Hyliion Holdings Corp. (HYLN) Q2 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Hyliion Holdings Second Quarter 2021 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Tomas – I’m sorry, Louis Baltimore. Please go ahead sir.

Thank you, and good morning, everyone. Welcome to the Hyliion Holdings second quarter 2021 earnings conference call. With us today, we have Thomas Healy, our Chief Executive Officer; and Sherri Baker, our Chief Financial Officer. During today’s call, we will make certain forward-looking statements regarding our future business expectations, which involve risks and uncertainties. Forward-looking statements are predictions, projections and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements on this call. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the press release we issued yesterday after the market close as well as our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. You are cautioned not to put undue reliance on forward-looking statements. We undertake no duty to update this information unless required by law. Before turning the call over to our CEO, Thomas Healy, we’d like to share with you a short video about Hyliion and our mission. [Video Presentation]

Good morning, everyone. I hope you enjoyed that short video and I’d like to welcome you to Hyliion’s second quarter 2021 conference call. It has been about a year since we announced that we’d be taking Hyliion public. So I’d like to start this call off with a little background on Hyliion on and our mission for anyone who may be new to our company. I founded Hyliion back in 2015 with one goal to become the leading powertrain provider of electrified solution for the commercial vehicle industry. This mission is underpinned by Hyliion’s core values. We act with integrity and we strive for excellence in all we do. We take pride in delivering on our commitments and focus on the details to achieve the highest quality of products. We will succeed as one team by empowering our employees to make decisions and to support each other. This tied to our ultimate goal of changing the world, one truck at a time. With these core values solidly ingrained in our culture, we are starting to hit major inflection points here at Hyliion. The first one is the completion of the first of our Hypertruck ERX demo unit, which we plan to unveil at one of the industry leading trade shows the ACT Expo in Long Beach, California in late August. Second, we will unveil our improved hybrid product, which will also be on display at the ACT Expo. If you’re thinking about attending, it will be the first chance to get up close and see our new hybrid product and a Hypertruck ERX demo truck. Feel free to drop by our booth next to both Peterbilt and Volvo. If you’d like to set up a more formal discussion, reach out to Louis in IR, and we’ll schedule a meeting. If you are unable to make it out to Long Beach to see us live, our marketing team is working on some exciting video content as part of this product launch too. If you turn to Page 4 in the presentation, these are the key topics we’d like to cover today. First we’ll provide an update on our improved hybrid commercial product launch and our continued progress towards the development and the commercialization of the Hypertruck ERX. Then we’ll give a brief status update around our supply chain, which we spoke about on our last call. We are also excited to announce that we have a new Chief Operating Officer joining us next week, which I’ll cover in more detail later on this call. We’ll also provide a regulatory update that is very favorable for our products. After discussing some positive developments in the renewable natural gas space, I’ll talk about the growth of our team and provide an update on our headquarter expansion project. I will then turn the call over to Sherri to go through some of our financial details and walk you through our expectations for the second half of 2021. There’ve been so many major milestones Hyliion has accomplished since we founded the company back in 2015. From the completion of that dark gray Hypertruck ERX proof-of-concept model that many of you have seen to the consummation of our SPAC transaction that enabled us to raise over $700 million to fund commercial development to the formation of the Hypertruck Innovation Council earlier this year. It has been an exciting journey to get to where we are today. And we see that we are well positioned to be the leading provider of electric powertrain solution to the Class 8 market for many years ahead. If you turn to Page 5, you’ll see an update on our hybrid powertrain. We plan to unveil the improved hybrid powertrain later this month and begin shipping these units in the latter part of this year. With this new design, we have significantly streamlined the installation process by consolidating a significant amount of our component into a larger battery box. We are also reducing the net system weight and have improved the overall systems efficiency. One of the main focuses has been on improved reliability and installation of the system. In this new version, we also refine the software and cloud connectivity to deliver over the air updates more efficiently, giving us the ability to push out the latest version of our proprietary software and performance algorithms, including these software improvements is a feature that enables automatic traction assist for drivers. We’ve also designed it to accommodate future mechanical upgrades in a more scalable manner. Until launching our commercial revenue generating approved hybrid powertrain, our goal has been to continue to ship low volume units of our hybrid systems to industry leading