Good morning, ladies and gentlemen. Welcome to Lion Electric's Third Quarter 2021 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded.

I would now like to turn the call over to Isabelle Adjahi Vice President Investor Relations and Sustainable Development. Please go ahead, Ms. Adjahi..

Thank you and good morning, everyone. Welcome to Lion 's First Quarter 2021 Results Conference Call. We would, of course, be delighted to answer any questions in French during the Q&A session. With me today, are Marc Bedard, our CEO founder, and Nicolas Brunet, our Executive Vice President and Chief Financial Officer.

Before we begin, I would like to mention that during the 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 plans are based on current expectations and certain material factors and assumptions and as a result, they 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 our filings and to the risk factors contained in our non-offering prospectus that is May 5, 2021 filed with the and to reserve registration statement on Form S-1 filed with the Securities and Exchange Commission and declared effective on June 14,2021. You can also concern with the documents with the AMF and the SEC.

Forward-looking statements only speak as of the date they are made. You are cautioned not to put undue reliance on forward-looking statements, and we undertake no duty to update this information unless required by law. Finally, please note that we report in U.S. dollar and under IFRS.

Comments today may refer to certain non - IFRS financial measures, such as adjusted EBITDA and certain performance metrics such as the companies or the book, which are defined, fully described, and in certain cases reconciled in our earnings release and MD&A issued yesterday evening. With that I will now hand the call over to Marc Bedard. Marc..

Thank you, Isabelle. Good morning, everyone and thank you for joining us this morning. I am pleased to be here with you today to discuss our Q3 performance and provide an update on our business.

A lot has happened since we last spoke and more than ever before, we can feel that the switch to electrification is accelerating, as shown by the growth in our order book. As a reminder, Lion manufacturer is 100% electric, medium and heavy-duty trucks and buses. Our vehicles which have been on the road since 2016, are purpose-built for electric.

We do not do any vehicle retrofitting. We are the leader in electric school buses in North America. We are the only OEM to manufacturer purpose-built electric school buses in North America and the one of the very few OEM s to manufacture purpose-built electric trucks. Also, we are exclusively focused on electric.

We do not do hybrid nor any other powertrain systems than electric. And we have more than 450 all-electric vehicles on the road, with more than 8 million miles driven. In addition to the vehicles that we manufacture today, we are currently developing 8 new models which we expect to launch in 2022.

Our product development efforts leverage more than 10 years our focused R&D in the EV space.

We firmly believe that concurrently manufacturing and distributing vehicles while developing new platforms, uniquely positions Lion to leverage its first mover advantage and continue consolidating its leadership in the EV space as the future clearly is electric.

Here are the 3 elements I would like to discuss on today's call before passing it onto Nicolas, who will discuss our Q3 financial performance.

First, we continue to see strong momentum in the shift to electrification and medium and heavy-duty vehicles, as evidenced by a rapidly growing order book driven by large multi-year orders and increasing pace of repeat orders from existing customers, and continued very strong unprecedented support from policy makers.

Second, the global supply chain challenges had impacted our ability to manufacture complete units and deliver complete vehicles in Q3. While we expect this external pressure to remain well into 2022, we have, and continue to undertake measures to mitigate the impact on our production and performance.

We will explain what these measures are and why we believe they are the correct ones. Third, we continue to execute on our strategic plan, including our two flagship projects, the development of new vehicle platforms and the continued build-out of the Lion ecosystem and the Lion team. Let me start by elaborating on point number 1.

The strong momentum in fleet electrification. We see a clear movement towards fleet electrification, driven by strong societal and corporate will to eliminate emissions and reach carbon neutrality. This is further evidenced by all discussions happening at the COP 26 Senate.

As an increasing number of stakeholders has pledged to reach net-zero emissions and to implement initiatives to decarbonize the transportation sector, citing electric vehicles as 1 of the main tools already available to policy makers, companies, and countries to fight the global climate crisis.

This is reinforced by attractive policies and programs supporting fleet electrification, as well as like the potential for an attractive total cost of ownership due to significantly lower fuel and maintenance cost. Lion's impact on the zero emission industry in the U.S. and Canada is unmistakable.

We continue to be a driving voice in policy, adoption, and education on the realities of zero emission transportation. Lion has pushed this market by delivering vehicles and removing arguments against this inevitable industry, and making evolution and transportation.

Whether it is our deployment and commitment to EV or the pressure we have put on the market to develop EV platforms, the U.S. and Canadian governments will not be talking about the electric school buses without Lion creating this market in the U.S. and Canada over 5 years ago.

All of these combined show a positive outlook for Lion specifically, and for the global EV industry in general. This movement towards fleet electrification has led to an acceleration of customer dialogue, and ultimately, a rapidly growing order book for Lion.

As of today, our order book consists of 2024 vehicles, more than doubling since our release of Q2 results. It represents a combined total order value above auction smartly $500 million. Approximately half of these orders are deliverable both between now and the end 2022.

Our order book includes 1,000 vehicles related to the conditional purchase order from student transportation of Canada, for which a funding application has been submitted under infrastructure Canada, Zero Emission Transit Fund Program, or ZETF, a $2.75 billion program supporting fleet electrification in Canada.

These 1,000 electric school buses will be delivered over approximately 5 years. As we continue to engage with customers around the ZETF, we expect to see more of these multi-year orders supporting large-scale fleet electrification. Of course, the ZETF is only one example of policies and programs supporting fleet electrification.

In the U.S., policy makers at all levels of government are reiterating their commitment to electrification. For example, the Infrastructure Investment and Jobs Act, which was passed by the House of Representatives last week and is awaiting President Biden 's signature will unlock sizable funding support towards fleet electrification across the U.S.

as it earmarked billions of dollars for electric vehicles and clean energy. Specifically, this programming includes a funding of $5 billion for the purchase of 0 emission and Clean Fuels go buses through fiscal years 2022 to 2026. Part of this funding is exclusively reserved for electric school buses.

The Act also includes $7.5 billion of funding for the deployment of charging infrastructure for electric vehicles. Although this is only the beginning, this represents the largest several investment in EV U.S. industry.

