Electrovaya Inc. (ELVA) Earnings Call Transcript & Summary

So we're going to get started. Everyone, sorry to interrupt. So as I said a few minutes ago, thank you so much for coming all the way to visit us here in Mississauga, Ontario, especially those who've traveled from far especially like Houston, New York, Boston, Minneapolis, Waterloo, San Francisco, Downtown Toronto, -- so thank you. And of course, those who are viewing online, thank you for joining us. So this is our inaugural battery technology and Analyst Day. I'm very happy to see that it's very well attended. And Electrovaya is going to -- what we're going to talk about today is we're going to go through some of our key technologies, our road map for further development as well as going into some detail with regards to development of our next-gen solid-state batteries as well as new applications that the company is looking at targeting. Okay. So I'm sure you've all seen this before. Electrovaya is a publicly listed battery company on the Toronto Stock Exchange and OTCQB. We're also in the midst of a NASDAQ application, which we are optimistic will go through. But again, we're going through a lot of forward-looking statements, so we'll take this as read. So what is our mission? So Electrovaya is front and center in the energy transformation. So we are making battery systems and cells, which are having a very large impact with reducing greenhouse gas emissions. So every Electrovaya battery actually has a higher impact on GHG than a typical battery use in an electric vehicle. And the reason for that is our batteries are being used in very heavy-duty applications. And as a result, we're definitely displacing a higher percentage of GH genes. Now how are we attacking the energy transition? That's with safer and better batteries. And we use those terms carefully. So by safer, we have technologies which make our lithium-ion batteries much safer. This revolves around our ceramic separator IP and battery system design. And we believe we have a leg up with regards to safety. We use the word better because we make lithium-ion battery cells and systems, which have industry-leading cycle life. They can -- what we mean by cyle life is the number of charge, discharge cycles you can do on a battery before it reaches the end of a life. And with respect to that, we are about 4x 5x better than typical lithium-ion batteries. So Electrovaya has been in the battery space for 2 decades. And with that experience comes a lot of wisdom, a lot of technology, and we have well over 100 patents today and personnel in our company who have been with us for that span of time. So we've seen this industry, the ups and downs and also the subtleties of battery chemistry and battery systems. Now we -- initially, we're more focused on aerospace applications. That's where we got our start. Around 2009, we started a key focus on electric passenger vehicles, which we were fairly successful with. We had partnerships with Chrysler. We had partnerships with Daimler. However, the market really wasn't ready for us at that time. As we know, there's really only one electric vehicle manufacturer who really move things seriously around that time that's Tesla while others were sort of dabbling and now, of course, they're moving after in a big way. Now during that period of time, Electrovaya had developed a lot of interesting technologies. That's where we developed our pack technology. That's where we had developed our separator technology. And we found that ourselves were getting performance attributes, which we were not -- which were not reflected in the sales price. So we were making the world's longest cycle life, highest safety cell and the buyers of the products wanted us to sell it at the same price large agents conglomerates. And if we did that, we wouldn't be here today. So in 2018, we made a significant pivot as a company, and we moved to a totally different market. So we focus all our activities around heavy-duty vehicles. The first being on that list was material handling of forklifts. And we also moved away from a vertically integrated manufacturing setup where we made everything ourselves, and we moved to a asset-light model where we manufactured the IP-sensitive materials in Japan and cell assembly in China and then battery assembly was in Canada. And that served us very well. Now we're growing very, very quickly. So we've doubled revenue pretty much since 2021, we've been doubling revenue every year. And our demand is going up. Also, there's new incentives for domestic manufacturing, for instance, the Inflation Reduction Act, which was recently passed in the U.S. and others are making us relook at that vertical integration. So Electrovaya is going -- is building a giga plant in upstate New York near Jamestown, New York specifically. And that is going to be front and center of our future expansion. So, Electrovaya is -- has, as I mentioned, well over 100 patents, a lot of round ceramic separators and battery systems. And then, of course, a huge amount of know-how, which may not even be covered in patents. We've been growing quickly. Our team here in Canada has expanded significantly. We're now at about 95 people. And of course, our U.S. expansion is going to be front and center of our further growth. We've been on track to doubling revenue this fiscal year, where our guidance is USD 42 million. Last year, we did about USD 20 million and the year before that, we did USD 11 million. So very, very sharp growth over the last few years. And that's primarily coming from the material handling sector. And you can see here -- in this picture -- a warehouse. This is a Fortune 100 e-commerce group using our batteries and they're using our batteries in multiple distribution centers in the U.S. primarily. So what do we make? So we make the cells, of course, that's the core technology piece, but then we put those into battery modules. And primarily, what we're selling is a battery system. So that's where you've got the modules with the battery management system in a final pack. And that's a value add, and we can sell our systems at a higher margin. We have 3 locations, 2 here are in Mississauga, Ontario, the one you're sitting in for those who are here, is our engineering and headquarters and also we do our final battery assembly here. We have another site, which is dedicated to the development of solid-state batteries. That's not too far from here. That's our Electrovaya Labs site. And then finally, we recently purchased a 52-acre campus in Jamestown, New York, and that will be our Gigafactory plant, which will produce everything from cells to PACs. That site, we picked it carefully. It was -- that site has an existing manufacturing building on the campus, which was previously used for electronic manufacturing. So it has a lot of the same infrastructure we need for cell making. And as a result, that was a key buying decision, a key site selection bonus for us. The other advantage of this location is we get very low-cost electricity with hydroelectricity straight from Niagara Falls. And so our road map here is we'll start with pack assembly towards the end of this year. followed by module assembly in mid-2024. And then finally, cell assembly will start in early 2025. And here is just a few more images of the site. It's a pristine site and will really enable a much quicker setup for our activities there. Now I'll delve a little more into the core technology that we have. So we have really 2 platforms. The first is our Infinity technology