Carbon Revolution Public Limited Company (CREVF) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Carbon Revolution plc Business Update Call. Today's call is being recorded, and we have allocated 1 hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to [ Ashish Gupta ], Investor Relations for Carbon Revolution. Thank you. You may begin.

Thank you, operator, and thank you, everyone, for joining us today. Hosting the call are Carbon Revolution's CEO and Co-Founder, Jake Dingle; and CFO, Gerard Buckle. We would like to remind everyone that this call contains forward-looking statements including, but not limited to, Carbon Revolution's expectations or predictions of financial and business performance and conditions, competitive and industry outlook. Forward-looking statements are inherently subject to risks, uncertainties and assumptions, and they are not guarantees of performance. We encourage you to read in full the Form 20-F issued with the SEC on November 13, 2023, and the accompanying presentation for a discussion of the risks that can affect Carbon Revolution's business and the outlook of the company. Carbon Revolution is under no obligation and expressly disclaims any obligation to update, alter or otherwise revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. With that, let me turn the call over to Jake.

Thank you, [ Ashish. ] As this is our first earnings call since we began trading on the NASDAQ following the closing of the business combination with Twin Ridge Capital Acquisition Corp last month, I'd like to start by thanking our whole team for their contribution to Carbon Revolution's success. I'd also like to thank our shareholders for their support and patience towards the completion of the transaction, which was an important milestone for the company. Now for today's agenda. I'll start off by giving a short overview of the company and a brief history of our expansion with a focus on our progress over the last year. Next, I'll discuss our value proposition and how we are well positioned to capitalize on accelerating industry trends. I'll then speak about the opportunity ahead of us, highlight recent program wins and discuss why we think our technology is poised for rapid adoption. I'll then turn it over to our CFO, Gerard Buckle, who will provide financial and operational highlights and an update on the capital structure. Moving first to the company background on what we do and the enormous and exciting global opportunity in front of us. Carbon Revolution is an established Tier 1 supplier to the global automotive industry. We are disrupting the $38 billion automotive wheel market with our highly differentiated and unique lightweight carbon fiber composite wheel technology. We've spent over a decade developing this technology and are the first and remain the only company to produce and sell carbon fiber wheels at scale to top global automotive OEMs in North America and Europe. Compared to conventional aluminum wheels, our carbon fiber wheels can deliver up to a 50% weight reduction. This has significant benefits for all vehicle types. For an EV, this weight saving can result in a 5% to 10% extension of range if the weight saving were to be reinvested in battery mass and depending on the level of integration into the overall vehicle design. Additionally, reducing mass from vehicle's wheels reduces rotational unsprung mass, which substantially improves the handling, acceleration and breaking of the vehicle. We've worked to build and protect our competitive advantage in a number of important ways. First, after more than a decade of development, we believe that our technology is many years ahead of our closest aspiring competitors. We've protected this position by establishing a portfolio of 103 patents with 82 granted and an additional 21 pending. Second, we've established relationships with major global automotive OEMs such as Ford, General Motors, Jaguar Land Rover, Ferrari and Renault, most of whom have multiple programs awarded. Programs that are currently in production, together with other multiyear contracted programs that are yet to enter production result in a significant portfolio of future business or backlog. This provides substantial visibility to our expected near and medium-term growth. Finally, as Gerard will discuss in more detail, the first phase of our Mega-line project is now commissioned with additional capacity to be added in line with new programs coming into production over the coming years. This largely automated manufacturing process is progressively adding substantial capacity at a much lower cost per wheel and helping us to meet accelerating demand from our customers, the global OEMs. Moving now to the history of our successful expansion. We characterize our long-term strategy in terms of 4 key phases; with R&D, commercialization and industrialization occurring to date in Australia and the fourth stage scaling up with international manufacturing now in the detailed planning stages. During the R&D phase, we work closely with numerous OEMs across the globe as we evolved our technology to the level that would satisfy the requirements for introducing a safety-critical technology. Next, the commercialization phase kicked off as we secured and started to deliver the products for our first OEM programs across multiple customers. We laid the foundation for our deep customer relationships in this period and accelerated our product and process development to differentiate our offering, extending our lead in the market. To date, we have delivered 11 production programs with another 7 awarded programs working their way through the 3 production stages. We are now in the industrialization and scale-up phase. Manufacturing currently takes place in Australia at our 10,000 square meter ISO-certified state-of-the-art manufacturing facility that was purpose built in 2014 and then expanded significantly in 2018. With larger volume programs now approaching production, we are scaling with our increasingly automated manufacturing line in Australia. We plan to then replicate and multiply this in lower-cost manufacturing regions over the coming years. We expect the first of these to be in North America. 