Westport Fuel Systems Inc. (WPRT) Earnings Call Transcript & Summary

Well, good morning, everyone, and welcome to Westport's 2022 Capital Markets Day. My name is Ashley Nuell. I'm the Senior Director of IR here at Westport, and we're incredibly pleased that you could all join us today. And in our time of COVID, we've certainly brought about a new virtual world, so we do have a number of investors globally joining us online today who will be participating and asking questions as well. So that's exciting. As you've all seen this before, we'd like to remind everyone that, of course, during today's presentation, we'll be making forward-looking statements. The information is subject to certain risks and uncertainties and as outlined in our forward-looking information disclosure on this slide, I imagine everyone is going to take a moment to read that fully. And our public filings can be found on SEDAR and EDGAR. So as a quick agenda today, we'll be covering a number of different topics, and after a period of change and transformation, we really are pleased to host our first Investor Day in a number of years. We'll be going over a lot of information. We have a really jampacked schedule for you today. We'll be starting with David, our CEO, and he'll be walking you through strategy and our kind of growth initiatives. Bill, who has joined very recently, our CFO, of about 7 days, will provide a bit of a financial update, and then we will dig into our HPDI opportunities from both a technical and a commercial perspective. And as I mentioned, we will be doing this both in person and virtually so expect some participation from our audience virtually. And we do ask that all those virtual participants, as the presentation goes on, pop those questions into the question area and we can address them at the end. And with that, I'm going to pass it over to David to kick us off.

Thank you so much. Good morning, everyone. I really do appreciate everyone being here today. For those of you who are in town, thanks for making the time. For those of you who traveled, thanks for making the travel. And for those of you online, I think we have a -- we've come out of a really tough period in many ways. But we've learned some new skills. And I think what we do online is it is super efficient and super effective, and I really hope and I aspire that it's that way for you today. As Ashley mentioned, I want to thank Ashley for getting us all together and doing this. As she mentioned, we haven't done this in a few years. Frankly, we needed the right leader to make that happen, that's Ashley so we're really pleased to have her join us team just in the last few months. In addition, in the room, I want to just -- I have -- let's see, [indiscernible] forward here. We've got a great lineup. As you know, those of you who were with us last night had a chance to meet some of our executive team, but I want to introduce a few more that have joined us here in the room. So Arek Kubasik is with us from Poland. He joined us as a result of our acquisition of Stako last year. And I've promoted him to be Vice President of Product and Business Strategy. Just a great strategic thinker, and I'm super happy to have him as part of my team and have him here today. Brenda Eprile is here with us. Brenda is a long-serving Board member and currently serves as our Audit Chair, fabulous contributor to the company's journey and success and future success. Lance Follett has joined us. Lance is our Chief Legal Officer. Been with the company more than 20 years and guides us strongly every day to -- on our path. You'll hear from Scott and Anders, who you met before. Bill, I very much welcome you to the company, and I'm so glad to have you with me as my partner as we build this great company. Louis making big contributions, Louis Hackett, making big contributions as our Director of Communications. Christian, thanks for making the trip. Thanks for all the hard work you do. I think what we do as a team is really, really valuable and really important. And I don't want to miss Bart van Aerle. Bart comes to us from Eindhoven. Been with the company since Westport acquired Prins in 2015 and now is leading our independent aftermarket and our Light-Duty OEM. So all of our Light-Duty products source through or sold through our aftermarket as well as our OEM channel. So we do have a lot of content. I want to press straight ahead. But fundamentally, I think it's important just to kind of paint the picture of who Westport is. We are a leader in clean technologies. We are changing the world by bringing clean energy into transportation and other applications. We're a global company. So we're regularly coming from different parts of the world, as you can see by the people who are in the room today as well as by the travels we do, the customers we serve in over 70 countries, the OEMs who are our customers, more than 20 OEMs around the world are our customers day in and day out depending on the products that Westport Fuel Systems makes. We are that Tier 1 supplier. We are growing and developing as a Tier 1 supplier. It is a journey and we feel really strong about what we can offer our customers. And everything we do, everything we do is focused on clean gaseous fuels. So I think you all know well but I think it's good to state it for the record, right? We're talking about propane, otherwise known as Autogas or LPG or GPL, if you're in Europe, CNG, LNG, RNG, biogas, biomethane, bio-LNG, all the forms of natural gas and all the different names. And very importantly for us, we see a very strong future for the hydrogen molecule in our fuel systems. So if you think about energy and what we need to do with transportation, hydrogen is going to play a very important role in our future, and we feel very, very well positioned for that. As Ashley mentioned, I'd like to walk through our strategic priorities and really, it's all about growth. For us, the market is poised and we are poised to address that market and grow and prosper as a result of delivering clean, affordable products to the marketplace. We see a tremendous opportunity. And I think it's important to recognize, in the world of transportation, typically, our industry is making on the order of 100 million cars and trucks every year, 95 million, 93 million, 102 million, something in that order. It's a huge industry and that's just what we make new each year, let alone what the car park is of 1.4 billion, 1.5 billion vehicles around the world today. And we address both of those markets. So we see opportunities in places like Africa, in places like Southeast Asia, in places like India, where there's really a huge need for our technologies that is affordable clean transportation. The air is foul in many, many markets. The CO2 contributions in many, many markets are huge and we address both of those urgent needs. We also see as a company, in priorities 3 and 4 here, that we need to develop as a company and become operationally excellent, become efficient and drive more of our revenue at the top line to profits at the bottom line. So this is our agenda. We've talked about, we've all seen, we all know how challenging 2022 was, as was '21, as was '20. The last 3 years have been really challenging for everybody in our industry and around the world, whether it's COVID, supply chain, inflation, outbreak of war in Europe, we really have been dealt a tough hand around the world. And so when I look back at our track record over the last few years and including 2022, I see a lot of success, a lot of progress despite these significant headwinds. So just this year, we announced record-breaking results with our hydrogen HPDI fuel system. We'll talk more about that. Scott is going to take you through it in detail. But fundamentally, for my career, the goal for a commercial truck engine has always been 50% brake thermal efficiency. The U.S. Department of Energy, for example, has put hundreds of millions of dollars behind trying to get engines to 50% brake thermal efficiency, like unobtainable moonshot goal. And with our hydrogen HPI, we demonstrated on the Scania engine as we released to the public recently, 51.5% brake thermal efficiency. It doesn't sound like a lot but it's absolutely huge because it's such a monumental base to come off of 50% and then to improve on it so easily as we did using our technology that's already in production today. Meanwhile, our customer, Weichai, just recently announced record-breaking results of 54% brake thermal efficiency with natural gas in a commercial truck engine. Again, just amazing results. And what that really means is these precious quantities, these precious quantities of fuel that we put into our vehicles will be used more efficiently, and it all goes to a better world, better economically and better environmentally. So this year, we spent a lot of time, we'll be talking a lot today about our hydrogen HPDI product. This was the year of introduction. We started by taking our truck to Long Beach, California at the ACT Expo. We showed up later with a second truck at the Hannover Truck Show. We've taken the truck to Brussels, to Berlin, to Washington, D.C., to Sacramento. We have a lot of work to do to educate the industry, our regulators, the population, investors about what hydrogen HPDI really can deliver for our industry. So that's a really important journey for us. We'll spend a fair bit of time on that today. I highlighted Arek as joining our company 1.5 years ago. We are super pleased with the acquisition of Stako and what they contribute to our company. We see ourselves as providing that fuel system from tank to injector. And with the acquisition of Stako, we take that to the next level with that fuel system for LPG. So we're really pleased not only with the acquisition but the profitability and the revenue that it's contributed to the company, it's been material in our numbers going forward. Our OEM business adds a lot to what we do, and we're really excited about the recent announcements we've been able to make about adding LPG OEM business to our portfolio. Again, these are material numbers. We took about EUR 38 million of revenue -- excuse me, euro of revenue over the next 2 years, EUR 40 million year-on-year going out when we get into the Euro 7 product. Really important for us, and frankly, just a step, another milestone to achieve with more in the future. And I just want to talk -- we don't have a chance so far to break out our hydrogen business, which is just down the road from us here in Toronto and our office in Cambridge, Ontario. But our GFI products, the hydrogen branded products that serve the markets for fuel cells and internal combustion engines, that business is up 50% this year. And over a 3-year period, it's tripled. So it's a small piece of our business, but it is our strongest growth engine in the business in terms of growth rates. And we're really, really excited about that potential, especially in combination with our hydrogen HPDI because the components that take the fuel from the tank to the fuel cell are the same components that take the fuel from the tank to an internal combustion engine with HPDI. so frankly, despite all the headwinds, I'm absolutely fully encouraged about the results we've had in '22 and the outlook for the future. And I think one of the most important things that we all need to kind of get our hands around and understand is that the world is still growing and still increasingly prosperous, right? So if you think about economic development around the world, if you think about population development, to me, these are the 2 big levers that drive the need for transportation. The need to move people, the need to move freight is driven by the economy and driven by the needs of people. And so long as this continues to grow, the need for transportation will continue to grow. And we all know we have a bad problem right now with air quality and global warming, both of which are heavily contributed to by transportation. So we think our offer to the marketplace, our products that bring cleaner fuels to transportation are really, really valuable in the marketplace and are poised for this significant growth. And we need them because right now, we're not having as much success as an industry, as a population, as humanity with mitigating climate change and delivering clean air. I was just, for example, just in India, just this past weekend, and the air is terrible, right? I mean it is terrible. And this is an economy that 2 years ago went from Bharat Standard 4 to Bharat Standard 6, dramatically improving the emissions of their newest vehicles. Unfortunately, there's a lot of old vehicles on the road still and there's a lot of work to be done. So if you go to places like that and you see that, if you go to Africa, if you go to China, you can see what needs to be done. We don't see it so easily because CO2, you don't see. But in these countries where the old vehicles are still running, you can literally see the problem. It's like Los Angeles 60 years ago, right? And we fixed that. And these emissions regulations are super valuable in fixing that, but clean energy can take it to the next level. And so that's where we see ourselves having a significant growth opportunity. And I want to talk about applications. In many cases, people think there's this idea that we just need 1 thing, 1 technology. Just -- if we just knew what the 1 thing we could do to fix this problem would be, we'll just do that 1 thing. This is a failure of our thought process. We absolutely need to recognize that different applications require different solutions. And so we'll spend a lot of time today talking about heavy-duty applications because these are extremely, extremely hard to decarbonize with some of the technologies that have been proposed. And mainly, I was speaking about battery electric vehicles. Battery electric vehicles for long-haul heavy-duty trucking are challenged at best, okay? It's the weight of the battery, it's the cost of the battery, it's the recharge time of the battery, it's the disruption of the actual purpose of the vehicle. You put 20,000 pounds of batteries on a truck, you have 20,000 pound less of freight to move. Then you need more trucks. So this really isn't a workable solution. And if it were our only solution, we should definitely do that. But it is not the only solution. So our HPDI product is in the market today, satisfying the drivers, satisfying the fleets, cleaning the air, using less fuel, being more carbon -- less carbon-intensive. And with hydrogen, we take it to the next level because the hydrogen has no carbon. And so this is actually a beautiful thing that we're super excited about and will drive our business going forward. So let me talk about the macro enablers. What are the things that are driving our business today and will drive our business going forward? And I've listed them here, but I'm going to go right into the slide so you can get tuck 1 by 1. So first and foremost, regulations. I talked about basically a moment ago, California and what's happened over 60, 70 years as regulations have come in place to clean up transportation. The air is dramatically cleaner there as a result. These kinds of regulations are good for Westport Fuel Systems because the fuels that we enable address those problems directly. We reduce NOx, reduce particulates, reduce CO2. And we do so affordably, which allows it to scale. So these kinds of regulations and literally around the world, step by step, everyone is adopting them. Not so much in Africa yet, but it will come, right? It's necessary as they develop economically to then provide clean air for their citizens. And so that will come. But fundamentally, we see India going from Bharat Standard 4 to 6. We see China going to Euro 6. We see Euro 7 regulations being promulgated in Europe. These kinds of regulations that drive towards the lowest emissions possible are very helpful to our business. Another key for our business is the affordability of our products. When people go to buy transportation, whether it's a truck fleet owner or an individual truck driver or you or me buying a passenger vehicle for our family, how much it costs is one of the top ingredients for what are they going to buy? What are we going to buy? And so when we make vehicles, and you can notice it today in the marketplace here in North America, vehicles have gotten a lot more expensive just recently. And this actually is taking transportation away from humanity by making it expensive, and it also reduces the propensity to change, right? So if the vehicles are more expensive, I'm not going to get rid of my old vehicle, polluting vehicle. I'm going to keep it and keep using it, right? So the technologies we provide, HPDI, natural gas fuel systems, LPG fuel systems, hydrogen fuel systems are affordable, and therefore, can reach scale, can address the problem head on. Another key ingredient for our business, of course, is fuel availability. I'm really -- it's so clear, right? If there are trucks and cars that run on gaseous fuels but there's no gaseous fuels available, that will not work. If there's all sorts of gaseous fuel available but there are no cars and trucks that run on, that will not work. So while we only provide one of these ingredients, the fuel system to make these kinds of vehicles, the actual availability of fuel is key. I'll point out on this chart, you might kind of notice they're kind of oriented in a sequence from most available to least available. And the U.S., as an example, and Canada as our friends, we're a bit behind the rest of the world. China is actually at the lead, more LNG stations, more hydrogen stations and continuing to build. Europe has done a fantastic job and is continuing to build those infrastructures, too. So we see these opportunities. India is on a tear. I mentioned India a moment ago. When I joined Westport 4 years ago, there were about 1,200 stations for CNG in India. Now it's more than 4,000. So they're really addressing this problem of building out the infrastructure to support the availability of cleaner vehicles using cleaner fuels. I think it's important that we all watch this, support this. Governments can get behind it as India has done, and it does make a difference and it's required for our growth strategy. I think it's also important to recognize that the fuels we're talking about natural gas, LPG or fossil fuels, they're cleaner but they're fossil fuels. The good news is there's renewable variance of those fuels that are increasingly available. Anders Johansson will talk later about what's happening in Sweden, what's happened in Sweden, and how much biogas is used there. Germany is at like 60% biogas. Hydrogen is that ideal green fuel, renewable, right? We take excess solar and wind, excess nuclear and hydro and make green hydrogen that can be used in transportation. These are truly beautiful things, and the technologies, the products that we offer directly address and directly use those renewable fuels of the future. For those of you who haven't heard so much about biopropane, basically, when you make biodiesel, you get biopropane. So as that builds up, we'll get more and more biopropane and it's all good, right? It's almost like free fuel. If you think about the methane molecules as an example, coming off an animal, a dairy, a landfill, waste treatment, all these different sources, if we don't capture that and put it into a car or truck, it's going in the atmosphere and it's much worse. So when we talk about methane leaks in the oil and gas industry, that's a thing, but you've got a big methane leak called the dairy farm. Let's solve that problem. People are doing that now. There was a point in time historically when we thought, oh, there isn't really enough biogas to even worry about it. I thought that's nothing. Don't pay attention. That is absolutely not the case. It's super valuable. It's super significant and we're making inroads right now in places like California, Scandinavia and Europe and other places. I saw China has got a new big initiative on biogas now. So everyone is recognizing this is free energy that is better for the Earth. And finally, for Westport Fuel Systems, unlike a lot of companies, our products are in the market today. Our HPDI fuel system was launched in Europe in 2018. There are thousands of trucks on the road today. If we talk about the benefit of biogas, as biogas gets increasingly used in the refueling infrastructure in Europe, the trucks we made 5 years or our customer made 5 years ago, they get cleaner every day. Lost the video. So I lost my video here. So thank you very much. So the government plays a very important role, whether it's emissions regulations or the incentives they put in place or the rules they write, this is an absolutely critical role for our business and our industry. And we can see around the world, and I think right now, more than anything else, you're hearing about the support that governments have for building out hydrogen infrastructure, for recognizing where the future is and supporting the world and industry to get there. These are really valuable and really important to our development as a company and our future prosperity. So I won't go through any of that in detail because, of course, there's a lot of detail, but I can't tell you enough about how important the regulation is from the emissions side and also from, I'll say, the carrot and-stick approach of the government contribution to our business. So right now, we see ourselves very much as winning in the heavy-duty market. Our HPDI product is far and away the best product for using natural gas in the marketplace. And the fundamentals Scott will go through later, but it's all about taking a diesel engine and running it on natural gas as opposed to taking a diesel engine and converting it into a petrol engine or a gasoline engine. Once you have a diesel engine, you should feed it gas and then it gets cleaner. That's what we do with HPDI. And where we see it going with hydrogen is absolutely exciting for us. To take the trucks that we built, the diner work we did and show that around the world this year is changing the fortunes of Westport Fuel Systems. I'm going to talk in detail on the next few slides about the Light-Duty, so I'll leave this 1 for your reading. Fundamentally, LPG growth in Europe is really happening now, continuing to happen. I talked earlier about 45,000, 47,000 LPG stations in Europe. The numbers you see on this chart are all about savings, the savings a customer can have on an annual basis by using LPG as a fuel instead of petrol, instead of gasoline. Making that substitution, and I'll tell you my own personal experience 4 years ago when I joined Westport and went to Europe and filled up on LPG, and I see the people filling up on petrol, spending EUR 100 and it's cost to me EUR 45 to fill my vehicle on LPG. And that happens day in and day out. And I can tell you, those people filling up with petrol and paying the EUR 100, EUR 120, they're looking over at the guys filling up on LPG, and I want that and that drives our aftermarket business that drives customers to OEMs saying, where are your LPG vehicles? So this is really working. And I'll tell you through this latest, let's say, movement of energy prices around the world, the advantage of LPG in the marketplace has grown significantly. And so we see actually -- you can see it in the blue bars, basically better economics now for our business with respect to fuel prices in LPG than we had historically. And so that LPG business is growing but also on the OEM side. We're really pleased to secure the business that we announced recently for Euro 6 and then the follow-on business for Euro 7. And we see that demand for LPG growing around the world. It is the most common and most well-used fuel around the world, and we're a leading supplier of those fuel systems. So it's a big important part of our business, that's let's say, in our financials and sometimes hard to see. Had some time to talk about India and what's happened. Our business in India has tripled over the last 3 years. Again, like our hydrogen business has been a relatively modest piece of our business, but we see this really as another growth engine for Westport Fuel Systems. The Indian government has taken a specific initiative to grow the fueling stations to 10,000 by 2030, and they're more than half the way there and it's only 2022. So it's super, super encouraging to see that development and to see the line still of customers lined up to fill up on CNG in India. So this is a place where we see continued growth. I'll tell you currently in this moment, unions are able to access Russian oil and so that price advantage that we see in Europe, we don't have -- with LPG, we don't have so much right now in India. We do expect that to be reestablished, but that is the driver, right? That is the driver of the business for the individual going to the station or going to buy a vehicle or going to get a retrofit is what is that price differential between, in this case, in India, natural gas and petrol? We are unique in our delayed OEM business. It may be kind of a funny name, but fundamentally, what we're doing is we're getting brand-new vehicles from manufacturers before they go to a dealer or a customer and we're applying our fuel system to them so that when they get to that dealer and they get that customer, it looks like, it feels like, it's warranted like an OEM product. And we're doing this every day at our factory in Italy where basically trucks are bringing vehicles to our plant. We're installing the fuel systems and then the vehicles go back to the dealer and on to the customer. And this business is super strong just right now just because of those fuel price economics that I told you about before. Also, I'll tell you, there's a number of OEMs in the world who have, let's say, been a little slow to recognize the opportunity for LPG. And so they say, delayed OEM is an opportunity with Westport Fuel Systems, delayed OEM is an opportunity to bring that vehicle to market much more quickly. And so we do that for them. This is another growth engine of our business, very profitable part of the business. We're really excited about to continue to expand that. I talked a moment ago about our hydrogen business. Here you can see some of our components. Our revenue has tripled over the last 3 years. The growth curves that we draw internally are very, very exciting. We've got new business that's pending right now on the order of nearly $100 million just in that business. So I want to tell you that the hydrogen economy is developing. The OEMs are responding, and we're the one that's sought after more times than any other with respect to providing the fuel systems that are necessary to connect a hydrogen storage to a fuel cell, or a hydrogen storage to an internal combustion engine. I think another strength of our company that we continue to build on is the diversity of markets we serve and the diversity of products we offer. We've been talking about different fuels. We're talking about vehicles from heavy-duty vehicles to light-duty vehicles. But around the world, we're in 70 countries. We just recently secured some new business in Bolivia. A large tender was secured on the order of 10,000 CNG vehicles, with more to follow. So countries around the world, they're saying, "Hey, we need to take action to provide affordable clean vehicles for our population or citizens." And Bolivia is just 1 example. And I would say, in my career, we don't speak so much about the Bolivian automotive market. But this is the kind of business that is meaningful, the Westport Fuel System and just 1 example. Another example I want to talk to you a little bit about a product we call dual fuel. This picture is a picture of a CNG refueling facility that we commissioned, we built for our customer in Africa. Dangote Cement. The Dangote Group in Africa is one of the biggest conglomerates in Africa. They have fleets and fleets of cement mixers and other trucks, and they recognized and sought our support and help to build this station and equip their trucks. We've retrofitted hundreds of trucks with this dual-fuel system. And what it allows Dangote and the operators to do is it allows to substitute natural gas in place of diesel. The trucks become cleaner and more affordable to operate because of the price differential between diesel and natural gas is that prevails today in Africa. So we're absolutely thrilled with this kind of development. We support our customers in any way to bring cleaner, more affordable product to the marketplace and to support their business to deliver and develop the economy in Africa. This product, though, is not just a CNG product. It's also a hydrogen product. So you may have heard some stories about people doing dual fuel with hydrogen. We're a pioneer in that technology. We're developing it now, and we'll have -- we're offering it to our customers right now. I expect very important things to happen with respect to hydrogen dual fuel. And the reason is because the infrastructure is not built out. And these trucks, if you can't find hydrogen, you come home on diesel, no problem. So as the infrastructure build-out use more and more hydrogen to become cleaner and cleaner, and if there isn't the infrastructure, you can still use your truck, you're not stranded. And this is absolutely critical. If you're stranded, that's not a real truck. Nobody wants a stranded truck. So in Europe, we see tremendous success really in the marketplace with the build-out of LNG infrastructure. Just a few years ago, it was barely 100 stations. Now we have 600 stations. And a lot of these stations are being fueled and supplied with biogas. I love the commitment Shell made a few years ago, they said we're going to build 50 stations in Germany alone for LNG, and we're going to supply them with fuel that's carbon-neutral. So when we talk about 0 emissions this, 0 emissions that, you can do it today in Germany, the LNG station with our technology, 0 today because of their fuel and our technology. And the build-out of the stations continues, so I think this is a sign. And as we talked earlier, if you look about refueling infrastructure, this is clearly a sign of what our company can do and where we're going, what growth trajectory is possible. Nicely, the business is recovering post COVID, post supply chain and even in the face of the war in Ukraine. So we see a rebound in vehicles and we see growth in the natural gas market. Sometimes for us, it's very difficult to talk about our customers because our customers like to do the talking. And I can't blame them. I've been those customers before, and I understand exactly what they're doing and why they're doing it. But I want to let you know that there aren't that many customers in the world for our business. In the OEM business, I haven't counted recently, but let's call it less than 50 companies make 98% of the vehicles. I made all those numbers up, but it's about correct, right? There aren't that many. In the truck business, it's even less. If you think about the global truck market outside of China, we're talking less than 10 companies total. We're currently working in Europe with companies that supply about 70% of the vehicles. So I don't get to tell you everything I'd like to tell you, but I want you to know it's happening now. And to our customer in China, we are so thrilled with what they've done the world about with respect to their natural gas engine. It's super exciting. We see with this development and this announcement by our customer that we can put the instability and the prices of fuel that have kept the market on pause for us for a while, perhaps that's coming to an end. We're really excited about what they're doing. We think the future for hydrogen as well as natural gas and biogas in China is very, very strong. It is, today, the largest trucking, largest automotive market in the world and the most well-developed infrastructure for refueling with alternative fuels. So we have to pay attention, and we think we're super well positioned and the growth trajectory looks exciting to us. And now we have our hydrogen engines. I can't tell you how exciting this is for all of us at Westport Fuel Systems fundamentally to be able to take a product that's already in production, basically plummet with hydrogen storage and be able to demonstrate more power, more torque and more efficiency than either on diesel or natural gas is unbelievably amazing to us and super exciting. And I think it's important to recognize in our business that this hydrogen opportunity that we see with HPDI is a long-term opportunity. It's not tomorrow. But as soon as the world is ready for hydrogen, we have a product that's ready to go. And in the meantime, that same product and technology can be used with natural gas and biogas. And so that's actually how our customers see it, too. They see this as a pathway with natural gas and biogas to hydrogen, a technology platform they can use that allows them to access the market, respond to their customers, provide cleaner transportation, provide affordable transportation today. I think in the grand scheme of things, you've got this lovely picture of these different segments. The applications matter, but there are a lot of applications that we haven't even started talking about at Westport Fuel Systems for HPDI. When we go to engines that are bigger than 10 to 13 liters, right, that's the core, if you will, of the commercial truck market, 10 to 13 liters. We go to engines that are bigger than that for marine applications, for rail applications or mining applications. There is a world of opportunity. And that opportunity can be accessed with biogas and natural gas and hydrogen with our technology. And so we think there's a tremendous opportunity in front of us that we'll be exploring and exploiting in the months and quarters and years to come. So HPDI, super cost-effective, responds to the customers' needs, works with LNG, works with CNG, works with hydrogen, truly works with biogas. So this to us is the new frontier, providing compression ignition engines, the most efficient, durable, reliable, trustworthy engines in the world but running on cleaner fuel with hydrogen HPDI, natural gas HPDI, Westport's HPDI product. So ladies and gentlemen, thank you very much for your time and attention. I'm super happy to be here with you today. I look forward to the chance later in the program to answer questions and dive on any topics you'd like. And with that, I'd like to bring up Bill to talk about where we're headed financially and what the outlook looks like.

