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Greetings and welcome to the Microvast Holdings’ Fourth Quarter 2022 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to our host, Cassidy Fuller, Investor Relations for Microvast. Thank you. You may begin.

Thank you, operator and thanks to the audience for joining us today. Yang Wu, Founder, Chairman, President and CEO; Sascha Kelterborn, Chief Revenue Officer; and Craig Webster, Chief Financial Officer, will host today’s call. Ahead of this call, Microvast issued its fourth quarter and full year 2022 earnings press release, which can be found on the Investor Relations section of the company’s website, ir.microvast.com. In addition, we have posted a slide presentation to the website to accompany management’s prepared remarks. As a reminder, please note that management will be making forward-looking statements on this call. These statements are based on current expectations and assumptions and reflect the company’s view only as of today. They should not be relied upon as representative about views as of any subsequent date. In management undertakes no obligation to revise for publicly released results of any revision to these forward-looking statements in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect the company’s financial results, please refer to Microvast filings with the SEC, including the Annual Report on Form 10-K and 8-K filed earlier today. In addition, during today’s call, management may discuss non-GAAP financial measures, including adjusted gross profit, adjusted net loss and adjusted EBITDA, which the company believes are useful as supplemental measures of Microvast performance. These non-GAAP measures should be considered in addition to and not as a substitute for or an isolation from GAAP results. These non-GAAP measures have been reconciled to their most comparable GAAP metrics in the tables included at the end of the company’s press release. A webcast replay of this call will also be available on the Investor Relations section of Microvast website. With that, I will turn the call over to Mr. Wu for some opening remarks.

Thank you, Cassidy and thank you all for joining us today. I would like to start off with a high-level overview of the quarter. Before providing the key highlights for 2022, I will then turn the call over to Sascha Kelterborn, our Chief Revenue Officer, who will discuss some of our key wins in the quarter, followed by Craig Webster, our Chief Financial Officer, who will discuss our financials in more detail. I will then address our outlook for 2023 before opening the call up to your questions. Please turn to Slide 3 as I cover a few highlights from the fourth quarter of 2022 and the full year. We recorded revenue of $64.8 million in Q4 2022 and $204.5 million for the full year. We ended the fourth quarter with record backlog of $410.5 million driven by a robust order intake of $364.7 million led by the large win we announced in December for our energy storage division, or ESS and a strong demand across multiple commercial vehicle platforms in Europe. We are proud of our achievements last year and are looking forward to executing on the many opportunities ahead of us in 2023. Some of our most notable achievements last year include the establishment of the Microvast Energy Division in Colorado and is the introduction our new ESS container offering. This expands our addressable market to include energy storage in sector, where annual deployments in the U.S alone reached to 13.5 gigawatt hour in 2022 and our large 1.2 gigawatt hour utility scale project has been a big boost for our push into this market. In our commercial vehicle business, we expanded our partnership with IVECO, one of the largest commercial vehicle manufacturer in Europe, for a number of additional vehicle platforms and expect to ramp production and begin deliveries this year. We were also selected for a $200 million grant by the U.S. Department of Energy to build our most advanced high-temperature separator plant in the United States to help enhance battery safety for the industry. And we continue to expand our industry leading technology. We introduced our 53.5 amp hour high energy cells and began initial shipments in the fourth quarter. We anticipated this solution to be a key driver of our growth in 2023 led by demand across commercial vehicle applications, including light commercial vehicles, electrical buses, or e-bus and commercial trucks as well as ESS. To meet this demand, we expanded our production capacity in Huzhou by adding a 40 automated 2 gigawatt hour cell module and a pipeline dedicated to the production of 53.5 amp hour battery products. And our 2 gigawatt hour capacity expansion at our new U.S. facility in Crossville, Tennessee is in full construction mode with start of production targeted for Q4 this year. I would now like to turn the call over to our Chief Revenue Officer, Sascha Kelterborn, who will discuss some of our key wins and achievements in the quarter.

