Canoo Inc. (GOEV) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to the Canoo Second Quarter 2021 Earnings Conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kamal Hamid. Thank you, sir. You may begin.
Kamal Hamid: Welcome to Canoo 's Second Quarter 2021 Earnings Conference Call. My name is Kamal Hamid and I'm the VP of Investor Relations at Canoo. Today, I have with me our Investor, Chairman, and CEO, Tony Aquila (ph.), our new President, Josette Sheeran (ph.), Interim CFO, Renato Giger (ph.), and newly promoted SVP Finance and Chief Accounting Officer, Ramesh Murthy. Tony will provide an update on the progress we have made since our last call on the topics we report on every quarter, and Josette will provide a glimpse into her mandate. Renato and Ramesh will then go over our second-quarter financial results, and turn them back to Tony who will then provide closing remarks. We'll then open the call-up for questions. Before passing it over to Tony. I'd like to provide a recap on our recent Investor Relations Day, which took place on June 17th, just two weeks before the end of the quarter. We had more than 800 online and in-person participants. The day provided a first glimpse of the Canoo ecosystem. In-person attendees participated in-vehicle test rides and got to speak with our team leaders across the business. Attendees also learned more about our technology and engineering and were able to see all of our vehicles in person. For those of you who may have missed the IR Day event, I encourage you to watch the replay, which is currently available on our website, and on YouTube. I've been in Investor Relations for more than 25 years and participated in many Analysts days. The level of interest we saw in June, especially in a pandemic impacted environment, was amazing and it reinforces that people are very interested in our product and that we are on the right track. Before I turn the call over to Tony, I will take care of a housekeeping item and read our forward-looking statements. Please be advised we may make forward-looking statements based on current expectations. These are subject to significant risks and uncertainties and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and on our -- on our most recent Form, 10-Q and 10-K and reports that we may file on Form 8-K with the SEC. All of our statements were made as of today, 16th August 2021, and are based on information currently available to us, except as required by law, we assume no obligation to update any such statements. During this call, we'll discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in today's earnings release, which can be found on the IR section of our website. With that, let me turn the call over to Tony.
Tony Aquila: Thank you, Kamal. Thank you, everyone, for joining us today. Before going further, I want to thank the Canoo team for their hard work and dedication, especially during the resurgence of the pandemic. As to the effects of the pandemic, we continue operating with a conservative stance. Early on, we adjusted our projections because we believe in under promising and overdelivering. We've pushed back the full return to the office at our Torrance facility, where we are complying with ongoing county restrictions on in-person work. We continue to operate remotely with a limited on-site presence in Torrance. That said, the geographical diversification of our workforce that we announced in our prior call has allowed us to maintain in-person operations at different levels and at different locations. We have also limited non-essential travel. Further, the industry as a whole has been impacted by supply chain disruptions from material shortages or vendor delays. Chip shortages have been one clear example of this disruption. But we have reduced risk and alleviated impact to our SOP. We have previously consolidated our Electrical Architecture into a narrow set of controllers using fewer chips. Fewer parts overall mean we believe we are less exposed to global supply chain disruptions. Overall, our sourcing team is in close communications with suppliers to address potential bottlenecks as we continue to make the precautionary adjustments and create mitigation strategies to ensure we're on track to reach SOP in Q4 of 2022. To put it into context, we now have 40 people in supply chain procurement with decades of experience, which supports our drive to delivering on SOP in Q4. We will continue to monitor the situation and keep you updated on any material changes. Before I update you on the quarter, I would like to highlight some of the key global developments that are accelerating the shift towards electrification and will benefit our strategy of Evs for everyone. Democratizing access to productivity for hard-working families. The U.S. infrastructure spending bill, which passed in the U.S. Senate will allocate 73 billion to power grid improvements and 7.5 billion to EV infrastructure. Recently, the European Commission proposed requirements for a 55% decrease in new-car CO2 emissions by 2030 and a 100% decrease by 2035. The proposal also included mandates for ESG reporting requirements. In effect, this means that more than 13 million vehicles sold annually in Europe, alone, will need to transition from internal combustion to zero emissions by 2035. On July 29th, Congress introduced a tax rebate of $2500 for the purchase of used electric cars. President Biden's August 5th Executive Order aims to make 50% of all new passenger cars and light trucks sold in 2030 zero-emission. This would impact more than 10 million vehicles sold annually in the U.S. We applaud congress in the Biden administration's rollout of domestic policies to support the EV economy. American innovation is helping lead the world to a 0-carbon future. We need and look forward to continued support from Congress and the White House. We are clearly at an inflection point as governments accelerate efforts to establish carbon-neutral targets. Now I'd like to introduce Josette Sheeran. As many of you know, Josette brings a wealth of operational experience on a global scale. Over to you, Josette.
