Lion Electric Co (LEV) Q2 Earnings call transcript Jul 31, 2024

Lion Electric, a leading manufacturer of electric vehicles, recently held its second quarter 2024 results conference call, providing insights into the company's financial performance, strategic initiatives, and market outlook. The call, led by Vice President of Investor Relations and Sustainable Development, Isabelle Adjahi, along with CEO, Founder Marc Bedard, President Nicolas Brunet, and Chief Financial Officer Richard Coulombe, highlighted both challenges and opportunities for the company as it navigates through a critical phase in its growth trajectory.

Key Themes and Trends:

The call emphasized the persistent challenges the company has faced, particularly the delays in the Canadian Federal DTF program and the slowdown in deliveries under the U.S. EPA program. These challenges have impacted Lion's revenue, profitability, and liquidity position. However, management's response has been proactive, with initiatives aimed at streamlining operations, optimizing liquidity, and achieving profitability.

One such initiative is the shift to a batch size manufacturing approach for electric trucks, which directly aligns manufacturing with the company's order book. This approach is expected to optimize Lion's liquidity profile while maintaining its leadership in electric trucks. Another strategic move is the transformation of battery operations into a product line, enabling Lion to sell battery packs to third parties and contribute to revenues and cash flows from next year.

The company also announced plans to reduce its total workforce by approximately 300 people across the organization, primarily in product development, as the development of new platforms is now complete. This workforce reduction is expected to reduce payroll costs by approximately $25 million annually. Moreover, Lion aims to significantly reduce its nonsalary cost structure by decreasing operational expenses in areas such as third-party logistics, consultants, and selling and administrative costs.

Financial Performance and Outlook:

Lion Electric reported a quarterly revenue of $30 million in Q2, driven by lower unit sales due to the challenges mentioned above. Gross margin for the quarter was negative $15 million, and EBITDA was negative $20 million. However, the company's business model continues to show attractive unit-level economics, which are expected to positively impact financial performance as volumes increase.

Lion's liquidity position remains a concern, with available liquidity of approximately $25 million as of June 30, 2024. The company is actively evaluating opportunities to improve liquidity and strengthen its financial position, including an amendment to various loan facilities and the acquisition of a CAD 5 million loan facility from Investec Notepad.

Market Opportunities and Competition:

Looking ahead, Lion Electric's priorities for the rest of 2024 include managing and optimizing liquidities, growing the order book, integrating Lion batteries on its vehicles, and advancing its new battery product line. The company also expressed optimism about its prospects in the electric school bus market, citing significant opportunities from government programs and incentives in the United States and Canada.

On the truck side, Lion's Lion5 and Lion8 tractor platforms continue to attract strong interest from potential customers. The company is actively working to address regulatory and incentive programs aimed at accelerating the shift to electric trucks. However, competition remains intense, and Lion Electric will need to maintain its competitive edge in terms of technology, cost structure, and customer service to secure market share.

Investor and Analyst Perspectives:

During the call, key analysts raised questions about the company's plans for selling batteries to third parties, the impact of government programs on demand, and the competitive landscape in the electric vehicle market. Lion Electric's executives provided detailed responses, highlighting their strategies for maximizing revenue from battery sales, navigating the challenges posed by government programs, and differentiating their offerings in a competitive market.

Conclusion:

Lion Electric's second quarter 2024 results call painted a picture of a company facing challenges but also poised for growth. The company's strategic initiatives, including the shift to a batch size manufacturing approach, the transformation of battery operations, and the workforce reduction, are aimed at optimizing liquidity, achieving profitability, and positioning Lion Electric for long-term success in the electric vehicle market.

However, the company's financial performance remains a concern, with negative gross margins and EBITDA in Q2. Moreover, the ongoing challenges in the electric vehicle market, particularly the delays in government programs and the slow transition to electric trucks, present significant risks.

Looking ahead, Lion Electric will need to execute its strategic initiatives effectively, manage its liquidity carefully, and navigate the competitive landscape to position itself for growth. The company's focus on electric school buses and its innovative battery product line offer promising opportunities, but the road ahead is not without challenges. Investors and analysts will be closely watching Lion Electric's performance in the coming quarters to assess its progress towards profitability and market leadership.