Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Quarter 1 2021 Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Guy McAree, Director of Investor Relations. Please go ahead.

Thanks very much and good morning everyone. Welcome to Ballard's first quarter 2021 financial and operating results conference call. With us today are Randy MacEwen, Ballard's President and CEO and Paul Dobson , our Chief Financial Officer. We'll be making forward-looking statements that are based on management's current expectations, beliefs and assumptions concerning future events. Actual results could be materially different. Please refer to our most recent annual information form and other public filings for complete disclaimer and related information. We are going to be changing the structure and format of our results conference calls beginning with the call today. Randy's formal commentary will be fairly brief focusing on important developments and indicators of progress in the execution of the company's growth strategy during the quarter. Randy's comments will then be followed by a few very brief notes from Paul rather than a detailed review of the numbers since those numbers are addressed in our press release and the MD&A. Our aim with this new approach is to leave more time for the growing list of analysts and investors to ask questions and engage in a dialogue with management. So with that in mind, I'll turn the call over to Randy.

Thanks Guy and welcome everyone to today's conference call. In Q1 Ballard revenue was $17.6 million consistent with our internal projections and reflecting a muted China market currently awaiting further policy pronouncements. Gross margin was 15%, adjusted EBITDA was negative $14.0 million and cash reserves at the end of the quarter were $1.27 billion. Now today I want to share with you how excited we are about the growing market opportunities we have at Ballard. Supported by a strengthening policy backdrop and increased customer engagement we have a clear line of sight on long term growth in our core, medium and heavy duty motive applications of bus, truck, rail and marine. Activity levels are at record highs across the entire Ballard organization. Indeed on the commercial front, we're witnessing unprecedented customer engagement across all markets. While we've previously commented on the slow pace of conversion of our sales pipeline to purchase orders primarily as a result of the pandemic we remain highly encouraged, highly encouraged with our sales pipeline. Indeed our sales pipeline has grown more than 70% over the past five quarters. This reflects the underlying momentum in our business prospects and while the pandemic is still challenging many markets we see encouraging recovery signs including strong order conversion over the past month. Now given this backdrop, 2021 sets up as an important year marked by increased and accelerated investment ahead of market tipping points. Bolstered by a fortified balance sheet will deepen our investments in talent, technology, products, advanced manufacturing, localization and customer experience. We are already making solid progress on key strategic deliverables in 2021 including on technology innovation, product cost reduction, capacity expansion, our Weichai-Ballard JV, and our relationship with MAHLE. Now let me just briefly review some specific details so far this year. We're proud…

Thanks, Randy. And good morning, everyone. It's my pleasure to be with you here this morning. I'm the newest member of the Ballard leadership team having joined the company just five weeks ago. And I can tell you, it's been a busy but incredibly accelerating my educational experience so far. And let me tell my background. I grew up in Ontario, Canada, and with the University of Waterloo and Western University. After graduating from Western, I worked at CIBC for 10 years in different financing business development leadership roles in Canada and U.S. I'm drawn to new entrepreneurial growth situations. In most of my time at CIBC was spent growing CIBC's fledgling electronic banking business in Canada and U.S. which was quite new and growing fast soon. I then transitioned to Direct Energy which help natural gas, electricity and services to homes and business throughout Canada and U.S. that is in the early 2000s when many downstream energy markets were starting to deregulate. And there is a tremendous new market growth opportunity. I was with Direct Energy for 15 years including as Chief Operating Officer and then Chief Financial Officer based in Houston. While I was there, I helped grow the company both organically and through M&A from about a $1 billion in revenue to over $20 billion becoming one of the largest energy retailers in North America. I left Direct Energy in 2018 and joined Hydro One, a large utility in Ontario. Initially a CFO but also subsequently serving as the Interim CEO. In the CEO role, I spent a great deal of my time with the capital market, institutional investors, rating agencies as well as regulators, government, policy makers and of course the great team at Hydro One. As I said earlier, I'm drawn to entrepreneurial growth businesses…

Thank you. [Operator Instructions] The first question comes from Praneeth Satish from Wells Fargo. Please go ahead.

Thanks. Thank you, good morning. I guess just to start, revenue in the first quarter was down year-over-year and I understand there is a huge sale pipeline here. But I'm just trying to understand for the quarter itself, how much of it was do you think due to some softness in China while you await policy clarification or just lingering kind of COVID slowdown or was there some other driver here?