fleet to seed the market and garner customer interest. During the second quarter, we continued to deliver additional hybrid units. In the later part of this year, we will begin to deliver the improved hybrid version to customers. We will also begin to recognize revenue on these shipments after the product launch. Now I’d like to shift the discussion to the Hypertruck ERX, so please turn to Page 6. Before we go on, I want to give a huge thank you to our Hypertruck Innovation Council on behalf of everyone here at Hyliion. The amount of insight, engagement and level of commitment to our cause they have demonstrated has been invaluable to our development process. One of the most significant indicators towards future success is customer interest and demand. To this point, we recently announced a product reservation agreement for the purchase of 300 Hypertruck ERX units from Detmar Logistics, a leading oil field logistics company. One of the exciting parts of this relationship is that Detmar plans to use our technology to expand their operations by offering their customers a unique way to achieve their mission targets. In the second quarter, we announced that Detmar placed a binding order for 10 hybrid units. Their ultimate goal was to use the hybrid as a stepping stone to our Hypertruck ERX product. After seeing some early success with the hybrid product and strong driver feedback, Detmar made the decision to extend their relationship with Hyliion by signing this reservation agreement for Hypertruck ERXs. We will begin showcasing our Hypertruck ERX demo units to the Detmar team later this year. Please note that this purchase and sale of the 300 Hypertruck ERX units is subject to the execution of a final agreement between Hyliion and Detmar. But we are very excited with the level of interest and commitments we are seeing from Detmar and others and wanted to share this exciting news with you. Over this past quarter, we also held a significant number of meetings with fleets who are part of the Hypertruck Innovation Council, as well as others who are interested in being early adopters. I believe that the interest in our product is continuing to grow and start viewing our solution as practical and being able to offer the greatest benefit to their fleets need, when looking at both payback and emissions improvements. Now shifting to more details around the build-out of initial ERX demo unit and the commercialization process, which you can see on Page 7. We recently completed the build of our first demo units with our engineering partner FEV. As we discussed in our last quarterly call in May, this is another stage in our multi-phase product development approach we're using to ultimately reach commercialization of the Hypertruck ERX. We will be sending one of these demo trucks out to the ACT expo later this month, once that tradeshow is over, it will travel to the TMC Fall Meeting and Transportation Technology Exhibit in mid-September. Starting shortly after these major tradeshows, we have a full schedule of sales and marketing events planned for these showcase unit. Beginning in the fourth quarter, we plan to take some of these Hypertruck ERX unit on the road, traversing the country to showcase these vehicles with our Hypertruck Innovation Council members, along with other prospective customers. We expect to release some great content to our social media and traditional media channels along the way. While these trucks travel the country, we plan to begin building the next phase of demo units during the fourth quarter. Another accomplishment in our multi-phase development process, these will be built on Peterbilt's new model 579, and each units will go through extensive validation testing. We will also utilize these trucks as the first that will be deployed and fleets day-to-day operations. These trucks will also be equipped with integrated drive axles provided by Meritor. A week ago, Meritor announced that we have selected them to produce the electric axles for the launch version of our Hypertruck ERX powertrain, and we'll be the preferred supplier to Hyliion. We chose Meritor’s product because it fits well with our customer's vehicle performance requirements. This is another milestone achieved and selecting suppliers who can meet the needs for launching the Hypertruck ERX. We remain on track for showcasing trucks with fleet later this year and we will carry that into 2022. We will then provide initial unit to fleet, to operate in their operations, followed by commercially available units ready in late 2022. This will then be followed by commercialization volume ramp up of the Hypertruck ERX powertrain. As I mentioned at the top of the call, we have good news on the regulatory front Hyliion's products especially our upcoming Hypertruck ERX present opportunities for fleets to reduce their total cost of ownership and reduce emissions. Even in the absence of tax credits that other de-carbonization transportation technologies require to bring TCO in line with diesel. We are looking for ways to improve our product design, to capture the various tax credits opportunities and mandated qualifications at the state and federal levels. Because regulations and incentives differ greatly from state to state and fleet needs also vary. We recently announced an enhanced configuration of our Hypertruck ERX that can travel over 75 miles on battery only and has plug-in, fast charging capabilities. These design enhancements will enable truck manufacturers that sell vehicles with Hyliion's Hypertruck ERX electric powertrain to generate zero emission vehicle sales credits, that are required as part of California's Advanced Clean Truck Rule. The ACT