2023 has been a transformative year for Carbon Revolution and we have made enormous progress across new business awards, operations and funding. In the last year, we were awarded an additional 5 programs taking total awarded now to 18 programs with 6 global OEMs. Due mainly to these newly-awarded programs, our backlog, which is the projected future revenue for awarded programs, has more than doubled and is now over $730 million. Beyond this significant expansion in order volume, our recent growth provides strategic diversification of the market segments, customer base and geographies that we serve. The recent launch of the Range Rover Sport SV was our first program in the large SUV market, and our additional awarded programs include our first 2 for electric vehicles and a program with a premium brand of a major German OEM. We've also made strong progress on our Mega-line project, successfully commissioning the first phase of the project and setting new production records as we've scaled up throughput throughout the year. The number of wheels produced from this line is increasing, while production costs are benefiting from higher automation levels. Gerard will discuss these improvements in more detail shortly. We will continue adding capacity to the plant as required by new program introductions and growth in existing programs over the coming years. The year has also been transformative from a funding perspective with the completion of the company's business combination with TRCA, the establishment of the $60 million IP-backed term loan and funding of the first $35 million tranche of an up to $110 million preferred equity facility with [ OYC ]. Turning now to how our wheel technology uniquely addresses the enormous challenges faced by OEMs arising from the rapid transition to EVs and other related industry trends. Regulations such as the Corporate Average Fuel Economy or CAFE targets are tightening dramatically. This is accelerating the demand for innovative technologies that can significantly improve the overall efficiency across all vehicles that are being produced by each OEM. EVs are the primary solution that the major global OEMs are turning to in order to meet these CAFE requirements. But as the automotive sector transitions from internal combustion engines or ICE vehicles to EVs, vehicle mass is dramatically increasing due to the enormous size and weight of batteries required to achieve adequate range. This comes on the back of much longer-term consumer trends towards SUVs and trucks and increasingly larger diameter wheels. The combination of these factors has resulted in significant structural challenges for OEM vehicle engineers to design suspension systems and axles that are strong enough to support massively heavy conventional metal wheels. The up to 50% weight saving that can be delivered from our carbon fiber wheels and the knock-on benefits to the overall vehicle makes our technology an extremely compelling solution. To speak now specifically to our technology's benefits for electric vehicles, range is the new currency for OEMs as the market transitions to EVs. Even in the best cases, EV range is far less than what a conventional ICE vehicle achieves on a tank of fuel. The weight reduction of up to 50% provided by our lightweight wheel technology can enable extension of EV range by a significant 5% to 10%. The bottom end of this range represents the possible gains if the weight saving were to be reinvested directly back into battery mass. The top end of the range represents the potential further benefits that can be derived from aerodynamic, NVH and vehicle integration enhancements. Because our carbon fiber wheels are a bolt-on technology solution, their application does not require significant investment in the overall vehicle design or in the vehicle manufacturing plant. Concurrent with the EV transition, OEM design studios are trending to larger and larger vehicle designs, which require increasing wheel size for aesthetic and proportional purposes. Large aluminum wheels that are strong enough to support this new generation of massive vehicles are so heavy that they challenge the overall vehicle structure. In particular, they increase the stresses on the suspension structures and pose other weight challenges to such an extent that our customers are increasingly telling us that using aluminum wheels is becoming impractical at these increased sizes. The convergence of these factors is driving demand for Carbon Revolution's technology as a critical enabler for the next generation of vehicles. By providing a solution that allows studios to deliver their desired aesthetics without sacrificing the ability to meet OEM structural requirements and performance targets, we are creating a clear pathway to widespread adoption of our carbon fiber wheel technology. An additional challenge faced by OEMs in the EV segment is road noise, which is particularly noticeable because of the contrast with the nearly silent EV powertrains. While other sound reduction measures often increase vehicle weight, Carbon Revolution's wheel