Josette Sheeran: Thank you, Tony. It's great to be with you on this call and I look forward to meeting many of you over time. I joined the Canoo board last year and have now been asked to take on this role by Tony. Working alongside him and the team, I've come to appreciate their achievements, and I'm honored to join Canoo 's mission to bring electric vehicles to the heartland that are purpose-built for working men and women. For those of you who don't know me, I've worked at the intersection of government business and stakeholder partnerships at a global level. As a U.S. trade negotiator and in leading the state department's economic, energy, and transportation work, I took great pride in negotiating, protecting, and empowering U.S. industry and innovation. In leading the World Food Program, we successfully transformed the effectiveness and efficiency of the world's largest humanitarian logistics and supply chain, and the entire food aid system. The revolution in mobility has the power to transform whole economies. A net 0 economy simply cannot be achieved without transforming the transportation sector. This is the time when electric vehicle adoption can happen at scale and be a leading force in building a more sustainable future. It's only but a few weeks since I go in as President, I've already relocated to Texas, and I'm diving in with Tony and the team here at Canoo. One of my mandates is to enhance Canoo's sustainability and ESG foundation. As mentioned in our recent press release, we've received a double-A ESG rating from MSEI, and I look forward to building upon this. We are focused on scaling Canoo, working to build alliances and develop our business to expand our reach, as we get our EVs on the road. I'll hand it back to Tony.
Tony Aquila: Thank you, and welcome aboard, Josette. You will be hearing more from Josette on future calls, as we continue to execute our strategy. We told you we were focused on meaningful news or no news. With that in mind, let me update you on our second quarter reporting. The team is focused on executing our business plan to reach the startup production on schedule with the lifestyle vehicle in late 2022. we have awarded 2 significant contracts that we shared with you during our Investor Day. First, our Phase 1 contract manufacturing with Nedcar. We ran a comprehensive selection process to reach this strategic decision, which provides us with an expanded geographic footprint from both an end market and distribution perspective. As part of this agreement, we expect to deliver 500-1,000 lifestyle vehicles in 2022 and 15,000 lifestyle vehicles in 2023. Nedcar has an experienced improvement team running one of the top-rated plants supporting BMW's mini-programs, amongst other major OEMs. The VDL group will not only serve our initial launch into North America but later will serve as our launch point to expand into EMEA. Josette and the team will be working closely with them to ensure alignment across our ESG sustainability commitments, and to mitigate any gaps. Further, the framework we have established with Nedcar will allow us to increase capacity from 15,000 -- up to 25,000 units in 2023. And now that our go-to-market team is kicking off, we wanted to secure additional capacity. Second, we also announced Phase 2 of our manufacturing strategy, selecting Oklahoma as our partner. This two-pronged strategy is important for a few reasons. As a new OEM, working with Nedcar will allow us to refine our manufacturing process while augmenting our production expertise, which will be deployed in our Oklahoma manufacturing plant. It will allow us to geographically diversify our manufacturing operations, and position us to increase our commitments, products, and volumes to adapt to changing market demands and build flexibility in distribution. The State of Oklahoma has committed approximately 300 million in non-diluted financial incentives to support our facility. Approximately one-third of the incentives are anticipated to come during the first 36 months. So, I'd like to thank the people of Pryor, Oklahoma, Governor Stitt, the Principal Chief of the Cherokee Nation, Chuck Hoskin, Jr., the Chief Administrative Officer of Mid-America Industrial Park, Dave Stewart, and his fantastic team. Our manufacturing facility will be located in a historically significant place, a beautiful location that we're really excited about. As we build our facility, we are committed to preserving nature, the beauty, and the land. This is the former site of the Oklahoma ordinance work facility where tens of thousands of workers produced munitions during World War II. The Mid-America Industrial Park has attracted the presence of 7 Fortune 500 companies. This includes Google and DuPont, in part through its continued investment in education and workforce development. We are privileged to build our vehicles on this site in the great state of Oklahoma. We have been honored to learn more about the people of Oklahoma and have been inspired by the Native American resident's connection to the land. While the world is now shifting to tread softly on the environment, their communities have always done so. We look