Thank you for standing by. This is the conference operator. Welcome to the Microvast Third Quarter 2023 Earnings Call. As a reminder, all participants are in a listen-only-mode and the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Rodney Worthen, Microvast’s Director of Investor Relations.

Please go ahead..

Thank you, operator, and thank you, everyone, for joining us today. With me on today’s call are Mr. Yang Wu, Founder, Chairman and CEO; Mr. Zach Ward, President; and Mr. Craig Webster, Chief Financial Officer.

Ahead of this call, Microvast issued its third quarter 2023 earnings press release, which can be found on the Investor Relations section of our website at ir.microvast.com. In addition, we have posted a slide presentation to accompany management’s prepared remarks.

As a reminder, please note that we will be making forward-looking statements on this call. These statements are based on current expectations and assumptions and reflect our views only as of today.

They should not be relied upon as representative of views for subsequent dates, and we undertake no obligation to revise or publicly release the 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 our financial results, please refer to our filings with the SEC, including our annual reports on Form 10-K filed on March 16, 2023, and the 10-Q filed earlier today.

In addition, during today’s call, we may discuss non-GAAP financial measures, including adjusted gross profit, adjusted net loss and adjusted EBITDA, which we believe are useful as supplemental measures of Microvast’s performance.

These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results. These non-GAAP measures have been reconciled to their most comparable GAAP metric and the tables included at the end of our press release.

A webcast of this call will also be available on the Investor Relations section of our company website. And with that, I will turn the call over to Mr. Wu for opening remarks..

Thank you, and thank you everyone for joining on today’s call. I would like to start off with a high-level overview of the quarter before providing some operational highlights.

I will then turn the call over to Zach Ward, our President, who will discuss additional operational updates and some of our key successes for 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 Q4 and the full year 2023 before opening the call up to questions. Please turn to Slide 4 as I cover a few highlights for the third quarter. We posted a 107% revenue growth year-over-year in Q3 2023, delivering revenue of $80.1 million.

This exceptional increase comes from incredible demand growth for our commercial vehicle business from customers in both Europe and Asia Pacific. We continue to expand our gross margins, achieving significant double-digit improvement and adjusted gross margin of 24.2%, a 14 percentage point increase year-over-year.

We closed the third quarter with a record backlog of $678.7 million, driven by a strong order intake of $67.5 million from our commercial vehicle business. Our current backlog is made up of more than 84% 53.5 amp hour cell driven by strong demand in both U.S and the European market.

If backlog continues to display however 53.5 amp hour technology has been readily integrated into both the energy storage and commercial vehicle segments worldwide. Turning to Slide 5. One of our most significant operational achievements in Q3 was a rapid commercialization of our 53.5 amp hour cell from the new Huzhou Phase 3.1 expansion.

We are producing at a delivering qualified product at more than 70% utilization, with an updated year-end target of less than 90%. Additionally, our yields have surpassed our rapid production targets and we will continue to focus on improvements to push even beyond this target level.

I would like to provide exciting updates regarding our Huzhou facility capacity. As you will see from Slide 6, we plan on an expansion of 1 gigawatt hour with an automated flexible production line.

This line will be able to produce both our 53.5 amp hour cells, as well as our 48 amp hour high power cells that are needed by our growing customer base of hydrogen fuel-cell OEMs. This new line already has funding in place, requires a minimal incremental investment.

And it provides us the substantial capacity increase in order to meet our highest sales demand. I would now like to turn the call over to our President, Zach Ward, who will discuss some of our key operational updates, sales, partnerships and achievements for the quarter..

Thank you, Mr. Wu, and thank you all for joining us today. Now please turn to Slide 7 as I cover additional updates from the third quarter. To begin, I'd like to share the latest developments on our U.S operations for Clarksville Phase 1A. We're approaching domestic operations with a determined and proactive mindset.

Our goal is to ensure a seamless ramp up for our U.S operations. To achieve this, we have extended factory acceptance tests for various components of the production line, incorporating those lessons learned and improvements from our Huzhou 3.1 line.

While this has led to a slight delay in SOP, it sets the stage for an accelerated ramp up after installation. On the construction side, we are nearly at completion with a majority of the building now under joint occupancy and only minor work remains to be done in the fourth quarter.

We're also in good position with our production equipment, where we're using the same equipment that is now running with great success on our Huzhou 3.1 line. We have approximately 30% of the equipment on site in Clarksville with majority of the remaining equipment having already been shipped. We have set our site on 2024.