rule approved by California Air Resources Board in June of 2020 sends that for Class 8 truck tractor manufacturers to sell vehicles in California, a minimum of 5% of their total California sales must be zero emission vehicles by 2024. This percentage increases year-over-year to 40% by 2032. A near zero emission, plug-in hybrid electric vehicle can also earn partial ZEV sales credit, depending on its all electric range. Based on this rule, truck manufacturers will be able to achieve a 75% ZEV sales credit by selling a Class A truck with a Hypertruck ERX long-range electric powertrain. While California was the first state to introduce ZEV sales requirement for medium and heavy duty trucks both New Jersey and Washington have initiated formal regulatory processes to adopt the ACT rule. Massachusetts, Rhode Island, New York and Connecticut have also begun consideration of the ACT regulation. Our product launch, we plan to offer the 75 mile Hypertruck ERX configuration, but we planned to later offer a shorter battery only range version for fleets with different products specification needs. Now we'll talk about the supply chain disruption, so many companies, both large and small are facing. In past calls, we had mentioned how supply shortages have impacted some of our timing. We are seeing tightness in the semiconductor supply, like most of major auto manufacturers are these days. In most instances, we have been able to implement alternative solutions and work around. However, we still have a small percentage of parts that we are continually working to secure supply on a day-to-day basis. Over the next several quarters we expect availability of these components will improve and cost pressures should ease. Fortunately for us, this improvement in the supply chain should coincide with our volume ramp expected to start later this year with our improved hybrid and continue over the years ahead with both the hybrid and Hypertruck ERX. Our procurement team has been doing a great job finding alternative sources for the same parts or identifying equivalent parts from other manufacturers that also meet our requirements. One major differentiating factor between Hyliion electrification solutions and most other solutions in the works is that our products work well with today's existing infrastructure in North America. While Hyliion’s Hypertruck platform is designed to embrace and utilize hydrogen in the future as the world's hydrogen production and distribution infrastructure improves. Our ability to helpfully decarbonize in the near term is underpinned by domestically produced natural gas, ideally Renewable Natural Gas or RNG. We thought two major milestones come out of California with regards to R&D utilization in 2020. The first is that 92% of all natural gas use and transportation was RNG. So almost all the natural gas used was from renewable sources. The second was that the average carbon intensity of RNG fuel use was net carbon negative. The reason that this is so significant is because it means that California has achieved RNG production that is actually creating a negative emissions score for its users. As we hear about more and more companies setting net zero carbon emissions goals by 2030 or beyond, a net carbon negative transportation emissions profile can enable companies to get to net zero across their organization, even if other parts of their business has a positive carbon intensity. Shifting to Slide 8, we previously announced the expansion of our headquarters facility in Austin, Texas, and we broke ground on this project in early July. The goals here are to meet both our headcount and anticipated customer demand growth. We are expanding our installation footprint along with the number of trucks able to undergo simultaneous installation while our long-term goal is for our powertrain to installed on the OEM assembly line, we will continue our R&D efforts at our facility and we are increasing the size of our battery technology development area and our powertrain and battery testing area to enable us to assess and validate next generation solutions. This expansion will also accommodate our growing base of employees. We have recently moved our workforce to temporary administrative and operations facilities in order to support the renovation process. The renovation work including structural remediation is expecting to last several months, but given construction delays in the Austin area, the project may take longer to complete. We do not anticipate significant disruption to our business operations as a result of all this work. Now shifting to some exciting updates around our team, as I mentioned, we have a new COO starting at Hyliion on next week. Dennis Gallagher comes to us after having spent over 20 years at Danaher owned companies. Most recently, as the President of Jacobs Vehicle Systems, an industry-leading supplier to the heavy-duty commercial vehicle market, Dennis has a proven track record of delivering excellent results as Hyliion on increases its focus on the commercialization elements, in addition to product research and development, Dennis will lead all efforts in the organization that are focused on the commercialization and delivery of our products to the market. Lastly, in this past quarter, we exceeded our hiring goals during the second quarter with an addition of 59 employees enroll spanning from automotive engineering, advanced software algorithms and control engineering to supply chain, operation and other important business functions. We will continue to hire great talent that will help us achieve our goals. With that, I'd like to turn it over to Sherri, to discuss some updates on the financial side.