Thank you, Mr. Wu. I would like to start by reviewing some of our key wins during the fourth quarter. Besides the already mentioned highlights from Mr. Wu, I would like to mention further on Slide 5 that Kalmar and Microvast have extended their supply and purchase agreement through 2026. We are proud to support Kalmar on their global electrification journey with our new Gen 4 packs. With our technology roadmap and deep understanding of Kalmar’s heavy-duty business, we look forward to many more years of close cooperation. Please turn to Slide 6, which highlights some of our key awards in the commercial vehicle market. We have four major highlights to share that reflect the diversity nature of our presence in the market. Starting with our ongoing strategic partnership with the French-based technology company, Gaussin, that offers one and on-road zero emission smart vehicles for freight transportation and people mobility. The Gaussin ATM, as an example, is a full electric yard tractor designed for deployment in distribution centers, logistic hubs, container depots and other industrial applications. It has a loading capacity of up to 38 tons. The ATM will be powered by Microvast high-tech Gen 4 battery packs. Thanks to our strategic cooperation with CNH Industrial, IVECO Group, our batteries are now powering their new prototype of the New Holland agriculture tractor, which will be produced starting late 2023. Our Gen 4 battery pack solution allows us for nonstop daily operations and can charge to 100% in 1 hour. Then we have our battery supply agreement with REE Automotive, which is aiming to revolutionize the future of commercial vehicles with its innovative full electric skateboard platform. Our Gen 4 battery pack is designed to address the requirements of commercial vehicle fleets, which our partner, REE Automotive, is targeting. The newly deployed Gen 4 battery packs contain Microvast high-energy 53.5 amp hour pouch cells. The Gen 4 battery packs will meet cross-regional battery standards, such as ECE R100.3, GB 38031, and UL2580. Additionally, the outlook for ongoing business with our customer Dongfeng Trucks, China’s leading truck brand, is very promising. Especially for the hybrid heavy duty truck segment, our new Gen 4 battery packs with 48 amp hour cells will play an important role. Now please turn to Slide 7, which displays our major orders in Q4. We received a nearly $10 million order for a cargo handling application for MAFI & TREPEL, a German-based leading manufacturer of industrial trucks for the transport of heavy payloads, including for airports, seaports, logistics and distribution centers. We remain very active in India. Light medium commercial vehicle is predicated as the next frontier for the electrification in India due to the surging energy cost and propelled by the seed demand projections in mid-mile and last-mile transportation business. The Indian market will experience a doubling in light medium-duty vehicles sales within the next 15 years. Similar developments can be observed with e-buses, where the share of e-buses of the overall bus fleet, is expected to reach over 40% by 2040. To reinforce our standing in the Indian market, Microvast has established strategic partnerships with two of the leading commercial vehicle manufacturers. Our customer, Switch with the e-bus and light commercial vehicle portfolio as well as JBM with the bus portfolio are well positioned to meet the growth. During the fourth quarter, we received an order in excess of $6 million from Switch, a subsidiary of Ashok Leyland, for an e-bus application in India where Microvast is an exclusive supplier. In addition, we are working with JBM Group to leverage further growth opportunities in the Indian e-bus sector, using our fast charging batteries, allowing for up to 300 kilometers daily commutes. Furthermore, we have the new battery supplier for the IVECO Crossway produced by IVECO Bus. The new Crossway uses our industry-leading high energy density battery pack system, i-pack ranging from 400 to 466 kilowatt hours, accelerating its IVECO’s transition to zero emissions. During the quarter, we also continued to benefit from ongoing orders from Ashok Leyland, IVECO Group,