technology reduces road noise while providing very significant weight savings. The low density, highly damped nature of carbon fiber composite structures allows our wheels to reduce road noise transmission. We now have 2 EV programs awarded and in the advanced stages of development and further programs in the pipeline, including large SUV and pickup truck segments. Carbon Revolution's penetration is now expanding beyond the performance and luxury segments to the large-scale SUV and truck platforms. These represent a very significant part of our existing and prospective customers' current and future revenues and profits. Moving now to the size of the opportunity. The total addressable market for the global automotive wheel industry is enormous. It is expected to grow from $38 billion in 2020 to almost $60 billion by 2028, reflecting a greater than 5% compound annual growth rate off an already impressive base. Based on the number of EV programs we have in development, we expect Carbon Revolution's lightweight wheel technology to be an important part of the range solution for EVs as well as supporting the efficiency, performance and handling of conventional ICE vehicles whose weight has steadily grown over the past 4 decades. Notably, with EV market share expected to increase from less than 5% of the global market in 2020 to greater than 20% by 2030, we are seeing the demand for our technology dramatically accelerate as vehicle weight reduction becomes a top priority for OEMs. As customer demand for Carbon Revolution's technology accelerates, our team is successfully converting demand into program awards by providing solutions to the primary challenges facing OEMs. These include unlocking range improvements for electric vehicles, enhancing structural durability and offering unique and compelling styling options favored by the design studios. Our solutions-orientated approach is driving an acceleration in the rate at which we are converting customer interest into program awards. Our first program was awarded in 2013. And between then and October 2022, a further 12 programs were awarded with a total backlog at October 2022 of $335 million. Between October 2022 and September 2023, a further 5 programs have been awarded with a backlog as at September 2023 of $730 million. So we have had 18 programs awarded to date, and we are only just getting started. Of these 6 programs are currently in production, 5 are in after sales, that is they have completed the serial production stage and they are now supplying aftersales or spare parts for vehicles in the market. We have 7 awarded programs that are in development, meaning they have been formally awarded but are not yet in serial production. Activities during this preproduction phase include virtual engineering, physical prototyping and testing and then multiplying out production capacity ahead of serial production. Typically, the customer will reveal or launch the vehicle to consumers during this phase, at which point it typically becomes known that the vehicle will be fitted with our carbon fiber wheels. Carbon Revolution has captured a clear first-mover advantage with our unique next-generation automotive technology. It's a well-established adoption curve for comparable automotive technologies. When introduced new automotive technologies typically penetrate the luxury or performance end of the market first, before transitioning to full adoption as a mass market product. You can see some great examples on Slide 12. Carbon Revolution's unique technology and rapid growing backlog of awarded business make it incredibly exciting to be engaging with our OEM customers as our carbon fiber wheel technology progresses rapidly through this adoption curve. After more than a decade of intensive technology development and significant investment to date, we've successfully delivered almost 80,000 wheels to our global customer base. Our first program was the Ford Mustang GT350R. And we've subsequently delivered 3 additional programs to Ford, the GT, GT500 and Dark Horse Mustang programs. We have had multiple programs to date with Ferrari, the Corvette Z06 with General Motors, the Renault Megane hot hatch and most recently, our first SUV program, the Range Rover Sport SV with Jaguar Land Rover. Our list of programs and customers has grown with the 7 awarded programs in development. The 6 programs in production and the 7 awarded programs in development provide a backlog of over $730 million. As is typical in the automotive industry, these contracts don't contain take-or-pay or other minimum purchase obligations. Accordingly, our forecast typically represent the capacities that our customers have asked us to install and also the durations we know or expect in relation to these programs. Nearly 50% of backlog is from the EV programs, which are yet to enter production. And the majority of the backlog is derived from OEMs based in North America with the remainder in Europe and the U.K. We expect to grow our awarded programs with new and existing customers in these geographies and potentially expand to Asian-based OEMs. Before I turn it over to Gerard, I'd like to note that we have a track record of beating OEM award forecasts. As mentioned, we have a significant and growing backlog. If you look at the 4 main programs completed to date with OEMs, we have either exceeded or significantly exceeded the original awarded volume. This historical outperformance versus the original OEM forecast for our awarded programs gives us the basis for confidence in our revenue forecasts. With that, I'll now hand it over to Gerard, who will review our financial results.