Thank you, Thomas, and good morning, everyone. Let's now turn to our results for the second quarter of 2021. Turning to Slide 9, our team continued to invest in R&D as we execute against our product development roadmap. R&D spending was $13.4 million, an increase of $4.1 million sequentially and $10.8 million year-over-year. SG&A spending was centered around the continued build out of necessary infrastructure to advance our commercialization initiative, operational capabilities, and the addition of talent to accomplish these goals. For the quarter, SG&A spend was $10.1 million, an increase of $2.7 million sequentially and $9.2 million year-over-year. Overall, Hyliion reported a net loss of $23.2 million compared to a net loss of $16.6 million in Q1 and a net loss of $4 million from a year ago. Turning to our capital structure and balance sheet, we ended the quarter with approximately $318 million in cash and cash equivalent, but including our short-term and long-term investments, we had over $617 million. Our short-term and long-term investments are high quality credit instruments with no maturities beyond 36 months and an average maturity at 18 months across this portfolio. We are very pleased with this large liquidity position and believe that some of this capital is more than sufficient to fund our business until we begin generating sufficient cash flow internally. We previously that we expected in generating revenue on the improved hybrid product after launch later this year, we are on track to accomplish this goal and initial revenue recognition on our improved hybrid is major milestone for Hyliion. However, we do not expect the revenue generated in 2021 to be material. For the full year of 2021, we are lowering our total operating expense guidance to the range of $130 million to $140 million consisting primarily of R&D and SG&A expense. We are looking forward to executing against our product development roadmap and look forward to sharing our progress with you in the future. This now concludes our prepared remarks. And now I would like to turn the call back over to the Operator to open the line up for questions.

