and then a pent-up demand?
Yeah, I think it's more the latter. I think it's more a delay, especially with respect to volatility. When fuel prices are volatile, then it's kinda like, well, I was planning on buying, you know, 20 trucks every quarter or your 10 trucks every month or whatever the sequence is that normal fleets are going through, depending on their fleet size and their buying behaviors and patterns. They just say, "Well, let's wait and see before I place that order." I tend to believe in most cases it's more delay than it is dropping of that order. It does come back.
Mac, we actually said that.
Yeah, assuming the conditions come back, right?
Yeah. Yeah. Yeah, that makes sense. I guess whether you're gonna downsize or upsize your fleet is more about the fleet's outlook on their business as opposed to how you fuel it.
Yeah, that's right.
Yeah.
Yeah, that's right. Basically, fleets are buying some mix of natural gas vehicles, different technologies and so forth, and it's really that decision on the mix, and what they're gonna buy. Then when economic times are challenging, they sometimes delay their instead of buying 10, they'll only buy five or change their order timing. All those things are the behaviors of fleets that are pretty consistent around the world in terms of how they behave based on macroeconomics and fuel prices.
Yeah. Okay. Richard, I think you already answered a question on the R&D, thinking about the OpEx. What percentage of that spend of the OpEx in general, or maybe you wanna talk about R&D, would you say is stuff you're gonna spend regardless of your revenues and margin? Like, is it Like, how do you budget Like, what level I guess what I'm trying to fish for the question what level of OpEx spending is sort of not negotiable because you're looking at certain programs that just aren't going to be impacted by, you know, like, quarters of revenue or margin. You just say, "You know, we're doing this this year, and so we're gonna spend X million on this." I'm wondering how big that is.
I would say on the R&D probably, you know, I would say 90%.
Okay. Yeah.
To 100%. Like, we're pushing that. I mean, we raised the money specifically because the company itself was starving itself, you know, over a period of time there, you know, let's say between the period of 2016 to even up to 2020, obviously going into COVID. Now, you know, we're trying to accelerate, especially on the heavy duty side. There were certain things that needed to and now need to get done. That's why more towards the 100% on R&D. We're trying to always optimize the spend of where we do work. Where you would actually see, we'll call it austerity measures, as we're gonna go through this year, I mean, obviously the Russian crisis causes us problems.
It is just a bunch of headwinds, unfortunately, that have all showed up at the same time that obviously G&A and OpEx are the ones where we'll look at the discretionary spend there.
Right. Is that when you look at the trends, obviously you know, you have more cash on the balance sheet. It kinda went up in 2021 by you know, single digit millions, like $4 million or $5 million or so. Does that incrementally go higher from there again, or is it more flatline?
More flatline.
Yeah. Okay, that's all my questions. Thanks, guys.
Thank you.
Our next question comes from Jeff Osborne of Cowen and Company. Please go ahead.
Hey, good morning. I just wanted to revisit the aftermarket business and the 10 points of gross margin differential sequentially. How much of that was the regional mix? On your slide, you have three points. I'm trying to get is the majority of it the overemphasis of India in Q4? As a related question, you know, if we think about Russia being weaker in 2022, does that segment have, you know, some of the same pressures that'll linger, assuming that Russia was a more profitable market relative to others?
Jeff, the answer is yes. I mean, for sure there was a lot more India. It was one of the markets that, you know, we didn't speak about specifically that has been growing very quickly. We're looking to try to optimize obviously our, you know, how we do business in that country, and that could come through localization. But that was a big, we'll call it a significant portion of it. We did see inflation as well, that is showing up, that we're trying to pass those costs on. You don't see that in the margin percentage, because we're just literally passing the cost on, not necessarily with a markup because we're cognizant of trying to protect market share. It's case by case.
The question with Russia is, you know, roughly about half, you know, in terms of the exposure we quoted it, you know, about half of the business is an independent aftermarket. You know, we'll call it about $12 million, $12.5 million or so. That will affect our aftermarket business.
Is STAKO, their sales out of Poland, you know, where do those go geographically? $6-7 million a quarter from that.
Those ones are all going mainly towards Renault and in Western Europe. They're less, you know, not impacted by the conflict from a revenue perspective.
My last question was just on the localization in India. Could you walk through what the CapEx burden of something like that would be? Is that in the, I think, $15 million-$20 million guidance that you provided or commentary you provided for 2022?
It's not in the $15 million. It would be, we'll call it more of a something that would happen over the next few years. David, maybe over to you. I'm thinking of $5 million is roughly what that would be. I'll let the expert answer that better than I.
Yeah. As we look at the Indian market, we are responding right now with respect to adding capacity. Basically, we've been able to do that without CapEx, just through operating footprint. Some of those goods that we make are made in our JV in India already. Then some of those are made in Italy and also in North America. We have, you know, a distributed supply base. As we look at localization, I don't expect we're talking about big CapEx for that. Richard is surely right that it's gonna be over a period of time. I would tell you more of the localization is just buying the subcomponents locally than it is having to, you know, invest heavily ourselves.
There could be a few million, but it'll be spread out over time.
Got it. That's all I had, David. Thank you. Appreciate it.
Thanks, Jeff.
This concludes the question and answer session. I would like to turn the conference back over to Mr. Johnson for any closing remarks.
Yeah, thanks, everybody, for your time this morning and for your questions and the discussion. Enjoyed it very much. The year passed was, in general, a good one for us. I feel good about what we accomplished. We've set the groundwork for our future. Real happy about our hydrogen work and excited for what we can bring back to the marketplace with news through this year. There's a fair bit of challenge ahead, but we feel quite strongly that we're well positioned to manage that. As we managed through the COVID period, we'll manage through this one too, and continue on our path to deliver clean transportation in an affordable way for markets around the world.
Thanks for your time, and look forward to seeing you at the various conferences, in the near future.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.