Thank you, Sascha. I will spend the next few minutes discussing our Q4 2022 financial results. Please turn to Slide 9. I will summarize the mainline items from our Q4 P&L. We recorded revenue of $64.8 million in Q4 2022, which was down slightly from $66.8 million in Q4 2021. The year-over-year decrease was due to a delayed order shipment that we will recognize in Q1 2023, along with currency headwinds. On a full year basis, despite facing continued challenges from COVID lockdowns in China and dealing with high infection rates in our Huzhou facility as China’s zero-code policy was abandoned, we achieved revenue of $204.5 million, up 35% from $152 million in the prior 12-month period. We posted gross profit of $2.2 million in Q4 2022 compared to gross profit of $1.2 million in the prior period, a 93% improvement. On a full year basis, our gross profit was $9.1 million compared to a gross loss of $42.7 million for the prior year, a 121% improvement against the prior year. In Q4 2021, we provided for higher warranty cost associated with the legacy product, which was not repeated in Q4 2022. Our gross margin for full year 2022 was 4%, whereas in the prior year, it was negative 28%. Operating expenses were $37.3 million in Q4 2022 compared to $52.2 million in Q4 2021. The largest contributor to the decrease in operating expenses was a decline in our share-based compensation expense, which totaled $16 million in the quarter compared to $22.6 million in Q4 2021. As mentioned previously, non-cash share-based expenses were a large contributor to the increase in GAAP operating expenses and operating loss. Full year 2022 operating expenses were $170.7 million compared to $157.4 million in the prior year, an 8% increase. GAAP net loss was $33.7 million in Q4 2022 compared to net loss of $46.6 million in Q4 2021. GAAP net loss for full year 2022 was $158.2 million compared to a net loss of $206.5 million in full year 2021. We believe a more accurate representation of our financial performance, especially as it relates to cash operating expenses and operating loss is as illustrated in Slide 10. After adjusting for non-cash settled share-based compensation expense in our cost of sales, adjusted gross profit was $4.2 million in Q4 2022, compared to adjusted gross profit of $3.1 million in Q4 2021. This translates into an adjusted gross margin of 6.4% in Q4 2022 compared to 4.7% in Q4 2021, a 1.7 percentage point improvement. We were pleased to see another quarter of gross margin improvement despite higher raw material prices. This demonstrates our continuous efforts throughout the year to improve our long-term gross margin. When making the same adjustments for full year 2022, our adjusted gross profit was $16.8 million compared to adjusted gross loss of $38.5 million in full year 2021. This translates into an adjusted gross margin of 8.2% in full year 2022 compared to a negative 25.3% in full year 2021, a 33.5 percentage point improvement. After adjusting for non-cash SBC expense in SG&A, our adjusted operating expense in Q4 2022 was $21.4 million compared to $39.6 million in Q4 2021. When making the same adjustment for full year 2022, our adjusted operating expense was $96.5 million compared to $97.6 million for full year 2021. After making those non-cash SBC expense adjustments and accounting for changes in fair value of our warrant liability and convertible notes, adjusted net loss was $15.9 million in Q4 2022 compared to $33.4 million in Q4 2021. On a full year basis, adjusted net loss was $77.3 million in full year 2022 compared to $135 million in full year 2021. Reconciliations of these non-GAAP metrics to the most comparable GAAP metrics are included in the table at the end of our earnings press release. Slide 11 shows the geographic breakdown of our revenue for the 12 months ended December 31, 2022, compared to the prior year period. As you can see, our two largest markets were Asia Pacific and China, growing 38% and 42%, respectively, year-over-year. Revenue in our European business declined 19% for the 12-month period ended in 2022 compared to the prior year period, mainly due to the delayed start of customer projects. However, we expect sales in the region to see a strong rebound in 2023 as these projects begin to ramp up. We are pleased to note that a good percentage of our backlog is from European customers who are launching the electrified models for the first time and should achieve year-over-year volume improvements using our technology, especially the 53.5 amp hour cell. Revenue in our U.S. region for full year 2022 posted a strong 298% growth rate compared to full year 2021. We have very high expectations for U.S. revenue growth in 2023 and beyond and are ideally positioned to meet the opportunities in the U.S. market from our facility. The award of the 1.2 gigawatt hour ESS contract, one of the largest of its kind in the U.S. to-date, has accelerated our business plan for Microvast Energy. That project is utilizing our ME-4300 container solution with the 53.5 amp hour cell, allowing each container to deliver 4.3 megawatt hours of energy. With that energy density, we estimate that our battery solution allows for 30% fewer containers relative to those from competitors. This gives the developed a smaller construction footprint costs, easier and faster installation and reduced maintenance with far fuel containers to maintain over the life of the project. Additionally, the ambition retention performance of our cell far outperformed those of other suppliers. Given the clear performance benefits of our ESS container, the utility-scale energy market in the U.S. is a huge opportunity for us. By 2030 its estimated 396 gigawatt hours of energy storage capacity will be added in the U.S. alone, with around 70% of it being projected for energy shifting application. I will now take you through our funding position and other significant metrics from our 2022 financial performance, as you will see on Slide 12. We ended the year with a cash position of $327.7 million comprised of cash, cash equivalents, restricted cash and a short-term investment. We never banked with Silicon Valley Bank and have no exposures as a result of its collapse. Our cash position gives us a very strong balance sheet to execute our 2023 plan, especially our 4-gigawatt hour of capacity expansion, which will come into production given as an additional $1 billion of revenue potential. We also closed the year with a very healthy backlog of $410.5 million, which is our highest total today. This underpins our conviction that 2023 will be the start of many high-growth years for Microvast. Our high-energy 53.5 amp hour makes up over 80% of its backlog, and we expect to realize margin improvements as we further scale this technology. U.S. and European projects account for approximately 90% of our backlog, and we will see a much more even distribution of our revenue by region in 2023 compared to 2022. Although Asia Pacific and China only currently account for approximately 10% of our backlog, these regions were $185 million business for us in 2022, and we expect the lease regions to have another strong year in 2023. Moving on. Capital investments we made in 2022 totaled $128.7 million and were predominantly utilized to bring the additional 4-gigawatt hours of capacity online that I just mentioned. We estimate that capital expenditure for the first quarter will be in the range of $50 million to $75 million and will primarily be used for milestone payments on completion of our Huzhou expansion, ongoing construction of Clarksville and our upcoming plans to use Mexico as an ESS container assembly hub. We will provide more details on this Mexico project in our Q1 update. As we mentioned previously, we fully expect Clarksville to be a direct beneficiary of Section 45 IRA credit. It should also qualify as domestic content for all of our U.S. customers. Looking ahead, we see 2023 as a standout year, which we will be able to demonstrate tangible and material results in the R&D initiatives and capital investments we made in prior years. With that, I will turn it back over to Mr. Wu to review our outlook.