platform. This platform revolves around a ceramic separator tech as well as unique cell assembly and electrolyte and overall cell design. And the ultimate benefit here is the cycle life and the safety. So this technology is what's -- what we're driving 100% of our revenue off of and which our forecasts are all around this. So we're targeting heavy-duty vehicles initially was material handling. That's now expanding into robotics, AGVs, high-voltage systems for buses and trucks and energy storage. The second platform which we'll briefly go through later. Today this morning we made a press release with a quick update with regards to our solid-state batteries. And this also revolves around ceramic separators, for which we know a lot about. The main difference here is the ceramic separators serve as the electrolyte as well and thereby makes us a solid-state battery. So we're as a company, for the Infinity platform, we're not looking at the mainstream automotive market. We're looking at multibillion-dollar heavy-duty vehicle markets. So the first, of course, that we targeted was the material handling sector. That was the most mature market at the time, and it is also the market where the duty cycle on the battery is heaviest. So if you go to your Walmart distribution center or another similar company's distribution center, you'll see that they have vehicles operating in that warehouse nearly 24 hours a day. So we're doing multi shifts and those vehicles are -- if they're operating efficiently, they're almost never parked. So they need a battery which can handle a large number of cycles, they need a battery, which can be charged quickly. And they need a battery that's very reliable and safe because they're operating within buildings. And those metrics we hit with states and it is why we've been so successful in that market. Now that's not the only market that needs high cycle life and safety. The next ones that we're looking at, of course, are eBus, e-truck and energy storage, which have similar requirements in terms of performance. So this is not a complete list -- but in 2021 we established a OEM relationship with Raymond corp. Raymond corp., for those who don't know is a subsidiary at Toyota Industries, and they only make electric forklifts. So in terms of market share, the largest electric forklift manufacturer in North America. And they picked our technology with a significant amount of due diligence prior. So that involved third-party testing of cells involved third-party safety testing as well as UL certification. And following all those tests and performance metrics -- are also testing the actual battery systems in the field. Raymond picked Electrovaya as their supplier. And that relationship has really propelled a lot of our growth. So it's been a very key for our success, and we want to replicate it with other partners, which we're on track to do. Now the core battery technology initially was featured in passenger vehicles. The ceramic separator is present in about 20,000 electric smart cars. And interesting to note, not a single 1 of those smart cars that had a battery safety incident. In fact, the battery in those cars is outlasting the vehicle. And I know Daimler repurposed a lot of them for energy storage activities. Our Chairman drives 1 today, and the battery works extremely well. So the core technology is -- been extremely successful. Also in about the 6,000 material handling vehicles we've produced, not a single 1 is out of battery safety incident. Now the users of the batteries are the Fortune 100 list, the Fortune 500 list primarily. And just looking at a Fortune 100 list, 10% of those companies are using our batteries. And if you think about Fortune 100 companies, only a fraction of them will even have warehouses. So we have a very significant market share amongst these big corporations. So jumping to the technical aspects. Here are the cycle life. And this data here is third-party data. This is data that was recently published by us, and it comes from DNV GL's lab in Rochester, New York. And they took 3 years to produce this data. So that's dedication to the team there and of course, our team and our OEM partners, who supported this research activity. And the data that's been coming out there is we're showing 9,000 cycles. And after 9,000 cycles, the battery still has 87% of its initial capacity. So projecting to 14,000 cycles, that is a very large number. How you put that in perspective. We all know your cell phone lasts about 2 years, maybe 2.5 years before the battery is noticeably less powerful. So that's about a 1,000 cycles at most. So you have a battery system, which is doing orders of magnitude -- in order of magnitude, higher cycle life count than that. And that really makes our technology a very valuable technology for these heavy-duty applications. It also makes the battery essentially a nondepreciating asset. So, when you -- when typically people will buy battery systems, they are depreciating assets. They've got a curve which shows that they have to a replacement after 5, 7 years. In our case we expect these battery systems to outlast the application that they're being placed in. life count than that. And that really makes our technology a very valuable technology for these heavy-duty applications. It also makes the battery essentially a nondepreciating asset. So when typically people will buy battery systems, they are depreciating assets. They've got a curve, which shows that they have to have a replacement after 5, 7 years. In our case, we expect these battery systems to outlast the application that they're being placed in. One other test that was done at that third-party lab was a comparison between ourselves and the best of the industry. And again, concurred we were significantly superior with regards to Cycle Life. Also, this manifests into the pack level. So we looked at packs after 4 years of operation, now 5 years of operation, essentially negligible change in the battery capacity. And this is after extremely heavy duty use in a warehousing environment with a 3-shift operation. Again, putting this in perspective with respect to miles, if you put this battery into a car that has a range of 250 miles. -- comparing our cycle life to the best in the industry. So top 3 supplier from China, top 3 suppliers from Japan, top 3 supplier from Korea, we are -- we have a significant advantage with respect to Cycle Life. Now most of those competitors are very focused on automotive applications, which may not need that type of performance. But as I mentioned earlier, there are a host of applications like energy storage, warehousing, buses and trucks, which need to use the vehicles at a much higher level than your passenger EV or your consumer electronics. So there is a significant benefit to having this performance. That one way to look at that is total cost of ownership. So here, we've taken a look at a high-voltage application. And this is -- these are real numbers. So we've gotten feedback from the OEM in this case where our pack cost is almost the same as our competitors. But the competitor needs to replace the battery pack at year 4, year 8, if that 2-cycle duty cycle per day is what they need. And that really shows a significant advantage with regards to total cost of ownership. Now those who are buying cars, passenger cars or phones, they're not thinking about total cost of ownership, you're thinking about your sticker price. But for those sophisticated buyers, whether that's a municipality or a Fortune 100 company for a