Great. Thank you, David. Thank you for joining us. It's great to be here today. I'm Bill Larkin, I'm the CFO. I'm the newest member of the management team. It is great to rejoin Westport and to partner with David in the Westport team on this journey. I believe in our technology and Westport has a very bright future. However, we have a lot of work to do. I joined about 2 months ago. It was a perfect time for me to join and to really dive in to our annual planning process. We get out there, meet with our business leaders, visit our operations, work with the teams, just walk the production lines, get refamiliarized myself with the operations. So really help me get into the details and more so really help understand the strategy as well as our guiding principles. So as we go through our annual planning process, then we can make sure that our plan was aligned with our strategy. It was a very insightful process. It really helped to define and also refine our 2023 initiatives and beyond. A lot has changed over the last several years, especially after the merger. Westport now is a very diverse business. In 2017, '18, '19, Westport was gaining a lot of momentum in sales and growing the business and generating good margins. However, the pandemic hit. And Westport persevered through the downturn in the pandemic and recovered in '21 with about 24% year-over-year growth. The diversity in the business helped Westport persevere through these challenging times. And this diversity in our product base is going to be the foundation for our future growth. Year-to-date through Q3 of '22, we generated revenues of $227.7 million. '22 has been full of challenges and headwinds, as David discussed. Our revenues, we were impacted by the Russian-Ukraine conflict. Russia was a very large market. LNG pricing, CNG pricing, energy prices, in general, has impacted our revenues. And we've been facing a lot of headwinds. A little bit more subtle and may not be quite obvious is foreign exchange translation. And this is when we translate and report our financial statements in U.S. dollars. We generate a significant portion of our revenues in euro, dollars. And with the strengthening in U.S. dollar over the last 6 to 12 months, when we translate our financial statements into U.S. dollars, it's translating those revenues at a lower level. So you don't really get to see, as David talked about, is really, we are seeing growth in our businesses. And unfortunately, when we convert from euro to U.S. dollars and with a strong dollar, it kind of masked that growth in our business and the positive trends. Despite all these industry headwinds, there are a lot of positive trends emerging, especially in our businesses. We are seeing growth in our core business as well as advancement in our hydrogen HPDI. It's great to see the truck run around running on hydrogen. Everyone is dealing with inflation. We're no different. We're dealing with inflation. We're not immune to it. We are seeing increasing manufacturing costs, which translates into higher cost for us and producing our components, kits and systems. And it does have an impact on our margins and our financial performance. So looking back at 2018, our gross margins were roughly about 22%. Year-to-date through Q3, our margins were roughly about 14%. We're going to navigate these challenges and we're going to change this trend around, and I believe we're going to start seeing improvement in our overall margins. We're preparing for revenue growth and improved profitability, and I'm really optimistic about our long-term future in the growth and the profitability of our company. So what's our road map? And really, what are our priorities to go forward? So starting, as I mentioned, we've been working on the budget process and really what came out of it, there was really 2 clear financial priorities: one is to enhance our financial performance; and second is to drive working capital efficiencies. Execution of these priorities is going to be really critical and to support our strategic initiatives and our long-term growth goals. We are going to continue to face inflation. It's not going away. It's going to be here for the foreseeable future. And we're going to see cost increases in our supply chain, labor, overhead. We're going to evaluate our entire cost structure in '23. We're going to look at all of our operations, our overhead and the cost to support our business. This is just not going to be a '23 initiative. This is about establishing a foundation for continuous growth, continuous improvement beyond 2023. And then also diversity in our business, this is going to be an asset in driving our revenue growth and our financial performance. So what are some of our priorities? We have increased pricing. We have passed along those increases, price increases, where we can to our customers. However, it's about finding the right balance. We want to recover those cost increases. However, we can't increase our prices too much where it harms our revenue. And so it's finding the right balance and working with our customers. Volumes are going to solve a lot of issues that we are facing today on the cost side. We're working to drive demand for all of our products. We're working with our HPDI customers to drive demand and sales for HPDI technology. And then also, this is going to set the foundation for executing our long-term strategy of commercializing hydrogen version of our HPDI technology. We want to expand our existing -- the sale of our existing components. So we've got customers we may be just selling an injector or our fuel control system. We want to sell them the fuel storage system. We want to sell the refill, the filling receptacles. So we want to expand the number of components that we're selling to each of our customers. But also we want to leverage that diverse product portfolio, expand into new markets. And of course, hydrogen, that's going to be a huge opportunity for us in the future. And I think that's going to be that's going to drive a lot of growth in our revenues in the future. Increase in volumes and revenue. It's going to help us inherently reduce our variable cost. It's going to give us a broader base to spread our fixed manufacturing costs. So inherently, that's going to improve our margins. It's going to improve our bottom line profitability and more important, it's going to improve our cash flow. Our second priority is going to be driving working capital efficiencies. We've talked about our inventory in the last couple of quarters. It's too high. We're going to work on bringing that down. We're going to be more effective in managing our inventory, and I think that's going to free up a lot of cash in 2023. In addition, we're looking at our accounts receivable, and we're looking at our entire balance sheet and looking for opportunities where we can enhance our liquidity and generate cash. We are focused on enhancing our financial performance, and we're going to be relentless about how we approach it. And growth is going to be a really important driver in realizing these efficiencies and managing our costs. We are evaluating all the opportunities and then we are defining our initiatives on how we're going to tackle this and optimize our cost structure, which includes our facilities. The good thing is we have the capacity to support our growth and it's from a -- we're going to have to make a minimal investment to support the growth of our revenue within those existing facilities. However, there's a cost associated with it. So we got to take a really close look at it and optimize our production footprint in our space. Our team is working to mitigate and soften the impact of inflation on our input costs. We're working with our suppliers. They're working to try to reduce those costs. Volumes are going to solve a lot of those issues, evaluating alternative suppliers but also make versus buy. We're looking at certain components and see if we can produce it ourselves at a lower cost than what we acquire those products. Also, we're looking at our production labor and we schedule that labor. And then finally, as we talked about our product portfolio, we've got to evaluate our product portfolio. We've got to rationalize our products, look at do we have our gaps in our product offering that we need to go fill? Do we have certain products in which they are not generating profitable revenue? So it's a very comprehensive process that we are going to be going through. We will drive sales growth across our product portfolio. HPDI is going to be one of those growth catalysts. Increased volumes are going to help improve, drive down our cost as we get the economies of scale, and that's also going to translate in improved margins. We have a full slate of opportunities and initiatives in '23 and beyond, all of which are going to be geared towards enhancing our financial performance and driving top line and bottom line growth. We need to improve our liquidity and financial strength. I think that's a lot of concerns. Execution on our initiatives are going to improve our cash flow, and then it's going to allow us to use debt to fund our cash needs. Looking year-to-date through September, we've consumed $44 million in operations. We've invested about $8.5 million in CapEx. We've paid down roughly about $70 million in debt. And at the end of Q3, we are in a strong cash position. We had about $86 million. However, we cannot continue to consume cash at this rate. We need to improve our liquidity. And then going back to our priorities, which is enhancing our financial performance and as well as managing our working capital by executing on those, that's going to help improve our liquidity and our cash flow. We're also going to be managing our CapEx. In '23, we're targeting roughly about $12 million to $15 million in CapEx, which is fairly consistent with what we've invested over the last couple of years. And so we are going to manage how we allocate our capital, and we're going to be very prudent on our approach for that and then focusing on how do we manage and improve our liquidity. As I mentioned, we are managing our capital. We only have a limited amount of capital that we can allocate, and we've kind of prioritized what are those initiatives. Number one, clearly, advancement of HPDI and hydrogen technologies, including investments in our test health facilities as well as other hydrogen components. I think hydrogen is going to be a huge opportunity for us in the future in driving revenues and our profitability. M&A, we haven't talked much about it but we're still going to evaluate M&A. We're going to look at other potentially key components or technology that we're missing that we need to fill in gaps in our product portfolio. We're going to be looking at tuck-in acquisitions as well as maybe there's some opportunities to consolidate in certain markets. However, we will be very prudent on how we approach any M&A opportunities, and we will make sure that they make economic sense. On this page, this gives an overview of our debt payments. our historical debt payments in 2021 and '22 and then '23 we're expecting to pay and then what our future cash debt servicing is going to be through '26. At the end of September, we have roughly about $62 million in debt. The good thing is over 60% of our debt today is at fixed rates and it's at very, very attractive rates. The fixed rate is at less than 2%. And then our variable rates right now on average is about 9%. So on a blended rate, we have very attractive financing rates on our debt. We continue to service our debt. We have paid down a lot, paid down our debt over the last 3, 4 years. And by driving on our initiatives, we expect to see improvement in our cash flow and this will allow us to seek and utilize debt, if necessary, to fund any type of cash flow needs. And I think we're going to be able to accomplish that. First, we're going to go try to expand our existing relationships with our debt partners. They've been very supportive and they've been a great partner for us. 2023 is going to be a very important year for us. It's really the change, but it's just not '23. It's setting us up for success beyond '23 and driving our initiatives. We're going to be evaluating our cost structure. We're going to try to optimize our operations, all about trying to drive top line growth, enhance our margins, our profitability and our cash flows. And we expect to deliver on these priorities and this will set us up for longer-term growth in '24 and beyond. We've communicated our mid-decade goals. Those goals are $1 billion in revenue, 20% gross margin, 10% EBIT margin. However, because of the impact of COVID, the Russia-Ukraine conflict, energy pricing, we've had to push the timing. When we originally set out these goals, who would have thought about we're going to be impacted by COVID or Russia-Ukraine? However, we are still focused on these goals. And we're going to focus on what we can control in driving margin expansion, driving revenue growth and technology development. That's going to be a success for our future. So I think to track some of this progress in working towards our goals that we've laid out, look for announcements of new customers, new projects, maybe some customer development programs for hydrogen technology, advancement of hydrogen applications and then especially looking at how OEMs are going to handle the emission regulations in 2025, that's going to be critical. I'm really optimistic about our opportunities and it's going to be critical in executing on our priorities. And I believe the outlook for Westport remains promising and I'm excited about it, and I'm excited about being part of the management team and partnering with David on this journey going forward. Thank you. So we've got a video coming up and then we'll hand it over to Scott. [Presentation]