Thanks, Craig. Please turn to Slide 14. Based on strong visibility from our backlog position, along with positive industry tailwinds pushing electrification forward in our key markets, we expect to achieve very strong year-over-year revenue growth in 2023 of 65% to 75%, our total revenue in the range of $336 million to $358 million. As Craig just mentioned, our backlog is mostly composed of orders from customers in Europe and in the United States and is driven by our introduction of 53.5 amp hour high-energy cell. [indiscernible] announced 1.2-gigawatt hour ESS project and the ramp-up of multiple commercial vehicle projects in Europe. In the first quarter, we expect to begin deliveries of our 53.5 amp hour cell from our new fully automated line in Huzhou. In the second half of the year, we anticipate starting deliveries of our ESS containers from our Mexico assembly plant. And in Q4, we expect to have an additional 2-gigawatt hour, capacity up and running at our Clarksville plant on the fully automatic production lines dedicated to the 53.5-amp hour cell. As a result, we anticipate closing out 2023 with 7-gigawatt hour total production capacity, including 4-gigawatt hour dedicated to the manufacture of our new 53.5 amp hour high-energy cell. We expect to add a significant track over the course of 2023 with orders from our commercial vehicles and ESS customers. Once our 2-gigawatt hour Clarksville expansion is up and running, we will begin to realize the benefits of IRA, which equated to $45 per kilowatt hour on all cells and the modules produced. On 2-gigawatt hour of production, that has a potential of $90 million per year in IRA credits. We will also progress our separator business in 2023, and by the end of this year, anticipated having a 10 million square meter production line for our polyaramid separator operation. In parallel, we will also be working towards its full-scale operation in the United States starting in 2025. All of those initiatives position us well for continued strong revenue growth over the coming years, which we believe will enable us to achieve profitability in the next 2 to 3 years. I’d like to finish by saying that at the start of 2023, this is the strongest position that my company has been in. We believe that the market has finally caught up with our technologies. Customers have been testing the 53.5 amp hour cells since 2021, and we started to receive multiyear orders later that year. We then started to initiate our capital investments to meet the demand, and those will be finished this year. All the foundations are now in place to see the large-scale industrialization of our technologies, which puts us in a very strong competitive position as we enter our multiyear high growth phase. With that, I would now like to turn the call over to your questions. Operator, please provide instructions for the Q&A session.