We targets to deliver qualified cells and generate Section 45X IRA credits from the second quarter of 2024 onwards. Drawing on our commercial -- commercialization success in Huzhou, we have set the ambitious goal of achieving target production yields for Clarksville in the second quarter.

On the personnel side of things, we are continually enhancing our U.S workforce with better specific expertise and skills to support launch efforts. Our U.S headcount has increased by nearly 350% year-over-year as we move towards bolstering our domestic presence in 2024.

Additionally, we're pleased to share that almost 1/3 of our exceptional Clarkesville team is made up of U.S veterans. Expect more updates regarding our U.S operations in the future. In the meantime, I'd like to provide a brief update regarding our Windsor, Colorado energy storage assembly facility.

The facility has successfully produced the first of our ME-4300 energy storage containers and has completed a successful customer factory acceptance test. Now let's turn our attention to Slide 8.

Despite facing challenges, such as customer project delays, we achieved an order intake of 67.5 million and continued our year-over-year upward trajectory in revenue growth. Moving on to Slide 9 to discuss some of our major project developments.

We are excited to announce our collaboration on a prototype e-bus with OEM auto car, which will utilize our 53.5 amp hour Gen 4 pack. Otokar is a leading Turkish company renowned for producing buses, military vehicles and industrial products.

Microvast has also extended its partnership with REE Automotive to equip their LCV platform with our 53.5 amp power Gen 4 pack. REE is a cutting edge next-gen EV automotive technology company offering modular electric trucks and platforms.

In the quarter, we made deliveries of our 53.5 amp hour Gen 4 pack to South Korea in partnership with Higer bus for their e-bus platform. Higer is a major player in the bus export industry, with units in more than 100 countries and territories across Southeast Asia, Middle East, Africa, East Europe and the Americas.

Furthermore, we signed a general purchase agreement for our 21 amp hour Gen 3 pack with JBM Group, the leading Indian bus OEM. We're very pleased to report that we've delivered approximately 100 megawatt hours to JBM Group during the quarter. We had another excellent quarter in expanding our [indiscernible] business.

Looking ahead to the quarter, we anticipate adding significant multiyear contracts as illustrated in Slide 10. Both of these multiyear projects, utilize the 53.5 amp hour cell, which we have previously mentioned is the linchpin of our multiyear high growth phase.

We expect to finalize these contracts in Q4, at which point they'll be included in our backlog. I will now hand the reins over to our Chief Financial Officer, Craig Webster, to delve into our financial performance in the quarter..

Thank you, Zack, and thank you, everyone for tuning in. I will spend the next few minutes discussing our Q3 2023 financial results. Please turn to Slide 12, and I will summarize the main line items from our Q3 P&L. We recorded a really solid quarter with Q3 revenue of $80.1 million, an increase of 107% from $38.6 million in Q3 2022.

This growth was driven primarily by strong sales demand in both our European and Asia Pacific markets for commercial vehicles, as OEMs continue to increase their vehicle rounds. On a year-to-date basis, revenue was $202 million, up 45% from $139.7 million in the prior year 9-month period.

Our gross margin improved to 22.3% in Q3 2023 compared to 5.2% in Q3 2022. After adjusting for noncash settled share-based compensation expense and cost of sales, adjusted gross margin increased to 24.2% in Q3 2023 compared to 10.2% in Q3 2022. That's a 14 percentage point improvement.

With the continuous yield and utilization improvements on the Phase 3.1 line, we expect to maintain and possibly improve these margin levels. Operating expenses were $44.7 million in Q3 2023 compared to $39.6 million in Q3 2022.

On a year-to-date basis, operating expenses were $119.9 million, a decrease of 10% from $133.4 million in the prior year 9-month period. After adjusting for noncash SBC expense and SG&A, our adjusted operating expenses in Q3 2023 were $30.3 million, compared to $22.3 million in Q3 2022, an increase of $8 million.

This is mainly due to increasing headcount costs and extracting battery specific expertise as we expand our U.S business continue [ph] ramping into the next year. Adjusted operating expenses year-to-date was $72.8 million compared to $75.1 million in the prior year 9-month period.

On a year-to-date basis, this reduction in non-GAAP operating expense was mainly due to higher share-based compensation expense in the prior year 9-month period. GAAP net loss was $26.2 million in Q3 2023 compared to a net loss of $36.5 million in Q3 2022.