Good morning, everybody, and thanks for coming. My name is Scott Baker. I'm Vice President of Engineering for Westport Fuel Systems. I'll start with a real quick background on me. I'm in my 25th year with the company. I've been in and out of engineering a number of times. I spent a significant portion of my career working on HPDI, also spent a very significant portion of my career in our Cummins Westport joint venture, which I'm sure you're all aware, expired through its contractual end about a year ago. During my 13 years in Cummins Westport, I was primarily responsible for product planning and product management for spark ignited natural gas engines. So throughout my career, I've been heavily involved in a wide range of alternative fuel engine, engine fuel system and component technologies. What I'm going to spend a few minutes, about 20 minutes, going through there's a little bit more information about our hydrogen HPDI fuel system, elaborating on many of the points that David introduced. So we can jump right into it. First of all, just to give a little bit of context, that doesn't look quite right. I think we're missing some of the stuff on the slide. So Ashley, I'll let you deal with that 1 while I give a bit of a bit of context. There we go. David referred multiple times to our HPDI fuel system. And I wanted to start with, it might be a little bit pedantic but just to make sure everybody starts on the same page, start with a little bit of an explanation about what the scope of the HPDI fuel system is. Every engine has a fuel system. In many ways, the fuel system is the heart of the engine. It's the hardware and the software and calibrations that introduce the fuel to the engine, whether it's a diesel engine, a gasoline engine, a spark ignited natural gas engine, an HPDI engine, the fuel system is the collection of components and calibrations and software that manage that fuel delivery to the engine, all of which then determines the performance, the efficiency and the emissions of that engine. HPDI is a system that we sell to vehicle and to engine manufacturers to integrate into their diesel engines to enable a diesel cycle engine to operate on primarily a gaseous fuel. Approximately 95% of the fuel energy is derived from the gaseous fuel. As David mentioned, currently commercially available and has been for a number of years as an LNG, natural gas, HPDI fuel system, all of which retains the well-established benefits and attributes of a diesel engine, which have made the diesel engine the ubiquitous workhorse of industry worldwide. Diesel engines, of course, are widely known and highly regarded for their high performance, high power, high torque, durability, fuel efficiency, robustness, low cost of maintenance. HPDI enables the retention and preservation of all of those attributes of a diesel engine, while additionally enabling further emissions reductions and, in many jurisdictions, a lower operating cost by virtue of using a gaseous fuel. That's what our natural gas currently available product is. So with that benchmark, now I want to step into HPDI hydrogen and elaborate a little bit more on the specific and very unique combination of attributes that comprise the value proposition for hydro and HPDI. So if you look through the icons here, I talked already about how -- and I think it's well established and well understood that efficiency and performance of a diesel engine are well established. Hydrogen and natural gas HPDI, our current product retains all of those. Hydrogen HPDI, by taking advantage of some of the fundamentals and fundamental characteristics of hydrogen injection and hydrogen combustion, actually allows us to improve upon many of those attributes over and above the well-established attributes of a base diesel engine. So specifically, we've modeled and then since demonstrated through our own testing across multiple different engine platforms in our labs in Vancouver that by taking advantage of the combustion fundamentals, combustion characteristics of hydrogen in direct injection, we can achieve significant improvements over and above the base diesel engine in power, torque and thermal efficiency, all while retaining the architecture of the base diesel engine and delivering extremely significant CO2 reductions and, in particular, extremely cost-effective CO2 reductions. If you look at that lower right-hand icon, it's CO2 per dollar. Anders will have a little bit more information on that in the next slide. But not only are the -- is the magnitude of the CO2 reductions extremely significant, the cost effectiveness relative to the CO2 emissions from a diesel engine is extremely attractive compared to other low emissions near -- so-called near-zero emission technologies in the industry. So the next slides will step through in a little bit more detail some of those attributes. So I talked about the preservation of the diesel engine architecture. And also one of the icons on the previous slide talked about the preservation of the infrastructure and the investments throughout the industry, supply chains, OEM manufacturing facilities, the service and support network for the commercial vehicle industry, all of which is based around the diesel engine. The HPDI fuel system retains and leverages all of that, and that extends also to the application of hydrogen with HPDI. So to speak to that a little bit more specifically. The image, which is one of our show engines, shows the colored components identify at a glance the components of the HPDI fuel system that change relative to a diesel engine. The -- so for Westport supplies, it's the red components, in particular, the fuel injector, the fuel rails and then some gas fuel pressure management components. The OEM components that change where they integrate our fuel system into their engine are shown in yellow. Really, it's the fuel system that primarily changes, but it's fully leveraging the cylinder head, the power cylinder, piston connecting rods, for example, and then the entire engine block, fully leverages all of those investments by the OEMs. On the off-engine side of things, all gaseous fuel engines need fuel storage tanks, whether that's LNG, CNG, hydrogen. In the case of hydrogen HPDI, we can fully leverage the investments that the OEMs are already making for other hydrogen vehicles, whether that be spark ignited hydrogen or fuel cell vehicles, HPDI hydrogen will benefit from all of those investments as well. So again, leveraging investments that the OEMs are already making. A little bit more specifically then about the on-engine modifications. I've already talked about the fuel system, which we develop and then supply to the OEMs to be integrated into their engine. Minor changes required to the air handling system, the turbocharger, but quite modest changes to optimize the combustion for HPDI. And then on the vehicle side of things, I already mentioned the fuel storage and the exhaust aftertreatment system is tailored for HPDI combustion and the HPDI products of combustion by the OEM. Relative to spark ignited hydrogen engine, which is a technology that will certainly have its place in the market and that's also part of Westport's portfolio, the extent of the engine integration for spark ignition systems is quite a bit more ambitious or a little bit more far-reaching than for HPDI integration, including the addition of a throttle and ignition system to manage the combustion and plus more extensive changes to the air handling system, the power cylinder and the exhaust aftertreatment. So a little bit more extensive to integrate spark -- to take a diesel engine and convert it to a spark ignited engine, as David alluded to in his remarks. So moving on into a little bit more detail about elaborating on some of the value proposition elements that I mentioned. What you're looking at here is a 13-liter HPDI engine installed in one of our test facilities in Vancouver. Specifically, we started with an existing commercially available natural gas HPDI engine, ran that engine at a variety of points. The C100 reference in the bottom left is a reference to rated power for the engine, so 460-horsepower in this case, operate ran the engine on natural gas HPDI as we've done many, many times for many, many years. And then without making any changes at all to the engine and the HPDI fuel system components, simply changed the fuel supply in the test cell from natural gas to hydrogen and mere minutes later, ran the engine on hydrogen HPDI. And the red text boxes draw attention to some of the key metrics that we mentioned or that we measured. So David talked a lot about brake thermal efficiency. That's a reference to fuel efficiency, the efficiency by which the combustion process extracts useful work from the fuel. For this particular 13-liter base engine that rated power, the brake thermal efficiency on natural gas, HPDI, which it's very well established that, that's equivalent to the brake thermal efficiency from the base diesel engine, 40%. Simply by changing the fuel and not changing any of the hardware at all on that particular engine, if you look at the top right image, 44.8%, so about a 10%, 11% increase in brake thermal efficiency on this particular engine platform just by changing the fuel type. David mentioned earlier that -- he mentioned the 50% brake thermal efficiency threshold, which I'll refer to on a later slide. The industry has, for decades, has been making massive, massive investments to eke out incremental improvements in thermal efficiency from commercial vehicle engines to get a 10% or 11% relative improvement in thermal efficiency simply by changing the fuel is absolutely unheard of. It's just mind-boggling this magnitude of difference, given the hundreds of millions of dollars per incremental percentage point or incremental tenth of a percentage point in thermal efficiency improvements. CO2, of course, is a significant metric as well. So 493 grams per kilowatt-hour. Let's go with round numbers, 500 grams per kilowatt-hour of CO2 emissions on the natural gas HPDI version of this engine. To calibrate you, the diesel engine in its diesel configuration would be approximately 600 grams per kilowatt-hour. So 600 grams from diesel, 500 grams at the tailpipe from natural gas HPDI, 15 from hydrogen HPDI. So near-zero CO2 emissions, again, simply by changing the fuel going from a carbon hydrocarbon fuel methane to a carbon-free fuel hydrogen. The residual CO2 that does come from the engine is associated with a very small quantity of pilot fuel that we use to initiate combustion. There's effectively 0 usable energy, motive energy that comes from that pilot fuel quantity. All of the usable energy comes from the gaseous fuel injection. And then finally, a reference to exhaust temperatures. You can see a significantly lower exhaust temperature from the hydrogen HPDI that goes hand-in-hand with the efficiency improvement. Exhaust energy is a form of waste heat. The lower exhaust temperature means we're not wasting as much potential energy. We're extracting more useful work that shows up in the thermal efficiency reference. I mentioned CO2 reductions. So I gave you some numbers on an absolute basis. To put that in percentage terms, diesel being the baseline natural gas, HPDI measured at the tailpipe just by virtue of the chemical composition, methane being the simplest hydrocarbon molecule. We get about a 20% tailpipe benefit versus a diesel engine from natural gas HPDI combustion. It's about a 98% reduction relative to a diesel engine by using hydrogen HPDI, again simply a function of fuel chemistry. This is on a tailpipe basis or a tank-to-wheels basis. In Anders' section next, you'll also refer to some full fuel cycle or well-to-wheel CO2 emission reduction references. David, so coming back to the 50% thermal efficiency benchmark. As David mentioned, throughout his career and in my career as well, 50% thermal efficiency from a diesel engine has been put out there as sort of the holy grail of the internal combustion industry. And many of us, myself included and David, I think I can -- at risk of putting words in your mouth and say the same thing on your behalf, didn't really expect we'd ever see it. Scania, and as David mentioned, Weichai and -- are among the first to actually achieve that long-targeted 50% brake thermal efficiency threshold with their diesel engines. It's a massive accomplishment, so huge, huge credit to the OEMs who have invested to get there through significant improvements in their base engine. Thermal efficiency is a function of various elements of the base engine such as friction of the engine, air handling efficiencies, things of that nature. It's also very much a function of the fuel system, the type of fuel, the mechanism by which that fuel is injected and burned. And what Scania, after recently announcing their -- or shortly after announcing their accomplishment of the 50% threshold on diesel, they approached us or we started working with each other to evaluate what -- how much better could this be by applying hydrogen HPDI. And what we've recently demonstrated and press released, as David mentioned about a month ago, is that relative to their 50% thermal efficiency threshold on the base diesel engine, we've achieved 51.5%. I'm sure you detected David's enthusiasm for that number. I echo that enthusiasm. 51.5% versus 50% maybe doesn't sound like a significant change, but if you view this in the context of what I said earlier, the industry historically has spent hundreds of millions of dollars per incremental 0.1% simply by changing the fuel to get this magnitude of additional improvement over and above one of the best, most advanced base engines in the industry, is staggering, absolutely jaw-dropping. So moving on, just to kind of summarize the efficiency references I've made. I showed you on an earlier slide, the 40% versus 44.8% references. That was from what I'll call a current generation engine, a Euro 6 13-liter engine. Starting from a lower benchmark, a lower baseline for thermal efficiency, we've demonstrated substantial thermal efficiency improvements by switching to hydrogen HPDI. And then those -- that same directional increase in thermal efficiency we've applied -- we've demonstrated on a -- working on a next-generation Euro 7 intent, best-in-class engine. So across multiple different engine platforms, we've demonstrated that hydrogen HPDI achieves significant improvements in thermal efficiency. In fact, at the levels we've demonstrated with the Scania engine, we're really now rivaling and, in fact, probably exceeding in many high-load factor duty cycles, the cycle average thermal efficiency of a fuel cell vehicle. There's a lot of talk in the industry about fuel cells being 60% or 65% efficient. Not cycle average, not in heavy-duty applications. And that's not just Westport's opinion. That's well established, well publicized in the industry, if you kind of scratch the surface a little bit and look more closely at the cycle average efficiencies. It's well established, well publicized that with fuel cells, efficiency goes down as load increases. With internal combustion engines, the opposite is true. So in high-load factor applications, the efficiency numbers that we're talking about here are very much on par with and perhaps better than a fuel cell. Talked a little bit about efficiency improvements or pardon me, performance improvements. Again, leveraging the combustion fundamentals of hydrogen, we've demonstrated that we can frankly, we can feed the engine a lot more fuel without exceeding any of the mechanical limits or the exhaust temperature limits or the overall calibration boundaries for the engine, in particular, on the Euro 6 vintage 13-liter engine upon which we started our testing, we've demonstrated a 15% improvement in peak torque over and above the base diesel engine and 20% improvement in power. So to give absolute numbers, for those 3,000 newton-meters peak torque, 600-horsepower from a peak power from a 13-liter engine. On this particular engine, it's an engine that we know very, very well, having worked very closely with our OEM partner in Europe to do all of the engine integration, fuel system integration and calibration development and emission certification. We know the calibration boundaries and the do's and dont's of this engine very well. So I said this before in other forums. This is not a bunch of cowboys throwing a bunch of fuel at an engine and over-fueling it to turn it into a hot rod. This is sound engineering, working within the calibration limits of this engine that we know very well. Now what this potentially means in terms of tangible benefits to an end user is that in a product development program, the OEM could choose to leverage these capabilities of hydrogen HPDI and have -- offer higher ratings for a given engine displacement. Then the markets we're talking about here, heavy-duty trucking, that's typically 13-liter or 15-liter engines, this fuel system capability offers the potential that a truck that might normally use a 15-liter diesel engine might be able to achieve the same performance with a 13-liter HPDI hydrogen engine and thus realize the lower cost of the engine, the lower acquisition cost as well as the lower weight. Weight is a big deal in commercial vehicle applications because a lower gross vehicle -- or lower curb weight of the vehicle means you can haul more freight. More payload means more revenue per trip, so there's a total cost of ownership advantages available to the end users. Now I do want to talk a little bit about emissions. David talked a little bit about NOx. Of course, this is a combustion process. All combustion produces some level of emissions, whether it's spark ignition, HPDI, all fuel types, there's -- there are emissions associated with that. The reason I draw attention to this is I want to address head on some potential pushback from naysayers out there who might say, well, it's combustion, it produces some form of emissions. Therefore, it's not part of the long-term solution. It's inadmissible. We take a very different view on that. Yes, there are some emissions of NOx, oxides of nitrogen in this case. NOx emissions are heavily regulated around the world and have been for a long, long time. David showed you an overview of the different emissions categories. The 1 I'll talk about specifically is Euro 7. Quite recently announced literally within the last couple of weeks for introduction in 2027, the most stringent set of on-highway emission regulations announced to date in the world. They'll be introduced in 2027. The NOx emissions in Euro 7, and in fact even today in Euro 6 and in the North American regulations are extremely low. The levers through combustion to accomplish those emissions are well established in the industry. We've demonstrated through our own testing that all of the well-known levers to control NOx emissions from combustion apply equally with hydrogen, things like the application of EGR, injection timing, injection pressure, all of the combustion and on-engine levers for NOx control apply equally with HPDI hydrogen. And then, of course, is the aftertreatment system as well. We are partnering with a well-known, well-established aftertreatment supplier to jointly evaluate HPDI hydrogen and HPDI hydrogen aftertreatment configurations so that together, we can take that solution to an OEM partner for integration under their engine and vehicle. But really, at a high level, the NOx emissions are most cost-effectively controlled, not by going to 0 emissions for new vehicles but rather by retiring older vehicles that are -- that were originally sold under far less stringent emission standards. My final slide, so just to kind of tie this all together, how HPDI will win. This is really a reiteration of the value proposition elements. Diesel engines already have best-in-class performance and power density robustness. HPDI hydrogen retains all of that, and in many cases, power, torque, efficiency improves upon them. So it really does leverage the -- leverage and fully retain the -- all the advantages of a diesel engine and of today's commercially available natural gas HPDI engines. We're very thrilled to have strong interest from a number of OEM partners, some of which are publicly announced, others of which are -- have chosen not to disclose their involvement with us, but we do have demonstration projects underway with a number of different commercial vehicle OEMs within that relatively small universe of truck manufacturers that David referred to earlier. And then we've also talked about how the HPDI fuel system in general and including with hydrogen leverages and retains and preserves the infrastructure investments and the engine architecture of a diesel engine. So with that, we'll move into -- that concludes my remarks. Happy to take questions at the end or throughout the day. Next, we have a video from Tim Taylor from the Sacramento Clean Cities Coalition. Tim is a long-time member of the California clean air community. So we'll have -- take a few minutes to hear his thoughts and impressions of hydrogen HPDI. Thank you. [Presentation]