During President Biden's recent address to the nation, he specifically called out replacing all these old school buses with battery electric. And there is more. On October 28, a new founding round of HVIP for an additional $62 million open to application reflecting the enthusiasm of both public and private sector customers.

On October 7th, the New York City Council confirmed its commitment to electrify all school buses by September 1, 2035. This applies to approximately 9,500 school buses. And these are just a few examples among many others.

If we specifically look at the Quebec market, the MTQ subsidy program, which we discussed last quarter, also had a very positive impact. Under this program, customers benefit from a subsidy amounting from $100,000 to $150,000 per vehicle.

Additionally, since November 1, 2021, every new school bus registered in the province of Quebec must be an electric school bus. To date orders for close to 400 electric school buses benefiting from this program have already been confirmed as part of our order book.

Additionally, the Quebec government announced during COP 26 last week that its entire fleet, including heavy-duty vehicles, will be entirely 0 emission by 2040, which represents a significant number of vehicles and implies that the province will not be buying other vehicles and electric vehicles starting in 2030.

As a reminder, the Lion Grant team is ideally positioned to help our customers navigate and secure funding in this complex environment as it is highly knowledgeable of existing programs and subsidies available on both sides of the border.

Last, a word on our Lion Energy team, which also plays a crucial role for our customers, selecting and installing charging infrastructure is a critical step in the customer's journey to electrify their fleet.

Lion being an and having secured the high inventory of charging equipment, we are able to offer a wide variety of charging equipment options to our customers installed in a timely manner even in the current environment of global supply chain challenges that is also impacting the charging infrastructure manufacturers.

As of today, our order book of 187 charging stations and related services represents a total order value of approximately $2.5 million more than double the value disclosed last August. Both the Lion Energy and Lion grand teams are pillars of the Lion ecosystem which aims to handle all critical aspects of a successful transition to EV.

To offer the best service to our clients, we continue to expand our Xyratex service next quarter and expect to have a total of 14 experience centers in operation throughout North America by the end of this year.

We also recently announced the first Lion otherwise service center that will complement Lion's experience centers for repair and maintenance in regions where a significant number of Lion vehicles are on the road.

Last, in line with this approach, we launched a pilot with Dickinson Fleet, a mobile service Company to increase our service coverage in the bay area of California, where we have a large pool of customers. Let's now address the impact of global supply chain challenges on our Q3 manufacturing operations and deliveries.

Like many other companies across industries and across the globe, global supply chain challenges impacted our operations, and those of our suppliers, and ultimately hindered our ability to manufacture complete units and deliver complete vehicles.

Despite our approach to overstock critical EV components, such as batteries and motors, our ability to manufacturer complete vehicles became increasingly challenged as we advanced to the third quarter.

As a result, we delivered 40 vehicles during Q3 and finished the quarter with 50 vehicles that were substantially completed as part of our work in progress inventory.

To be clear, although our deliveries for Q3 were a significant increase compared to the 10 vehicles we delivered in the same period last year, this number was significantly below our objective. Let me spend a minute on our supply chain challenges.

As mentioned last quarter, we were pleased to have secured inventory for critical components such as batteries, motors, and other more critical components. We were therefore not impacted by shortage for any of these parts. Talking specifically of batteries, we currently have more than 1,500 battery packs on hand, and approximately 600 in-transit.

The main supply chain challenges we encountered were mostly due to shortage of typically less critical components such as metal assembly, plastic components, adhesives, and wire harnesses, in addition to extended lead times for delivery of many parts and raw materials.

All these parts, regardless of their size, are necessary for us to finalize and deliver our vehicles that include approximately 2,000 parts on each of them. And several other cases, our supply years were the ones affected by raw material sourcing challenges, and production slowdowns caused by labor shortages.

The good news is that our teams, had some solutions to address the challenges we encountered, and I would like to thank them for their agility in doing so. Let me take a minute to discuss some of the initiatives we have undertaken. First, we have accelerated the multi-sourcing strategy we already had in place.

In parallel the supply relationship we have built over the past years allowed us to quickly react to this uncertain environment and avoid totaled disruption in our supply chain.

Not only did we remain in constant dialogue with our suppliers, but we multiplied and accelerated discussions to onboard new suppliers and increase supplier redundancy for specific parts. Our objective is twofold. Navigate through the current environment while at the same time garner long-term partnerships for a ramp up in production.

Today, we are sourcing from approximately 500 suppliers as compared to 430 at the end of the last quarter. We had also increased reliance on local sourcing, which we will continue to do both in Canada and in the U.S.. Our objective is to keep the developing a supply chain that will be as close as possible to our manufacturing plans.

In addition to supply or redundancy, we also undertook several initiatives to unplug the supply chain, including sourcing raw materials directly on behalf of some of our component suppliers.

As an example, we acquired large quantities of specific Coil steel used in the fabrication of our vehicles bodies, and chassis directly from global suppliers, and then distributed this material to our supply base. This creative strategy, increased our short-term visibility and ultimately reduced our suppliers lead time.

We also increased in-house fabrication and even redesigned certain sub-assemblies to circumvent parts most affected by supply chain challenges, such as connectors used in the fabrication of our Lou and I voltage wiring harnesses.

Our engineering and vehicle integration teams worked in unison to create, qualify, and integrate new and innovative low and high voltage wiring harness designs and control systems using readily available standard automotive components.

In a nutshell, all the initiatives I just described enabled us to mitigate the negative impacts of the global supply, therefore keeping our manufacturing operations running even if we had to the delay some of our customer deliveries due to missing components. Many other OEMs could not do so and had to shut down their operations.

Then lastly, I would like to comment on in the section is the impact on the bill of materials. Although we have not been materially impacted this quarter, we expect to see some further pricing pressure going forward until the global supply chain situation goes back to normal.

While we are confident in our ability to navigate through this challenging environment, we believe that this global supply chain crisis may persist well into 2022.