Yes Praneeth, thanks for the question. I think it's a combination of a couple of factors. One is that we did of course see really over the last five quarters or so four quarters we've seen this slowdown in China waiting policy pronouncements and we're expecting to see some developments on that fund in the coming months. That's part of it. Of course last year if you look at Q1, there was no impact from COVID-19 obviously. In Q1, we saw that occurring later in the year Q2, through Q4. And last year in Q1, we did have a fairly large shipment at to our Weichai-Ballard joint venture of kits. So I think it was probably a typically strong Q1. If you look at our business historically, almost every year the first half is slower paced typically around 35% 40% of our business and typically about 60% or so in the second half of the year. So clearly it's softer than industry would have liked but it was actually consistent with our own internal expectations for our plan for 2021.

Okay, got it. And then second question here, you're making good progress with decarbonization on rail with Canadian Pacific and Sierra Northern. Do you see opportunities to start to maybe announce some more JVs for rail in Europe and how would you compare the two markets U.S. and Europe in terms of rail and opportunities to decarbonize?

Really glad you asked the question about rail. This is the market that has really surprised us to the upside here in the last six months; some very good progress. Now let me just provide some context before I get into the detail. So you kind of look at the hydrogen counts or estimates, there's an expectation in 2030, 10% of all new trains in key markets will be fuel cells. Now I wanted to share a little bit of what we've done historically. So we started about 4 years ago in China with CRRC which is the largest manufacturer or rolling stock in the world. We now have from December 2019, as you move forward the world's first fuel cell tramline in operation. So five trains are operating in on the Guangming line in the City of Foshan in Guangdong Province. I had an opportunity to ride that tram early this year, it's quite an experience. So that's very good data point, a lot of learning that came for Ballard in terms of rail code and standard, shock and vibration, noise, packaging, et cetera. We've taken a lot of that learning of course and applied it to our work that we're doing with Siemens' for the Mireo train in the European market and we expect that Mireo train to be formally launched this year. It's a very intriguing platform because it's kind of the first fuel cell kind of purpose fuel cell designed platform. So I think it's going to be the most compelling solution in Europe for fuel cell train. It's interesting if you look at the China experience and the experience with Siemens now in Europe, lot of learning there. It was really about markets where you're moving people. What we see in North America is something…

Okay, thank you.

The next question comes from Aaron MacNeil with TD Securities. Please go ahead.

Good morning, and thanks for taking my questions. In the quarter, there's a nice uptick in press releases, order flow and other announcement. So surprised to see only 11.8 million in new orders. At the backlog, I think you did a good job of addressing it in your prepared remarks. But can be thinking about materiality, it's not less than even lot of the announcements in the quarter like your alliances in one of my our home. Longer term strategic value but maybe you can walk us through a couple of examples of press releases from the first quarter. And from a mechanical perspective, what the near term order profilement look like from a dollar perspective, what the longer term strategic value to dollar might me. And so the longer term stuff maybe could also characterize materiality and timing what future orders might look like? Ultimately what I'm trying to get a sense of is when I see the Ballard press release going forward, maybe give me the two roles to look at how to interpret the press release from a materiality perspective?

Yes Aaron, thanks for that comment. I think a fair comment, in some cases some of the details aren’t known yet in terms of how it rolled out in terms of volumes and market adoption. I think we still need to take a step back and acknowledge and understand that these markets have bus, truck, rail, and marine are still going through transition. Very early stage of market adoption. Today we have about 3400 busses and commercial trucks in the field. As I mentioned earlier with over 75 million kilometers. That's about 3300 more than we have say four years ago but it's still the first second of the 24 hour day in terms of market adoption. So I do think that we oversee the number of pilot projects which is different than demonstration projects in my opinion. We're not talking about validating technology anymore, we're talking about validating economic value propositions and making sure that packaging is correct for these different opportunities. So as an example of the relationship with MAHLE is really about packaging the 240 kilowatt engine with a lot of input from MAHLE on things like cooling, on things like optimization of DC/DC invertors. Looking at the entire power train solution. And that's going to take some time before it hits volume. So I think we'll be looking to see that 200 kilowatt, 240 kilowatt engine demonstrated later this year with MAHLE. As we look at some of the programs with CP as I mentioned, your question was about some of the announcements in the quarter of course. When you think about CP, again this is a demonstration pilot project that would be 2022 when you'll see its getting some feedback from the customer on that demonstration. So we are talking about programs that will take…

And maybe I didn’t want to ask from specific companies to the details you may not want to get into but let's take cities and if you brought it up. Like is there a backlog impact based on that announcement for that one demonstration unit. Or I was just from a purely mechanical perspective like if I compare a right bus, the 50 order announcement. What does that mean for the backlog and then the CP the announcement as an example, what does that mean for the backlog?