warehouse, they're looking at total cost of ownership in their purchasing decisions. Jumping to safety. So fundamentally, we have a large advantage with regards to safety, and that stems from the ceramic separator. Ceramics, as you know, are stable at high temperature. Typical lithium-ion batteries use polymer-based separators. And while they work well, they allow the ions to pass through and they keep your plus and your minus apart from one another. They don't work well if they get hot. So if your polymer separator gets too hot, it will shrink. And if you have a shrinking separator, you get your plus and your minus touching one another, and then you have what the battery scientists would call a thermal runaway event. Most other people would call that a big fire. So with a ceramic separator, you're stable at a much higher temperature and it really -- it doesn't necessarily make the cell immune to catching fire, but it greatly enhances the safety. That is also shown at the pack level, where one of the tests that we had to do prior to our relationship with Raymond Corp. was a fire propagation test. So they did this test at both room temperature and elevated temperature about 50 degrees Celsis. And they purposely put a sell on fire by wrapping it up with igniters. And with that -- after that test, they found that there was no cell-to-cell propagation in the pack whatsoever. A pass would have been no fire coming out of the pack, and we took it to the next level. And the lab said this was the most benign lithium-ion battery fire that they'd ever seen. So it's a testament to the separator technology. So, on -- with lithium-ion batteries, you need to have a lot of controls. The majority of our engineers in this building work on battery management systems, and that's the software hardware, which controls both the safety and the operation of the battery. We're adding new features to this BMS -- so with our next generation, which will have significant amounts of IoT features. So data from the battery will be going to the cloud. We'll also be able to control the charge of battery systems remotely, which will allow us to do things like demand response. So a lot of extra features that we'll be implementing in our systems going forward. Now yesterday, we also announced a higher-capacity cell, which is a 52 Amp power cell, which will really come into production in 2024, but it has already passed its certifications. So we're just starting the manufacturing of that product now. And over the last few years, we've already increased the energy density of ourselves by 30%, and we have a road map to further increasing that in 2026 with another 3 cells which are currently in development. So we have a LFP platform, which will be directed more at the energy storage market. And then we have even higher energy density cells for those applications that need higher energy density. Then looking at the cell tech versus the competition. With regards to energy density, we're very similar. However, we massively outperform with respect to cycle life and safety and even on power density because we can withstand higher temperatures in ourselves. And that, of course, leads to the lower total cost of ownership. So 2023, today, we have over 40 battery models for material handling. We're also supplying batteries for AGV applications. That's a segment which is growing quickly. And later this year, we'll launch our high-voltage packs, which are optimized for bus, truck and energy storage applications. Next year, we're further expanding the material handling footprint with our next-gen systems, which have further improvements, additional models, of course. And also, we're looking at expanding into additional AGV equipment and smaller forklifts. So we're going to be expanding our market share in this segment. And then finally, we're also looking at some new applications such as fuel cell hybrids and even airport ground equipment. Now I'll briefly touch on the solid-state battery platform. So why our solid-state battery is even interesting is they offer significantly higher energy density. So energy density of our Infinity platform is similar to typical NMC-based batteries at around that 200 to 250 batteries at around that 200 to 250 watt hours per kilogram mark a solid-state battery takes it to 350 to 400 watt hours per kilogram. And on a volume basis, even a higher percentage increase. So it potentially could double the range of your electric vehicle or half the weight of your battery system and even enables new applications such as electric aircraft or improving other consumer electronics and drone applications. So it's a very interesting thing to develop. It is often referred to the holy grail of battery technology. Now to date, no one has really commercialized a solid state battery. There are companies who are working on it, and we're one of those companies. So what are the challenges with solid-state batteries. Of course, the biggest one, of course, is getting a separator to work as your electrolytes. So that follow electrolyte interface is the biggest problem. And that's an area that electrolysis been making ceramic separators for years. We know a thing or 2 about that. So we're optimistic that we're going down a good route with regards to the separator. The other challenges of course, are manufacturing. It's 1 thing to make a solid-state battery in the lab and another to scale it up for real-life applications. And that's also been a challenge in the industry. And again, our team led by Sankar is very focused on only utilizing methods which are manufacturable. So this is our current ceramic separator, which is used in our Infinity products. And -- the use of a ceramic separator is difficult. We initially said, "Oh, let's try to get other battery companies to use this product." It's -- it requires nuances with regards to cell assembly processes and other steps. And we found we could do it with modifications to our manufacturing, but it's not that easy. And this is a core advantage that we have with regards to solid-state batteries is the know-how in making ceramic separators and the use of them. Another key advantage we have is we have technology around making sick or high-loaded cathodes. So if you're making a solid-state battery, you're essentially replacing the graphite electrode with lithium metal, and you're improving the energy density of that electrode biofactor can -- but then if you're doing that, you need to do something on your other electrode, which is the positive electrode or cathode. And there, the main way of doing that is to make it thicker. And we have a coding technology advantage here with our NMP-free coating technology, which allows us to make high-loaded lith cathode materials to match the lithium metal. So the cell design that we're working on uses that coating process to make your high-loaded lith cathode combined with our proprietary ceramic composite separator. And then currently, we're already producing cells with 6 layers of stacks. We're also producing the ceramic material in-house. We have a proprietary formulation for that ceramic material and making the separator as well and, of course, the final cell. Now it's still too early for us to sample these cells out, but we're not too far. So we're targeting late 2023 for initial samples to some valued high-performance vehicle and other types of applications that are interested in this technology. Now I'll let John talk a little bit more about the financial of Blue Sky as well as our plans on Jamestown, New York.