Like anybody else, it is difficult for us to predict the exact moment things will go back to normal, but we will continue to take tangible actions to mitigate the impact of this crisis on our production levels. To conclude on this topic, focus and agility are integral parts of our DNA.

These are some of the elements that have helped us build our Company over the last 13 years and position Lion as a first mover in the electric vehicle industry.

We are confident that this mindset coupled to the initiatives I just discussed, will both enabled us to maintain production and improve the long-term strength of our supply chain thus making us a stronger Company.

Let me now discuss other elements of our strategic plan, including progress on our flagship projects, vehicle development, and the Lion team. First, the Joliet facility. I am pleased to report that the construction of our Illinois plant, the largest factory for medium and heavy-duty electric vehicles in the U.S.

and Canada, is going very well, with 90% of the shell building now completed. We expect to take possession of the building next month. During the quarter, we also completed the detailed manufacturing layout and selected suppliers for critical equipment to be installed in the first half of 2022, which will trigger important capital expenditures.

So far, expenditures towards the project have mostly been incurred by the landlord as building-related investments. We continue to expect vehicle to roll off the assembly line in the second half of 2022. Now turning to the battery facility and Innovation Center, or which we referred to as a Lion campus. Year 2, we are very pleased with Q3 progress.

During the quarter, we completed the detailed manufacturing layout and the technical programming of the battery facility and are now focusing on doing the same for the Innovation Center. We continue to expect the first batteries to roll out the assembly line in the second half of 2022.

In conclusion, for both these projects, we are working with our suppliers and vendors to make sure ordering and installation timelines are aligned with our plans start of operations. We will continue to update you through our quarterly calls.

On the new vehicle front, our team is making steady progress in the development of 8 new platforms expected to be launched in 2022. Which will mean that with 15 all-electric models available for sale, we will have the largest purpose-built product lineup in the industry.

A few weeks ago, we were pleased to unveil the EFX ambulance developing partnership with the American Ambulances, a leading North America manufacturer of Ambulance vehicles. This Electric ambulance, which will be the first electric and purpose-built ambulance will be mounted on the Lion 5 chassis.

It is the results of 5 years of work between the marathon Lion. Under our agreement, chassis will be manufactured by Lion and then sold to Demers. Demers will be responsible for the medical compartment, final assembly, and for selling the final product to the end-user.

The agreement with Demers contemplate the deployment of a minimum of 1,500 all-electric ambulances over the next 5 years. We believe that this type of agreement aligned with our channel sales model h as a potential for significant volume leverage.

Our sales strategy is to partner with high-quality equipment manufacturers and outfitters in target market segments that service our customers. Making use of the channel partner’s network can rapidly accelerate sales by leveraging established distribution networks in very specific verticals.

In parallel, Lion will continue to use its direct sales team, which will create a push ball sales model to increase brand awareness and drive volume in target markets. As with other platforms, we expect the Lion 5 to be available by the end of 2022. Let me now provide a brief update on the Lion team. As of today, we have approximately 950 employees.

As previously discussed, we currently have 2/3 of the required labor to manufacture 2500 vehicles per year. During the quarter, the cadence of our recruitment efforts has been aligned with our production levels as we manage through supply chain challenges.

As far as recruitment for the Joliet plant is concerned, we are finalizing the analysis of requirements on ramp up based on our business plan and strategic dates. We expect hiring to accelerate in the first half of 2022. We are working with a similar timeline for the battery plants for which critical positions and priorities have been identified.

There again, we expect the next iteration of the hiring process in the first half of 2022. In conclusion, as you can see, we continue to make significant progress even if supply chain challenges are currently creating temporary headwinds.

We are optimistic that by focusing on building a solid order book, straightening our long-term relationships with our suppliers, getting agile in our manufacturing process, and executing on our strategic projects, we are solidly anchoring the foundations of sustainable long-term growth.

With that, let me now turn the call over to Nicolas who will comment on our financial performance..

Thanks, Marc. As Marc mentioned, although more are affected by global supply chain challenges than we and our suppliers had expected, our teams continued to focus on the manufacturing and delivery front. During the quarter, we delivered 40 vehicles including 28 school buses and 12 trucks. 28 of these deliveries took place in Canada and 12 in the U.S.

This compares to 10 school bus deliveries in Q3, 2020. As a result, Q3, 2021 revenue was $11.9 million up $9.3 million as compared to $2.6 million last year. Our gross profit amounted to negative $1.2 million down $0.7 million as compared to negative $0.5 million a year ago.

This quarter, the decrease in gross profit was mostly due to an increase in fixed manufacturing costs related to the ramp up of production capacity, mainly salary, benefits and other overhead costs. Continuing with administrative expenses, they amounted to $10 million, including $4.5 million in non-cash share-based compensation.

A decrease of $16.7 million as compared to $26.7 million in Q3, 2020.

This was mainly the result of significant decrease in non-cash share-based compensation of $20.8 million, partially offset by an increase in expenses, and expenses reflecting our transition to being a public Company and the expansion of our head office capabilities in anticipation of an expected increase in business.

Selling expenses amounted to $5.2 million, including $1.5 million in non-cash share-based compensation, a decrease of $3.9 million as compared to $9.1 million in Q3 2020.

The decrease in non-cash share-based compensation of $6 million was partially offset by the impact of the expansion of Lion 's sales force, as well as an increase in expenses associated with Experience Centers. In Q3, we posted net earnings of a $123 million.

This was mainly as a result of the decrease in the fair value of share warning obligation related to the lower Lion share price at the end of the quarter. Adjusted EBITDA was negative $8.8 million for Q3 compared to negative $2.8 million in 2020.

Adjusted EBITDA includes adjustments for certain non-cash and non-recurring item, namely change in fair value of share warning obligation, share-based compensation, and other non-recurring expenses. Let's now discuss cash flow.

Cash flow from operations for Q3 were negative $30.7 million inclusive of $22.8 million of changes in working capital as we continue to scale the business and overstock critical components that mitigate global supply change ours.