Yes. I mean, CP was basically 1.2 megawatts of fuel cell engines that we got the first order for, right?. And yes, that goes into backlog when we get that that goes into order book. But is really not reflective of what we're talking about in terms of the long-term opportunity.

Of course. Yes, understood.

Yes.

And then, final question from me. You mentioned in the press release you're adding your prepared remarks, you're tracking ahead of it 3x3 cost reduction program. You mentioned in the prepared remarks breakthroughs and designs, supply chain improvements et cetera. But how are you measuring your progress internally and can you give us a specific example to of how the timeline shifted since you last described the program in detail at the Analyst Day?

Sure, great question, Aaron. So, if you look at our goal. We have a corporate goal for 2021 to achieve X% cost reduction for our fuel cell stack in our 3x3 program. We have already in Q1 exceeded our full-year goal for that cost reduction program. And a lot of extraordinary work that's happened late last year and early in Q1 that's helped achieve that already. So, when I say we're tracking ahead of program, I think we're going to see something like X -- I don’t want to provide visibility on that because it impacts potentially selling price dynamics as well but the 70% 3x3 program, we're certainly well ahead of that and we'll see almost a line share of that achieved in 2021.

Okay, great. That's all from me, I'll turn it over. Thanks.

Yes, thank you.

The next question comes from Greg Wasikowski with Webber Research. Please go ahead.

Hey good morning, guys. Thanks for taking our questions. And I just wanted to yes piggy back off the last one and just talk more about the pipeline and conversion to backlog and order book and if we just look at kind of the top of the pipeline and so conversions over the next couple of months. We kind of expect that to be, I know that things were announced but maybe percentage of how much to potentially hit the 2021 numbers versus looking at 2022 and beyond. Is it like could it be like a 50/50% or is it more like a 90/10% 2022 and beyond?

Yes. I think we'll have some limited impact to 2021 in terms of conversion of the sales pipeline to order book. If you look at the conversion time and then you look at delivery time. It does take a number of quarter typically. It's driven in large part by supply chain as well as the large part by the timing from order and when the customer actually needs the product. The lot of these projects including for example bus programs, they aren’t asking, they don’t submit and then ask for the product delivered three or four weeks from now. They're typically looking at a number of quarters out. So, I would say your 90/10 is probably better guide rather than the 50/50.

Okay, got it. And then for the next one, on the Weichai JV, on the last call you said the JV could potentially reach breakeven by the second half this year potentially beginning of 2022. Is that still the goal or have the policy delays on China kind of pushing that timeline further into 2022?

Yes. I think that's a fair comment. The policy delays have frankly been unexpected. But on the policy front, we've actually had a pretty important obviously a start to the year in China the policy front. So you've had the 14th five-year plan was approved in March. And in that plan, the environment has a very significant focus and the shift really is going from clean up to decarbonization, they call it green ecology. And now, we've got these important milestones or goals for carbon peak 2030 and carbon neutrality 2060. And then, since that time you've had two important announcements, I'm not sure if you're fully aware of these. One of them is the Ministry of Science and Technology and also Hydrogen Society Program in Shandong Province. We think this will be a major boom for Shandong Province, fuel cell opportunities and which will of course help the Weichai-Ballard joint venture which is located in Shandong. And also the Natural Fuel Cell Technology Innovation Center was awarded to Weichai on April 18th. So, this is a very another important development in that market. On the deployments front in China, you're also seeing about 3400 busses and trucks from Ballard in that market right now with over 70 million kilometers. So, that's a more recent number than the number we provided on our overall global install base is 75. And I just want to highlight just on the joint venture. I'd say there are three key things that have been going on there. One is really kind of optimizing and improving yield improvements as we're waiting for the market to get uncoiled there. And then the second is module development activity. So, and making sure we have the portfolio of module to satisfy the different market requirements for bus and commercial truck including different market segments. And a lot of work being done on Ballard's plan components by the Weichai-Ballard joint venture including significant work on cost reduction. And then the last one is just the market in customer engagement side. So, notwithstanding a stalled market kind of a waiting the announcement of the hydrogen cluster program. We are seeing significant customer activity and engagement from the vehicle OEMs. People getting new platform certified testing and engagement with end user. So, there's a lot of work going on in the background and I think it's going to be very helpful as a policy kind of gets announced and clarified here over the coming months. So, I think your assessment of a move out with the delayed policy landscape is a fair one.