Thank you. [Operator Instructions] Our first question comes from Colin Rusch with Oppenheimer. Please state your question.

Thanks so much, guys. Just – I’ve got a handful of questions. But can we start with just giving us some insight on what specific customer needs are being met with the 53.5 amp hour cell and why demand is so strong with that product?

Good question, Colin. This is Yang Wu. To answer your question, the 53.5 amp hour is especially designing for the commercial vehicle and well balanced for the long life and fast charging capability, and this is going to be primarily our products to deliver to the commercial vehicles. For example, the vehicle group, they choose most of that platform is going to use these products. This product driven very long life, and we put a long life 5,000 cycles on our spreadsheet, and the actual testing is much longer than that. The – right now, we have the testing data reached to 4,000 cycles. And batteries still maintain 95% performance, which is amazing. And we moved this product to ESS energy storage, the application. Since energy storage applications only have 0.25c, like a 4-hour system, and 0.25c the charge discharge rates and this is giving the battery much, much under life. We simulate it. We never tested for 10,000 that it takes like 5, 6 years for testing and – but we simulated the lifespan is going to over 10,000 cycles, which with this high density. Energy density is relatively higher than the competitors in the same category. This long life is much longer. That’s why if we – you see we are using an ESS container give us much higher energy density and 30% less container – number of containers you’re going to install, the customer install in the field. And we will see the market is going to very much welcome this product in the coming years.

Perfect. Thanks so much for that. And just on the ESS side, can you guys speak to the scope and scale of the sales pipeline that you’re seeing already? And how you expect that – those opportunities to move through the sales pipeline towards closing the sales?

For sales pipeline right now, to be honest, we do not have enough capacity to supply. We need a bunch of money to expand the factory. And our factory is we have a lot of projects lineup waiting for our products. And our ESS, we couldn’t sign more contracts, and that’s the situation.

Got it. That’s super helpful. So just speaking of the CapEx funding, can you talk about how much of your conversations are around potential equipment finance or other options for asset-backed financing for that expansion, particularly in the U.S.?

Craig, can you answer that question?

Yes, absolutely. Colin, good to hear from you. CapEx-wise, I mean do you want a summary on what we’ve got? Do you want to sort of from the whole top way down, like available cash, CapEx this year?

Yes, I think that’s pretty clear. Mostly, what I’m looking at is any sort of debt or asset-backed interments that you guys are thinking about to support some of that CapEx here this year or to offset some of the pressure on your cash balance.

Yes, sure. I don’t think that we have got that much pressure on the cash balance. Indeed, we mentioned before. And it’s what we did in Huzhou, right. So, we want to gone through the construction phase and it’s de-risked, and we can show banks that you have got contracted cash flows, then we will look to put in really conservative financing. So we – later last year, we closed out 111 financing line for the Huzhou capacity. That was a 4.8% interest rate. So, the – I am hearing some echo on the line. Can you hear me clearly?

Yes, we sure can.

I just heard somebody else, if they can go mute, please. So, we have still got $75 million left to draw on that, that fully funds the remaining amount gone Huzhou. Then on Clarksville, what we are seeing now and just what Wu-san alluded to is it’s more of a production capacity challenge, right. So, we are bringing 2 gigawatt hours up this year in Clarksville. The backlog that we have already, we said it’s like 410. Most of that’s for the 53.5 amp hour cells. So, when we look at available capacity in ‘24, the ESS contracts we have, the projections from commercial vehicle customers, going into ‘24, we will already be full in Huzhou – in Clarksville. And you have seen this and you have seen the data I have given you, it’s because the energy storage market in particular is growing so fast in the U.S. So already, we are looking to put in place additional capacity, a further 2 gigawatt hours. Financing to do that, I think it’s easy structurized. There will be some senior secured financing on the first phase. And then what we can do on that second phase where there is no construction, it’s just equipment, we had some equipment. That equipment cost to add is, worst case, $150 million. And then in terms of the cash flows, you have got the cash flows from your customers. But the real kicker in this is that, as Wu-san mentioned, 2 gigawatt hours gets you $90 million a year in IRA credits. Then we added 2 gigawatt hours that might cost that equipment cost I just mentioned, with your IRA credits, you are getting that – you are paying it back in 2 years. And really, that’s what IRA is doing for this sector is it’s incentivizing us all to add the capacity, make sure you have got customers, which is what we are proving, right. And then your payback periods are shortened.