After adjusting for noncash SBC expense, and changes in fair value of our warrant liability, adjusted net loss was $10.3 million in Q3 2023, compared to an adjusted net loss of $17.4 million in Q3 2022. On a year-to-date basis, adjusted net loss was $30.2 million, compared to an adjusted net loss of $61.4 million in the prior year 9-month period.

You're starting to see that as we scale our business, we are making significant progress in narrowing our losses, and expect this trend to continue in Q4 and beyond.

The impact of these adjustments is shown in 5/13 and reconciliations of non-GAAP metrics to the most comparable GAAP metrics are included in the tables at the end of our earnings press release. Slide 14 showed the geographic breakdown of our revenue for Q3 2023 compared to the prior year period.

As you can see, our European business showed outstanding 455% year-over-year increase and accounts for 24% of our revenue, up from just 9% a year ago as key customers begin their vehicle rounds. We continue to expect substantial growth in our India revenues, especially for the 53.5 amp hour cell with much of this already in backlog.

As Zach mentioned, we have a couple of multiyear commercial vehicle nominations that would further add to our backlog position in Q4. When we add the important contributions from China and Asia Pacific customers, our overall commercial vehicle revenues have grown 45% year-to-date versus 2022.

On the U.S side, revenues are behind where we wanted them to be. Deliveries on projects have been pushed outside. We will begin deliveries in Q4 and they should then make a meaningful contribution to overall 2024 revenues.

Turning to Slide 15, our expansion in gross margin in Q4 is a crucial proof point in the maturity of our operations and the growing contribution from the commercial introduction of our new 53.5 amp hour cell.

We expect to see further positive impacts across margin as Huzhou Phase 3.1 approaches full utilization in Q4, and on Clarksville Phase 1A start qualify deliveries from Q2 of next year. The backlog number of $678.7 million with over 84% of this for the 53.5 amp hour cell gives us good visibility into the utilization rates for our capacity expansions.

Around 65% of the backlog is booked for 2024, mostly for customers in Europe and the U.S. And as Mr. Wu mentioned, we now need to launch a flexible Phase 3.2 line in Huzhou to bring on more capacity to meet demand for 48 amp hour and 53.5 amp hour cells. As you know, our golden rule is that we only add capacity if supported by demand.

This new line is situated in the same building as the Phase 3.1 line, which was sized to support a total of 12 gigawatt hours. The lead time to add a new Phase 3.2 line will be around 4 to 6 months, with a majority of the investment being in additional production equipment.

Net cash used in operating activities during the quarter was $29.3 million, which was primarily due to operating loss and working capital. Negative free cash flow in the quarter of $89.3 million resulted from this net operating cash outflow as well as our capital investment program.

The majority of this capital expenditure in Q3 was to fund our capacity expansion in Clarksville, which totaled $38.3 million. We also have capital expenditures totaling $21.6 million relating to improvements to our existing facilities and ongoing R&D projects.

Looking ahead, we estimate that full year capital expenditures will remain in the range of $180 million to $210 million and will primarily be used for the Clarksville Phase 1A capacity expansion. Turning to Slide 16, we detail the financial resilience of Microvast. Our total debt outstanding of $99.5 million is relatively modest.

And you can see that the maturity profile requires only 5 million to be repaid in the fourth quarter. Looking further out, total debt repayments of to 31 December 2025 are a very manageable $40.2 million. All of this debt is for our China operations, and none of it has any recourse to our U.S holding structure or assets.

We have approximately $70 million available to draw down in order to continue expansion and growth at our Huzhou facility. Part of its being used for the estimated $35 million investment in the Phase 3.2 expansion.

This incremental investment in a flexible automated line allows us to respond to both demand for the 53.5 amp hour cell that will exceed Phase 3.1 capacity, and also to deliver 48 amp power cells for the hydrogen fuel cell market. Turning to the U.S operations.

These currently remain free of leverage, and we continue to make solid progress on a project at financing which is to be secured by the Phase 1A expansion. We anticipate that facility to be in place during Q4. With that, I will turn it back over to Mr. Wu to review our outlook..

Thank you, Craig. Please turn to Slide 18, which provides us a summary outlook for the upcoming months.

For the first quarter, we expect the revenue to be in the range of $90 million to 100 million, a 47% from Q4 a year ago at the midpoint, driven by increasing deliveries and a production output from our EMEA, and Asia Pacific commercial vehicle customers. We are also targeting adjusted gross margin of 20% to 25%.