Okay, thanks Randy.

Thanks, Greg.

The next question comes from Rupert Merer with National Bank. Please go ahead. Rupert Merer with National Bank, your line is live.

Sorry about that. Good morning, everyone.

Good morning, Rupert.

You mentioned potential for clarification in the coming months on the hydrogen subsidy in China. So, do you have specific visibility on when could get more detail on the program. And to your knowledge have any of the demonstration regions in China be an out skid or indicated for the cluster program?

Yes Rupert, great question. So, what's happened is been another iteration of the process if you will where it looks like there are five clusters that would be awarded at the Shanghai cluster, the Beijing cluster, the Guangdong cluster, the Hubei cluster and the Hunan cluster. So, those five clusters will require to resubmit some paperwork as of April 30th. So, that's just occurred. And I think there is additional progress that we made over the next 60, 90 days with the national government and each of these five clusters working through it. So, this hasn’t been announced probably yet but that's our understanding of what's going on in the China markets and those clusters.

And in which regions in China can you participate. You mentioned of course that Weichai is based in Shandong but are you able to participate meaningfully in these other areas?

Yes, we feel it we have good opportunities particularly in the Shanghai, Guangdong, and Hunan clusters.

Okay. And just finally on that, is there any more color on how the subsidies could be delivered, will they be primarily to the vehicle and infrastructure companies or could some of that capital actually go directly to the manufacturers as well?

Yes. So, it's a point's based formula with funding going to different parts of the value chain. I do see that the vehicle manufacturers will likely be participating in that subsidy scheme not just end users.

Okay. Thanks, very much.

Thank you.

The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead.

Good morning. I just wanted to follow-up a little bit more on the sales pipeline. Could you kind of characterize the market maybe you just the ones that you see first in terms of the pipeline strengthening and how you see that playing out over the next couple of years?

Yes. Good morning, Rob thanks for the question. I think what we're seeing in the last quarter pretty consistent with the previous quarter as well is the sales pipeline is actually tracking fairly well to what our goals were as a company from market diversification. So, typically we're looking at China roughly 40%, EU roughly 40% and then rest of world primarily California, North America 20%. If you look at the market applications, I think we're seeing new markets coming into the sales pipeline. So, bus is clearly the dominant share, at this time is the more mature market. Truck activity is increasing, rail of course and marine. We believe those markets, those two markets will surprise to the upside over the next number of years. But we're also seeing some additional off road markets starting to play and I'd say a more substantive contributor to the sales pipeline which is very encouraging. So, things like mining, construction, market opportunities and we're seeing some new geographies outside of China, Europe and North America, starting to play a key component of the sales pipeline as well.

Okay, thank you. And then on the Linamar announcement, I just wanted to clarify how you see that playing out I think you meant JV for a platform for fuel cells. Could you just maybe give us a little color on how that kind of develops in your vision at this point?