Yes. So as Rajesh mentioned, what we really wanted to do with this part of the presentation, just to give a little bit more color on Jamestown plants, what we're looking to do there are pain line. We've talked a lot about we're going to go from [ just ] Mississauga to 2 plants, and it's going to be 300-megawatt hours, 600-megawatt hours and 1 gigawatt hour. But what does that mean from -- from an operational standpoint, but from a financial standpoint as well. So Raj mentioned earlier, the pack and assembly testing will start within Jamestown, which in our fiscal Q1, which is October, this year. And what that will do is we'll augment our capacity within Mississauga. We're not going to slow down here. but we're going to get to a point where we can't easily scale or quickly scale. So we'll be able to utilize the capacity within Jamestown to increase our output and in turn increase our revenue. Module assembly will go live in the second half of 2024. And then as we mentioned previously, cell assembly at the start of 2025. And this is really just a factor of the time it's going to take to get all the equipment into the building, commissions and everything up and running as we start up the process. When it comes to expansion, we've got a couple of options. What we want to do is we want to expand based on our demand. So we don't want to build a multi-gigawatt [indiscernible] at 10% capacity. So from '26 to '27, obviously, depending on the order volume that we're receiving, we will increase the size of the plant to between somewhere between 600 megawatts hours and a 1 gigawatt. And then as that demand keeps increasing, we will scale up again to multi-gigawatt. The initial operations will mineral what we do in Mississauga. There's -- it's very easy for us to do that very little CapEx is required to actually do this, some [ cyclers, ] cranes, no major equipment will be -- will be added to the -- to the facility just to get batteries out the door, increasing our overall capacity, and I'll touch on that shortly. One other benefit of manufacturing in Jamestown is the IRA cash rebates. So initially, until the average cell is up and [ not to sell is at running, ] we'll be able to take advantage of the module benefit, which is $10 per kilowatt hour on the modules. And $35 per kilowatt on sales. So if we were running at the initial 300-megawatt hour capacity by translating -- translates into about [ $3.5 ] million that comes back into -- into our house, which if you bring that into the gross margin increases are significantly. Restoring the cell production into Jamestown will also increase the markings by approximately 3% to 5%. So we're looking at going in to take the IRA in [Southam] from where we are right now to well into the 30s from this margin set. But -- what we're also given with [ James Town James Raymond ] is the opportunity to expand our horizons in terms of what revenues go after we [load ] it from a capacity standpoint here, we can not -- we can't juggle too many different types of batteries and material handlings really been our focus. We don't have the room or the man power to also concentrate on high-voltage bus and truck batteries of our energy storage. But with Jamestown, that will allow us to then move into those sectors very easily. As I mentioned at the top, we do want to remain flexible. We don't want to pay off more than we can chew, and we will scale ourselves as demand comes in. So this gives you a kind of idea on the revenue standpoint. So if you're starting at 300 megawatts hours, we add on the potential max capacity of Mississauga of approximately 100 megawatts hours that would be between [ $150 million to $200 million ]. Obviously, those are the mass capacity. So we're operating as efficiently as we can. We have no downtime. The orders are there. That's what we can expect to see. Similarly, when we go between 600-megawatt hours and a gigawatt, you can see that up from [ $450 ] million to $750 million and multi-gigawatt would be well over [ $1 billion. ] This is obviously product mix dependent. So end [ market ] independent. So obviously, depending on where we are going with the increase -- the orders coming in and what market we're attacking at the time, these numbers will also vary. So these are the max dollar values we can expect to see going forward. So what we've got here is we did a case study on current market demand, where we see the market and where our customers and our OEM partners see the market going. So right now, we're seeing roughly 5% to 10% adoption of lithium ion batteries within material [ this is binding material handling. ] Next year, it's going to increase to [ 12 to 15, 2025, 27, ] increasing up to 50%. So what does that mean from a dollar point of view. So what we did is we looked at 1 of our OEMs productions, extrapolated that down. If we move to -- currently we're seeing about 3,000 units, which would be the 5% to 10%. If we move up to 12% to 15%, what does that mean for revenue? That's 4,200 units at $70 million a year, again, 20%, 30%, 50%, up to 15,000 units, which is 200 units. So that's really where we see the market and material handling. No, we're not saying that we're going to receive all these orders or that we could deliver all of these orders -- that's -- a significant amount of batteries to go out the door. But that's where we're seeing always is quickly increasing, and we're going to scale with this demand coming in. Why is it going up so quickly? So there's restrictions on gas-powered trucks operating indoors. So you're going to see [ open ] trucks phasing out, stricter emission standards, there's a great understanding of safety and lower cycle and costs. So that brings us on to -- from material handling to the other or other offerings, e-buses, trucks, energy storage. Currently, there's about 50% adoption rate within e-buses. This is expected to increase to roughly 50% by 2025, helped obviously by the incentives that are being offered within U.S. and Canada. Manufacturers to move this way. So if we were talking to 1 OEM bus OEM who produced roughly 1,000 buses a year, once we get to the 50%, that's 500 buses, that would represent about $100 million a year in revenue for the company that owns that -- is that contract. So it's a lucrative market to move into. In those kind of cases, it's more of a volume gain than a margin gain, but we're [ doing open ] to see move to $100 million contract [indiscernible]. This is a photo of the high-voltage [ semi ] we have to start when we go on a tariff or are here. We'll see that in operation. And this would be the same kind of thing we would set up within Jamestown to just on a much lower stand.