Additionally, we are targeting a further increase to our previous utilization and aim to achieve 90% out of Huzhou's 3.1 automated line. Finally, if you turn to Slide 19, we look at the full year guidance update. Due to customer project delays, some revenue [indiscernible] is being pushed into early 2024.

We are providing an updated 2023 guidance for full year revenue to be in the range of $292 million to $302 million, representing year-over-year revenue growth of 43% to 48%. This is still a high growth year.

It's also worth noting that [indiscernible] we have some revenue slippage, the revenue we are delivering this year is at a much higher gross margin than we have anticipated. As Craig just mentioned, this means we have made real progress in narrowing our losses. So some of our projects in the fourth quarter revenue are pushing to early next year.

We continue to anticipate a strong revenue growth in -- into 2024 provided by visibilities through both our sales pipeline and record backlog.

The excellent operational results we are seeing out of our newest Huzhou Phase 3.1 automated production line, gives us the confidence to expand the capacity and a focus on accelerated ramp at our upcoming Clarksville Phase 1A production facility. We are seeing strong demand trajectory for Microvast battery solutions worldwide.

And anticipate our substantial momentum in the first 9 months of 2023 to carry forward as customer orders remain robust throughout the remainder of this year and into next. As we look to the final quarter of 2023, the tangible deliverables, we ask you to judge [indiscernible] the year -- start of this year have been mostly accomplished.

We are having a high growth year. We have record backlog, supporting another high growth year in 2024. Most of that backlog is for 53.5 amp hour cell which has been rapidly industrialized. We are improving gross margins and approaching [ph] gross margin levels that our mature scale competitors achieve.

We have reached a qualified production operations in our Huzhou Phase 3.1 line, ahead a very successful milestone, this sizable investment. This last item, it's difficult for me to fully convey the challenges in bridging battery technologies to the point of scale advanced manufacturing.

This is our third successful launch for the new technologies with their own dedicated line. And at Clarksville Phase 1A will be a copy of Huzhou 3.1 production mine. Before we close, I'd like to take a moment to thank our entire team at Microvast for their hard work and dedication.

This quarter's results are a testament to your commitment to excellence. And I'm so proud of what we have accomplished together. You have all risen to the occasion and exceeded expectations, continued to innovate, deliver for our customers and support each other [indiscernible]. Thank you for all that you do. I am truly grateful to be part of this team.

And now I will turn the call back to operator to start the Q&A session..

Thank you. [Operator Instructions] The first question comes from Sameer Joshi with H.C. Wainwright. Please go ahead..

Hey, guys. Good afternoon. Thanks for taking my questions. Good to see gross margin improvements beyond what you're targeting. And I understand yield improvements and some product mix maybe upgrade.

But is there any other items that is helping boost gross margins? And more importantly, what are your targeted gross margins now that you are seeing this implement already?.

[Indiscernible]..

Sure. You nailed a couple of them, right. So the utilization is really good. If utilization that was not really achieved before Phase 1, Phase 2, the actual yield better than we thought it would be at this stage of the year. Other factors, Raw material prices have definitely helped as well.

And what we're trying to achieve in Q4 is maintain that 20% to 25% adjusted gross margin. And if we do that, we should narrow those losses even further..

Got it. On the Clarksville sort of a little bit of a push out, are there any factors that stood out for the delay? Or was it just regular delays that you expect in a plant [indiscernible] facility..

Wu Yang do you want me to take that one or are you going to take it?.

You do it. You can do it..

Okay, thank you. The reason is and Zack mentioned it that a little bit earlier is that the equipment goes through factory acceptance test on China side which is basically about 3,000 pieces of equipment that our team go through and make sure it passes that test.

So we wanted to make some modifications that we learned about from putting 3.1 in operation that's actually going to accelerate the ramp up when it comes to the U.S side. So you probably think about this as a slight push out in a quarter, but it actually benefits you because it's actually quicker and cheaper to ramp throughout Q2..

Understood. Thanks for that color. On the new earnings that have occurred in maybe 3Q to higher and GBM Group.

Do we have any feedback from them or is it too early to have any sort of feedback from performance [indiscernible] issues there?.

You're talking about customer feedback from Higer and JBM..

That is right. Because I think [indiscernible] 80 units, yes..