Very good movie. Hello, everyone. My name is Anders Johansson. I am responsible for the Heavy-Duty business unit globally within Westport located in Gothenburg, Sweden. Been with Westport for a bit over 10 years and in the automotive industry for a bit more than 20 years. I will try to give you a bit of an update more on the commercial perspective, might be a bit of a repetition here. But I'll try to angle it more on the commercial topics and the market topics. Okay. So first of all, there are 3 main key drivers for commercial adoption of HPDI. The first thing would be availability of fuel, availability of clean fuels in the markets that we expect to grow significantly in the future. Another very important topic is to have a supportive regulatory landscape. We need to have regulations that don't disqualify any technologies and hopefully very supportive to clean and affordable technologies. The main driver, we think though, is to have technologies that are affordable and fast time-to-market to really, really get into volumes of trucks to really start to lower the CO2 emissions in the various markets, to get the carbon reduction that we need globally basically. So I'll take you through some details on all these 3 bubbles to show you why we think that this is an excellent technology for the future. And we think that really highly about this for the next couple of decades and onwards. So starting with the fuels. So biomethane, we have biomethane today. We have trucks on the roads in Europe since 5 years. They are beating competitors, and they are, in many ways, much, much better than people would think. Since it is a carbon-based fuel, you get carbon dioxide in tailpipe emissions, but biomethane has a zero CO2 on a well-to-wheel basis. That's really important. So the trucks are running basically on manure, banana peels, organic waste. So we don't add any carbon to the atmosphere. Fantastic performance already today since 5 years back. I will also explain a little bit about the fuel where we are in different markets, infrastructure and so on in the next coming slides. In the biomethane or natural gas segment, we do see a lot of positive momentum in most markets in the world. We see Walmart, we see UPS, we see Amazon investing heavily in that segment currently. We have been talking about hydrogen here today already. David, Bill and Scott, they all mentioned hydrogen as a future fuel. It is very compelling. It's no carbon in the fuel, so tailpipe emissions would be fantastic. So hydrogen development in certain markets, you can say that they are a little bit behind LNG and biomethane when it comes to fuel availability, demand, infrastructure and so on. But it's starting to ramp up pretty quickly now. So I'll show you a bit of details around that as well. Starting with biomethane. Again, as I said before, true well-to-wheel 0 emissions. Some examples, in Sweden, for example, my home country. We are currently running on -- well, we have a pipeline and infrastructure system in Sweden, which is sort of -- could be fed by fossil natural gas from Denmark. The reason of doing that is that we shouldn't have any customers or any trucks that pulls up to a fueling station, especially in the beginning when everything starts and ramps up, pull up to a fuel station without any fuel. So it must be fuel availability. Uptime for the fleet owners is really, really critical. And then we feed biomethane to the system. The more biomethane we feed to the system, the less fossil methane is going into the system, so to speak. Right now, last year, on a yearly average, all the gas used in transportation in Sweden, over 96% was biomethane, over 96%. So it's not like 2%, 4%, 6%. It's not -- we hardly not use any fossil fuel at all and that's very hard to beat. We have the same examples in many other countries as well. California, for example, they use a high degree of biomethane in their fuels. Germany is growing, as David mentioned before. So it's popping up and ramping up biomethane in most markets in the world. And we see a strong role for that. We have been talking about biomethane as a fuel today, hydrogen as a fuel for tomorrow. I don't think that biomethane is a bridge of any kind to hydrogen. I think they can live just side-by-side in parallel, very much depending on where you have availability of fuel in the marketplace. It could be different markets that is stronger in biomethane, could be the other market stronger in hydrogen and so on. But the important thing is that both fuels have really excellent environmental performance. Biomethane is available today, growing faster than people might think sometimes. Some numbers to back that up. A lot of different stakeholders and institutions, they estimate the future demand, the future production capacity. Whoever you ask, both in biomethane and hydro, I would say, it's hardly anyone. I don't -- I can't think of anyone who thinks that biomethane hydrogen will be flat level or slowing down. They all think it's going to be ramping up. Different paces, different inclinations of the graphs. One example here on the screen, we see a massive increase of biomethane consumption forecast towards 2050. And then beyond that, it's hard to predict. With all that fuel, it is also estimated that 20% of that fuel will go to transportation. So that's -- again, that's a massive, massive increase of biomethane available for trucking in various markets around the world. Moving on to hydrogen. There's -- as I said before, it's sort of like 10 years behind biomethane, in some cases, some markets when it comes to fuel availability, production and infrastructure. Starting off, it looks like a very, very low start here in the beginning, and it is. But again, all the estimations in the future points towards a clear ramp-up from 2030 and onwards. So by the end of this decade, we will see a number of trucks on the street. We will see infrastructure coming along. We see investments going in that direction, massive numbers of investments. And when production capacity ramps up, we also estimate the price of hydrogen will be reduced by 60% by 2030. So that's also an important topic that goes into the total cost of ownership for fleet owners, the price of fuel. Europe, we think that Europe will be one of the main drivers to use hydrogen. We estimate it to be around 23% of the national energy by 2050 would probably be hydrogen in Europe. Similar numbers, a bit lower for North America and China, but again, massive numbers for hydrogen as well as biomethane. With that, all that hydrogen in 2050, it's estimated that again, 25%, maybe 30% will go to the transportation sector. So trucking industry for gaseous fuels, biomethane, hydrogen will grow significantly, and most industry players and institutions agree but maybe they have a different opinion of the pace of it. So McKinsey have done an estimation. They estimated to be around 850,000 trucks on the streets running on -- heavy-duty trucks by 2035. So I mean, those kind of estimations is -- the only thing you know is that, that won't be true. It might be 600,000, it might be 500,000, but it also might be 1 million trucks. The important thing is the trend, so the way we are moving and the different paces that different institutions [indiscernible] Infrastructure, and we are using here Europe as an example. The ACEA, automobile association in Europe, they estimate 300 truck-suitable hydrogen fueling stations by 2025 already. So we will have a pretty rapid increase of fueling stations around Europe. There are 32 stations today but it's ramping up. We see investments. We see new stations popping up on a weekly, almost a monthly basis in Europe. So 300 stations by 2025, which is basically just around the corner. That's a pretty big accomplishment and I think that's very achievable as well. Moving on with the same pace, we think that we will end up in a 1,000 trucks or filling stations by 2030. And to put this in perspective a bit and compare it with bio-LNG or biomethane, which is also available in Europe today, we do have 607, I think 610-ish. Tomorrow, it might be 612, I don't know, but 600-plus stations in Europe today. It's been years now since I heard any customer complaining about availability of fuel or it's hard to find any fueling stations in Europe. So we have passed the threshold in Europe where it's not a niche fuel anymore. It works for most fleet owners. No one is complaining about it. So I don't know where the threshold is, 300 maybe, 350 somewhere, but we are way above that already on the LNG side. That's about the fuel, the left blue bubble in the beginning, fuel availability and infrastructure and energy. Moving over to the financials. Most of the OEMs, they are targeting to get products on the street that fulfills all the regulations. In many markets, Europe, for example, China also, they will see penalties if you don't reduce the fleet average CO2 emissions going forward so 2025, 2030, and that's sort of the main target for the OEMs. The drivers, end customers, fleet owners, they very much focus on TCO, total cost of ownership for the truck. The truck is an investment like a machine that will generate money. So uptime is really important, for example, but there are 4 main drivers for TCO calculations. There is repair and maintenance. There is the driver cost, there's a fuel cost and the vehicle acquisition cost. Fuel is, by far, the biggest portion of this TCO. And that is exactly why we have been saying now for -- in all the presentation that efficiency is really important. So the less fuel you use, the lower cost for fuel that goes into the TCO cake, which is the main piece of the TCO. So throwing out numbers here, thinking out loud a little bit, but if, let's say, that the fuel cost is 10% lower, let's say that we are 10% more efficient than a spark-ignited engine, for example, for biomethane on the market today. If we reduce the fuel cost by 10%, to make up for that, I think that you might have to reduce the vehicle acquisition cost by 30%, 40% since the fuel portion is that much bigger in the TCO calculation. So the fuel portion, the efficiency of the powertrain is really important. On that topic, we usually say sometimes that we are 10% better in efficiency than spark-ignited on methane-powered trucks. Interestingly, it was one of the big magazines, trucking magazines in Europe. They recently did a test, test, they took 3 trucks, 1 with HPDI technology and 2 with spark ignited technology. They did an extensive test through the southern part of France, Alps. They ride for a week, changed the drivers in between the trucks, changed the trailers in between the trucks to have it a very independent test results. We ended up having a 30% better fuel economy than the spark ignited solutions. So we do say 10% sometimes. But in real life, it's been 30%. And that's massive. Again, we have been using words like jaw-dropping, game change and so on here today. But really, 30% is enormous for a TCO calculation. So comparing then HPDI with fuel cells, for example, if you using hydrogen in the future in trucking business, we have 2 main technologies to pick from, so to speak: HPDI internal combustion engine and fuel cells. Repair and maintenance, driver and fuel, we believe, is [ in par ] between fuel cells and HPDI, at least in par. The main difference in the TCO calculation would be the acquisition cost, the price for the truck. Currently, we do see prices of maybe an HPDI truck would be sort of 30% maybe above a diesel truck, in the order of 30% above. Fuel cells are 3x the diesel truck in acquisition cost today. So we are clearly having a benefit here, an advantage versus fuel cells when it comes to TCO. Here are some numbers again on the TCO I mentioned before. There's a significant difference. It's hard sometimes to estimate the acquisition costs. And there are some variables that goes into the TCO that could be in the high range and low range. But we have done an independent view of this, and we have also used an independent company, helping us to provide more confidence in the numbers. We are looking at 8% to 17% of better TCO for HPDI versus fuel cell using hydrogen. Again, that's really, really important for customers. Another advantage that our customers are telling us that have been driving the truck, it runs like a diesel. Very familiar with the drivability, how to use it, how to fuel it, how to operate the truck on a daily basis. It's basically the same. That's a big advantage for drivers and fleet owners. For the OEMs, they do see all the synergies. That's a big advantage. So you can keep product development costs low. You can keep engine plants going. You can keep staff trained that are available today. All these kind of massive investments that the OEMs need to do with a completely new technology like fuel cells or battery electric trucks, if you can avoid that, that's a big plus for them. In addition to that, they also see the benefit with synergies in between different technologies. So with our system, they can basically have a gaseous fuel system that can run on LNG, biomethane and hydrogen. It is a little bit of some differences, but the technology concept of HPDI is basically the same. So they can do product development cost, and they can reduce that and get 2 solutions for 1. And in addition to that, they also see the synergies with HPDI and the base diesel engine. So it's almost like 3 birds with 1 throw, so to speak. So a very compelling, very positive feedback from the OEMs and from the customers that have been driving it and [ NCL ] numbers. Here's another view of looking at it. So from a society perspective, more, how much CO2 reductions you can achieve per invested EUR 1,000 in the model? Same modeling as the former page but a different way to slice the results, so to speak. We do see that HPDI, which is the blue bubbles to the left, various different fuels, biomethane and hydrogen. But the important thing here is that the HPDI in an internal combustion engine is a way, better way to quicker get results and CO2 reductions, faster and with a better magnitude. So to sum up a little bit the, I wouldn't say affordability, but the financials of HPDI, so from an OEM perspective, I did say it before, a high degree of synergies between LNG, hydrogen and diesel. We can fully leverage or OEMs can fully leverage the existing knowledge they have, the existing staff they have, the plants they have, supply chain investments they have, many, many, many good things they can keep and not reinvent, so to speak, to go to new technology. So that -- we believe that's driving cost savings in the billions for OEMs, and that's really appealing for them, of course. So outlining the portfolio of solutions needed. It's a massive challenge here in the future. The scale of the challenge is massive. We need to change the entire industry of trucking and not used for cell fuels. And in order to do that, you need to have a lot of things. You need to have affordable solution. You have to have a mature solution that works with good uptime. There's plenty of aspects to think about that. I think it is naive to think there is 1 solution that can replace all the diesel trucks today. It's naive. I think we need to do a diversity of solutions to get there. And we think that the internal combustion engine, especially with HPDI in clean -- with clean fuels will play a major role in that -- in the future, for sure. The last bubble on the first page, regulatory situation and status. I don't have a lot of slides on the regulatory situation, but this is a summary page. Three main markets, European Union, China and North America. I would start to say that we have a lot of regulatory tailwind in all markets. So most of the markets, they do have more and more stringent emission legislation when it comes to NOx and all that, as Scott explained before. We don't see any issues to comply with those more stringent legislations. The more important thing here is the other piece to it. So most of these countries as well is targeting lower fuel consumption, lower CO2 emissions, which is basically the same thing in many cases. And that is all in our favor. We have one of the most efficient technologies in the market, and efficiency will be key to get the lower fuel consumption, lower CO2 in future. So this is all in our favor. We think it's going to be very positive and very helpful for HPDI to take off into main volumes in the future. Another slide to show you the -- I think I explained it a little bit for the well-to-wheel emissions. And this slide is trying to illustrate the different advantages between biomethane and hydrogen, so to speak. So the green bars here with the different fuels are well-to-wheel emissions. So cradle-to-grave basically, when you start to use -- produce the fuel, use the fuel and the usage in the truck in the end. Biomethane can reach 100% reduction. It could be neutral, CO2-neutral on a well-to-wheel basis today. Fantastic solution. It does not provide 0 tailpipe CO2 though. That's important. But all the carbon that is put into the truck with biomethane is not new to the atmosphere. It's carbon molecules that already exist in the atmosphere. So well-to-wheel, 100% reduction. When it comes to hydrogen, hydrogen is a carbon-free fuel. So they -- that has a big advantage of having more or less tailpipe CO2, 100% CO2 reductions. The important thing here with those results is that HPDI in fuel cells are very much in pair, you can say. It's -- they have the same performance when it comes to CO2 reductions more or less. I think Scott explained that before in his presentation as well. So solutions for the future. We know today that diesel stands for a bit more than 96% of the global market today in heavy-duty trucking. The estimation for the future, 2040, 2050 that is going to shrink dramatically. It has to. And it will open up a huge market that something else need to fill. So all the trucking companies, the fleet owners, they have to pick a solution in the future. And towards 2040, 2050, diesel will play a minor role. So that's a huge challenge for the future. And as I said before, I think we need a diversity of solutions. We need a diversity of technologies and also fuels. And internal combustion engines will definitely play a role in that throughout 2050 but especially maybe in the beginning, so the next 10 years, we have a mature technology, we can reduce CO2 tomorrow, basically by our solutions. Another picture showing the different applications, market segments for the trucking industry. So usually, when you talk about heavy-duty trucking, you talk about how much payload the truck needs to be able to carry and the driving range that is needed. So different requirements for different trucking applications. We do see a sweet spot, maybe not a spot, a pretty big sweet spot, up in the right corner here. We don't think that any other solution basically will be able to compete up in the right corner. So heavy-duty, high payload, long distance, long-range, HPDI will be superior for sure. That doesn't mean that we can't compete in the other areas as well because you also have the financials into it or you also have the power and torque and all the other aspects into it. But the real sweet spot is the heavy-duty and long-haul applications for sure. So many of the industry-leading OEMs, they are, as I said before, they are really positive. They have been reaching out to us with a very positive mindset. They see the results. They see what we communicate. We have been doing show-and-tell for quite a few OEMs already. We're bringing the demonstrator truck to them. They are test-driving it and they are truly impressed, and they are surprised sometimes that the truck is working already today. It's hauling 40, 50, 60 tons, run on hydrogen. Drivability is good. Everything is -- we just a different fuel and it works. That's the beauty of the HPDI technology, basically. So a lot of positive feedback from OEMs. And we believe that in our 3 main markets, I would say, North America, Europe and China, 3 main markets, not the only markets. We work with all markets in the world. But we see a lot of interest from OEMs. We do have detailed discussions with as many as maybe 10 OEMs or something. We -- I dare to say that in the history of the company of Westport, I don't think we have had this level of interest from OEMs anytime. I haven't been in the company for more than 10, 12 years. But Scott and the others, tell me if I'm wrong. I'm pretty sure I'm right. Yes. So this is really, really exciting in the next coming years here. I do want to say also that we are planning to sell our products in other markets than those 3. Those 3 are the ones that we are focusing to partner with OEMs. But obviously, the OEMs are selling in other markets as well and we are helping them with that. We do see positive momentum with the current product we have in Europe for -- to sell that in South Africa, in India, in Japan, in Australia. Some other markets, they are trying to launch the product. Even if the OEM as such is in Europe, they are trying to launch the product globally right now. So coming to an end, this is my last page. We do have demonstrated trucks. We have 1 in Europe and 1 in North America. As I said before, they work perfectly today. They are prototypes but they work perfectly. So we have been hauling 40 tons so far. And a lot of people have been driving it, really impressed, as I said before, and we will continue with the tour to show people, policymakers, regulators, OEM, customers as well. And we'll continue the positive momentum we have in the marketplace today. Thank you. And now I think we will have a break. I'm looking at Ashley here. But I think we have a 15-, 20-minutes lunch break, right? And then the idea is to bring the lunch back into the room and we'll have some more videos to show, right? Good. Thank you. [Break]