So in conclusion, Electrovaya is a -- it's very well posed to do extremely well. So we -- on the financial side, we're already breaking even. We're only going to increase our output. And we're looking at markets which will pay a good premium for our better batteries. We're also looking at additional revenue streams, which we didn't mention here, for instance, we're starting to look at some -- like if we had all the money in the world, you wouldn't want to sell a battery that doesn't degrade, right? So you'd want to rent it or lease it. And we're starting to see some interest in that. We're already renting batteries to our 2 largest end users at a small degree, but that's something that we'd like to see expanded. And the margin potential with respect to that is ginormous. We're also looking at looking at that rental model, looking at renting batteries during peak periods to these Fortune 100 companies for their peak season. And in the downtime, use those same assets for energy storage activities. So we're doing a pilot with a company called Jupiter Power, who is one of the largest energy storage developers and owned by BlackRock on a feasibility study to do that. So we're going to look at taking some of our rental fleet and using them in the downtime as energy storage assets. And that's something that we -- if successful, we can expand significantly. The other things we're looking at are value-adds with regards to data analytics. We're already starting to sell data analytics to some of our key customers, and that's something we'd like to expand. And then finally, things like demand response, that's something that could be quite valuable going forward. So we're very excited with what's happening to the industry and us as a company, and we're well posed to continue our growth trajectory. With that, we'll start to take some Q&A. I think I'm going to [ unmute ] this one.