These are being long-term customers that just tells you that they love us. They love the products and then coming back for more..

And then there was a slight increase in R&D expense this quarter related to previous quarters. [indiscernible] headcount increase, but they were in one-time items in this..

It's really difficult to hear the last part of that question. Can you ….

Was there any one-time items [indiscernible] $13 million R&D expense or was it just -- should we expect these levels going forward?.

Okay. It -- that was -- that's one-time expense. But we -- if you look at the changes in our [indiscernible] that we are adding more headcount, and you're especially seeing that on the U.S side as Zach referenced..

Okay, great. Good to see all the progress. Good luck..

Thank you..

The next question comes from Sean Milligan with Janney. Please go ahead..

Hey guys. Nice quarter. Can you talk a little bit more about the project push outs that you're seeing in the fourth quarter. You're kind of confidence in timing for those being first half '24 deliveries. Because it looks like kind of roughly I guess, like 50 million to 60 million pushed out.

And just, again, when I give you the chance to reiterate your confidence, and those coming through in the first half of next year..

Zach, can you answer that?.

[Indiscernible] project and I can just talk about sort of like -- sort of the financial into Q1 next year..

Sure. This is Zach. Yes, these are just normal push outs. So we do anticipate that landing in 2024 they're having just normal push and pulls of projects that we see from customers..

And so I've just mentioned on q4, Sean, which is really relevant is that you are going to see a lot bigger contribution from Europe, you've seen that already. So Europe is like 20%, 25% of Q3.

Europe is going to have a really solid Q4 to the point where probably European revenues are going to grow like 5x this year, and then they're going to carry on accelerating into next year. And that's mostly for like 53.5 amp hour cell. And then the backlog number is relevant as I mentioned earlier. The [indiscernible] 65% of backlog is for next year.

That's mostly European and U.S customers. And as you know from our business, we -- the China, Asia Pacific don't really do backlog. So what we'll also get into next year again is a really solid contribution from Asia Pacific customers..

Okay. Thanks. Very good. Very helpful. And I guess also kind of backing onto that, well, a little bit of a question about third quarter and fourth quarter, which is Phase 1 in China. Can you talk about how the utilization there has ramped this year? I think you said it's like 70% now and targeting 90% equity in the fourth quarter.

If you run that through and you kind of run through the legacy volumes in China, it seems like revenues would be a bit higher. So it's some of that production.

But can you talk about if there's any production from Phase 1 that isn't being recognized in the back half of this year, because of shipments maybe to the U.S for storage containers, or what's kind of being pushed into next year from that production profile?.

Okay. Phase 1 is really turning out 21 amp hour. So we're getting reasonable utilization of Phase 1 line. If you’re reading through like utilizations from revenues, what you've seen is a much higher, that's I mentioned European contributions in Q3. That's pretty mature like 53.5 amp hour cell.

And then what we've been producing in Q3 is like sales that have gone into inventory that we're going to deliver in Q4 and Q1. And then same thing in Q4..

And in Phase 3, 3.1 swap, but like so for Phase 3.1 just based on the utilization that you've talked about for the third quarter and the fourth quarter, it seems like they're building a lot of cell inventory for the first half of next year.

Just kind of trying to see if you could comment on that, like how much cell inventory you're building related to pack deliveries probably next year?.

Yes. Sean, building inventory for orders, so that's to meet the revenue guidance that we're giving you for Q4. And then also backlog of orders that we need to deliver for Q1 as well..

Okay. Yes, we can take that offline, too. And then I guess the -- can you talk about the [indiscernible] environment in the U.S for battery storage? I know you talked about potential for additional bookings, in the fourth quarter related to commercial vehicle contracts.

But just wanted to get your thoughts on the utility scale storage [indiscernible] environment for Clarksville next year..

Do you want to go?.

Yes, I will.

[Indiscernible] to that Craig?.

Yes, please..

Yes. Hey, Sean, this is Zach Ward. Yes, we continue to see really strong demand in the energy storage sector. You need to [indiscernible] in the market is that Clarksville, which enables our customers to achieve that additional domestic content, which gives them the ability to capitalize another 10% of the project.

So we continue to see strong demand, a strong pipeline build up and great results from that market. The overall market in the U.S has, I think dissipated a little bit of headwinds with the rise in interest rates and the appetite for tax equity. But it's still the number two market globally..

Okay, thank you.