The microphone is working. So you can continue to enjoy your lunches, by all means. We're going to have a short video that we want to share with you. So to introduce -- I'm going to go up here. For me, it's better. We're going to do a short video. It's about 6 minutes long. We tried to get people from our industry and our ecosystem to come in and tell you a little bit about their perspective on what we do at Westport Fuel Systems. One of our partners for a long time, and you've read and heard the announcements that we're working with AVL and TUPY on a project to integrate HPDI into an engine and demonstrate it on hydrogen. So we've got a video clip from AVL. And just to give you a flavor about AVL, they have about 10,000 engineers around the world. So this is the leading independent engineering consultancy for the automotive industry based in Graz, Austria with 90 locations, 45 technical centers. It's a really big operation. And I would tell you just kind of my observation in the industry is this is a company that is technology-agnostic. They're not out selling any specific technology. They're working on every kind of technology. And so we introduced them to HPDI some time ago. And then as the pressures in the industry and customers came to them, they're very excited to be working on this project with us. And we have this clip from a gentleman, let me get it here because I'm going to mess up his name for sure, Anton Arnberger, who is Product Manager for Commercial Engines. This guy has been working in the industry almost 20 years now and started out doing combustion development, and all of his focus now is on gaseous-fueled engines. So he's really the right person to talk to the HPDI technology, what he sees. So I'll leave him to say the rest.

Ladies and gentlemen, it is a great honor to speak for Westport today. Best greetings to Canada. My name is Anton Arnberger and I'm Product Manager for Commercial Engines in AVL. I may lose some words today about decarbonized on-road transportation. First of all, a few words to my company. AVL is the world's largest independent development supplier for simulation, testing and engineering in the automotive industry. Independent means we are not favoring any particular kind of technology, means we are developing battery electric vehicles, fuel cell electric vehicles and also the internal combustion engine in combination with conventional powertrain or powertrains, in combination with all kinds of fuels and for all applications. For heavy-duty applications, currently, hydrogen is expected to be a very important energy carrier in the future. And we use it by 2 different technologies, either the PEM fuel cell or the hydrogen engine. I personally don't think that these technologies are direct competitors. I do much more see the hydrogen internal combustion engine as additional driver to speed up the hydrogen infrastructure, as the missing infrastructure is the greatest risk for both technologies. Looking more into the hydrogen internal combustion engine, there are 2 different combustion concepts which are currently under development. First is the spark-ignited lean burn approach. Most OEMs do currently follow this approach. It is very flexible in view of applicability to different applications, means it is suitable for heavy-duty applications but also for smaller applications, even for passenger cars, it is a possibility. For heavy-duty, HPDI does make a lot of sense. Here, hydrogen is injected at the end of the compression stroke directly into the cylinder, and it burns on a diffusion flame. This diffusion flame is an enabler for much higher efficiency. And we have additional benefit as the engine works on the same principle as a diesel engine. Currently, we do need a pilot injection to ensure ignitability. However, this will be, in future, done either by renewable fuel or by a different carbon-free ignition source. Looking to the efficiency of both the PEM fuel cell as well as the hydrogen internal combustion engine, we do see that the PEM fuel cell is almost not beatable in view of efficiency, especially in the part load. The more we move to full load conditions, the better the hydrogen engine becomes. When considering also the losses of the powertrain, we see that we come here in full load condition very close to the PEM fuel cell. The PEM fuel cell has a full electric powertrain, which, on the 1 hand, has higher losses. On the other hand, it has potential to recuperate. That means in part load area, this additional recuperation might be an additional benefit. What is now the contributor of HPDI? When moving from the spark-ignited hydrogen engine to HPDI, we see a significant increase of brake thermal efficiency for both full load as well as in part load. So especially for applications that were full load conditions are rather important, not necessarily only heavy-duty transport, maybe also heavy-duty on-road mobile machineries or heavy-duty construction equipment, hydrogen HPDI makes a lot of sense. I may shortly sum up. I think the hydrogen internal combustion engine will be an important contributor for decarbonized transportation in future. I think we will see the hydrogen spark-ignited lean burn concept as well as hydrogen HPDI, the SI lean burn engine has the benefit that zero-emission vehicles can be demonstrated. The HPDI engine has the particular benefit that it uses the hydrogen in a most efficient way. All in all, I think HPDI might be a very important contributor for heavy-duty transportation towards decarbonization. In the name of my entire company, I may say, thank you very much. Have a nice and safe remaining day on your today's event.

So Martijn, thank you. Thank you very much for being here during your evening. Martijn Stamm is the Director of Mobility from TNO. 15 years with the company, holds a degree in electronic engineering from the University of Delft in the Netherlands. TNO, totally independent company in the Netherlands, have state-of-the-art test facilities for heavy-duty. So all European OEMs are there where they work with different fuels, diesel, natural gas, LNG but also hydrogen now. And I'll leave it up to you, Martijn, to explain a little bit more about yourself and also about TNO.

Thanks. Thank you for allowing me to speak here. I hope I'm well received, that I can be heard. So my name is Martijn Stamm. I'm the Director of Mobility and Trucking Transport within TNO. TNO, as you said, is an independent research organization. We are -- we have a long history in the Netherlands. We were founded in 1932 so 90 years already active in multiple research fields. We are the largest independent organization in the Netherlands, partly government-funded, but also, how to say, independent from both government and industry. We are active in many, many research fields ranging from anything from ICT, energy transition to security, safety and defense and my field, traffic and transport, where we are looking towards creating a mobility system that is 0 emission, 0 casualty and 0 loss in [indiscernible] efficient and inclusive for all. I've been working with TNO for 17 years in multiple roles and now I'm responsible for all the research work. I hope that explains a little bit.

Yes. Perfect, perfect. Okay. I've prepared some questions. I start off with the light questions here, and then I'll leave it to the public also. [Operator Instructions] And I think also Martijn can hear it better. Martijn, can you elaborate a little bit why it's so important to know that Westport Fuel Systems and TNO work together and what are the big benefits of our cooperation?