[indiscernible] try that again. Okay, let's give this a try. We'll give it another go.

So curious, long term on the potential to rent it. I mean you're seeing it in other markets where third parties will come in, they'll own the battery like in the school bus market. Is that something that is a possibility going forward where maybe it's not on your balance sheet at first, it's on someone else's balance sheet, but you also benefit from a margin perspective.

We're looking at exactly like -- some scenarios like that. So one scenario is -- which could really dramatically increase the adoption is the leasing side, I think. So currently, we're working with very conservative OEM partners, right? [ They need car ]. And they have -- in their leasing model, they have a certain residual value for the battery systems after 6 or 7 -- 5, 6, 7 years, those in the typical lease periods. If that residual value hits about 40%, which we -- is something that would potentially collaborate with them on, maybe we get a stake of the residual battery if it comes back. In that case, the cost to the end user comes lower than the lead acid battery cost per year. So it would be a no-brainer to adopt the technology. And at the same time, it offers us an additional revenue stream. So that's one potential thing that we're looking at. The other is exactly what you're describing, Eric, which would be almost like a special purpose vehicle, where we have a stake in that owns battery assets and rents or uses them as energy storage. And that's another model we're also looking as a potential [ partner ]. But again, the company's core focus and has -- which is currently the case and will be the case next year, at least as well, is selling battery systems and just producing more and selling more and that's the core business.