[Operator Instructions] Your first question comes from the line of Steven Fisher with UBS.

Good morning. This is Avi Jaroslawicz on for Steven Fisher. I was kind of curious, so what's causing OpEx to run a little lower than expected for this year. Is that kind of related to sales or just the progression in terms of the supply chain disruption?

Yes. Good morning and thanks for the question. So the lower OpEx is really because of our pullback on installations waiting for the launch of our new hybrid product later this year. So our OpEx is coming in a little bit lighter. So once we launched that product, we'll start to see that ramp up at all, also keep in mind that a bulk of the R&D and SG&A is also related to our Hypertruck development. So as we're getting into future phases of that development, I would expect to see both the R&D increase as we move throughout the year and then SG&A really, as we continue to add talent to support those commercialization goals.

Got it. So even at this point, it should still be more Q4 weighted than evenly split in the second half?

I think you could probably expect it to ramp up at a higher pace than what you saw in Q2 as we get into Q3, more related to that hybrid launch and then a more equally weighted as we're moving throughout the rest of the year.

Got you. Okay. And then if I can ask another one. How are you guys thinking about production capacity for 2022?

Yes, absolutely. So just to kind of start with our kind of high level plan of how we're going to produce it themselves. Initially, we're going to start with being able to build systems at our own facility in Austin. And then from there we will move the install of the product into mod centers. And that's something we've spoken about in past calls, where we partnered up with some facilities like Lonestar truck centers, as well as Fontaine, and Berkshire Hathaway to be able to utilize their facilities right next to many of the major truck OEMs, to be able to actually do the installs. Now at their facilities, they're capable of doing thousands of units a year. So really we don't see any limits there in terms of being able to ramp up volumes. And then from an assembly standpoint, as we start to hit the capacity of what we can build in-house at Hyliion, and once again, it's really more the early units that we plan on doing at our own facility. We'll then move to contract manufacturers to do the assembly for us. So really sticking with that asset light approach here where we don't need to go set up our own, hundreds of thousands – hundreds of millions of dollars manufacturing facilities in order to be able to produce these products.

Got it. Okay, cool. I think I'll hop back in the queue. Thanks guys.

Our next question comes from the line of Brian Johnson with Barclays.

A couple of sets of questions. First, around the Innovation Council in hybrid, in terms of managing the sales pipeline, can you just get a sense about when you would – we would start the looking for orders for the hybrid truck is as well. Of course, it's going to be later for the Hypertruck. I mean, how much the valuation kick the tires or the things before orders in terms of setting test vehicles in potential customer fleet that are revenue creating, but sort of point the way of those sales funnel.

Yes. And so what we found in the discussions with fleets is we're really kind of falling into their normal technology evaluation adoption cycle. And so just a little background on kind of how fleets approach it. First, they want to get their hands on the technology, see it live. And then from there they want to start deploying it in their operations and low volumes units to be able to experience it and prove it out firsthand. And then from there the goal would be to be kind of slotted into their normal truck purchasing that they're doing. So for a fleet that's keeping trucks for four years, five years every year there'll be turning over about 20% to 25% of their operations of their trucks. And our goal would be that we can be spotting into that new truck purchase a bill that a fleet is not going to take a truck that's only two years old and just get rid of it, to replace with a new technology. They're going to be getting rid of the ones that are end of their life and then cycling in a new technology from there. So we're working with fleet both on the hybrid and on the Hypertruck discussions to really understand their adoption cycles. So with hybrid, we've already got some fleets out running the solutions. We've already seen some of those fleets come back and place repeat orders with us. And as we go into launching the improved version of the hybrid, that'll be another process. Here we go through getting it rolled out with more and more fleets so that they can experience it. And then with the Hypertruck, the big thing with the innovation council is that those fleets have committed to run these trucks in their operations to experience them. And we really see that as one of the early stages of that adoption cycle. And then from there, once they've proven, our goal is proved to them that we can hit those emissions numbers. We can hit those reduction and operating costs. And then from there, it gets slotted into their new truck purchasing that they're doing every year. But the great news for us is some of these large fleets that operate thousands of vehicles. They can be turning over a 1,000 trucks a year in their operations.

Okay. Second question, Dana was an early equity backer of you, supported you in some manufacturing operations. So can you explain kind of the thinking in terms of adding their core for the Hypertruck, does that displace Dana? Will it be the traditional axle shortly that fleet tab between the Dana and Meritor set with one standard and the other available?

Yes, absolutely. So with Dana, you're absolutely right. They were an early investor in Hyliion, and we've recently decided to end our exclusive supply dealings with Dana. But we have – we still have an ongoing relationship with Dana where we're able to supply source components from them. It's really just the exclusive aspect of it that has been terminated. And so with that, we've announced that we're going to be utilizing the Meritor e-axle solutions in the launch of the Hypertruck. And so really what we went out and looked at is what solutions were available on the market that would allow us to be able to really meet the demands we're seeing from our customers. And we saw that that Meritor e-axle solution, which Meritor put hundreds of thousands of miles of testing on that that axle. And then we're actually going to be implementing it into our first demo truck that is going to be unveiled at the ACT expo. That's what we'll be going to market, from an actual supply standpoint for that product.

Your next question comes from the line of Bill Peterson with JPMorgan.

Yes. Good morning. And thanks for taking my questions. I have two. And I guess first on the hybrid side, I understand, limited or immaterial revenue this year, but would you say just for clarification, is this as a result of supply chain issues or would this be more of a result of just, I guess not meeting all the milestones that your customers are looking for on time. I'm just curious at that point and then really what does the pipeline look for the hybrid trucks as we look into next year and beyond?