Yes. So, the key here is really that and of course everyone will understand Linamar is a very significant Tier 1 supplier to the automotive space. Strong relationships for these classes of vehicles as we're looking at light duty vehicles. And our collaboration with Linamar, they are for high precision manufacturer, high volume manufacturer, bring a lot of capability and supply chain muscles to the table. So, this is a compelling opportunity for us. As we look at that market opportunity, what we've seen is that many of the platforms weighed want to have a fuel cell vehicle in light duty. For example, cargo vans. They just haven’t been OEMs stepping into that market quite yet. And the vision here is to get ahead of that and to offer a fuel cell power train system that can be marketed in a serious production eventually to the vehicle OEMs in a plug and play format. And so, I think as we look at it, there's market opportunity. We're seeing two phases of activity with Linamar. The first is developing this platform together and Ballard will primarily be responsible for the development of the fuel cell system and Linamar has a scope moving from the fuel cell system to the power train and including storage tanks and DC/DC converter and some other key components. And as you look at what Linamar's contemplating here, it's initially validating that system going through testing, engagement with customers, and then ultimately Ballard and Linamar moving to a joint venture where we design and manufacture our respective components and use the joint venture as a sales vehicle to the channel that Linamar already has strong engagement with. So, this is the two phases of activity. It's obviously early in the relationship and this is the follow-on from the work we're doing with Linamar for UPS delivery vans in California where we've already established a very strong working relationship. So, lots more to be worked on in the coming months and coming years but we're very excited about the opportunity from what I think is one of the leading players that's leaning forward on the future of mobility.

Okay. Thanks for the color, I'll turn it over.

Thanks, Rob.

The next question comes from PJ Juvekar with Citi. Please go ahead.

Hi, good morning Randy. It's Eric Petrie on for PJ. There's been some mention of hydrogen in the Biden infrastructure bill but really the focus seems on UVs kind of build these. So, is that a small step back for the hydrogen economy?

Yes. And great question, Eric. I think what we've seen is that there are two key themes at the moment that we think really help the hydrogen fuel cell opportunity in the U.S. market. One is decarbonization and U.S. getting back in to Paris climate and court obviously looking at net carbon zero by 2050. That's a major initiative. The only way to achieve that is to include hydrogen. In my opinion you cannot achieve the Paris climate, the court objective is but for the inclusion of hydrogen as a key part of the decarbonization strategy. The second as you point out is infrastructure. And what we sees is convergence of hydrogen and of decarbonization in any infrastructure leading to an environment where we see battery election vehicles working in the use cases and opportunities where they have a compelling response. And likewise, fuel cell electric vehicles seeing success in the markets where fuel cell electric vehicles have a strong value proposition. Let me highlight again, if you look at the California market as an illustrative example, I think of what you'll see eventually across the U.S. is in California for buses, all new transit buses, let me say this again, all new transit buses must be zero emission by 2029 and 50% of them must be zero emission, not low emission by 2025. So, it's a very clear pathway and that important policy making state on zero emission vehicles in buses. Similarly on the truck side, we've got the clean truck standards that was passed last year and that clean truck standards is effectively by 2024 a certain portion of all trucks of all classes must be zero emission starting at 2024 and scaling up to very high penetration by 2035 and a 100% by 2045. And so, we see the policy shaping's in California on zero emission buses and trucks will be key drivers we believe, not just in California but as other markets look to adopt similar types of decarbonization of mobility policy where fuel cells will play I think the dominant share rule particularly in these heavy trucks.

Okay, thank you. And then, when you take a look at some of these deals and announcements with when MEA hydrogen hybrid consortium tied industries. How do you feel the timeline or which is most advanced in terms of translation into orders as well as earnings?

Yes. Pretty clear on that front. Anything to do with bus is earlier. And will translate to larger orders initially. Truck will come second. Yes, we try to call this our stack or revenue scaling effect where the bus market starts to grow significantly. On top of that the truck market starts to see penetration and grow significantly. As those two markets grow, the rail market will add and as those three markets grow, then the marine market will add on top of that. And we see those four markets aggregating to about a $130 billion revenue opportunity by 2030. And I do believe adoption will be in that sequence, bus, truck, rail and marine.

Thank you.

Okay.

The next question comes from Michael Glen with Raymond James. Please go ahead.

Good morning. Thanks for taking the question. Randy, can you talk about the evolving competitive dynamic in the industry? Clearly we're seeing quite a few announcements take place from peers in the fuel cells space. Are you seeing any changes take place in terms of your positioning versus others in the market and how do you see that evolving?