forward to working closely with them to build a facility and product that is sustainable and reflective of our shared values. We are currently targeted to bring up to 2,000 high-paying jobs to our facility, with a goal of hiring at least 40% of the workforce from the local community, which consists of Native Americans and veterans. Launching this facility in the U.S. is good for Oklahoma, good for America and it's the right thing to do for Canoo. We are in the final process of selecting a construction manager, architect, engineering firm, and more. Multiple high-quality providers are bidding for these contracts, and there is a potential that we will select one in the coming quarter. We can then start to provide updates on our construction progress. Now, let me provide you an update on our progress towards production through the end of the second quarter. At IR Day, we had announced approximately 500,000 miles of beta testing. And as of June 30th, we locked engineering and design to commence our gamma builds. We have also sourced 87% of components, compared to 74% in the first quarter of the year. And excluding bulk material, we are 95% sourcing complete. I would like to point out this accounts for all complex components, with the exception of batteries. And we are targeting to make a final selection of our battery partner in Q3. In Q2, Pete Savagian, our CTO, and his team have completed engineering designs for 67% of the lifestyle vehicle components and have moved those into tooling. Our gamma phase is now in progress. To put it into context, this phase includes comprehensive testing and final validation. It will consist of 300 to 600 vehicle tests, including crash testing and certification. We are also dedicating at least 10 to 15 gamma properties for vehicle durability validation. We will start the countdown to SOP for our lifestyle vehicle when we enter the fourth quarter of this year, and I look forward to introducing Pete to these calls as we give you the more detailed information in the coming quarters. Turning to our go-to-market and sales pipeline, during IR Day, we said that we are starting go-to-market and we are advancing our sales funnel. In the second quarter, we opened preorders for all announced vehicles. Our consumer response to date has been organic. Pre-orders for all vehicles have come from across the U.S, which tells us that our vision to bring EVs to everyone resonates. We have seen the highest levels of interest from California, Washington, Texas, and Florida. We are also seeing numerous inquiries from the EU and Asia on when we will be opening up pre-orders in the region. And we will provide updates at the appropriate time. In the coming quarter, we are accelerating our go-to-market strategy according to plan and we are expanding our sales and marketing team. Moving on to our sales funnel, as of June 30th, we have engaged customers with buying capacity for approximately 500,000 vehicles. These customers are qualified for our product and the timing of product release, we define these as Stage 1 opportunities. In stage 2 of our funnel, we have surpassed 9,500 refundable nonbinding pre-orders for our announced vehicles. The final stage or Stage 3 of our sales funnel includes a binding contract with a nonrefundable deposit. And will begin reporting on these at the appropriate time. As we have continued to make progress in human capital in the face of a tough environment, our workforce increased by 230 to 656 total employees compared to the fourth quarter of 2020, or a 54% increase. In the second quarter alone, we added 112 associates or up 21% sequentially. Our total engineering headcount grew by 23% sequentially. We now have over 480 hardware and software engineers comprising more than 70% of our total workforce. More than 2/3 of our hiring in both quarters was focused on engineering. For sales and marketing, headcount increased by 31% compared to the prior quarter as we ramp up our marketing efforts. we added key executive higher in human resources, IT, data security, sales, and design. We will go into this deeper when we report on our third quarter. We continue to build out our Justin office with additional general and administrative and sales and marketing associates. Despite this challenge of COVID, we continue to bolster our team with the right people to execute our key initiatives. You learned about our vision for our app during Investor Day. It provides an asset management solution for every vehicle owner which we believe will create value for our customers, and in turn, help us develop a strong and loyal customer base. We are building an entire business unit around this ecosystem which will drive customer experience with data and software. And our app will work for all vehicles. Whether it's a Canoo or another OEM in your driveway. It will give every vehicle owner, family, or fleet owner the power to manage all their mobility assets quickly and efficiently, and open stores for additional savings and value. We're here with American innovation to bring EV to everyone. With that, I'd like to turn the call over to Ramesh and Renato to provide details on our financials. Renato.