During the quarter, acquisition of intangible asset, which mainly consists of R&D activity amounted to $9.5 million up $5.1 million as compared to $4.4 million last year. CapEx increased to $5 million as compared to $0.7 million last year.

We expect CapEx to increase significantly after we take possession of the Joliet Illinois building in the fourth quarter and start inflation of critical equipment, as well as continued to build our Battery Innovation Center Innovation Center. Last but not least, our Balance Sheet remains solid.

We ended the quarter with $318 million in cash and access to a committed revolving credit facility and the maximum principal amount of $100 million, as well as support by the Canadian Federal, and Quebec government of up to a 100 million Canadian dollars in connection with the client construction of our battery manufacturing plant and Innovation Center, which we referred to as the Lion CapEx.

In conclusion, although Q3 deliveries were below our objectives, we will continue to take tangible actions to mitigate the impact that global supply chain challenges will have on our production, and we will continue to focus on purchase orders, production, and delivery. Marc, back to you. Thanks, Nicolas.

Before we open the lines for questions, let me conclude by reiterating that agility and flexibility are what has helped us during the last 13 years to build a strong Company we are today.

Although currently impacted by elements outside of our control, our focus has enabled us to be a leader in the commercial EV industry and one of the only companies with 100% electric vehicles on the road as we speak.

I can assure you that as a team, we will continue to focus on what we control, namely executing our strategic plan and on putting in place all the elements for long-term sustainable, profitable growth.

As the 2021 United Nations Climate Change Conference comes to an end, it is crucial that we collectively continue and accelerate the decarbonization of transportation.

The positive trends to electrification, which is an underlying condition to that successful shift clearly is happening now, as we speak and we will continue to support this forward momentum..

Operator then go ahead with the -- this demonstration, please..

. And your first question comes from Kevin Chiang with CIBC..

Hi, good morning everybody. Thank you for taking my questions here. Maybe if I could just ask on the supply chain disruptions, looks like you're doing a good job managing through them.

I was just wondering how that potentially impacts the profitability of your backlog, of your book of business to the extent that the supply chain adjustments you're making are inflationary to your cost structure.

Is that something you can recoup or is that just a market you're going to take as you work through the backlog?.

Yes. Good morning. Good morning, Kevin, this is Marc. Very good question. First, I should say that the good thing is that our customers are ready to take those units. So even if the deliveries, we're not at the level we were expecting, we do have those customers waiting for those units, which is great.

And thanks for your kind words on the management of the supply chain.

Nic, do you want to go through the cost?.

Yes. Kevin, I said the measures that we're taking are not inflationary in nature, but we are in an inflationary environment. We haven't seen this in our bill of materials in Q3 and it's not about materially but we do see this in the supplier dialog. I think there are 2 different things working at the same time.

Number 1 is that Inflationary environment and number 2 is the cost-out program on which we're working. In the short-term, the supply chain -- the global supply chain issue inflationary pressure. Yes it does, including on transportation cost.

But in the longer term, we're certainly confident in the cost of that program and our ability to reduce development..

That makes sense. Maybe just my second question here. In the third quarter, you had a number of successful commercial agreements announced and one of them was the all-electric ambulance partnership. And I'm just wondering. It looks like you're contemplating at least 1,500 units.

Is there a way for us to frame the milestones that you need to hit in order for that 1,500 to officially enter your vehicle order book? And I guess if I were to maybe just on semantics, you say at least.

Does that make suggest that if you hit these milestones, is the minimum 1,500 units, and then you can obviously build off of that?.

Yes, Kevin, this is what we have in the agreement. This is a minimum of 1,500 units. Obviously, just to be clear, those units, it's not a purchase order yet, right? It's a commercial agreement, so we do not have those units in our order book right now. And we will be including them as we will get the orders from Demers and Demers from their customers.

But starting at the date that we will commercialize the electric ambulance, which is in the second half of next year, we actually expect a minimum of 1,500 units over the next -- the following five years under the commercial agreement with Demers..

Okay. So just a quick primarily time, I guess. There's no technology milestones, you need to hit in order to secure that backlog. Just given you're using an existing platform for this vehicle..

You are right. I mean, the Lion 5 will be launched at the same time. So it's basically Lion 5 that we will be using. It's a great, it's like killing two birds with one stone. Basically, we're launching the electric ambulance on the line fine chassis and the Maersk also, he's putting state-of-the-art body on this Electric ambulance.

So we wanted to make sure the event will be a purpose-built Electric ambulance, including the body as well. But now in terms of technology and all of that, we will be getting to be at the test very shortly, so no major milestone in this regard..

Okay. And maybe just last one for me and I know you're not going to like the question, but I suspect you're thinking that you may not even try to answer it, but you've got the 50 units and where you got about 1000 units, you think you will deliver by end of 2022.

Is there a way to help us shape the cadence of deliveries over the next 4 or 5 quarters, or is that something that we'll just have to wait and see as you report?.

Well, let's see. Let me start Kevin, by saying that obviously we are still impacted by what's happening right now. And then even if we are working night and day on fixing those supply chain issues, and let me see also that the I fix that we are doing right now are long-term fix. So it's not like a temporary fixing that we are doing.

It's a long-term fix. And when you're doing those kind of fix, obviously having many, many suppliers, and suppliers. Now we have over 500 suppliers. This is looking very good for the long-term and also impacted by what we're doing now..

Okay. I'll leave it there. And good job building the backlog in the quarter..

Okay..

Your next question is from Brian Johnson with Barclays..

Yes. I wanted to talk about a couple of things. So first, can you give us a sense of the pipelines on the truck side of the business.

How the truck order landscape is progressing, and the thing about where the trucks delivered so far to Amazon and were those might be going in service, and where the discussions with Amazon might be as part of the truck ..

Hey, Brian. Let me take that one. First, when we think of the order book in Q2, that movement. First and foremost, it was a great order book -- order for the order book because of our great momentum in the school bus state and the 1,000 unit order from STA, which solidified our commanding leadership in the school bus space.

And the reason that we believe we were able to get these orders, that one and many others, is because we've been selling school buses for a while, many years, and also importantly, we have hundreds of school buses on the road today.