Yes. Maybe it's good to start a little bit with how we see the transition towards 0 emission mobility. As TNO, being independent, we also try to give an outlook that is realistic and not targeting 1 technology or 1 field, particularly. And especially in the field of heavy-duty transport but also mobile machinery, we strongly believe that there needs to be a multitude of solutions to allow for an efficient towards 0 emissions, towards sustainable transport. And already for many years, TNO has been active in developing new solutions for combustion engines on natural gas solutions. We have a long history also with Prins Autogas and through that. In other routes, we've met the solutions that Westport offers in this field. We have a very good collaboration in my opinion, and this collaboration has allowed us to proceed in developing very efficient solutions in this gas field, but now more importantly, I think transitioning over the last year or years to hydrogen combustion. And for us to be able to develop that, being a research institute, we need a very good open partnership. And I think we've developed that, and we've been able to bring solutions, yes, for our clients closer to market. And yes, I think what we have is a very, how to say that, a very open collaboration where we can really work together, develop the solutions for multiple clients. And for us, the goal is to bring that technology to the market as soon as possible for hydrogen combustion, especially meeting the standards that are being set, for instance, Euro 7. We strongly feel that we need to transition from a port fuel injected solutions to HPI solutions and for that partnership is quite important to us.

Thank you, David, anything to add to that, sir?

Yes. I think probably for the audience, we haven't been so, let's say, clear about our projects with TNO. So -- maybe just to elaborate that on that a bit more. Martijn and his team are with our hardware and our control strategies in the Dyno cell running HPDI hardware with both natural gas and hydrogen to demonstrate again on this specific platform that TNO has access to, it's a single cylinder engine with some funding from the Dutch government. So there's a real consortium of parties coming together here to demonstrate using our technology what's possible with hydrogen and how it benefits and exactly where. And frankly, the work that we've been doing on full 6 cylinder engines is, I'll say, less research. It's kind of more development, whereas the kind of work that Martijn and the team at TNO can do can really see what else is possible by probing into that single cylinder engine. So for us, a really valuable partnership. And there's also just geographically in close proximity between Martijn's team at TNO and our Westport Fuel Systems Eindhoven location that came from our Prins part of the company. So it's a really great collaboration, but just lovely for us to have more test cells in the world, more engines in the world running our HPDI equipment and developing and exploring and bringing that product to life.

And we are close to a big Dutch truck manufacturer, that also helps, we speak the same language. And for you in the room and online, you can figure out which one that is. It should not be that hard to figure that out. Also, I think TNO, it's like a butcher testing his own meat if we are saying, oh, and we are saying, all day, how good it is, but they are independent. So when they say something is like to for AVL or TNO saying something, it has much more value to the OEM customers than we are saying it about ourselves. Okay. Any questions from the -- oh, sorry, you want to say something?

Sameer Joshi from H.C. Wainwright. The question is actually about the development of the hydrogen solution that you have. We saw the product outside, and it has been road tested. How much more investment will it take to get it ready and on the roads commercially?

Yes. I think specific figures are challenging in this moment because we're -- I would say, in early stages of that development activity. But I would say the unique developments that we need to do with respect to HPDI and with hydrogen are not so significant because fundamentally, we're using existing production hardware. And so -- but I'll be realistic because in the end, I started as a [ next year ] first and foremost, we've got to go do the work before we know. . But at this point in time, and the budgets we're preparing, we don't have big CapEx numbers, big engineering funding, not a lot of spending to go do the work that's necessary in many cases as with the work we're doing at TNO. We have outside funding sources for that, whether it's a customer or a government or another funding source. So in total, that doesn't show up materially in any way in our income statements right now. But we have to go do the work and then we'll find out what else is required.

So just as a follow-up on that and maybe a CFO question. The $12 million to $15 million in CapEx, what are the targeted areas for those for the next 2023? How much of that is for hydrogen? How much of that is for other investments?

[indiscernible].

Eric Stine with Craig Hallum. So David, I know to this point, you've always gotten a question about for new OEM partners. Do they want a similar solution? Do they want their own solution? Curious what you think that looks like with hydrogen? Is it because of urgency in the market? Is that something where you think it's very similar and that it's quicker to market? Or do you expect that each individual OEM or are you finding in your discussions, Anders mentioned the 10 or so that you're working for or with do you anticipate that they will want more of a specific to their platform solution?

Yes. So first and foremost, every OEM has their own engine and they want the technology whether with it's our product or somebody's air filter. It doesn't matter what it is, they want it demonstrated in their rent with their hardware and their vehicles and so forth. So that is, I would say, normal with respect to any technology, including hydrogen HPDI. As we've discussed today, there isn't a lot of adaptation that's required on the engine side in order to put HPDI, the actual hardware in the engine. That was true for the product we have in production. That's true for the project that we did with Scania. Step-by-step, each one of these projects, we can evaluate how much changes required in the engine. And as Scott was elaborating, not so much change on the engine side in order to put the hardware in the engine. Then there is a specific hydrogen development. And fundamentally, every customer has their own set of targets, what they aspire to do. But I'll tell you right now, as we work with OEMs, the fundamental they want to know is what we said really true in their engine. 20% more power, 15% more torque, 10% more efficiency. Yes, but what is it about in my engine. And so that's really the proof points we're doing with the likes of Scania and others, some of which we get to talk to you about and others which we don't. That's where I would say the first and foremost question. And then from there, there is a decision on the development targets for any given project, whether it's natural gas or hydrogen. Where do you want it, what period of time, how much volume, what are the targets, all those things that I would say is normal product development. Maybe an important element in this kind of how does this dynamic work in our business is there are customers that we're working with like Scania, who are interested to understand this hydrogen potential of HPDI. But then are also interested, okay, if there is this long term, if they become convinced that the long-term potential of hydrogen HPDI, hydrogen and trucking, what can they do with that technology pathway today. And that's where we do see interest in using this technology and the product that's already in production with natural gas, knowing that there's a pathway to go forward with hydrogen in the future without tearing up the engine, tearing up the vehicle and starting over with all new investments. This is super important in the kind of decision-making, strategic planning, technology road mapping that OEMs do to say, how do I satisfy my customers? How do I meet regulations and how do I run a profitable company.

Any more questions from the audience? I see one.

Mac Whale, Cormark Securities. Spark-ignited natural gas engines continue to have a big market share. Many, many -- some -- customers decided not to use it. So is that not likely to be the same situation in hydrogen?

I don't think so. I think it will be different. And there's 2, let's say, elements of that, but I'll comment on, and maybe Martijn can join in with his view of the situation. and the outlook. First of all, I think there has been still to the state -- is still to state a lack of complete understanding and appreciation for how much better HPDI is than a spark-ignited engine. Both of the joint ventures that we started with both Weichai and Cummins, the original intent is to bring HPDI to the Marketplace because of the promise of being able to run a diesel engine like a diesel engine, but with natural gas. . And I think maybe as Anders mentioned in his presentation, there's data in the marketplace now saying engines using HPDI are 30% more fuel efficient than engines using a spark plug and natural gas. So this is not some small number. This is absolutely huge. But I would tell you, we were at the Hannover Truck Show, we're talking to CTOs and CEOs and heads of powertrain development, and they don't all understand that. And so we still have work to do on communications and helping them understand this or showing the data. And that's just on natural gas. With hydrogen, I'm quite well convinced. The data we show, the performance we've demonstrated in vehicle and Dyno. When we use hydrogen with HPDI in an engine, the performance gets better, more power, more torque, more efficiency. I'm equally convinced when you take an engine and let's say you have a spark-ignited natural gas engine and you run it on hydrogen, the performance gets worse, because of the properties of hydrogen. When you mix hydrogen air, it wants to explode. And so you have to run super lean, and there's all these things you have to do, which are not so easy to do an internal combustion is the development cycle is more. The capital investment is more and the performance power density, torque density and the fuel efficiency are all worse.

Can I add to that?

Yes, please jump in, Martijn.

I think it is also an important factor that I notice is that if you look at the, let's say, the emission legislation side of it, there's more and more openness in the EC and also in the local government in Europe at least to allow for combustion engine solutions for wide use of applications. Maybe less so for the light-duty applications, but especially for the heavy-duty and on-road machinery, we see that coming up. But there is some worry the way they're looking at it, for instance, the European committee is saying, they want 80,000 zero-emission lorries in operation by 2030, which I think is impossible to do battery electric. And so you have to look at solutions that will work in that field, but they also have to comply in the long term towards the Euro 7 legislation and especially looking at Nitrous oxide emissions is a big point in Europe. I think if you look at the 2 technologies, HPDI is much better potential solving that emission well, let's say, challenge without bulking up the aftertreatment solutions that are required. So I think also from that solution, so performance definitely on the short term. But if you look from our perspective on the more long term, I think that is a reason to want to go to HPDI as well.

Thank you, Martijn.

As a follow-up to your answer, David. The -- in a way, if I'm interpreting correctly, with the natural gas, there's a big differential in the CapEx that your efficiency has to make up for because in total cost of ownership, as you were talking about, I think it was Scott, that was talking about, you have to say so much on the fuel to justify the bigger CapEx. In a way, what you're saying is the HPDI with hydrogen kind of is the killer app that justifies that. Is that fair, because you get -- what you just said was your efficiency is so much better that now you've got a viable technology that beats the incumbent, whereas right now in natural gas, it's good, but you're basically pitching on better performance. And I think what the customer is saying it's like, it's recognized good enough.

Yes. I think there's an element of spark-ignited engines just generically, we, the industry, all the players, we know how to do this. That's pretty straightforward. And so -- I mean, basically, the technology that's used in sparked-ignited natural gas engines today by our former partners and our current partners and others who are making these engines, this is relatively open. This is not some new inventions like HPDI is. And so all these engines were developed, and I think there is an element in the marketplace where a fleet manager says, go get me some natural gas trucks and they buy the cheapest ones they can get, and then they get what they pay for a relatively inefficiently low-performing engine. And there hasn't been much availability in the world of HPDI, one market, one OEM, that's it. So I think moving forward, this is changing. People are understanding and 30% is huge. So I do expect and we're already seeing and the work we're doing with manufacturers around the world that's what they want. They're appreciating this benefit, and they appreciate it even more with hydrogen because, frankly, many of them, maybe all of them have already tried or are trying with hydrogen and spark plug, and it's difficult. And they're thinking about all the changes they're going to have to make on pistons and turbochargers and aftertreatment and cylinder heads and the CapEx associated with that. And gosh, I can't just -- I mean, a lot of the spark-ignited engines in the world were bought from 1 or 2 manufacturers, which is relatively capital efficient. If everybody has to make, well, that's a lot of spending, a lot of development. So I do think this cost effectiveness has a number of key ingredients. One is how much does it cost to develop. In other words, how much does it cost to industrialize. Third is how much it cost to buy the truck; and the fourth was how much the cost to operate the truck. And I think with hydrogen HPDI versus spark-ignited HPDI versus fuel cell, we have big advantages on all of those.

There's another question here in the room.

Chris Dendrinos, RBC. I guess just maybe focusing on the regulatory environment. Can you expand on those conversations right now? Are you seeing a growing interest from regulators to, I guess, be more open to maybe a solution that's not perfectly zero emissions? Who's going to the regulators? And what are those conversations? Do you have partners on the OEM side that are taking the charge up with you? Or are you kind of going it alone right now?

I think that's a good question from with time because they are advised the Dutch government, but also the European government. So Martijn, could you speak a little bit to that.

Yes, definitely. So TNO is on our -- we have 2 sites in the mobility field. We are working on technology development, which are lapse in [indiscernible]. But we also work on the legislative side, we've been heavily involved in development and the leveling of the Euro 7 standard that have been announced now. I think generally, we see that more and more the realization is, how to say that, is thinking in that a silver bullet solution doesn't exist. There's no one technology for especially all these first tile heavy-duty applications that will solve the entire energy transition. So for instance, Euro 7, we see now that even for the light-duty, a review moment has been planned for 2026 to see if the subject on the internal combustion engine for light-duty needs to stay the way it is. And so there's no big decisions yet. I think that the routes are being opened. But if I compare the discussions we have with the legislators 2 years ago, there was hardly any room to talk about combustion engine in future. And now we see more and more money being opened up to do research into that, especially around hydrogen, but also more and more openings in the legislation. So definitely, I would say that the -- also the regulatory side is opening up for combustion engine as a solution in transition towards the zero emission.

David, do you want to add something to that?

Yes, I do think -- so we have been tracking our hydrogen trucks around 2 regulators in various jurisdictions. We've been to Brussels. We have been to Berlin. We've been to Sacramento, Washington, D.C. And this isn't just a onetime stop. We need to go back and tell the story again and again. And as we're joined, increasingly joined by our OEM partners, which they did when we were together in Brussels, as an example, we had our customer there with us. This really reinforces the message and then the regulators really pay attention. I also think, in general, there is under difficult economic times and geopolitical challenges that we face. And all this kind of strike we have in the world, this is a pressure on regulators and all of us to get more practical and what can we do right now? what -- not this unobtainium future, it's magical, it will work, and we'll all be happy. No, no -- what can we do right now that's practical realistic and really make the difference. And that's where I do see that movement. And it will take some time. But even in the OEM ranks, I was at the Vienna Motor symposium, we presented there this year in late April. And there are a lot of presentations about hydrogen internal combustion engines there. Of course, ours was the only one with HPDI, all the rest the spark plugs. But one major manufacturer who was presenting had a lovely chart saying, we need hydrogen internal combustion engines in this space and it was construction off-road and, let's say, the heavy duty cycle, short haul kind of applications. It's a new application, but this manufacturer had never said such a thing before. So in the halls and in the offices and in the conference rooms the major OEMs, they are studying this strategic math of alternatives and trying to figure out what to do. And when they learned about when we drive our truck with hydrogen and they experience what's capable and then see the math and see the combustion changes their strategy back and changes their decision-making, and that's happening now.

I guess then, maybe as just a follow-up. In terms of government funding for research programs. I mean, are there programs out there right now that you guys can potentially tap into? Or are there anything, I guess, within the next year that you're maybe applying for that, that would be beneficial?

Yes. I think that there are some. I would tell you that right now, I see, for example, in the United States with the new Inflation Reduction Act, the hydrogen hubs. And I would say that funding is more on a slowdown basis where they say, we're going to build hydrogen hub, we're going to need some vehicles, right? And so there is this partnership aspect of where we go and try to find funding. As we've done in the Netherlands with TNO and our consortium of partners there. So it's -- there's 180-plus countries in the world. We have to pay attention to all of them. But for sure, there are opportunities and we're off pursuing this.

Martijn, maybe you can add something what the European Union and the Dutch government is doing at this moment on the fields of hydrogen because that's...

Yes, I think that's a big push for a hydrogen economy. I think to strengthen the statements you just made, David, in the Netherlands, there's a lot of funding available. It's on the Dutch skill. So of course, it needs to be skilled up to European levels. But to also work on combustion engines and on hydrogen. So the programs we are jointly running now, don't just focus on single applications, a single demonstration really getting the hydrogen technology in the market to be able to also push this economy and get the availability of the -- let's say, the fuel infrastructure also pushed. There's a lot of countries that are investing now in hydrogen fueling stations. Also, in the Netherlands, there's been targets set for that. So I think both on the research side, there is a lot of opportunity to look at combustion of hydrogen but also, for instance, safe storage of hydrogen in the vehicle, which is also quite important to get things warning, especially there, I think there's additional funding coming up. And also, there's a lot of push for funding to work on the infrastructure. I think the main thing there is that we have to make sure that the mobility field has solutions to use this hydrogen as fast as possible because there's also a lot of competition for the available hydrogen from industry, for instance. So I think this is also something in OEMs feel and they see a need to bring vehicles on the road as soon as possible to make sure there's no government solutions that push the hydrogen away from mobility. And that's also something that we're going forward to make sure that as much as possible in road maps and strategies of governments. There is also a reservation made that hydrogen will be available for the mobility sector, which European Union has done. So I think that's moving in the right direction as well.