I mean, I guess the question would be like, do you anticipate being able to sign additional offtake in the U.S for 2024 on storage, or are you getting more on '25 and '26 at this point?.

Yes, we're working diligently to increase our order intake for all the capacity for Clarksville 1A as well as looking at opportunities for our 1B expansion..

Okay, great. I'll hand it over and then come back if there's an opportunity..

[Operator Instructions] The next question comes from Colin Rusch with Oppenheimer. Please go ahead..

Thanks so much, guys. So just with the expansion in Huzhou, I want to make sure I understand something. You've got another $92 million of cash available that’s not [indiscernible] right now. So We've got plenty of cash to cover that $35 million from what I can see.

And then, as you execute on the ramp here, it sounds like you've got a process in the equipment set pretty well qualified at this point. So I just want to understand any sort of risk around either the financing, or the equipment set and the ramp up that you guys are seeing on the horizon here as you execute against that plan..

Wu Yang, I might take the financing part, and I think, if you don't mind you do the ramp up part, that’s [indiscernible] Colin.

Is that okay?.

Yes, you please go..

Thank you. So Colin, you're right. The availability that we've got $70 million to fund more CapEx in China its more than covered up the need for Phase 3.2. We've got another working capital line in China as well.

The reason you can do it is because like you delivered on your promise, you told the bank, say partly funded 3.1, you can build the building, you can get the equipments in, you can install it, you can get a decent utilization, you can get a good yield. And like you've got customers, and the growing right. So we did all those things.

Now we need to have capacity to have more audits [ph] for that. So we -- it's funded. And I think at that point, I'll hand it over to Wu Yang, because he will talk you through just how critical that ramp up is and what it involves, and why it's really then relevant to look at financing on the U.S side as well..

Yes, thanks, Colin. To build a factory from a laboratory [indiscernible] and to move to the products, it's not an easy job. Because you build a sample cell in the laboratory, that's only a few, or that [indiscernible] much easier. If you build in the factory, you have to consistently control, it's really, really critical.

You have to make every battery identical and every cell is the same performance. And the yield is really a big cost saver for the manufacturer, because the yield is low, you waste your net profit, not gross profit. And so the yield [indiscernible] mix batteries, like, literally like a 14 steps.

If you want to get a 97% yield, you have to make every step 99.9%. If you time everything else, 14x together, that you get a 97%. That means, the every step you have to control very precisely. It's a big job, and not easy to make battery. And -- but Microvast right now, we really we get there.

And we -- in the first line, the [indiscernible] line we spend a lot of effort to refine [ph] the process to refine the equipment, that's why extend our [indiscernible] production line. We intentionally delay [indiscernible] tax because the equipment moved from China across the border to United States that's much harder to fix a problem.

That's why you see they did a bit postponed..

That’s super helpful. And as you ramped up the 63.5 amp hour cell, obviously getting these kind of yields and consistency is a key benchmark for your customers.

Can you talk about how it's impacting both your commercial vehicle customers and your ability to close deals as well as what's happening with some of the stationary power customers that are looking forward to ramping up higher density product?.

You mean that commercial vehicle customers?.

For both, right.

What I'm -- the question is as you proven out the [indiscernible] of the manufacturing operation, is that improving your leverage with customers to close deals and potentially start driving some price increases?.

Every customer they were [indiscernible] very detail, the factory inspection and audit. You have to get a high score, you have to get a A or over 90 the score, over 90, then you can tack the inspection. You can be qualified for [indiscernible]. Not only for production lines [indiscernible] your quality control, your -- the -- your deliverability.

Can your delivery, or your consistency to deliver and all kinds of factors come via [indiscernible]. It's very strict. Automotive is most shifting the process..

Excellent. And I guess the last one is, with the stationary power product that you've gotten into, kind of the fabrication of that.

Are there any surprises that have come up in terms of performance or fabrication that we should be attending to?.

Zach, can you answer that question?.

Yes, yes. We've been really pleased, Colin, with the performance of 53.5 hour cells. It continues to be a dramatic performance improvement over the competition with energy retention as well as round trip efficiency. The round trip efficiency is just so critical because these stationary projects continue to cycle every day for 20 to 27.5 years.

So if you're losing 1% or 2% efficiency, you can amortize that over the life of the power plant. So that value proposition continues to resonate with the market really strong..

Thanks so much guys..

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Wu for any closing remarks. Please go ahead..

Yes, thank you, everybody for joining us. Thank you..

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