Yes, Michael. Thanks for the question. I think it has been an evolving competitive dynamics and I think it's going to continue to evolve over the next number of years as well. I think the next 24 months, there is a race to provide leading technology that has the performance, durability, reliability, safety, efficiency, et cetera that meets the market requirements. And in my opinion, cost reduction will be a key part of that as well. So, as I look at the dynamics, what's really happened over the last few years is we now are seeing mobility heavyweights moving into the space. So, recently for example you saw Bosch announce a billion dollar investment in the fuel cell space over the coming decade and of course that's exactly what we're doing at Ballard. We have over a billion dollars of cash and we plan to invest in talent and technology in products. So, it is going to be a competitive space. I think what I've seen is that over the last three months, compared to the last time we talked, our competitive position has only strengthened. And I say that because this 75 million kilometers are in the validation of our technology working in the field is critically important. A lot of the customers really want to make sure that as they deploy safety, quality, reliability, are critically important. The badge is on the front of these trucks or buses, rail and marine. And so, it's critically important for them to make sure they have a partner that is relatively speaking low risk. So, as you look at the positioning we have, and there is a war on how it in the fuel industry right now. We have it here in Ballard. And so, we're in very good position from a talent perspective. We're on the 13th generation of fuel cell stack and eight generation of fuel cell engine, we're working on the next generations of course. So we'll continue to innovate on that front. I don’t think anyone's even close to those levels of generation of product. And of course this is for the heavy duty motor market, not the passenger car market where Hyundai and Toyota I think have advantages there. And then I think if you look at some of the collaborations that we've announced here. It's just another whether it's CP rail and the rail market or Sierra Nevada, whether it's continued work with Wrightbus and Solaris in Europe as illustrative examples. As you look at some of the marine opportunities we're seeing, we're making progress in each of those four verticals of bus, truck, rail and marine with named companies that are in this for the long-term. These aren’t -- these are all projects designed to move to scaling in the long-term. So, we think the markets going to continue to be competitive. I think technology product, cost, performance are all going to be critical and that's what we're focused on here.

Thanks. And just on commercial trucks. So, you talked about being ready for testing by the end of this year. Does this mean you will have a pilot out there in say early '22 and what would be realistic to think about from an actual commercial product perspective, when would an OEM be able to actually buy your module, your solution?

Yes Michael, we're not quite very at in terms of identifying when a pilot will be on road and when we'll be available for selling. We do think that 2023 is a timeframe we expect to see kind of earnest market adoption of this product. That could be 2024. That's the time that we're looking at. But in terms of piloting and pretty serious production et cetera, there's a lot of work that will happen in 2021 and 2022 on that front. And you'll just have to provide more visibility as we meet some of those milestones. We don’t want to get ahead of our skies on and announcing things early.

Okay. Thanks for taking the questions.

Sure, thanks.

The next question comes from Christopher Souther with B. Riley. Please go ahead.

Hey guys, thanks for taking my question here. I just want to touch on the Weichai visibility again here. I think the long-term opportunity there's pretty apparent. But with coming below activity we saw in the first quarter, I just want to get a sense of until we get maybe some of these cluster announcements over the next 60, 90 days. Do you expect this kind of low activity we saw in the first quarter to be pretty consistent in sales, some kind of policy announcement comes. Understand there's been a couple incrementally positive things are on the five year plan in Shandong Province. But is the cluster kind of the key thing you think OEMs are waiting for. And if we do get an announcement in 90 days on that, does that come in translated into fourth quarter revenue or early next year. It's starting to kind of ramp up, I just want to get a better idea of the visibility you guys are starting to hopefully see there?

Yes. I mean, I think I would just characterize the market is in some way it's frozen over the last number of quarters, that's what we were waiting for these policy clarifications. And I think you're right, that we'll continue until those announcement occurs. So if it takes longer than 60, 90 days, it takes longer. So I think we'll, what we'll likely see is that the impact will be disproportionally weighted for 2022.

Okay, got it. And then, the European bus opportunity has appeared to be accelerating based on some of the order book. Can you give a sense of what the mix in the backlog is with those three key customers there?

Well, I think there's about 60, 70 modules that we currently have in the order book backlog for delivery. Most of them hopefully for this year in some cases they'll be depending on the end users and when they want to take delivery of these buses. We have seen delays over the last number of quarters on this market segment in terms of customers taking product with COVID-19 challenges at their location. So hopefully that doesn’t impact later this year. We'll see more importantly though I think is that what we're seeing behind that behind that order book, the sales pipeline for bus is very, very encouraging. And I think the European bus market is going to show very strong growth for fuel cells and for Ballard. I think we'll see a lot of perhaps more important than orders converting to revenue in 2021, we're going to see sales pipeline converting to orders. And I think that to me is the more interesting dynamic.