So in the truck space, potential orders for Q3 was not as well below what we want of course, in some way the supply-chain issues preventing us from delivering trucks and having them on the road is not helping.

But at the same time, industry that aren't manufacturing companies that are delivering them and open to medium that we can replicate the success we've had in the school bus space and in the truck space. Either been a time, of course, because of the product is new, so that sort of conduct.

Feel good about the client dialog, it does take time to convert that into an order book, but it's something that accelerates with time that We're seeing in the school bus, but as it relates to the deliveries, 10 comments on the Amazon trucks are more consistent with what we've done in the past there, but we delivered 12 trucks as you've seen in our results, and it's just the beginning..

Okay. And then on a second question. Wait if you have more on the truck side happening here..

No, sorry. That was it..

Okay. Our second question, if we look at the ASP s per bus, if we -- well 2 step questions. 1.

If we just take the revenue and divide it by unit to get close to $290 per vehicle, is there other revenue that we should be thinking about that would mean that that's not really the price the bus -- or the people who have taken delivery paid for the vehicles?.

Yes. The one out there is the -- in there, we have our Lion Energy sales and we have some part sales. Those are not material, but they are in there. And so they're not at a scale where we disclose them ..

Okay. So if we think about the goal of cost reduction and reducing the gap of the upfront costs to diesel buses and trucks. 1. Where you are on that journey? 2. do all the supply chain since during slowdown that or they affecting some of it -- traditional truck and bus OEMs equally.

I can imagine it would up things like steel, but maybe things like wire and connectors and battery costs are unique to the electric side..

Yeah. I'd love that. I alluded to this in answering some of Kevin's question, but in the very short-term supply chain issues are causing some inflation pressure on transportation and on some of the additional volunteer costs that our suppliers incur.

At the same time we are progressing on the cost fab and be -- part of this will be having your own Battery platform, which our team, which is expected to start producing battery that influence on. Overall, brand the units economics are very good and we're confident that at scale the model works very well for profitability.

And on top of having our own battery supply and having the benefits of scalable working to do -- for cost cut off on the supply chain aspect or with some supplier broadly. And this 1 includes us making commitments to -- longer time commitment to supplier than having the allows us to do exactly that. Something on which we're progressing.

The supply chain is a little bump in the road there, but we feel very good about the longer-term ..

Okay. That's typical..

Thank you..

Thank you..

Your next question is from Benoit Poirier with Desjardins Capital Management..

Yes. Thank you very much and good morning, everyone. With respect to global supply chain, could you provide some thoughts around the market dynamics for the sourcing of non-EV components.

Would it be fair to say that the lower level of production currently is putting you at some disadvantage versus large legacy players for those non - EV components?.

Yeah. Good morning, Benoit. No, we don't think so. Even with the what we call the less critical components, those components at some point need to be adjusted for electric vehicles anyway. So we don't think so. What really happened is that the overstocking strategy that we have was mostly for the critical components.

And I mean this came to a lot of our supply years as a surprise, also that those critical components were also impacted for some other reasons like labor shortage and raw material shortage. But in a nutshell, no , we don't think you know that's wherever this advantage against their OEMS..

Okay. And by the way, since you did an important order received throughout the quarter, but if we remove that it seems that the booking was weaker than the previous 2 quarters, so I'm just wondering, how does the global supply chain issues are impacting your ability to significantly increase your booking.

And if you could provide some color about your bidding pipeline and maybe comment around potential vehicles sales right now in the pipeline..

Yes. In the order book, I mean, looked -- I think we're quite pleased with the overall increase. We are getting to a point that we've had our biggest orders. At the same time, we did expect Q3 to be driven more by the larger orders.

It is the start of really -- the start of school year period, which is always a challenge for operators but this year, even tougher than ever with the measures around COVID and the driver shortage situation in the school bus space. So no surprise that it's driven by large orders rather than the smaller ones for Q3.

As it related to dialogue outlook, there are great programs in place right now in the school bus space. And we are very encouraged by the dialogue we're having with all sorts of Operators around and deploying on these programs.

We feel that the school buses are the product where that if among -- certainly among the most in fleet electrification and we feel very good about this. So the dialogue is continuing. I talked about the truck dialogue as well. We're pleased with the current dialogue with clients..

Okay. Any thoughts on whether the global supply chain issues could also impact your ability to ramp up your new production plans in the U.S.

but also equipment needed for your best replant in the -- in their best?.

Yeah, the good thing with the way we've been working on this for years now. And we will be issuing new orders, so we're in constant dialogue with the equipment suppliers. So, no. With all these delivery dates that are trend right now and confirmed by many suppliers as well, we don't see delays.

The good news is that, in those kind of projects, I mean, there's always cautions in there and we're -- we've the cautions in there, so it's great. No, we don't see delays. Dates are being confirmed by the suppliers.

Some of the new suppliers also that we've got on board are also with respect to the of the operation close to the plant we will have in the U.S.. So basically those suppliers are also supplying. We can take a supplier in Canada and also a supplier on the U.S. to supply both manufacturing facility, which is great.

And this is something we've been doing as well. So at the same time, we're securing the orders for the equipment. We are starting to onboard people in Joliet and we are planning to start up the manufacturing operations for the second half of next year..

Okay. And last one for me.

What about CapEx expectation or cash outflow we might expect for Q4 and maybe 2022?.

Yeah. Look, I'd say we remain on track for the projects. So we talked about a $130 million for Joliet, and Canada, $185 million, or let's U.S. $150 million for the Lion campus, which is the battery plant innovation center here in Mirabel. We do expect this to be spent from now to the end of next year.

We are at a point -- Marc made in his early remarks that we're going to expect to take possession of the building in Joliet before the end of the year. We expect to place the first orders for larger equipment very soon. This Q4 or Q1 we don't know yet, but we expect the CapEx to increase in the coming months for sure..

Okay. Thank you very much for the time..

Thank you, Benoit..

Thank you, Benoit..

The next question comes from Rupert Merer with National Bank..

Good morning, everyone.