Yes. So on the Hypertruck, this year kind of the revenue generation not being material, as really a factor of over past calls. We had expressed that we've experienced some delays in the development of the hybrid as well as some supply chain issues. So it's kind of a combination of both of those. And so from that standpoint, we are still on track to launching that product this year and starting to recognize revenue on it, which would be a huge milestone for the organization. But we just don't see it becoming a material amount of revenue. Then your second part of the question was around Hypertruck orders. So one of the things that we announced this past quarter was a 300 unit reservation with Detmar, that's a huge indication towards fleet interest and one of the things that's pretty interesting about Detmar here is they actually are looking at this technology as a way to expand the size of their fleet operations because they see that they can offer their customers a unique benefit of significant emission reductions for the oil and gas space. And so we're seeing a lot of customer interest in the Hypertruck. The discussions are frankly exceeding my expectations of what we envisioned from a fleet discussion and overall fleets are just viewing it as a really practical way in order to be able to adopt the electrified powertrains into their fleet operation. We break down many of the hurdles that they're often faced with like, having to set up the infrastructure, having costs that are more expensive than diesel. Those are things that we're not faced with when we're looking at the value proposition of the hypertruck.

I might've misspoke I was wondering the pipeline for the hybrid truck next year. But I'll go ahead and ask my second question as well, related to the hyper truck, I guess when you think about the trials that are going to be happening all throughout next year, what are the key criteria? What are they looking for? Like what makes the, I guess, for example, in the Detmar unit go to full purchase agreements, as opposed to just the reservations. So just a clarification again, on hybrid ramp next year. And then what are the customers looking for the – to prove out next year.

Yeah. So first on the hybrid side, so we're in that phase right now where we've already started seeding the market with some early units. As I mentioned, we are starting to see some customers coming back and placing repeat orders with the hybrid. So that's a big positive indicator there. And then, we'll continue to seed the market with the improved hybrid system in order to get ready for next year and starting to really hit stride with commercializing that solution. And then with the Hypertruck, some of the key things that the fleets are going to be looking for, I'd say, yes, I think it kind of comes down to three things it's going to be, does it save them money? Does it have reliability and our drivers accepting the solution? So I'll walk through a little bit with each. One is the TCO side. We see that that's actually one of our biggest value propositions for bringing a fleet and probably their number one pinpoint, fleet to view these vehicles that tool and asset for their operations. And so they're going to make buying decisions based on TCO models. And that's where we can bring a lot of value by actually having a cost model that is less than diesel. Then from a reliability standpoint, they want to make sure that this doesn't add a significant amount of maintenance headaches, and hurdles in their operations because uptime is critical for them in order to be able to move assets around the country or move goods around the country. And then third driver acceptance. They want to make sure that the drivers are like driving the vehicle and that it's a truck that works for them. And we see – we strongly believe that there's a huge shift in kind of driver experience from going from diesel truck to our hybrid trucks solution. You have very smooth acceleration, very fast acceleration with an electric drive train in one where we think drivers, from the drivers that have driven our Hypertruck proof of concept vehicle, they love it. They love the experience, and we actually think that's going to be a big selling point for fleets.

Your next question comes from the line of Noel Parks with Tuohy Brothers Investments.

Good morning. Just a couple of questions, you mentioned the mod centers and how you'll be able to integrate them into the manufacturing process. I’m just wondering on the cost side, are the costs of working through the mod centers, are those highly visible? Or are they more sort of a work in progress like you need to get up and running and sort of see how they settle out.

So we’ve actually already started using mod centers to do some of the installs for us. Actually, the majority of the installs that have taken place thus far this year parts of the system has been updated by different mod centers. And so we are getting some clarity on kind of early units, and then we’re working on what that pricing is. And then we’re working with those outfitters in order to look at what is going to be the long-term installation costs. Now, one of the reasons that we haven’t put as much clarity around on units we’ve been installing to date is really because as we go into the improved hybrid system, one of the biggest shifts in that product is a much easier installation process. We spent a lot of time looking at how can we reduce the installation time, make it easier for a mod center in order to be able to install it. And so we see that with rolling that product out, we’ll be in a position where as we ramp volumes we’ll be able to have a strong cost model set up with those mod centers to do the installs.