Okay. Thank you, Martijn. Any more questions in the room here? There's one more there.

So David, you just mentioned some off-road applications that this could be used for. So I have a 2- or 3-part question. You also had mentioned you have an M&A strategy. Is that -- does this fall in that strategy where you might acquire something which will help you in the off-road applications? And part 2 of that M&A question is, are you also looking at vertical integration, upstream or downstream from where you are?

Yes. Thanks for the question, Sameer. I think the off-road markets are, in fact, super interesting, right? I think in earlier comments, I mentioned kind of we're in this space of heavy-duty trucking of 11- to 13-liter engines. And when you go bigger than that, the loads get even heavier and the opportunity becomes even more important and the opportunities to decarbonize technologies even more challenging. So we think about here in Canada in the mining industry and all the mine haul trucks, I mean -- locomotives, I saw a number the other day 26,000 locomotives in this year. So there are just tremendous amount of opportunities. And if you think about some of those demonstrations that have been done with fuel cells, we're talking about gutting the entire vehicle, filling it up with fuel cells, whereas our offer to that kind of market would be basically just change the injector and put a different fuel tank on it. So a super attractive approach to decarbonizing hard-to-decarbonize sectors. In terms of M&A, the world is very interesting, and we'll see how that all plays out. I wouldn't say we have any specific strategy to or not to, but we're certainly open to the opportunities and have our eyes open.

Okay. We are coming close to the end of our session here. Martijn, just one last question for you. How large do you see this opportunity with hydrogen for this technology what we are together working on?

Being an independent research organization, I cannot name numbers, of course, but I know for sure that there's going to be an opportunity. Looking at what also we mentioned the off-road market, but also the long-range heavy-duty market in Europe, at least, as we see it. A major part of that cannot be electrified. The fuel cell technology is demonstratable for heavy-duty application, but definitely not future proof and economical. So as we see it, a big portion of that market needs to be done with combustion engines for a long time still. And if you want to decarbonize then, of course, hydrogen will be solution. Yes, like I said, it's a little hard to name numbers, but it's a big jump. Personally, I'm convinced that we're not looking at electrifying more than small percentages of that market in the short term. And a lot of companies and a lot countries do want to show the potential decarbonization. So...

Next time we invite you in person, so you can tell those people here during...

Sure. At the drinks, I can tell a little bit more [indiscernible] that we have to stay independent of law or...

No, we appreciate that. And also, it's good because you're also testing our technologies to keep it also confidential. Martijn, I would like to thank you very much spending your time with us during your evening. It's better today than tomorrow because tomorrow evening, for sure, you would not have joined as Netherland is playing soccer. But I will see you next time.

Different competition.

Thank you very much, and have a nice evening. David thanks for your answers...

[indiscernible] of your session.

Thanks to call because it's really easy for me to be a moderator with all your good questions. Bye Martijn. [Break]

Okay. We are at the final portion of our day. We are -- we have a Q&A just before David's closing remarks. We've gotten a ton of questions and interest online so far, but wanted to give our in-room and our online folks the opportunity to really grow our whole executive team that's joined us here today. So before we kick it off to online or in the room, I did want to kind of pose a question maybe to somebody who hasn't had the opportunity today yet. So Eric, you're up first today. We -- and this one, we've had some questions online as well. What can you tell us about fuel storage components and the capabilities that Westport has.

Okay. That's an interesting question. So if you start, you need basically the fuel tank for any kind of application. So we currently manufacture our own LPG tank for our Autogas business, and we also produce the LNG cryogenic tank for our LNG HPDI business. But we are also capable of developing and providing other types of cylinders, tanks and fuel storage solutions. So Westport provides solutions and systems from tank to injector. We don't have all kinds of fuel systems -- fuel storage solutions today, but we are capable of developing high-pressure storage for hydrogen. And actually, my background is fuel storage because I joined Westport last year through an acquisition. Westport acquired my company, the company we have been working for 22 years now, Stako located in Poland, and we have a good record of development and production of high pressure hydrogen cylinders for automotive applications. We have an engineering team, which is capable of developing high-pressure hydrogen cylinders systems.

Thanks, Eric. This one came in online, and I'll turn it over to the room right after this, but I think this one is interesting. I'll pass it to David, who might want to get more on the panel to weigh in. What is our view on the ability of EV to take a significant market share? And have we done a similar comparison on EV relative to HPDI either with LNG or hydrogen with respect to cost and performance?

Yes. So I think the first thing to clarify in that question, if I could, is what application are we talking about. So -- we'll just take it as a [ sum ], we're talking about heavy-duty long haul. And yes, we have done our own, let's say, independent internal analysis of the economics and the math and the packaging from what we know of batteries. But frankly, we're not battery experts. So we've been reading a lot as everyone else can about what's being offered in the industry, and what kind of cost might be inclined to come from those kind of batteries and weight. And fundamentally, in that application, long-haul heavy duty, as you heard also from Martijn and from our colleague in ABL Anton, basically, that does not seem like a viable application for battery electric from a cost and performance perspective that the weight of the batteries, the size of the batteries, the cost of the batteries, is going to be super challenging for those applications. And we're talking about applications basically, and this is where we say, heavy-duty long haul, that's about half of all trucking that moves about 80% of all freight at some point in time that you load it up and you go a long way. And so it's a lot of energy and you have to recharge far away. It's very different from an application, I'll give you an example, like a FedEx delivery truck that goes out, delivers packages and come home every night. So this might be a very good application for battery electric, where you actually come home every night, you know your route, you're not moving the heavier things in the world, this could work. Or at least it has a better chance from an economic and an engineering and technical perspective. Did I cover the basis?

You got it. Any questions in the room?

So this probably is for Scott, following upon our previous conversation last night. Before this is at a stage where the hydrogen mobility solution gets designed in to actual vehicles from now until then, are there any other, not technological, but engineering challenges that you may envisage? And how would you work on those?

Yes. Good question. So if we -- I'll start that question or start the answer to that question by kind of recapping what we have demonstrated so far. So what we have demonstrated so far with hydrogen HPDI is that, the existing fuel system from an architecture and a performance and functionality perspective works just fine with hydrogen, which we expected. It's a gaseous fuel. The system was developed for gaseous fuel. The engine -- the fuel system architecture and the performance there of works just fine. And in fact, better than we even expected as I talked about, as David talked about in terms of improved efficiency, improved performance. So from -- we don't have to invent that part. For the on-engine work, what we do have to do is go through now the production intent, design and validation and certification of hydrogen versions of the components starting from our natural gas parent. In fact, that's -- we have a very significant analogy and precedent for that within the company. David referred to our hydrogen components division, just an hour down the road in Cambridge, Ontario, where for the last 20 years, we've been developing and are among the world leaders in supply of hydrogen components, things like tank valves, pressure regulators. And the analogy there is that, that team started with CNG versions of those components and then tailored and adapted and revalidated and recertified those to hydrogen component standards. So we have in-house expertise and knowledge on how to take natural gas parent products and adapt them to hydrogen applications. There's still a lot of work to do there, but it's engineering work. I wouldn't say that challenging. The main piece of new work that's required is on the off-engine side of things. HPDI as a -- it's in the name, high-pressure direct injection. It requires a continuous supply of high-pressure gas to the engine. To quantify that, it's approximately 300 bar fuel pressure is what's required as a continuous supply to the engine. Currently, the sort of standard to the extent there is such -- is a standard for hydrogen refueling is 350 bar dispensing from stations. All indications are that globally, the hydrogen industry is transitioning to 700 bar. So the tanks on that truck that you saw last night are 700 bar tanks. So starting from a 700 bar from refueling station, the top half of the fuel depletion cycle, a compressor wouldn't need to do anything. We can just run off tank pressure to maximize fuel utilization, maximize range. We're going to need some form of onboard fuel pump that hydrogen onboard compressor is -- and the fuel system integration and the fuel control strategies and frankly, the IP associated with that to minimize parasitics, maximize fuel utilization, therefore, maximize operating range. probably the single biggest piece of work ahead of us to ultimately get through technology development, get to the point where we and our OEM partners can confidently embark on a joint product development and product application project ultimately leading to production availability of hydrogen HPDI powered vehicles.

Thanks, Scott. I'm going to maybe do one from online here, and this one is to get someone else talking. So Bart this one's for you. Can you talk us through the direct impacts in terms of gas availability and electricity cost inflation in Europe? And whatever the derivative impacts we've seen either on our own operations but as well for our customers?

Yes, I can do that. Thanks for the question for the ones online. I think what we have seen since this year, actually, that our energy costs are going through the roof, and especially also electricity. So at the moment, in many countries in Europe, if you don't have solar panels or your own energy resources on electricity -- to drive an electric vehicle is more expensive than to drive it on LPG. So -- or even on petrol. So we have seen a huge uptake of our business in the independent aftermarket, but also the delayed OEM. The problem that we are facing in many cases was there were not enough vehicles. The chip shortages hammered all OEMs. And there was just a shortage on a big backlog of delivery of new vehicles. So that kind of holds us back on that. Last, say, 3, 4 months, they are catching up. Supply is getting better. And I think the OEMs that we also mentioned in our press release are now catching up also with the supply of vehicles and driving our performance above budget even. So I think the energy cost, especially electricity and the big price gap between the oil price went up quite a bit. LPG prices remained kind of flat, makes the ROI for LPG a lot better. Sorry about that. Speaking a little bit my hands.

Maybe one thing to add, I think, it's observation I've made in my 4 years with the company, and that is both challenging economic times as well as high energy prices tend to be good for our company. And what I mean by that basically is in challenging economic times, people go looking for ways to save money. And in most cases, that includes gases fuel in their vehicles. So that's where Bart's talking about the independent aftermarket customers saying, "I don't want this EUR 100 tank of fuel. I want the EUR 45 tank of fuel that's the LPG alternative, and so they seek us out. The other thing is when high -- when energy costs themselves are high, people are looking for alternatives, whether that's fleets or individuals are going and looking for alternatives. And it's the search for alternatives that brings them to the technologies that Westport Fuel Systems offers.

Thanks, David. I'll ask one more before we turn it back to the room. This one is for you, Bill. Can you give a little bit more information on capital structure, expected cash burn for 2023? And what options are really available in terms of liquidity, especially in the event of what could be or what may be predicted by some as a bit of an economic slowdown?

Sure. The good thing today is we have a revenue-generating business. We're generating profit help. However, our margins have to come down or times where we're dealing with inflation pressures, and we need to reverse that trend. I think we have a lot of opportunities. There's some quick wins, but there's more long-term initiatives to turn that around and start expanding our margins, but at the contribution margin level and the gross margin level. So by executing on that strategy and those initiatives, I expect it's going to free up and generate cash flow. So really the message is we want to optimize that business and get spinning off as much cash as possible. So we can go fund our operating expenses, so we can go fund our investments in developing hydrogen HPDI and commercializing that technology. The other area that we talked about or I talked about was around working capital. As I take a look at our inventory levels, our accounts receivable. We've talked about the opportunities with inventory, and I think there's a lot of opportunities to bring our inventory levels down, which is going to free up a lot of liquidity, also more effectively managing that inventory, which is going to help our liquidity. And then when we look at our accounts receivable, looking at payment terms and see if there's opportunities to shrink the days outstanding on our AR, which will also help improve our liquidity. Our initial go to, if we need additional cash, it's going to be debt. We've been paying down debt. We've been generating cash flow so we can service that debt a little more successful on our initiatives. We expect to be generating more cash flow, which will give us the ability to go take on a different leverage. And we're going to reach out to our current partners -- our banking partners as a resource to take on debt. And I think as a last resort, we would go pursue equity. But as we're looking at '23 today, as we've gone through our planning process, I just don't see that right now.

Thanks, Bill. Anyone in the audience have questions?

I guess I just wanted to focus on the independent aftermarket business and maybe what the landscape looks like there to, I guess, expand it in new areas maybe take some market share. I guess, what's the competitive environment? Where does Westport, I guess, excel? And what kind of markets are you looking at that you can expand into, what are the opportunities?

One is -- I start with the technology. We are the market leader in direct injection technology on the LPG. So -- by far, we are the leading there. So that gives us a benefit in mainly Western Europe, but now in the rest of the world, the MPI engines are disappearing. And every -- all new combustion engines will be direct injection. So that market, we will take -- we are taking market share quite rapidly. The second thing is our dual fuel. David showed that we are expanding in Africa. Africa, when you start saying, "Hey, we are going to drive electric -- on electricity." People start to laugh because they're happy that they can charge their phone and the light is on. So there is where we put more efforts in. We are quite successful in the tenders, but also in the turnkey projects where we supply finance. We supply the filling stations, and we convert the trucks. So that is where we are expanding. Third, of course, our competition is shaking now because we are taking market share year-over-year from them. There are only one big competitor left. And probably you will also look at their performance, and you see what's happening. So I don't need to speak anything bad about our competitors or something. But you see on their results, what's happening that we are taking market share.

Did we have some more hands up there?

Over the course of the last year, you spent an increasing amount of time talking about hydrogen. I'm wondering whether you could sort of go through major -- various product lines or brands that Westport has and explain why they have a future given the hydrogen plant. So explain to us how they merit being together?

I think it's a great question, and my predecessors have put together really an outstanding portfolio of capabilities that's product capabilities from LPG and CNG to manufacturing capabilities in terms of the machining and the assembly and the end-of-line test. The electronic capabilities. So every fuel system needs a set of electronics. We have a state-of-the-art facility that makes of electronics, and I think it's a core asset of the company. We added fuel tanks last year in terms of LPG fuel things, that we didn't have before expanding that capability to flesh out our whole product portfolio. So frankly, when I look across the portfolio we have of technologies, manufacturing facilities, brands, fuels that we respond to, there is absolutely synergies between all of them in terms of the kinds of work we do and the kinds of products we provide. I mean, it's been, I would say, fun for me to identify team members in our company who don't know each other that they could work together and do 1 plus 1 equals 3 kind of activities. So this is happening in the company right now. And I'll tell you an important part of that, frankly, is that our HPDI business is largely a business where we're buying from sub-suppliers and then selling to our customers instead of making ourselves. And so the more of that making ourselves that we can do, I think this is a key ingredient. And that's enabled by the existing manufacturing operations that we have that make very similar parts to what we're buying today with HPDI. So this is really an important part of the equation also. So as I look across all the businesses, frankly, those products and the reason Bart's responsible for light-duty OEM and independent aftermarket is there is so much commonality between those products that we're basically saying these products, to channels, right? And we see that also between LPG and CNG, that there's a lot to be learned from each other and electronics. So to me, my predecessors, the M&A they've done and the M&A we've done since then, it all fits together quite well for me.

Thanks, David. I'm going to interject with one from online here. This is a 2-part question, I guess. Can you -- and we did a little bit of this during the formal presentation. But can you speak to the differences between the spark-ignited and hydrogen HPDI, both from an LNG and -- sorry, both from hydrogen and an LNG perspective, but then also can spark-ignited be retrofitted with HPDI?