You mentioned you've got 2000 orders in the backlog which could be delivered before the end of 2022, are any of those orders time-sensitive? Do you have flexibility on the delivery schedule, and is there any chance you could lose some orders or pay penalties with late delivery?.

The answer is that those orders are to be delivered in 2022, but we are in an we're in -- so there's no penalties in any of our orders. I'll start by saying this.

And we're in the environment that we are right now, what we're seeing, for instance and the truck-based that a lot of orders that are new because today or at least until 2023, that is certainly not the case with us. And so yeah. So no penalties there and there's nothing specifically time-sensitive right now that I can point to.

Obviously, we need to fulfill the order in the comp related timeline.

Okay. Thank you. And if I could dive into the supply chain issue here. I do appreciate all the good work you're doing there.

But how easy is it to switch suppliers? Do you need to recertify any of the products that the parts that you're changing?.

Yeah. You're absolutely right, Rupert. It's not easy especially when we're only dealing with great suppliers, most of them being Tier 1 supplier. So most of the time we're not replacing suppliers, but we are finding other suppliers. So it's truly a redundancy of suppliers we're looking for.

That being said, though, when you are looking to -- when you're going with other suppliers, sometimes you need to change your recipe as well to adapt. And you know, this is what I was alluding to earlier when I was saying, it takes time. When you're doing the right thing, it takes time.

When you're on-boarding new suppliers -- and let me give you an example, when I was saying that our people have been very nimble on what we've been doing. I mean, kind of things we'd been doing. We've been changing connectors. The connectors we were using, there was a major shortage at some point.

The connectors as well, when you're changing the connectors, the wiring harnesses, it needs to be adjusted as well. So sometimes it's another supplier but it's also another component that we need to change.

Why you know what, those connect -- those wire harnesses -- that's it, we need new connectors that we started using or redesign during that period of time. Now, we have like 2 sources of components and, we're done suppliers, in that case, which is a very good news. Another examples will be the PCB.

The circuit boards, which is another example as well of some circuit boards that's we've decided to redesign to fit with the technology of some other suppliers. So this is a little bit to show you how agile we've been but obviously you cannot do that within the few days.

It takes months before the time that you get the solution and then the components will be delivered and installed on your buses. So it's not easy, but this is something we've been doing. And thank -- I thank God, Rupert, you know that we've been doing this for so many years.

I can only imagine the OEMs that are trying to start manufacturing, the challenge is very big. So we've been manufacturing buses for 6 years now and I think it's really helping us..

So is there any rough quantification you can give us on how far you are through the process of improving your supply chain? For example, could you say that the goal of the parts that you've had issues with that you're 50% of the way through the process of identifying alternative solutions as far as identifying a supplier and getting that solution installed or you further along with that.

And do you have some visibility on how long it takes before you have alternatives for all of those pinch points?.

Yes. Well, the good news, Rupert, is that the challenges that we have, and this is what I said in the last half hour as well, is they are behind us. Behind us in terms of finding the solutions.

And we have many challenges, and even a lot of challenges that were not expected, and honestly, that were not even expected by the supply chain, by the supplier themselves. The good news is that it's behind us. But what I was saying this morning that we feel that the supply chain crisis might go well into 2022. Well, this is what we believe.

But we're well equipped to deal with this. But as we speak right now, we were able to find solutions for all the challenges that we have. But on a weekly basis, on a daily basis as well, some further challenges are coming and will be coming as well. So I think it's more a matter of how you are able to deal with those challenges going forward..

Allow me 1 more follow-up. So you proactively here it sounds like you are also going to increase your supplier base to maybe deal with challenges that could arise.

How many more suppliers do you think you might need?.

Well, that's a good question. I mean we've added 70 suppliers in the last quarter, and we will have many other suppliers as well for the Joliet operation. We are in negotiation with many suppliers regardless of the supply chain prices that we're going through right now.

So we think that even the Joliet facility will really help us with everything that's happening right now and the supply chain crisis. But with the number of suppliers that we have right now, we're in very good shape. That being said though, I mean. We're looking forward at the next year and make sure we have a lot of redundancy for all components.

And lesson learned, even with the less critical components..

Thank you. That's great caller. I will leave it there..

Thank you Rupert..

Your next question is from Jonathan Lamers with BMO Capital Markets..

Good morning. On the truck market. I would like to ask the truck question in a different way. The order book showed no new truck orders since August. Can you tell us that's a comment on the current state of the U.S. truck market or if that's a comment on Lion's competitive position in some respect? I know you have some industry data you can look at..

Yes. So I want to just correct one thing deliver trucks until the gross order book had been closed. So we did get some new orders, but not much more than we delivered. So I'll close up by saying that. And no, I addressed that the same way. I point more to the broader market.

The electric truck market energy is less mature than the electric school bus market. And it's consistent with what's been said in the past. That's a market that is literally 10 times the TAM of the electric school bus and it's a market that we feel can entirely move rapidly, but it takes time to get started.

As I mentioned, we're not aware of many players, many OEM delivering all electric medium and heavy-duty trucks, and we think we're well positioned competitively by being -- by having product being part of.

And we think that the competitive positioning will improve once we have more trucks on the road and once we are able to show the trucks to the clients more -- or the potential clients more broadly..

Thanks. And Marc, you mentioned the upcoming U.S. bid competitions, including the recently announced additional round for the California HVIP and then New York. Were there any learning’s about the U.S.

truck market from the early California HVIP programs this year and anything you can tell us about the outlook for your participation in the upcoming rounds?.

Well, maybe I can take that one. HVIP is an excellent tool to get funding for clients to deploy trucks we've all been of the view that subsidy are excellent tools to get the wheel going.

We do not have a business model that relies on subsidy in a long term, but in California are dedicated fleet electrification and we're leveraging these tools in terms of the learning’s. I wouldn't say Jonathan that they're learning for the marketers to do a better and better at leveraging the platform and in getting those applications in.

But what we need in the trucks spaces is time, continued dialogue and product on the streets. I'm coming back to the same point, but these are really the ones that we think will be the drivers. Ultimately, we're looking to replicate what we've done in the school bus space and we've talked about this in the past.