Okay. And then, just on the, would you scope with Audi. Is this kind of current run rate you saw in this quarter, the baseline we should use throughout the year for technology solutions or are any of the recent announcements with when the MAHLE charter, multiple rail customers likely to have seen as opportunities you think?

Yes. So what we're seeing is we're actually investing more in our own corporate balance sheet on some of these strategic programs that make sure we have full IP rights and able to prioritize the investment spend. I do think what you've seen in terms of Q1 cadence is be fairly consistent through the rest of the year on that Audi program.

Okay. Any other kind of programs though we should kind of flag there might be kind of on the cusp or is kind of the overall kind of revenue rate probably pretty consistent?

Yes. I would use kind of Q1 revenue rate as and look at that over the course of the rest of the year. That being said, there are a number of exciting opportunities in the sales pipeline that could have some fairly significant implications going forward.

Okay. And it's helpful. I'll hop in the queue. Thanks, guys.

Yes, thank you so much.

The next question comes from Pearce Hammond with Simmons Energy. Please go ahead.

Good morning. And thanks, for taking my questions and then helpful color on the call here. My first question pertains to the cost reductions that you highlighted earlier on the 3x3 plan. So congrats there. But just curious, when do you expect there at the start to flow through gross margin and seen some improvement there?

Yes, great question. The 3x3 plan still has more work to do in terms of translating some of the development changes into manufacturing and with new product. You obviously have to sequence the customers on to that new products. So there is some work to do. So I will look at 2022 as a timeline when we'll start to see some of that gross margin pick up.

Okay, great. And then my follow up. You've talked about and you've highlighted in the release the potential for acquisitions if you look at the ecosystem to where you could help reduce customer friction points. How are the opportunities looking now, are there a good number or are they priced at a more rich level or given the equities have been coming down here recently in the sector. Is they getting more interesting? Just like a quick update on what you're seeing on the acquisition front to strengthen the company?

Hi, Pearce this is Paul here. Since I've been here for past five weeks, there's been a tremendous amount of activity and looking at different opportunities, corporate development. There is different products, different markets and looking both downstream and upstream across the whole ecosystem to help expand our capability. So there is different files that we're actively working. Not sure when we'll actually see one come through, could be this year, could be in 2022. We also hired a new VP of Business Development. He has got very strong background in M&A. Who is also helping us, they would be coming with speed on all the different files. So we are putting a lot more emphasis on this area. And like I said expect to see something probably either later this year or into 2022.

Okay, thank you very much, Paul.

Thanks, Pearce.

The next question comes from Jonathan Lamers with BMO Capital Markets. Please go ahead.

Thanks for taking my question. On the Linamar demonstration partnership, what products would the joint venture potentially produce? Is it the interchangeable chassis with the fuel cell system including stacks supplied by Ballard?

Yes. Hi Jonathan, thanks for the question. What we're expecting is that most of the product that will be produced will be the respective scope of work done individually at Ballard and Linamar for our respective supplies go. We then would see the integration of that product like we at the JV. And I think the interchangeable chassis they're referring to is the likely point. I think there's still lot of work to do to understand the most effective way to structure this from an efficiency perspective. What we're trying to do of course is avoid unnecessary CapEx spending on facilities et cetera and trying to utilize existing capacity that we have both at Linamar and at Ballard.

Great. And to Aaron's earlier question about quantification. I realize the sensitivity is around this question. But are you able to provide us with any sense of how large the market for commercial pickups and vans powered by fuel cells could be. I'm kind of imagining that there could be a chassis plant with volumes and 1000s and this could result in revenue in the 10s of millions potentially for Ballard a decade out.

Yes, I would think that there's a multiple of that. I think Jonathan that number is quite light. So if you look at this opportunity on light duty vehicles we will initially focus on cargo vans and applications where we see taxi fleets and other opportunities. We are looking at fleets where you have high utilization. This opportunity though will enable us to have an offering for the passenger car market long term as well. So obviously a very large addressable market and a one that Linamar is very well positioned in.

Thank you. And just to circle up on China. What would be the earliest the joint venture could need more MEAs and kits at this point? Is it fair to say that that's a 2022 dynamic at this point before we see another order?