Okay. I'll take the take that. So I think the first part of the question is maybe asking for a little bit more details around what are the fundamental differences between a spark-ignited engine and an HPDI engine. So let me start with HPDI. As David mentioned and as I also mentioned in my presentation, HPDI is a fuel system that allows a diesel engine to continue operating on diesel cycle combustion, diesel cycle thermodynamics. So it's compression ignition of the fuel. There is no need for an independent ignition system. Very minimal changes to the sort of subcomponents within the air handling or turbocharging system, but no architectural changes. It really is a diesel engine running diesel cycle compression ignition thermodynamics, injecting 2 fuels in the same or a very similar injection window that you would normally inject in a diesel engine. The engine really doesn't know that it's no longer a diesel engine. So it retains all the attributes that I talked about, high performance, efficiency, reliability, durability of a diesel engine. So that's HPDI, whether it's natural gas or hydrogen as the fuel. Spark ignition is completely different. Think of passenger cars, you can get diesel-powered passenger cars or you can get gasoline-powered passenger cars and spark gasoline vehicles are spark-ignited engines. Autocycle combustion. Architecturally it's very, very different in that the fuel does not compression ignite or auto ignite, you need an independent ignition system, that's the spark plug within the spark plug coil, the ignition coils that fire the spark plug. Completely different air management strategy, different air fuel ratios. So it completely changes the turbocharging strategy. And then the cylinder head needs to change to incorporate a spark plug. Very -- architecturally very, very different. Both technologies are well established in the marketplace. But for the exact same fundamentals of gasoline engines being lower power density, less efficient than a diesel engine. The exact same comparison applies to heavy-duty spark-ignited versus HPDI. And again, Westport is not solely an HPDI company, we do have spark-ignited engine management systems as part of our product line. We're -- we've been involved in a couple of different joint ventures. As I think everybody knows about spark-ignited engines. It's a technology we know well. It has its place. As we -- as Anders showed in one of his slides, we strongly believe that HPDI because it retains the diesel cycle attributes really has a sweet spot in that high range, high load sector of the heavy-duty market. The second part of the question, I think, was about, can you retrofit spark-ignition to an HPDI engine. And the short answer to that is you wouldn't because they're completely different. You would either select a spark-ignited engine or you would select a diesel cycle engine. You -- I can't imagine a scenario where someone would retrofit from one to the other.

If I could say one thing more about the gasoline, petrol, spark-ignited, compression ignition discussion with petrol, with gasoline, in the spark-ignited engine, you mix the air and the fuel first, then you compress, than you ignite. And that mixture needs to be the right ratio. It's really important to have the right ratio, not too lean, not too rich to make it work properly. With hydrogen as a fuel, because actually, if you have the wrong ratio, it will combust. If it's too rich, it won't combust. If it's too lean, it won't combust. With hydrogen doesn't work that way, hydrogen basically not quite any ratio, but almost a ratio, it's going to combust and that actually is the problem of hydrogen for spark-ignite engines that everyone is working to try to mitigate with turbocharging and other actions. So there is this difference that is really material with respect to making hydrogen spark-ignite internal combustion engine work that we don't have a problem with hydrogen and HPDI because we don't compress a mixture of hydrogen and air. So a bit technical, but really important to call out that difference.

Now I'm going to follow up on that. So David is absolutely right that the volatility of hydrogen as a fuel, as David alluded to, it can be -- it can create some significant engine integration and engine management challenges in a premixed environment, where, as David mentioned, you're mixing the air and the fuel long before you want them to actually ignite. It's manageable. It's a little bit challenging. That attribute of hydrogen, that volatility, it's tendency to ignite that's an attribute in a direct injection HPDI application. I mentioned in my remarks that by leveraging some of the combustion fundamentals of hydrogen, that's what enables us to achieve the higher performance, the higher efficiency and it's the fact that hydrogen mixes in the air very quickly, and it burns incredibly quickly. The flame front speed of the combustion event is very, very high, faster than diesel, faster than natural gas, that unlocks some calibration flexibilities for our engineers. So to summarize all that, the attributes of hydrogen that are challenging in spark-ignition are benefits in HPDI.

Perfect. Thanks, Scott. I think we have another question from the audience.

So I don't know who wants to take this question, but I noticed from the presentation the 96 units to Weichai, taking possession of that in the quarter. Haven't seen activity or at least anything necessarily that you could talk about for a long, long time. So I mean, how do you view that? What kind of optimism does that give you for 2023, 2024? I know sometimes your visibility a little tough, but thoughts around that would be helpful.

Anders, do you want to take that one?

I can. Yes, sure. So, wait, it has been a bit challenging with Weichai's where they have been delayed a few times. They had had unfavorable market conditions in China when it comes to fuel pricing and so on. We do see a lot of movement now, positive movement. We don't yet have a like a launch date, like a single launch date where they are supposed to be launching. But we are seeing a lot of progress. We are seeing a lot of steps that are taken towards launch, including picking up parts. So that's -- it's really positive, and it's really good signals we get from our partner in China currently. I think that's about it what we can say, and please fill in and add.

I guess I mentioned in the comments, so maybe a couple of times this engine launch that Weichai advertised and had a press event about 54% brake thermal efficiency and natural gas might just -- my hats off to their team for developing such an incredibly efficient engine using clean fuel. And so we're very proud of them. Very excited for them, and we look forward to the future.

I guess just maybe following up that Weichai comment. What does that do for the company financially? Like -- because I think your interest in China is actually rather small. But is there other benefits, I guess, maybe just from an operations perspective with higher volume that you guys get from that?

Yes. So first of all, our joint venture with Weichai, you are absolutely correct. Our economic interest in that joint venture is super modest, below 5%, 4.55% last time I checked. So -- that doesn't have a significant material effect on our income statement. It's in the financials every quarter, and it's a very small number, not so important. What is important though, and really, I would say, I think totally separate, but rather distinct from is the sales of HPDI equipment to that joint venture. And that is recognized for us like a sale to any other customer in the world that would buy HPDI equipment. So we see it just as the customer get the full revenue, the full margin, whatever that is, that accrues on our income statement. And so those really are 2 different pieces. And so the fact that the ownership stake and the economic interest in the joint venture is small, means nothing is a separate thing than the sales of components and systems to our partner.

I had two quick ones. One is very easy and one is maybe more detail. But on the slides, you mentioned 40,000 delayed OEM units, I think, this year. Could you put that in perspective to what the post -- the retrofit market is? Is that 2, 3x larger. What's the...

Bart take that one.

On average, we are selling around 400,000 systems in the aftermarket globally. So 40,000 is just a delayed OEM, but that number is increasing. We secured for 2023, some new customers.

David, you mentioned on delayed OEM being very profitable. I think at the beginning of the presentation and also you're concluding. Is there anything you can do to improve the profitability of the aftermarket segment as well? Or is that not under pressure in the industry.

Yes. I would say what we face in the aftermarket is that we're exploring and developing new markets, right? So our kind of our maturing markets, for example, Italy, frankly, the volume is down in Italy, and Italy has been a higher margin, more of a proper generating part of our aftermarket portfolio. So we have a rise of our, let's say, lower margin markets and a decline of our higher-margin markets, and that's affecting our margin. So is there something we can do about it? Yes, for sure, there is, and we're working on that. It's not so easy, but there is this element and Bart talked about our dual fuel product, which is a good product from a margin perspective. And other markets that we're exploring. So for example, that Bolivian tender that we talked about was actually a good one for us. So it's quite a complicated set of businesses around the world, but certainly between cost reduction, more volume in total economies of scale. There's a lot of elements in there. And frankly, as we've been getting cost increases passing on those cost increases in pricing, all those factors come into play to recover those margins.

Perfect. And then the complicated one I had, if you don't mind, is the engine brake efficiency isn't something that investors wake up and think about every day. But fleets usually talk about cost per mile. And so I think a diesel fleet usually goes around 6.4, 6.5 miles per gallon of diesel. Nicola in the public domain said their TTSI trial went 7 miles per kilogram and has a strategy with Bosch to get that to 7.5. And so I didn't know if you could translate what 50% brake efficiency means into range? I think Scott here at the lunch table, we were talking about numbers, if I did the math right, more about 6.25. I think you said 800 kilometers per 80 kilograms of fuel. So where does that 10%? Is that measured at the engine itself? Or is that actually a real-world miles that you get per kilogram of hydrogen that you might go by a $3 or $4 a kilogram when the IRA bill plays out?

Yes. So you're right that I -- before the lunch break, we talked about kind of round numbers that what we're hearing from the OEMs for hydrogen vehicles in general is an expectation of around an 800-kilometer operating range as being kind of what they deem feasible. And most OEMs seem to be talking about 80 kilograms of fuel to be what would be required to deliver that now. There's some pretty broad error bars on that because it depends on the underlying technology, spark-ignition versus HPDI versus fuel cell. We talked a lot about how HPDI and fuel cells look like they're going to have comparable efficiencies in high-load applications, HPDI might be better in high-load applications. Spark-ignition is inherently less thermally efficient. We're also hearing some of the OEMs -- I didn't mention this to you, I'll say now we've also heard some of the OEMs talk about 100 kilograms might be required. How they will choose to package that? It will be interesting to see. We'll benefit from that however they choose to package things. In terms of translating that back to the sort of 6.5 miles per gallon, I would say that -- yes, there's been a progressive increase in fleet average fuel economy as there's been a focus on increasing the efficiency of the engines. It's not just about engines. It's also about aerodynamics of the vehicle, low rolling resistance tires. All the OEMs are working on that to meet CO2 emission regulations, which are regulated at the vehicle and as well as at the engine. And then, of course, fuel efficiency benefits mean lower total cost of ownership. So everybody is working on that. That's sort of 6.5 miles per gallon on a typical fuel economy number. I would say that kind of corresponds mostly to the current generation engines, engines that are in the sort of 40% to 44% thermal efficiency range. 50% thermal efficient engine is going to be that -- just enabled that much better on-road fuel economy. And as we've shown HPDI can follow right along and in fact, probably have better fuel economy in use than the base diesel engine potentially. So a bit of a roundabout way of answering your question. Hopefully, I got there in the end. So...

I think you did a great job, but just maybe not pile on of it. But this idea that we could have on number of 6.5 or whatever for a truck is might be useful in some context and some back-to-back as and if done properly. But fundamentally, there are so many detailed assumptions that go into that in terms of how the truck is run, where the truck runs, what the technology is, all the elements, so that, I think those kinds of statements, frankly, they obscure what we're really talking about. And so I'm truly comfortable with and be glad to carry on that discussion further which we do with OEMs and TCO models and everything else around how does this actually work, right? What's it actually going to deliver. You need to know what the fuel price is on a given day, too, what the fuel price difference to diesel is, so there's a lot of factors that matter. But fundamentally, when we talk about a 10% improvement in thermal efficiency, and then we talk about a 30% improvement in fuel efficiency. And then you think about that. Fuel is on the order of something but 40% and 60% of the cost structure of our fleet, it's 40% when prices are low and 60% when the prices are high. So all this matters. So we feel quite comfortable with our statements around the efficiency advantages we've measured the Dyno. The efficiency advantages and the consumption advantage. We've read in the literature that we've tested in actual vehicles. And then we do this apples-to-apples comparison. So these are the kinds of things I think we're comfortable making those kinds of statements. And everybody will make their own statements that we're probably not going to do that because we're not a truck manufacturer.

Awesome. Thanks, David. I think we are just about out of time. We have one more question, but I'm actually going to dispose it and let you answer it in your closing remarks, David, because it's more it'll wrap everything up nicely. But we did have a question online talking about, can you outline catalysts that we've largely talked about today, but also some timing with respect to when market -- the market can hear about us announcing these different catalysts. So I'll let you come to the podium and finish your closing remarks, but keep that question in mind as you do and everyone else can close it down. Thank you guys.

So thank you all for joining me up there. I thought that was really useful. We had some great questions and answers. So I appreciate your time today, both here in the room and online. Hopefully, you found it to be a super useful session in terms of better understanding Westport Fuel Systems. Where we are today, where we're going, why we're so compelled about what we do every day. As I think about kind of in the biggest picture, what's the thesis of Westport Fuel Systems, it really comes down to the fact that we need transportation. We're going to need transportation for a long time with people and goods. And we've got challenges, both economic challenges and environmental challenges, air quality challenges. And the work that we do, the products we make enable solutions to those challenges in a very affordable and therefore, scalable way. And so if you think of the future is super bright for our company. And to your question or the question that came in, Ashley, we think about things like 2025. 2025 is a very important date on the calendar for us because this is when the CO2 standards for heavy-duty trucks come into force. At this point in time, in the marketplace, there is very little that's really compelling manufacturers to clean up vehicles with respect to CO2. It's only what's available and what the competition is. So as we go into a regime in 2025 in Europe, where CO2 is regulated and a 50% reduction from what was measured just a few years ago as the baseline and then getting to a 30% reduction in 2030, with the advent of biofuels, we think all the forces are converging to support Westport Fuel Systems and our growth. And we've seen just in the last few years that the percentage of natural gas vehicles in trucking in Europe has doubled and tripled and quadrupled. We're nearly 4% market share with all natural gas vehicles in Europe right now. So it's super exciting for us, and we are just at the beginning of the transition, transition to cleaner fuels, natural gas, biogas and hydrogen. And I think one could be skeptical like really, are we really going to abandon diesel and get to these cleaner fuels and when could that possibly happen? And I would point to a transition that happened maybe before all of our times, right, back after World War II. Coming into World War II, all trucks ran with spark-ignited gasoline, petrol fueled engines. Coming out of World War II, the transition started. And by the late '70s, we're at 90%, 95% diesel. We completely changed the powertrain and the fuel to advance trucking to more efficient options. And I think we are facing that transition. And we have seen in the data we showed in this day to day, the beginning of that transformation to cleaner fuels. So -- just to wrap up. I think one of the things, and I appreciate the question about the diversity of markets we serve and the diversity of products we have. I see that very much as a strength. And through that diversity across the markets, the products, the customers, the market segments, OEM and aftermarket, we have tremendous synergies. And so it all does hold together and creates a better future for Westport Fuel Systems because of that diversity of our offer. HPDI, our marquee product is on the road today. This is a complete change. I remember joining the company in 2019 and saying, I joined this company because of what Westport accomplished before I got here of getting HPDI to market. This is a really big deal. We're on a good path with our lead customer, and we expect in 2025 and 2030 and with additional customers and now with hydrogen. We're starting that really exciting time for our company when the volume is going to grow, the economies of scales are going to come in, and we're going to generate the cash flow and the profitability that our investors expect. And so with that, we see, as Bill commented on quite clearly that we are in a really transformative year in 2023 and going into 2024. We're going to change the fortune of the companies with respect to growth and profitability headed towards our goals of $1 billion and beyond. So with that, I want to thank you all for your time. I think maybe there's one more, yes. I really want to thank you all for your time today, your attention, your questions. The support of our analysts to follow the company and help explain our story to investors. We really appreciate all of you and everybody who's joined online and endured the whole unfolding of our story here today. Thanks for your endurance too. And with that, I think I bring it to a close. Thank you, everyone.