The concept of getting the first orders, like the first product which is a trial, then the repeat order, which is very important, and then moving to large orders where we're talking about multi-year fleet electrification.

We are in the process of doing that in the school bus space and HVIP and other tools allow us to get the wheel going in the truck space..

Jonathan, let me also say that in the truck space, the total cost of ownership is so good that the discussions we're having right now with the customers is for a very large orders. Let's put it this way. So you're right, that it's been a little bit slow in the last few months.

But the dialogue with the customers is very good, and we're talking to customers who have very big fleets. And some of them are really looking and that they're electrifying the old fleet over the period of the year.

So I will see the subsidy on those programs, especially in the truck market, it is not the first priority is to really the business model. work, the operation, the total cost of ownership, the charging infrastructure, which we do very well with the Lion energy teeth, but that takes time though, that takes months to go through all of that.

So the sales cycle, I mean, if those people let me say maybe is a little bit longer, but they are very sophisticated and there's serious about getting into electric.

So yes, absolutely and we will keep filing at stations for HVIP and all the other subsidies, all , which is great because this is helping the Operators, but those people are not relying on subsidies to electrify their fleet..

Thank you. And Marc, just to pull on that a little bit more. You mentioned that the conversations were around very large orders.

Would you put one of those very large orders into Saint-Jerome over the next six months, let's say, given all the supply chain challenges or are those really for Joliet post production ramp?.

Yeah. Well, Jonathan, it's really a mix. Obviously, in Saint-Jerome, we are manufacturing trucks right now. And this is what the customers like. They can do ride and drive, they can try the trucks and buses so they can feel the advantage of our purpose-built trucks. So yes, we can build, those trucks and since we're on break right now.

We do have some Lion 6, Lion 8 as you know, but starting in the second half of the -- of next year, they could be built in Joliet as well. And so the idea for us is really to get the best truck possible for the customer from the best fleet and saving on freight costs, as well as much as possible.

So right now, we have one option from Saint-Jerome, but we're going to have both options before long..

Thanks. Last topic on production. Marc, on the last call, you said that Saint-Jerome had enough labor to achieve 2/3 run-rate capacity, and in Q3 Lion produced about 90 vehicles, including the ones in. I understand the component shortage issue.

My question is, could you update us on daily production rates or labor capacity today now that the supply chain solutions have been implemented?.

Well, just one thing, though, Jonathan. Let me start by saying that when we were talking about the 50 units, we were talking about the units that we're almost finished with. So obviously, we're manufacturing more than that, in the works.

And in all of that, getting the labor, and we saw that with the supply chain prices right now, is always a challenge for everyone, so we were able to onboard those people and we're proud that we.

Did that. So we have still enough people, but as I said earlier this morning though, we slowed down the recruitment because of what's happening. Obviously, we don't want to get to the full capacity. As we said in the last quarter, Jonathan, when you have the right number of people, it takes some time to ramp up the capacity.

So we do as the equipment, we do have the people and we're making a smart usage of those people. Now to your question, I don't know if we can get more detail..

Thanks. I appreciated that, Marc..

Thanks for your comments..

Thank you, Jonathan..

Your next question is from Nauman Satti with Laurentian Bank..

Hey, good morning, everyone..

Good morning..

So just going back to the truck side of your business, I'm just wondering if you could give us more color on how the sales team has built up. And if I remember on the Investor Day, you guys had mentioned that you're trying to reduce the conversion cycle from first point to meet a client and then the eventual sales happen.

So I'm just wondering if that has reduced or if there is something that's happening there.

And maybe just to add on there, are you guys adding 7 new Experience Centers or 8 new by the end of this year?.

Yes. So with respect to the Experience Centers, we do have 7 right now and we will be opening 7 additional Experience Centers before the end of the year. So we will have a total of 14 Experience Centers by the end of the year..

And with respect to and I hate to be repetitive. But with respect to the truck sales, it's the same thing I said before, we're in the customer dialogue.

Of course, we're looking to reduce the time between initial meeting and order, but you have to keep in mind that in some cases you are having the fleet electrification discussion at the C-suite and now there is that procurement level. So there are different sales cycles for different types of organization.

I think domestic agreement that are also good example of how we can expand the model because it is really a win in the context of the channel sales model that you talked about.

If we can leverage channel partners to sell more chat season and especially if the model is so simple that we just sell chassis and they updated and the sale of diamonds we get, we sell it to the channel partner. That's a good model for us.

So it's continuing to progress we're looking to reduce need time, but even in the bus space today, some clients are much longer lead time. Others, because they've been part of the repeated over cycle they can move with us very fast because we've been in a relationship with the for a quite number of years.

So hopefully I'm addressing your question, but it's sort of -- it's the same as the questions that were asked before on the truck side..

Okay. That's fair.

Maybe I may have missed it, but do you break the trucks class like was it Class 6 trucks that you sold or was it Class 8 trucks this quarter?.

We don't break it. No. But right now what we're and some classic..

Okay. That's good. And just maybe 1 last one.

With all these supply chain issues and the problems that you have highlighted, do you think it's still the right time to launch these new vehicles that you plan to do in 2022 or do you think that may get delayed because of these challenges?.

Is the question will the R&D pipeline be delayed.

Is that the question?.

Yes..

Yeah, we just the new models.

Your question Nauman was about the new models, right?.

Yes.

So essentially I think by 2022, you have to -- you launch like 6 or 7 new vehicles, right?.

No. It's looking good. The R&D is going full throttle with those new models. As you know, there's a lot of commonality between our platforms and this is why we're able to do all of that.

We've been working on this for years, doesn't mean that we don't have to deal with the supply chain challenges, but really supply chain is more affecting us right now with respect to our current deliveries than with respect to the development of the other products. That being said, absolutely.

It only adds to that challenge for Lion, but also for everyone right now in the industry. But all the date that we're looking at with the forecasted dates of commercialization, no, we're good. We're still good before the end of 2022..