Renato Giger: Thank you, Tony. Our second quarter of 2021 results are as follows. Research and development expense of 57.6 million for the quarter compared to 14.6 million in the prior-year period, excluding 8.5 million of stock-based compensation, research, and development expense was 49.1 million. SG&A expense was 44.6 million for the quarter compared to 3.4 million in the prior-year period, excluding 17 million of stock-based compensation, SG&A expense was 27.6 million. GAAP Net Loss was 112.6 million for the quarter, compared to a GAAP Net Loss of 23.2 million in the prior-year period. GAAP net loss in the second quarter of 2021 included an 8.2 million non-cash loss on the fair value change of earn-out share’s liability related to the periodic re-measurement of the fair value of our contingent earn-out share’s liability. Adjusted EBITDA was minus 76.7 million for the quarter compared to minus 17.7 million from the prior-year period, Ramesh?
Ramesh Murthy: Thank you, Renato. Turning to the Balance sheet and cash flow, we ended the quarter with 563.6 million of cash and cash equivalents. Cash used in operations for the 6 months ended June 30th, 2021 was 108.8 million compared to 42.3 million in the prior-year period. Capital expenditures were 28.7 million for the 6 months ended June 30th, 2021, compared to 1 million in the prior-year period. Turning to our guidance, for the third quarter of 2021, we anticipate the following expenditures: approximately 75 million to 85 million for operating expenses, excluding stock-based compensation and deprecation, and approximately 45 million to 55 million for capital expenditures. Additionally, in the fourth quarter of 2021, we expect to draw down 40 million of the 300 million in incentives to support our Oklahoma construction. Before we open the call up for Q&A, I'll turn it over to Tony for closing remarks.
Tony Aquila: Thank you, Ramesh. We are encouraged by the regulatory tailwinds and the heightened public interest in Evs. We've been investing in the right team to execute our key initiatives. As I've said before, we're focused on big news or no news. We'll continue to update you on our progress and our achievements, which have positioned us well on our countdown to SOP for LV in 2022. We would now like to open the call for Q&A. Operator?
Operator: Thank you. We will now have our question-and-answer session. . A confirmation tone will indicate that your line is in the question queue. . One moment please while we now pause for questions. Our first question comes from John Murphy with Bank of America. Please proceed.
Aileen Smith: Good afternoon, everyone. This is Aileen Smith on for John. Can you hear me?
Tony Aquila: Yes, we can hear you.
Aileen Smith: Great. The first question on the 9,500 refundable non-binding orders is, is it possible to disclose the breakdown of those vehicles between the lifestyle -- or the orders between the lifestyle vehicle, the multi-purpose delivery vehicle, and the pickup? Just trying to get a sense of how much is comprised of the lifestyle vehicle that's closer to production versus the MPDV, where demand from customers in that segment and competitive efforts are clearly heating up.
Tony Aquila: Hi. Okay, this is Tony. Right now, the current breakdown is we have a heavier percentage in trucks and the -- than we do in the lifestyle vehicle if that's what your question is. And it's 1500 plus on those units. But we're in discussions with various parties regarding those units, but that's the breakdown today. If you were just focusing on the LV. And we have --
Aileen Smith: Got it.
Tony Aquila: Yeah, we have thousands of them, obviously, in the -- here actually, I just got the exact numbers. So on -- yes, 1,542 of those, and those have been filtered. So, we're now filtering through the 500,000 now because we're just getting the go-to-market app, and we'll start increasing that. And these are, of course, just all organic numbers at this point.