Thank you, Jake. I'll begin with an overview of our fiscal first quarter results, cover our capital structure and balance sheet, discuss our outlook for the fiscal second quarter, provide some building blocks for the calendar year 2024, discuss our margin opportunity and long-term plans for capacity. Revenue grew 56% to $11.3 million in Q3 CY '23 as compared to $7.3 million for the prior year period, driven by increased demand from the Corvette Z06 program and the launch of the Range Rover Sport SV. We are successfully ramping sales throughout calendar year 2023, increasing from $5 million in calendar Q1 to $11.3 million in calendar Q3, our fiscal -- our first fiscal quarter. Commissioning of the first phase of the Mega-line has been completed, which, combined with additional tooling has delivered increased productive capacity in the plant, allowing us to service growing customer demand. Turning to the capitalization summary. This slide provides a pro forma valuation as of the NASDAQ listing. There are 2.4 million shares outstanding, including 0.5 million shares underlying penny warrants held by OIC. With an indicative share price of $41 per share as of October 11, 2023, this implies an equity value of $97.2 million. There was a cash balance on closing of $79 million, which included $35 million of restricted cash that is subject to release per terms -- further terms of the OIC preferred equity financing and $9.9 million of restricted cash under the PIUS term loan. The gross debt and preferred equity balance as of transaction close was $142 million. There are 3 key elements of our capital structure. I will provide a summary here. However, there is further detail in our Form 20-F filed with the SEC on November 13, 2023, which we encourage you to read. We have a 4-year $60 million term loan with PIUS. This is secured by all assets. In particular, working with PIUS enabled us to secure this loan against our valuable intellectual property. There is an 18-month interest-only period with amortization from December 2024. We have partnered with OIC on a $110 million preferred equity facility. Initial gross proceeds of $35 million were received on closing in November with an additional $35 million under escrow, which is expected to be released in 2 tranches during 2024. The first tranche of $5 million will be released subject to Carbon Revolution raising an additional $10 million of third-party equity. The second tranche of $30 million will be released by December '24, subject to the achievement of growth milestones and refinancing of the term loan. The OIC facility also includes a further $40 million subject to our OIC approval for future in-market manufacturing or a material upgrade to our Australian facility. OIC is a great capital partner for our business as we continue to outgrow issued subject to minimum return requirements and penny warrants issued to acquire a number of shares equal to up to 19.99% of the shares outstanding as of closing of the business combination, subject to a reduction if certain conditions are not met. Following the closing of the business combination, there are 12.2 million public warrants outstanding to purchase 1/10 of an ordinary share at an exercise price of $11.50 per 1/10 of an ordinary share, so effectively $115 per whole ordinary share. The public warrants will expire in 5 years or earlier upon redemption. We also have an up to $60 million committed equity facility, commonly known as an ELOC, with Yorkville Partners for a period of up to 3 years. Each advance may be in an amount up to the greater of $10 million or the aggregate trading volume subject to 9.9% cap on Yorkville's share ownership at any particular time. There are 2 purchase price options. Carbon Revolution has a strong list of capital partners. We will continue to assess the optimal capital structure for the company as we progress with our growth strategy. Turning to our outlook for the second fiscal quarter or calendar Q4. Based on current business conditions, business trends and other factors, we are providing an outlook for the fiscal quarter ending December 31, 2023. We expect revenue to be in the range of $14 million to $14.5 million. It's important to note that as programs have launched and/or ramped over calendar year 2023, our annualized run rate has significantly increased to over $50 million. We are successfully scaling the business. Sequential growth from fiscal 1Q is expected to be driven by increased production of the Corvette ZO6 E-Ray, the ongoing ramp of the JLR, Range Rover Sport SV and the initial stages of ramp of the Ford Mustang Dark Horse programs. While we intend to guide on a quarterly basis going forward, we wanted to provide context on the previous calendar 2024 outlook as we provided during our going public transaction. As a Tier 1 automotive supplier, we have significant revenue visibility from the contracted programs in our backlog, but we do not control when OEMs introduce new vehicle programs. It's a major project for an OEM to bring a new vehicle program together. And if a new vehicle introduction is delayed, even by a small number of months, our revenue can shift between quarters or halves and therefore, quarterly forecasting is the most appropriate for our business as we introduce the 7 new programs during calendar year 2024 and 2025. As we look to calendar 2024, the majority growth -- of growth is expected to be driven by new programs, which are expected to contribute $24.8 million of new revenue. Growth from existing programs is expected to contribute $11.9 million. As noted earlier, our production run rate and revenue results have progressively grown in the last 4 quarters and the majority of this $11.9 million of growth is from maintaining the fiscal second quarter current run rate. In addition, it's important to note that the calendar year 2024 will be back half weighted as 4 new programs awarded and currently in development are expected to be in production in the second half of calendar year 2024. Again, while a delayed launch could mean revenue would shift into '25 -- 2025 we would emphasize that revenue would not be lost as a result of a vehicle launch delay just delayed into a subsequent period. Now turning to our margin improvement opportunity. To meet growing customer demand, in 2023 we have commissioned the first phase of the new Mega-line, developing a step change in production capacity and efficiency. This brings together the proprietary manufacturing processes that we have refined and developed over the last decade with state-of-the-art robotics and conveyors. It also improves the safety environment for our team while reducing cost per wheel. The Mega-line is now the beating heart of our plant. On the labor side, in the near term, we are producing more parts per hour through our Mega-line. Planned cycle time and lean process improvements are expected to result in further labor efficiencies. We also expect to be in a position to realize the benefits of greater purchasing scale with significant reductions in raw material unit costs expected. These reductions will come from the reduction and reuse of carbon fiber waste, consolidation of suppliers and volume-based discounts on material purchases as we shift from spot market purchases to longer-term contracts for key materials. The combination of productivity from automation and material savings is expected to result in a significant reduction in our direct costs. Additional capacity is expected to be added through 2025 as programs come online, with the Australian plant capacity expected to expand to 70,000 to 90,000 wheels per annum. It is important to note that we continue to believe we can achieve EBITDA profitability at a run rate of 45,000 to 50,000 wheels per annum. Turning to our long-term capacity plans. After optimizing manufacturing activities in our lead plant in Australia, we expect to establish new plants, replicating and continuing to refine the megaline manufacturing technology in lower-cost countries and in close proximity to carbon fiber suppliers and our global OEM customers. We anticipate these new plants will be much larger and allow further significant scale and cost benefits for many years to come. We are now starting to develop the plan and timing for our first in-market manufacturing plant. Calendar year 2024 will be a very important planning year for this in-market manufacturing process. We will be assessing items such as the manufacturing configuration of new plants, potential locations and potential equipment and material supply partners. I will now hand back to Jake to provide closing remarks.