Perfect. That’s super helpful, guys. And then just the last one, in terms of some of the raw material inputs and the price pass-through and how it’s impacting gross margin, can you talk a little bit about where you are at in terms of your ability to pass on some of those higher prices that we saw late last year and the cadence of gross margin improvement as we move into the balance of 2023? That’s it for me.

Sascha, do you want to talk about customer engagement on that? And then I can talk a bit more of gross margin improvement at the end, if that’s alright?

Yes, sure. I will do that. Colin, nice to have you onboard here. So generally speaking, with most of our customers, we do have raw material price clauses in place, so first of all, speaking about that. And it’s not about the question, can we raise prices, it’s more about finding common ground and then moving ahead with that. Everybody knows that the raw material prices went up, and everybody knows that the situation will level back to a normal level. And at the end of the day, it is like we have a lot of strategic projects in front of us. So, we have strategic partners. And with strategic partners, we always have strategic pricing at the end of the day. So, we look forward in a positive way. We – it’s not like that we cannot pass on these raw material increases at the end. It’s not a very – it’s an intensive discussion. But at the end of the day, we are all on the same line, also with our end customers.

Okay. Thanks so much guys.

Colin, sorry, I will just add a little bit on the gross margins, because it’s really relevant. I mean this year, we did adjusted 8.2%, and it’s pretty fair. We adjust out that non-cash SBC expense from production. It’s not true production costs now. To do that, we made nine different cells this year to get to that adjusted 8.2%. Now, this is a real good thing that we are highlighting on the backlog like over 80% of the backlog is 53.5 amp hour. So, the gross margin improvement is going to come from the introduction of that cell and then as we scale it, right? And what we are pointing you towards is let’s assume and hope as you can make the assumption, we will give you the forecast. We will give you the backlog. We have told you what the Asia Pacific and China business was, and not much of that is in backlog. So, I think we are telling you that we are really confident on ‘23. Let’s start to think through how do we get to profitability in ‘24. We end the year, we have $1 billion of revenue potential in 53.5. Now, I am not saying it’s going to be at 100% utilization in ‘24, but it’s going to be a high utilization because of the demand we have and demand that’s being created by how good that technology is. So, let’s say we can get to 75% utilization in ‘24. That’s $750 million just on 53.5 amp hour alone. Given where we are with demand and how like high tower capacity is, so we should – I think we can make about $150 million gross profit. And then like is our job as a management team like manage our cash operating expenses like through to that time. Now, they have got to grow because we are in a high-growth phase. But I think realistically, we can manage them to about $150 million in ‘24. And at that point, you are getting to breakeven, and I didn’t even put any iron numbers into that ‘24.

Yes. Colin, for the cost control side, most of the cost come from raw materials. Since we have one single product with big volume, this gained us a lot of negotiation power with our suppliers. So, now we have a long-term contract fluctuated with the lithium index. And we discounted from this index, which guarantee our profitability. That’s very good. We never had this before because we used to have lots of different products and small volume. Right now, we have one single product, one supply source and firm up all the supplies.

Perfect. Thanks so much guys.

[Operator Instructions] Our next question comes from George Gianarikas with Canaccord Genuity. Please state your question.

Hey. Good afternoon everyone. Thanks for taking my question. I would like to start with the energy storage market. Curious as to how you are able to put all the pieces together and turn around the products so quickly. Thank you.