Aileen Smith: Got it. So particularly, let's call it the business-to-business segment that may be serviced by the multi-purpose delivery vehicle and thinking about those customers that tend to order larger fleet sizes, would you expect over time, on the basis of an order, that it should be increasingly comprised of the MPDV where you're going to have stickier, bigger contracts that come through?
Tony Aquila: Yeah. So, as you saw at IR Day in there, the small package delivery, the reason why -- these are just organic consumer-centric orders that are in there that I just gave you the number on. The -- the -- fleet element ones are a much larger number and because you have delivery vehicles in both the LV and in the MPDV, right? So, one's a large package, one's a small package. So, we haven't announced any of those yet because we're in discussion with those accounts because we want to obviously get them right into 2 and hopefully shortly thereafter into 3. And of that, I think we have north of 4,000 units already, and again, keep in mind this is Q2. There are a couple more weeks since IR Day that we're reporting on here. Obviously, there is a gap from where we are today.
Aileen Smith: Got it. That's helpful. And then when we back out stock-based comp, I think we got to operating expenses of 78 million in the quarter, which is similar to the range that you're targeting for Q3. If we think about the cadence of operating expenses, as stock comp, obviously Q2 is up from Q1 and it also came in a bit higher than the target you established last quarter, so as you're theoretically getting closer to startup production, you're locking down your battery supplier, among other activities. Why would operating expenses be flattish on a quarter-to-quarter basis? Is it just a function of timing? Trying to get a gauge of how to forecast Opex, especially into 2022, and what may be the appropriate exit rate from this year.
Tony Aquila: Yeah. I'll have -- I'll let Ramesh grab this one here with you, but we are on target. There was just a swing in deprecation, but Ramesh, maybe you can give a little more color.
Ramesh Murthy: Yeah. So OPEX is as mentioned in our Q3 guidance, we are at 75 million to 85 million. That's the way we project at this point. We are now into our gamma stage and then trying to get down to production. So, our majority of our OPEX consist of R&D cost related to engineering and design. So, as you move closer to Gamma, it's us more involved in relation to the production phase. So hopefully that answers the question as to why it goes all the way, but we are on plan to Q4 '22.
Aileen Smith: Great, that's helpful color. And one last higher-level question, if I may. I appreciate you giving us a quarterly outlook at reporting and also that the world and your business remain very much dynamic. But a lot of us in the investment community are trying to assess how many of the developments at the Company more recently, translate into financial opportunities and targets, versus those that were provided last year by the former management teams. From a visibility perspective, what developments would you need to see at the Company or milestones that you would need to reach to start providing some longer-term financial targets?
Tony Aquila: So, we operate a very conservative model. The last public Company that I found and ran, we didn't miss revenue for 34 quarters. I think until we get our go-to-market, really starting to have a little more maturation because remember, we focused on building a real product. That's our model, right, so we really concentrate on the focus of getting the real IP in place, making sure we have the right segmentation, making sure we have the right design. And so now, we're putting in the go-to-market piece. And I think my goal would be within a quarter or 2, we can start to give you some higher-level views, what we see for 2023 and beyond. But I -- if you take the conservative approach, and obviously the comment we're making about adding additional capacity, we're seeing positive signs. But if you will, just because the environment has been so euphoric in the industry, we want to be under promising and overdelivering here, if you will. And the prior management team, I really can't speak too much to what their vision was. Other than we obviously revised it down. And as you saw environmentally, a lot of the new guys have revised it down. So, I think we took into effect also the COVID, we had some advantages the prior team didn't have because we could understand the impacts of COVID, we had made a lot more progress on the purchasing and vendor management negotiations. And we've saved -- compared to their program costs, we've saved hundreds of millions of dollars by reconfiguring to use VDL and the process we ran, and so on. So, I think you've got to put all that into context and give us a couple of more quarters to really let the new team print it, if you will, print on what we're going to do.
Aileen Smith: Absolutely. Understood. Thanks for taking the question.
Tony Aquila: You bet.
Operator: Thank you. Our next question comes from Craig Irwin (ph.) with Roth Capital Partners. Please proceed with your question.