Thanks, Gerard. To wrap up, we're very excited about our recent NASDAQ listing and Carbon Revolution's future. Our highly differentiated and innovative technology solution addresses the core challenge facing global OEMs today, efficiency. The market opportunity is massive and the highest growth segments are where we are able to offer the most compelling solutions, including the significant range extensions our wheels can deliver. Over the past decade, we have established an impressive track record that includes 18 awarded programs with 6 major global OEMs. We're ramping up strongly with record production figures being set. This is expected to continue through 2024 as new programs come on stream and as we add increasingly automated and efficient manufacturing capacity, resulting in increased revenue and contribution margin. Our proven track record has allowed us to establish a position as the clear global market leader, a position backed by many patents and broader intellectual property advantages. Ultimately, we plan to locate our high-volume manufacturing facilities in more strategic and lower-cost locations and planning for this is now well underway. This will drive significant cost reductions. And with our market-leading position, we expect this will deliver significant value to our shareholders in the coming years. We couldn't be more excited for the road ahead. Thank you again for joining us today, and we look forward to updating you on our progress as we continue our carbon revolution. We'll now open up the line for questions.

[Operator Instructions] Our first question comes from the line of Dan Ives with Wedbush.

[Audio Gap] and congrats with the transaction. Could you kind of talk about how the conversations with the OEMs have changed today versus if we go back even 6, 12 months ago? That's my first question.

Yes. I think about 18 months ago, there was a clear shift in the discussions as we started to be seen as -- rather than really being seen as a niche technology that was being applied primarily for performance applications we were -- we started to be taken seriously as something that could transform a much broader base of their portfolios. And it was particularly accelerated by some of the challenges they were facing as they transitioned to EV platforms. And that's really around the time that the major transition to EVs were starting, a lot of announcements were happening about a large-scale shift. And so being able to deliver such enormous weight reductions, particularly as wheels got bigger, and being in a position to talk to very senior engineering and program teams and leadership within all of these major OEMs meant that we were able to translate the discussions we're having around smaller and more high-profile performance applications into those bigger platforms that's still at the premium end, but able to talk about what that might do in applications where wheel sizes were getting up into the 22, 23, 24-inch realm and vehicle mass was increasing significantly and posing major problems. For the -- the vehicle mass itself was posing problems from a regulatory and a structural point of view. And just frankly, range has become the currency of the realm for OEMs. So it started to -- the penny started to really drop with the OEMs that this was a bolt-on technology, delivered a massive amount of weight save, where engineers typically look for grams of weight saving, and we were able to offer tens of kilograms or over 100 pounds in a way that wasn't going to disrupt the manufacturing operations and was not going to disrupt the design of the vehicle platform. In fact, it was going to reduce the amount of redesign they would have to do as they move to EV platforms. So that 18 months ago was really around the time when that started to -- that shift started to happen, and that was really the time when we started to look at how we would move our focus across to accessing the kind of or establishing the kind of balance sheet that would enable us to grow at the rate that we're now seeing we need to grow.