Great. And I just wonder if you could talk about maybe over the last say, six months or so, how customer evaluation process has been going. Just wondering about the level of urgency that you’re seeing among the fleet operators and curious, are they at a point that they’ve done enough investigation of different offerings out there that they’re already actively ruling out vendors who sort of want meet their requirements? Or should we think of this as being more, still very much in its infancy?

Sure. So maybe just speaking about the industry as a whole first, because I think this is really important. There is so much attention being shifted towards electrification right now within fleets from where we were a year ago, two years ago, the level of interest is skyrocketing. And please know that electrification is coming and it’s happening. And they’re now at a phase where they’re trying to figure out what electrified solution is going to make sense for them. And your comment in the question, they are really diving into those kind of nitpicky things like, well, how much is it going to cost to set up a station, a recharger or a hydrogen station. Even getting down to examples, like can the grid support rechargers? We had a fleet share a story with us, not too long ago where they were saying that they went to their utility provider and they weren’t even going to be able to operate 10 trucks off of the grid, the EV trucks off of the grid because of the electric demand that those would require. So fleets are really diving into those picky details. And that’s where we’re seeing our solution really shining, especially with the Hypertruck solution where you can use that existing infrastructure of natural gas out there. The costs are there today to make it – have it make sense. It’s not something that we need drastic cost reductions in the year ahead of the fuel cost in order to make it, hit a cost parity of diesel. We’re already at a point today where you can achieve a cost that’s less than diesel. So those are the level of details fleets are diving into. And I think every fleet is looking at this the same way. They want to experience the technology firsthand in their operations for a period of time, determine what makes the most sense for their fleet. And then they’ll move forward with cycling that technology into the new vehicles they’re adopting.

Great. Thanks a lot.

Your next question comes from the line of Mark Delaney with Goldman Sachs.

Hi. Yes. Thanks very much for taking the questions. I was hoping to better understand the long range variant of the ERX. And you guys talk about 75 miles of capability. What are you guys changing that’s leading to the longer range? Is it just a bigger battery? Are there other changes you’re making to the design of the ERX that allowing you for that longer range?

Thanks, Mark. So, maybe first, one of the things that we’ve received a lot of feedback, from yourself from other sell-side analysts, from the OEMs and even fleet as then this focus around the EV credits and being able to really achieve the mandates that are coming out from carb and others. And this was one of the main drivers behind implementing this shift in the variant of the product where with extending the range – the BEV only range of the truck, we are now enabling the OEMs to qualify for the BEV credits for any truck they ship with our powertrain in it. So that means they’re getting the same credits that a full electric plug-in truck would be getting as those are being shipped. And so we see that as a huge enabler for the OEMs because as they are getting mandated to – as we mentioned in the call, like in 2024 5% of their fleets need to get the credits and then it’s going to grow up to 40% in the years ahead that our technology can go after those same credits. And with that 75 miles BEV range, we’re able to buy for 75% of BEV credit. And so that was the main driver to the other part of your question of how are we doing it? It is increasing the kilowatt hours of the battery pack to enable us to have that longer range.

That’s helpful. And then just in terms of the timeline for the long range version, maybe you can talk about that in a bit more depth. Is it similar to what you were already discussing for the ERX overall? Or is there a different timeline for the long range version? Thank you.

So, because of such a strong focus on these BEV credit, us wanting to make sure we’re working with the government agencies to really achieve their targets that they’re putting out there. We’ve actually pulled that in as our initial product that we’re going to be launching, we’ll have that larger battery pack, and that will be what we go to market with first. So all the timing that we’ve discussed, that’s actually going siding with the timing of – or that is the timing of the long range model and then we’ll be releasing a shorter range model after the long range model is already out there.

Got it. Thank you.

[Operator Instructions] Your next question is a follow-up from Bill Peterson with JPMorgan.