[indiscernible] What is it that makes the cycle life -- so many cycles. Is it [indiscernible]so we understand, it's separator basically the [ coding ] standpoint. Part 2 of the question is, does it translate to the solid-state batteries that can increase a little bit?

Good question. So on the -- so on the solid-state batteries, I'll start with the cycle life. So the cycle life stems really from a variety of [indiscernible]. The ceramic separator is just part of it. Just by putting a ceramic separator in our lithium ion cell, you're not going to get better cycling. So we -- however, we do take advantage of it. I'm not going to get into all the details, but ceramic separators are stable at high temperature, they're stable with other chemicals. So we have taken that and taking advantage of that. We're using unique electrolytes. We're using unique cell assembly methods and when we take all those things combined, you get this benefit with regards to cycling. On the solid-state batteries, the target is not to get anywhere near the same number of cycles. So if we get 500, 800 cycles, I think that's a commercializable product. However, the ceramic separator, of course, is core to achieving that. When you use liquid electrolytes, they may work for a few cycles where they break down, and a solid ceramic separator is really what's required to get a long cycle.

So just to add to that question. Are you -- maybe the market wasn't great [ for these ] normally cycle batteries but now that everything is using these batteries is -- how are you seeing sort of demand, conversation with customers changing given these advantages?

Great question. So I'll use the bus as a good [ example ]. So the bus segment started electrification just a couple of years ago. And when they looked at the -- essentially, it's new to them. And so they just were looking for the battery supplier to provide the battery at the lowest costs. They're not looking at total cost of ownership. They're just looking for a name, brand, battery supplier, which can meet their cost targets. Now you're looking a few years into it, and there have been some safety issues on -- high-profile safety issues in Paris and Connecticut and some other places. And so safety is now a battery that's safer. And also, we've heard from one of the OEMs that the batteries are -- that they have in the field are degrading, so performance is degrading. And so suddenly, they're thinking, "Oh, cycle life is important. We're on the hope of these warranties." They want the warranties of the batteries to match the bus. And again, so that's -- that having some negative experiences, [ what's ] waking up to the fact that they want a safer longer cycling battery. The very start of things, I think that was a harder sell.

On the e-bus and truck side, you're talking only [indiscernible] there, maybe how to think about [ balance growth ] to cycle time in terms of getting expected on new models, so they want to see the new manufacturing facility, [ do you be ] aligned with -- as that that production ramps?

Yes. It's a long process to get an OEM -- a good OEM partner. And the -- for the bus segment, they do want to see U.S. production. They want to see that you have -- can meet by America requirements. So that's a key decision point for them. Also, of course, it takes 2 years to stack in a battery for production. So there's a lot of development that goes with it, both on the hardware and software side. So it's a long process, but one that I think works well with us. When we initially looked at this market 2 -- maybe 2 years ago, the OEMs had a very firm view on pricing. And that's what they were looking for, and that's why we stayed away from the market for the most part, for the last 2 years. Because that's changing, that's why it's now -- looks very attractive for us. Also, the market is expanding, and it's a good time to get in.

Are you already down that road on that 2 years to get stacked in? I mean it sounds like your fairly advanced in some of the discussions that you're having?

We are fairly advanced in some of those discussions. We haven't gotten greenlighted yet. And when we do, of course, we make a big splash [indiscernible], but we're confident we will have some wins in this sector.

On the material handling front is Raymond your primary and only OEM and then are there's [indiscernible].

So Raymond is not our only OEM partner in the material handling side of things. However, the only one we really need. But if you went to PROMAT in March, you would have seen our batteries, not just powering Raymond vehicles that are powering other Toyota-branded related companies like Bastian Solutions is owned by Toyota. And if you do your own digging probably will be able to figure out who else we're supplying in that sector. What was the second part?

Are you in any other aftermarket business?

So the majority of the sales are going into new vehicles. That said, there are some customers who have a mixed new and existing vehicles, and we're outfitting those existing vehicles as well. So it's a bit of a mixture. Maybe it's 75-25.

Just some other technical question on the solid-state front, because you intend to [indiscernible] so much. Our new and signal very crazy any other issues that [indiscernible]?