And, Dan, the other point is they were watching our progress through the last year towards the merger. Now they've expressed they're very happy that we've completed that. We've listed on the NASDAQ. We shored up our balance sheet with the funding, bringing OIC on board. So they've also been very happy that we've made that progress from a financial perspective.

And just as a follow-up to that, is it also like one of the biggest questions they'll ask is about like sure the production ramp, the build-out in Australia, when -- like when we could expect -- if we order we can get our products? Is that some of the questions you're getting?

Look, I think we've demonstrated a very, very good track record of meeting all of their milestones up to this point. So the milestones and the management against those milestones for any program is very, very tightly managed by the OEMs. Obviously, they're experts at managing their entire supply chain to ensure that things arrive on time, validation is completed on time. And so we've already demonstrated that we are capable of doing that and we have a very strong track record. Clearly, the ability to build the capacity in time to then execute that as we grow and get larger and larger is the next thing on their radar. And as Gerard said, we've got a very intimate and close relationship at a very senior level with all of our customers, and they've been very closely watching and working with us through this transaction. Clearly, we need to expand the facility in Australia further, and then we'll be implementing offshore facilities as well. But I think the fact that we've got such a good track record of execution and delivery means that they have no reason to question whether we can do this. And they're also quite willing to be very supportive in terms of ensuring that they can provide whatever support they can, given how important this technology is to them.

Great. It feels like exciting year ahead. Congrats.

Absolutely. Thanks, Dan.

Thanks, Dan.

Very exciting.

Our next question comes from the line of Eric Stine with Craig Hallum.

So maybe just coming back to the OEM question. I'm just curious kind of how you are seeing things develop now that you've had some OEMs in hand for quite some time. What those OEMs need to see to expand? Obviously, Ford, Ferrari and others are now on to multiple programs. What you're seeing in terms of how fast an OEM or what the time period is versus that of a new OEM? And I guess, how do you expect that to trend going forward?

Yes. Thanks, Eric, for the question. We have a good portfolio of OEMs now. And we really haven't -- we haven't set out to try to establish a sales relationship with every single carmaker on the planet. We've been fairly strategic about the partnerships that we've established because there's over -- there's about 430 million new wheels put on vehicles every year. And about 10% of that market today is addressable to us based purely on what we've already established in terms of programs. So that's well over 40 million wheels addressable today, which really when you boil that down, says that even within the customers that we already have. And just recently, we've added a new major customer in Europe, one of the major German OEM groups to our portfolio of strategic customer partners. That alone will certainly account for the capacity that we expect to be able to establish over the coming years. Now we continue to work across the board with OEMs that have a strategic interest in this technology. But typically, the first program with any OEM takes the longest because there's a validation process to bring the technology in. But once it's in, it is then available for anybody within that organization or within the group to be able to utilize. So it becomes part of the technology option set that they can access across all brands and across all members within the group. So the validation is a first off, and then it's just available. And that's why it's quite strategic to work with the right OEMs to be able to capitalize on that particular dynamic. Typically OEMs will often spend 5 years planning for a new platform and then it may be in production for 6 to 8 years. So these are quite long-dated programs. There's a lot of investment that they put into each of these platforms. We typically sign up a program about 2 years before it comes into production, and then it can be in production for 6, 7 or 8 years. That's a typical kind of life cycle for an OEM program. And that gives us straightforward revenue visibility. It also gives us plenty of time to invest and have the capacity on the ground ready to go because while we're developing the program and getting it ready for production, we can also be implementing the capacity to be ready for when we need it. But we are seeing an acceleration in the number of programs coming through as evidenced by the rate of increase in our backlog. And we're seeing an increase in the size of the programs that we are being awarded. So as we've moved into the SUV and full-size truck segment and particularly the EV variance of those, the average size of programs is getting bigger, and that is using up the capacity that we expect to have available in Australia before we start to use capacity offshore, so implement and use capacity offshore. And they are looking for that capacity that time frame and the volumes that we will be able to offer offshore, they will be more strategically located, lower costs and facilitate higher volume programs. And that's something we're doing in close collaboration with our customers and that's what they're expecting as the volumes grow.