Craig Irwin: Good evening and thanks for taking my questions and to start, I should say, congratulations on getting it again. That's a nice milestone too . Tony, I wanted to ask kind of a big picture governance question. One of your former employees this past couple of months went over to Apple to take a senior leadership role on Project Titan. And the same reporting that noted that, seemed to confirm reporting, I guess beginning of last year, that there might be some conversations between Canoo and Apple. The more recent reporting saying that there was actually an informal acquisition offer. Can you just describe for us how you would handle these M&A-type conversations at the board level? What would constitute an offer that would need to be disclosed to shareholders? And -- and have you talked to Apple or have people at the Company talked to Apple, maybe, in the last 6 months or last year?
Tony Aquila: So, look, first of all, to your point about what would it take. I mean, obviously, maybe you know this, maybe you don't, but I've done north of 70 plus deals, $17 billion to $20 billion in value, and we returned 20% plus annually return on capital. So, we're very focused on that. But at the same time, we're also -- we're not trying to make quick money here. We're building, as you can tell, the foundational stuff we're laying and if you compare our headcount where our headcount is against the new entrants in the foundational stuff we've done in IP, we've created, I think it would show that we're very focused on the long term. However, that said, I mean, I'm the Chairman of the Company and I want to do what's right for shareholders. So, to the extent that I see something that's super accretive, that has the long-term value principles, Obviously, I would entertain it. I've done it before. I have a track record of it, so there is no question of that and we have a very good board with lots of experience in this area. Served on special committees and so on. So, we understand that. At the same time, I think we're also pretty astute negotiators and we do it for the long term as, henceforth, we saved hundreds of millions of dollars in the program cost. And we'll keep our eyes peeled. With respect to your comment on Apple, I really don't have a comment. And the reason is we just don't comment on those types of discussions. But obviously, I'm focused on deals that would be accretive long-term to the Company. And if it doesn't fit that, then why would I do it? I'm not interested in just pumping out news and not doing what's best for the long-term shareholder in the Company. It's tough to serve short-term shareholders. So that's the principles we guide by. And we're looking at all things, we have many dialogues going on at any given time. And I think if you get a chance, Craig, you really need to come down and see what we've done.
Craig Irwin: Yeah, I'm looking forward to that. And that response was perfectly rational. I definitely appreciate that. So then, Tony, you guys are obviously very excited about the vehicles that you're in final testing, when do we start to see them more in the trade press or in the public? Do you feel that these vehicles are ready for some of the big events out there like SEMA or and things like this? Do we start to see a presentation at the auto shows? What's the big picture publicity marketing plan that's going to help the public know exactly what Canoo makes?
Tony Aquila: Yeah, look, I think, again, obviously being a very long-term permanent capital kind of minded person, I don't like overhyping things as you have learned. We do want to create the element of surprise. It's the best thing I can do for long-term shareholders because I will, and we will teach people not to short our stock. And we're very focused on creating long-term value and those events are great for long-term shareholders when you do that. But we will be at shows. We're in or -- so naturally we will be. But we'll be very targeted. We're focused on, if you will, if you translate big news or no news, I mean, big deals or little deals, we just let happen. And we're going to be present in some regional shows that are upcoming without mentioning names unless you want me to. But we will be starting out there for the first shows in this quarter.
Craig Irwin: Excellent, that's really good to hear. And thank you for taking my questions.
Tony Aquila: You bet, Craig.
Operator: Thank you. . Our next question comes from Jaime Perez (ph.) with RF Lafferty. Please proceed with your question. Mr. Perez (ph.), please proceed with your question.
Jaime Perez: Sorry. I had it unmute. Good day, everybody, how are you doing? Thanks for the update and thanks for taking my call. And Josette, congratulations on your position with Canoo. Looking forward to seeing you and meeting with you in the future. The question, as far as the gamma phase, how long is that phase, and are we going to see any fleet customers test the -- give prototypes -- get a prototype to test the vehicle, and is the current design the final production design that's going to be out in the market?