Thanks. Good question. And I constantly ask myself about as well. And actually, the battery cell and the battery technology we put on the vehicle is testing for a long time, already like a 3 years testing. And the vehicle application is much, much difficult than container. Container is never moved. Vehicle is vibrating, moving in a different contingency. And you sell the product in the container. We have similar modules setting in the container. It’s pretty easy and if we have experience to put it on the vehicle. That’s why we set up a manufacturing in Mexico to take advantage of the low level cost to make more competitive also. And at a border of Mexico, the Mexicali, is very close to most of the ESS application fields, which is in the Southwest out of United States. Thank you.

Great. And maybe as a follow-up, can you kind of help us understand the potential margin difference between the U.S. businesses and other geographies?

Wu-san, do you want me to take that one?

Yes.

Yes. And I would say, George, a lot of it really comes down to the IRA benefits, unless the EU announced something similar. What we are getting is on cloud of production, cloud does both sell our modules. So, we are getting $45 a kilowatt hour. And what you translate that through is probably a 15-point to 20-point uplift in your gross margin. And then the other part of it is just how incremental it is, the cash flows, because what we see is maybe assured of a 2-year payback on your capital investment. So, you essentially got free cash flow after that.

Great. Thank you everyone for taking my questions.

Thanks. George.

And this is Monica Gould, Investor Relations for Microvast. We do have a few questions that came in through the web, and we would like to ask those now. So first, is your Clarksville capacity spoken for already?

You just broke up a little bit at the end, Monica.

The question is the Clarksville. Clarksville factory will be ready at the end of this year scheduled. And we are on the fast speed in those for the construction. And equivalently, it’s fabricating in China. And I saw – actually, I went there last week. I saw all the equipment laying on the floor for SAT and factory testing. Right now, the after factory testing, it’s qualified. We are going to ship to U.S. and install in the U.S. The expectation is going to be end of this year to produce the battery.

Okay. And I am sorry, I am not sure if you heard me clearly enough, but the investor was asking if the capacity is spoken for already.

Yes. Getting very close to spoken to already for 2 gigawatt hours. And we are already planning to add an additional 2 gigawatts. And when we do that, it’s based on actual contracts.

Okay. Great. So, another question that came in is about the current status of the DOE grant, if you could talk about that.

Yes. DOE grants that we are working on right now, it’s very close to close the deal, and you have seen a contract negotiating stage. We still need to engage a contract with DOE. That’s – we are in the first batch of the negotiation, and we will see the results.

Okay. Great. I think we addressed this mostly in the prepared remarks about our China 3.1 expansion capacity if that’s producing cells already and when we will begin production, but maybe just want to review that one more time.

Yes. The – I am in the China factory right now, and we have a little bit delay. Maybe end of this month. We already produced the first cell. We just need the ramp-up, slowly ramp up to the process. To reach the full production design and production, it takes a few months, and we are producing small volume right now.

Okay. Great. And the last question, going back to gross margin progression, 2023, the investor was curious about the impact of the automated production on our gross margins.

I think we will definitely see it, let us show you the actuals from Q2, Q3 onwards. As we just said, right, we are really looking out to focus around one core technology on fully automated lines, efficiency of production planning, negotiating with suppliers. And we are confident that we will report that progression throughout the year.

Terrific. And the final question has to do with our 2023 guidance and how much of that – what’s the assumption for ESS in the guidance.

It’s about around 20% to 25% is ESS, the rest is commercial vehicles. So, commercial vehicles still growing like really positively. And as we mentioned, we still expect really strong showings from like India, China. And getting into the back end of the year, like it’s more – we have just got capacity constrained to actually grow the revenue beyond that.

Great. So that does it in terms of our questions. I would like to turn the call back to Mr. Wu for any closing remarks.

Yes. In general, you might find us targeting the high growth for our business. I am so happy right now. The – I don’t see any problem for the cells side. And the only – the concentrate on our business is delivery. We need to deliver as much as possible, our products and finding money and to do expansion. I think – I am seeing that the multiple year high growth. This is a very positive for our makers, so we are busy. Thank you all. Thank you all for joining this meeting.