Got it. Understood. And I know the backlog growth that you have talked about in the outlook is in a position where your wheels are premium priced versus aluminum alternatives. And when you think about the growth going forward, I mean, clearly moving to a place like Mexico and manufacturing and bringing cost down is part of the growth outlook. But I guess you could also make a case that you're tied to the growth of electrification as well, right, because the growth you're seeing now is at that premium position in the market. So -- I mean, clearly, this is not just an electrification name. You've also -- you're tied to ICE vehicles. But when you look at the 2, electrification versus price coming down, I mean, how do you kind of view as -- the primary driver? Maybe the answer is both.

Look, I think we're -- whilst electrification is certainly a huge tailwind for us and it's accelerated the demand for the technology, we're quite agnostic in terms of powertrain. The real driver here is efficiency, the CAFE standards and equivalents in other parts of the world are forcing the industry to find dramatic improvements in efficiency. And this is a dramatic improvement in efficiency. I mean, 5% to 10% range extension is very, very difficult, and it's extremely difficult in a bolt-on technology, particularly one that has a home in the -- to start with in the premium segment, where it has consumer desire as well. So there is a dynamic around this technology that means that it really is quite agnostic. But the EV -- the big EV replacement cycle that's going on at the moment is a significant tailwind. I think the size of the market generally is really in our favor. So we will continue to secure programs in the ICE segment. There's no question about that. But this acceleration through the EV segment at the premium end will continue. We certainly won't be racing to the bottom. The backlog that we've got is still largely for premium programs that are going to be produced in Australia, but the acceleration in that backlog is likely to be as we open up capacity in a much lower cost location, as you said, quite likely in Mexico, then the cost comes down dramatically. But there is still an enormous number of more premium applications that will be the target of the next big chunk of our capacity. And so that obviously has great potential for us from a company point of view in terms of profitability and profitable growth and maintaining the very strong and long leadership position that we've established.

Got it. And maybe last one for me. Just as you think about scaling up here, just either challenges you see in the supply chain or steps that you've taken in order to be ready for that scale-up?

Yes. So that's a great question. I mean the Australian facility really should be thought of as a pilot facility. We have a disproportionately high number of very technical people in the business for a business this size. We've developed the product and process technologies concurrently. That means we've got a lot of very seasoned manufacturing engineering specialists here and some great partnerships as well as a lot of PhD engineers in the competence, science and engineering field. And that's enabled us to develop a very well-integrated manufacturing base as we've concurrently developed the products. And that gives us the ability to then duplicate that or replicate that and duplicate it offshore. We are establishing strong partnerships with external parties in the manufacturing engineering space from an equipment point of view and that will derisk the scale-up of equipment and ensure that it is very reliable and maintainable, which is obviously a key to the manufacturing environment. I've just come back from an offshore trip working with suppliers of our key raw materials, particularly carbon fiber, and there are some very healthy dynamics in the industry around the supply of industrial grade carbon fiber that we use. That's another key area to secure. And so we're taking -- we're making good progress in that area from a strategic point of view. And then obviously, site selection and ensuring that we have the basis for ramping up with a reliable and well-located and well-built facility in the location that's most strategic to servicing our customers. All of that is in the -- already in the detailed planning stages. And we also have a healthy dialogue with our customers about that because we want them to be across it. And as I said, we have a pretty intimate relationship with all of our customers, they're strategic partners in this as well.

Our next question comes from the line of Chris Souther with B. Riley.

Maybe just a little bit more on the customer discussions. Can you kind of walk through -- I think the deck says we have 2 more EV customers that are in kind of that development stage. Like what is the timing from kind of first engagement, development to kind of the first launch that we should typically expect? And then as we're looking at filling up demand from -- with incremental wins from your current customers from this -- for your current plans? How should we think about kind of the cadence that we expect from either current or new customers who you haven't made before?

Yes. So the 2 EV programs, we expect -- we expect them to come into production in the second half of next calendar year, so '24, so towards the back end of '24. That would generally mean that the OEM is likely to announce them to the market probably around the middle of next year, possibly early in the second half. We don't have any control over that. Obviously, that's entirely down to their own marketing decisions. And so it does vary. The time frames around these vary from customer to customer and program to program. But typically, we awarded them somewhere between 18 months and 2 years before they actually enter production. The dialogue around those programs can be fairly quick beforehand or it can be over some period of time. But because we have -- with each of our customers, we have dialogue around multiple programs. It's often an active dialogue around which are the higher priority and which are selected as the ones that should be done first and prioritized, given what I described earlier as their planning processes. Given the number that have been awarded over the last 12 months, and we are obviously expecting that backlog to keep increasing, we won't give any specific guidance around that. But there is obviously growing demand for the technology. There will be ongoing announcements and updates in terms of that backlog. And then as I said, our customers will announce programs when they're ready to do so some time before the program or before the vehicle is actually available to buy in the market or before their actual production starts.