Tony Aquila: So, we're going to run that phase right up until we go to manufacturing. I mean, we were going to use every bit of time we have. We got 600,000 miles on our Gamma vehicles, and Pete will cover this in the countdown. So, we're going to introduce you to you guys. The countdown in Q4. And we'll be reporting quarterly on the critical points of testing and all of the comprehensive testing’s we'll be doing. So, we'll announce that very transparently throughout the countdown in the validation phase. But we want to keep things as -- because one of the things we're very focused on is just COVID impacts as the supply line comes on. So, we've got -- we announced 40 people in our procurement side that are very focused on it. We've already had to mitigate a few things, and we have a very low reliance on China. we're getting into just in between the 10% to 15% range. We're trying to mitigate it down to 10% or below. And so that there is even less risk. We're trying to source everything we can in North America are allied countries that have really active and don't pose swings in tariff risks and others. So, we've been really focused on our financial engineering and discipline as well as currency capabilities within this. So hopefully that answers how we're going to address it with respect to the gamma activity.
Jaime Perez: All right. My next question. In some of the space, some companies in the space are, instead of relying on outsourcing and equipment from overseas are doing small acquisitions to bring the supply chain in-house. Tony, what's your thought on that, and -- maybe you could share that with us?
Tony Aquila: Yes, sure. So, Jaime, obviously, if you know my background, we are very capital allocation. We do run that model and test in-house versus outsource. Obviously, we saw an arbitrage in getting non-diluted capital henceforth. If you look at our program costs compared to others, you're going to see a wide swing of different returns on capital. We're going to end up with 2 manufacturing environments for the price of 1.35. And that will become much more apparent because it flows through in everything. And it also creates your geographic expansion. As you saw, some people question, "Why did we do this with VDL? " We did have a perspective that the EU would step up their roll-out and mandate of EVs that gives us a great launching point and we'll backflow the vehicles into the U.S. market until -- and by the way, we've done nothing, accepted nothing organically even for interests, for people to place reservations in EMEA. And there have been quite a few inquiries there. So, look, I think if you take the conservative stance approach, we are going to step through this and we're just going to continue to work. And as you can see, we're already signaling that we have the additional capacity with our deal with VDL. And of course, that's the dead center of Europe. It has the best shipping structures to get to the outside the region from where you are. And so, there's good dialogue there. In addition to that, prior, Oklahoma is dead center of the U.S. and also has great labor shed, henceforth what it did for us in World War II. And it's one of the best costs of living, it's a top 4 cost of the living environment, which again translates into employee retention. We're thinking about long-term stuff here. And I think we are set up. Obviously, we got to get the go-to-market -market and these other pieces up. And with the product, and you've got now two abilities to distribute. And by the way, just to be transparent, I mean, we'll have some leakage cost back-flowing the first batch of vehicles and until we can get Oklahoma up and running. But that cost is some 1,500 bucks a unit.
Jaime Perez: And one more -- my last question, any update on the contract with VDL? I know a couple of days after the IR presentation it was placed to make an update in the contract. Any update contract as far as the scope and any details of the relationship with the VDL that's going forward?
Tony Aquila: Well, yes. So obviously, I signaled the framework is expanded to the ability to deliver 25,000. So, it's progressing ahead of schedule. They got a little bit of a summer break in Europe, as you know, this time of year, but I was in contact with them over the weekend. We continue to knock out everything, but there are no showstoppers. They've got people deployed, we got people deployed. Some people are giving up their summer breaks in Europe to keep the project moving. So, we'll be announcing shortly the final agreement. But everything is coming in as we expected. Again, we're watching what we say and we're saying things very clearly and just keep in mind everything we reported again because we are getting a lot more done, every evolution returns here. But what we've reported is only through the 2 weeks after IR Day.
Jaime Perez: All right. That's all the questions I have. Thanks for the update.
Tony Aquila: Okay. Thanks, Jamie.
Operator: Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.
Kamal Hamid: Thank you all for joining us today, and as always, if you have any questions or any follow-ups, please reach out to the IR team here and we'll be as responsive as we can. Thanks again. Look forward to seeing some of you down here in Dallas.
Tony Aquila: Thank you, everyone.
Josette Sheeran: Thank you.
Operator: Ladies and gentlemen, this concludes today's webcast. You may now disconnect your lines at this time. Thank you for your participation and have a great day.