It's too early to say. The -- we believe it's going to be a very high energy density battery. So the more energy put in a small space, the more potential energy you have, right, for a problem. That said, we're removing liquids or ceramic separator, we're optimistic of this as a -- honestly, but it's a commercial -- should be a commercialized EBITDA.

Just on the safety because we are adding the what I would call the integral part. [In an off side matrix ] I don't see increasing safety in a solid-state battery. [indiscernible] there's no lithium

so it seems like material at the end of the sector or industry partners batteries that require high cycle. What other applications would require battery step quite high cycle [indiscernible].

[indiscernible] to a couple of those. So first of all, the bus segment. So the bus segment again at least 1 cycle per day on electric bus sometimes 2 cycles per day. So that would also fit into that bicycle --[indiscernible] battery to match the life of the vehicle. So typical bus sale for your transit buses, they sell the bus, everything in it and they give the municipality a 12-year warranty with service costs, et cetera, but they want it to last 12 to 16 years. With a traditional lithium-ion battery, it's not going to last 12 to 16 years. In our case, it will. So that's a key selling factor for our technology. The another application, which we believe is a good fit is energy storage. So energy storage is a rapidly growing segment with lots of flavors. But there are -- like if you look at the Texas -- look at Texas, they have 2 peaks in a day. So they have a lot of wind, a lot of soy. So you really need the storage systems really should be doing 2 cycles per day if there is installed in that type of market. So again, energy storage is going to be very, very important. And Cycle life is going to be a key selling factor in that.

And the IRA benefits front, seems you probably will get much higher gross margins than what John mentioned. Was that number [30s] blended number? Or was it in?

It's essentially a -- blended depending on the battery model that we're selling. So there's always going to be a mix in there. Some battery models have a slightly higher gross margin than others. So we just kind of flatten the curve a little bit, add in the benefit of the reshoring cells plus the IRA takes us into like the mid- to high 30s range.

And it's blended for U.S. markets not about produced in U.S.?

Yes. Yes.

So we think the margins are going to be a little higher and material high -- and they would be on bus -- so that -- but we're being conservative. We think without the -- with only the U.S. plan and without our IRA benefit, we should be able to get to 30% with the current with the current applications and the current production process. Then the IRA gives an extra 5 to 7 points on that.

Material handling market -- i guess just in general, it's -- there's a lot of smaller players. How you think that -- of all shakes out over time? And in terms of OEMs sort of multi-sourcing and how many vendors still build on?

Yes. The segment is diverse, right? You've got a diverse -- not the Fortune 500 customers, the Fortune 100 customers who are using those vehicles a lot and they're looking for the best technology for those -- for their vehicles. And then you've got the applications -- whether looking at 1 shift or not a high utilization, there may be more CapEx focused. So there is a -- there is space for players just -- to focus on 1 segment or the other. We're definitely focused on the high-performance [ aftermarket, ] which we believe is the larger part. That said, this industry is changing rapidly. So there's a couple of things that are happening. One is the OEMs, traditionally have not gone into the battery side, right? Traditionally just made the forklift and then the dealer who sells the forklift -- finds the customer battery to go with. That's starting to change. The OEMs want to get into that. And so us having OEM relationships is really going to help us in the long term. The second thing that's happening is the vehicles themselves are probably going to change. First of all, they're going to be automated so amount of driver vehicles is dropping and levels of automation are going up. And when you have a higher level of automation, you want that vehicle's cost goes up quite significantly. And so you want to utilize that vehicle more so you're going to want a better battery for that [ ecosystem ] . So that's one thing that's happening. The second thing that's happening is the OEMs are developing those vehicles, or just vehicles in general, are starting to look at designing in the battery system into the vehicle. So they won't be able to be removed from the vehicle. When you go on the tour, you'll see in our prototyping are one of those batteries.

Is there -- what about on the dealer side, is there any opportunity there because the dealers are on the OEMs as well, like Energy-as-a-Service is that something they could eventually offer?

For sure. So we're working with a few dealers on the rental model that we discussed. That said, the dealers themselves for the most part, are starting to be consolidated, right? So Raymond owns -- we -- nearly all of our dealers their sister company starting to acquire the dealerships.

How are you guys thinking about building it as [sales churn]?