And, Chris, in terms of the plant here, plans at the moment to build the plant to about 70,000 wheels per annum capacity. And in our backlog of our water programs, we have that -- we have that sort of already sold in a couple of years' time. So that -- those awarded programs, we have 7 awarded programs that are in development at the moment, 4 of those are going to come in the back half, roughly in the back half of next calendar year and the other 3 will come in during '25. So by the end of '25, when all those awarded programs are up and running, we'll be at that 70,000 wheel capacity. We can probably do a little bit more out of Australia, like we might be able to take that capacity up to 90,000 and have another couple of programs come in after that. We're considering that at the moment, but the plan is right now build the 70,000 wheels because that's what's awarded and that will come in through '24 and '25 that those new programs will come in and we'll see our capacity lift and we'll see our sales lift to that level.

Got it. And then maybe my last one here, just on the competitive environment. How do you guys think about competition from other nonaluminum wheels that might be out there and the barriers to entry from the competition?

I think in carbon fiber wheels, Chris, we've got a very healthy leadership position between 5 and 10 years, probably at the higher end of that at this point. But there are other materials, but not as light that we're aware of as carbon fiber. There are things like magnesium, which really has been around for a long time and has never been able to be scaled and it is not as light. Forged aluminum is something that's been in the market for some time. That's the premium end of the aluminum market. It's nowhere near as light. It's a little bit lighter than cast aluminum. But I think really, the competitive environment that we're dealing in is the competition for efficiency technologies. And given that this is still relatively new for the OEMs in terms of their pick list and what they can choose from in order to improve their vehicles there's still an education process underway. There are a lot of -- there's a rapid adoption amongst certain OEMs and others are now understanding what this can do. So it's an exciting time for us because we're really establishing a position for the technology, working closely with them in relation to how it can benefit them. We've established ourselves as a very reliable safe pair of hands from a Tier 1 supply perspective by entering the market in a very typical automotive technology adoption approach. So we've come in as a niche performance luxury technology and are now increasing our adoption into more mainstream applications, into an enormous market. And frankly, we don't need to race into the more mainstream segments, and we won't be able to just because of the pure -- the time it takes to put in capacity. But I think the competitive environment for us is really less of a factor than just working to ensure we have capacity in place that we're able to execute on the supply and implementing the capacity that we need in time, which we have very strong plans on. We have an excellent team. We've established a very, very strong team of internationally experienced technology and manufacturing executives and practitioners from both OEM and Tier 1 supply, global Tier 1 supply base. So, yes, that's really how I'd describe our position at the moment.

Our next question comes from the line of Mike Shlisky with D.A. Davidson.

I wanted to ask a little more detail on what's in the backlog. You had mentioned it's roughly or almost half EVs and I assume the other half is obviously ICE vehicles. Most of those are in the high-performance category. I'd be curious if the EVs, again, just kind of broadly speaking, if those vehicles are also at kind of the higher end of the price range and performance range or if those are actually companies that are embracing your extension of range abilities on the lower or mid-part of the price scale?

Yes. Thanks for the question, Mike. The EVs that are in the backlog are for full size, so pickup truck and SUVs that are part of very large sort of wages of the market versus the smaller performance vehicles that you've seen us on previously. They are at the premium end of those segments, as you could probably imagine. But they're being adopted by those -- by the customers because of the ability to resolve issues around structure, regulations and for the range benefits. So yes, they are being adopted for not to improve lab times as we have been on Ferraris, Corvettes, Mustangs and those sorts of things and to improve handling and -- ride and handling benefits, but these are for -- primarily for weight saving benefits, including range, structural and regulatory drivers, but also there is that improvement in NVH because it's a damped technology, the improvement in handling and performance is still -- it's still a factor for these SUVs and pickup trucks. But, yes, that's the segment that we're in, still the premium end, but the premium end of those segments is much, much larger, obviously, than some of the performance segments.

Great. I appreciate that question. I'll leave it there at interest of time.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Great. Well, thanks, everyone, again, for joining us today, and we look forward to meeting you all at upcoming conferences and events in the new year. Please don't hesitate to reach out to our Investor Relations team if there are any questions in the meantime. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.