Okay. That's great. And maybe just one last one. I see you've mentioned it in your slide as well. But for the Illinois facility, once you get it, what are some of the additional or future milestones that we should look at for you guys to eventually ramp up production there.

What is it that we should look at for now?.

Well, the first thing is the take possession of the building. So if you look on our website right now, I think you'll be very excited about where we are, 90% complete. Honestly, it's going very, very well. We are starting to order the equipment, but we've been in a long-term dialogue with those equipment suppliers.

Yes, so at the beginning, obviously we are starting slowly and then we will ramp up so we will start installing some equipment. In the first half of next year, we are on-boarding people and we do have people from Saint-Jerome that will be doing a knowledge transfer also, so we've been working on this as well.

The IT team also has been everywhere on this. All the cables that we needed in this factory, this is part of the 90% completed. We need all of that. We will be ordering the EGD's very shortly as well. So now it's mostly take the session receiving the equipment, we are on boarding the people and we will be hiring additional people as well..

Okay. That's a good color. That's it from me. Thank you..

Thank you..

Your next question is from Michael Glen with Raymond James..

Hey, good morning. So just a couple for me. So Canadian bus market -- school bus market.

Can you speak to what your market share is and what's taking place from a competitive perspective in the Canadian school bus market?.

Good morning, Michael. I mean, I think you know, in Quebec, I mean, we haven't seen any other buses so far on the road, so we've been -- I think we've been doing very, very well. As you know, the MPQ has issued this policy that starting on November 1st nobody could register another bus than an electric bus, which is which is good.

And there is also a made in Canada cloud, for the MPQ. So Lion is very well-positioned. We do have busses in Ontario as well and with the DTN. The $2.775 billion investment in electric school buses and electric transit buses as well. Well, this is part of this program where we -- that we filed.

It's a FDA or FTC and well that's the dialogue with the customers, so it's mostly outside of Quebec. In that case, it's also going very well. So I think the customers, what they like about our buses, obviously not only is it perfect built, but it can -- it's very efficient in the cold.

Also we've been dealing with those temperatures for many, many years, so they like the fact that we've been manufacturing those buses for many, many years. So they can talk to each other. They can talk to other customers as well, and this is why and we see a lot of repeat orders and very significant orders not.

And is the large order from Student Transportation, is that concentrated in Quebec and Ontario or is it spread throughout the country?.

No, there's nothing in Quebec. Nothing in Quebec. So it's outside Quebec and it's -- I think it's mostly in Ontario..

Mostly in Ontario.

And how did you -- in terms of the duration of that contract, is there a pricing embedded like the cost declines that you're thinking about in terms of your deliveries, is there anticipated price declines embedded in that contract?.

Yes, correct. Which is exactly along with our strategy to bring pricing down over time? So that's our price decline ..

Okay. Thanks for taking the questions..

Thank you, Michael..

Thank you, Michael..

Your next question is from Jonathan Lopez with Vertical Group..

Hi, thanks so much. Sorry, I had 3, hopefully, relatively quick ones. The first one, just following up on that last topic. The vehicle ASP in your backlog looks like it dropped about 15% this quarter versus last.

Was the STA order the driver there?.

Yes, the STA was a driver with the multi-year agreements, you have to take that into context, of course. There are other drivers, but the bottom or the change in the order book for the quarter..

Got you. Thank you, it helps. Secondly, I just wanted to talk conceptually about orders. As you mentioned, the discussions around in Canada are a pretty highly conditional. I think their own press release suggests they haven't really started dialoguing with school districts yet. So my questions are; 1.

Are you including anything within that program for your 2020 delivery commentary? 2.

Can you maybe just clarify how you're defining orders, so we can just gauge how that may look versus peers?.

Yes. The answer to your first question is yes, there's orders in the order book we have FDA and we've been near transparent it's a conditional order and we are -- it's conditional on funding. And we're working with that in conduct. The delivery on that contract are scheduled to commence in 2022 so we -- and we do expect that to be the case.

When we think about orders obviously we include in there purchase order as an end and in some cases and we include joined application for subsidies like this one, where the application is obviously mutually exclusive in other words, the code of application for any OEM to fulfill and where we have a high degree of confidence that it will change into or convert into -- and ordering actual delivery.

So, yes. So I just want to make that clear. Everything that is in the order book, as we stated, we expect to deliver. Marc alluded earlier on the next slide we had an agreement with them that contemplates the delivery of 1,500 units. Because those are not orders yet, we did not put those in the book for that..

Got you. Understood. Okay, that helps. And the last topic I wanted to touch on is battery cells. So more and more of your peers are securing long-term purchase commitments or agreements for cell supply that generally come with some prepayment. Last I recall, you guys were not planning to go that route. So, A. is that still the case, and B.

do you remain comfortable that you won't find yourself with a supply issue or a cost issue as you start to bring the module factory online?.

Yeah. To answer your first question. No, that's not the case. We're not planning on doing any kind of prepayments and some other companies that you were saying in the space, some of them that we are in negotiation with many cells suppliers and well, let me just say it's going very well and it's a matter of price.

It's a matter of also availability of the product. It's a matter of chemistry also that the suppliers will be doing for us and for us, for Lion, it's also a matter of being agnostic. Being agnostic to the chemistry as much as possible, but being agnostic to the supplier as well. And this is the reason why we're doing this battery factory, by the way.

You probably remember the rationale around it when we were saying we will be going with 21,700 cells. We've decided to do that not to be captive to one supplier that will be supplying a module. And when they are supplying a module, this is where you're becoming captive.

So by going at the level of the 21,700 cells, we are able to remain agnostic and not have to do those prepayments that some others have been doing..

Understood. Thanks very much for the thoughts. I appreciate it..

Thank you, John (ph)..

There are no further questions at this time. I will now turn the call back over to Isabelle for closing remarks..

Well, thanks everyone for joining the call today. We really look forward to continuing the discussion and feel free to contact me for any follow up question you may have. Have a nice day. Thank you..

Thank you for joining today's conference call. You may now disconnect..