Yes. Hi. This is somewhat more of a longer-term question, and I clearly understand the focus on hybrid and Hypertruck really with the RNG and so forth. But the infrastructure bill just passed the Senate. Obviously there’s more work to go in the house, but if you think about there’s clearly sort of a lot of focus on hydrogen. How would this potentially, let’s say, change your longer-term three year, let’s say, timeline on implementing the hydrogen as the direct fuel source or fuel cell version. Just kind of your thoughts on infrastructure bill in general. And I realize there are some components related to gas in there, but just some thoughts on the infrastructure going sort of a longer term outlook.

Yes. So first off, just all of the push and focus that’s coming from the Biden administration towards electrification is fantastic. And we’re seeing that help with that customer interest and demand and ability for fleets to be able to adopt if some of these technologies are being subsidized. So it’s all really positive. But going back to your question, one of the things we announced a couple of earnings calls ago was our path to AI-based future and evolving the Hypertruck powertrain to make sure that we evolve with the production and build out of hydrogen fueling stations. So we’re starting with natural gas today because that’s what’s logical for today. With renewable natural gas, you can get to net carbon negative. You’ve got the costs that are there, the stations that are there, but as hydrogen gets built out, we will evolve the generator that we use on the truck to evolve, to be able to use hydrogen. So starting with natural gas, then we’re actually going to go to a fuel agnostic generator that can run on either natural gas or hydrogen. And then eventually moving to hydrogen fuel cell, which would only be able to run on hydrogen. And so we see that, as we roll the Hypertruck out, it’s not a monumental massive shift in order to change out that generator to move to differing solutions to accommodate different fuels. So we’ll have millions of miles already deployed on our powertrain using natural gas, and then we’ll be able to evolve that into a hydrogen generator. So we think we’re positioned really well to take advantage of this shift to hydrogen. And whenever those stations are built out and the cost of hydrogen come down and the transportation of hydrogen is figured out, we’ll be well-positioned with our powertrain to be able to offer fleet solution to run on hydrogen.

Yes. Thanks for that. Just lessons more of just housekeeping. You gave the color on the operating expense for the year implying kind of a big step up here in a third quarter. But I guess, conceptually, how should we think about that into next year, given what you need to do to with the Hypertrunk validation and so forth. And then, the other part of the cash uses is, is CapEx. I know you’re obviously of the new buildings, how should we think about CapEx for the remainder of the year and into next year.

Yes. Great questions. And I actually take them in reverse order. So really key differentiator for us is we are an asset light model. So CapEx for us is actually not a significant cash outlay. This year, we expect cash to be not likely in the $10 million to $20 million range. That’s really comprised mostly operations in our facility expansion. So depending on the speed at which we are able to complete the phases of that facility renovation that will depend on where we come up in that range. But it’s just important to note that CapEx for us is not as significant amount compared to maybe some others in the space. And then from an expense perspective, we’re actually in the process right now of starting our 2022 planning cycles. So one thing that we’re doing is we’ve been implementing various portions of NetSuite as an ERP, and we’re also tacking on a forecasting and planning module that is an industry leader that will allow us to actually build KPI driven that will tie directly to our commercialization phases. So also moving throughout the year and completing that process, we’ll be able to give you better visibility into what that expense looks like. But as it sits right now, we feel like we are very well capitalized and we have ample liquidity to carry us through all this commercialization phases in 2022 and beyond.

Thank you.

Ladies and gentlemen, we’ve reached the allotted time for questions. I would now like to turn the floor back to Mr. Healy for any additional or closing remarks.

Well, thank you. I appreciate everyone joining the call today. Hopefully you can see there’s so much going on within Hyliion, a lot of exciting developments taking place right now, and a lot of big milestones that are coming up as we get towards the end of this year. So please be following the journey with us as we get Hypertruck units out on the road and showcasing them at trade shows here and a lot of exciting – fun and exciting things coming up here. We look forward to chatting again next quarter, and I hope you have a great rest of your day. Thank you.

Thank you for participating in today’s conference call. You may now disconnect your lines at this time.