Yes, I would think 2022 is the clearly the safe bet and if there's upside might be some opportunity later this year. It's all going to be dependent on how the existing inventory gets released as the policy landscape changes and we move from waiting to execution.

Thanks. And on the three by three cost reduction program, if you've already achieved your full year 21 target, does that shift the prior timeline for, I believe it was 70% reduction in stack cost by 2024? Is it fair to say you could now hit that by 2023?

I think that's a fair assumption. We'll have to look at that carefully. It's not just the work that's done in 2021. Some of it will be time based in 2022 as well. There are three different phases or packages of work we're doing with different time horizons that the package of work for 2021 that cost reduction were as I mentioned, certainly tracking ahead against. There is more work to do in 2022 in order to bring out that full 70%. Where we're sitting today, I expect us to achieve a number higher than the 70% cost reduction and likely we'll be able to pull that time in, but it might only be a quarter or something like that.

Okay and on rail Randy, I appreciate your efforts working directly with the rail operators. But is Ballard also engaging in any activities with the rail OEMs, the Caterpillar's and lab techs of the world?

Yes. So there are three or four key rail OEMs and I would say until recently, they've been fairly quiet on this file. That's changed significantly over the last few months and some of these announcements have really caught their attention. And so there are activities underway right now and I think there will be more developments on that front in the next 12 to 24 months.

If I may ask one more question? On the heavy duty truck market, I look at the tam that Ballard has identified I think roughly three quarters of that is medium and heavy duty trucks globally. So it's pretty significant and battery electric trucks are an emerging competitive alternative. For example, there was an academic study recently, they argue that payload is not impacted by the battery as much as we previously thought. Randy, I believe you have a view on this issue. Have there been any real technology developments recently that have changed the window of opportunity for fuel cell trucks in the long haul market or does that continue to look like a great opportunity?

Yes. I think it is a fantastic opportunity and I don't see today or in the near future at all any changes in battery technology that will help it expand its addressable market from light duty into really heavy duty applications. I think this is a market that is very clearly going to be fuel cells.

Okay. I really look forward to the prototype. Thanks for taking my questions.

Thank you, Jonathan.

The next question comes from MacMurray Whale with Cormark Securities. Please go ahead.

Hi, Randy. I'm just wondering you've shipped a lot of equipment, a lot of work in progress or components to China in advance of the rollout. Is there a risk in behind this you've been continuing to change the module technology and work on various initiatives? Is there a risk that that work in progress needs to be replaced before it actually gets shipped in modules like, is there a worry at all that there's a write off coming associated with that?

Yes. That's certainly not in our plans and if you look at the activity levels we have at the Weichai-Ballard joint venture with a customer base we are seeing the engagement around the existing product we have. There haven't been discussions with the end customers about looking at next generation but that's always a theoretical risk I suppose, Mac.

Okay. When your -- and in terms of the launch, when you get the announcement when they're made public, do you foresee an actual sort of ramp up? Presumably, there's not a ramp up but a step up in demand because or at least in shipments, because presumably there's some pent up demand because you continue to do the work with the customers. Presumably, you should be able to ship a lot more products versus the original plan which would I would imagine with a smoother ramp. Can you speak to the dynamics of how you can sort of hit the ground running when it is turned on?

Yes. I think this is a coil that spring loaded and ready to unravel. I do think though, we'll have to wait and see what the final policy arrangements are and what kind of behavior that's an in sense. Our expectation is a kind of the first to post type of approach where higher points will be awarded for projects first in the field. And if that's the case that would certainly see a lot of pressure on customers to getting products out as soon as possible. But we'll have to see what the behavior, how the policies end up being shaped and what behavior that that implies.

Okay and just my last question is just the clarification that the technology that would go into the Linamar initiative that is directly related to the work you did with Audi, I would imagine, is that fair?

Yes. There is a lot of learnings obviously on a high power density, high performance stack for that market application and of course we have rights to that stack including for the passenger car market. So yes that will be a safe assumption.

Okay, great. Thanks, Randy.

Thanks, Mac.

This concludes the question and answer session. I would like to turn the conference back over to Randall MacEwen, the CEO for any closing remarks.

Great. Thank you for joining us today. Paul and I look forward to speaking with you in August when we discuss results for Q2, 2021. Thanks again.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.