Lion Electric Co

NYSE:LEV

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, everyone. Welcome to Lion Electric's Fourth Quarter and Fiscal 2023 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.I would now like to turn the call over to Isabelle Adjahi, Vice President, Investor Relations and Sustainable Development. Please go ahead, Ms. Adjahi.

[Isabelle Adjahi, executive]

Good morning, everyone. Welcome to Lion's Fourth Quarter and Fiscal 2023 Results Conference Call. [Foreign Language]Today, I'm here with: Marc Bedard, our CEO, Founder; Nicolas Brunet, our President; and Richard Coulombe, our Chief Financial Officer. Please note that our discussion may include estimates and other forward-looking information and that our actual results could differ materially from those implied in any such statements. We invite you to review the cautionary language in this morning's press release and in our MD&A, which contains important information regarding various factors, assumptions and risks that could impact our actual results.With that, let me turn it over to Marc to begin. Marc?

[Marc Bedard, executive]

Thank you, Isabelle. Good morning, everyone. We will be discussing our Q4 results in a moment, but I first want to address our 2023 performance and highlight some of our achievements. 2023, had without a doubt, been a challenging year for the whole EV industry, including for Lion, but it has also been a year of significant progress for our company.First, we saw a significant increase in deliveries, resulting in revenue growth of 81% for the year, in addition to achieving positive adjusted gross margins. We also completed the construction of our vehicle production facility in Joliet, and our battery plant in Mirabel and started production at both facilities. We now have the infrastructure in place, including the production line and equipment to achieve a production capacity of up to 5,000 vehicles per year, and battery production capacity of 1.7 gigawatt hour enough to power 5,000 of our vehicles.With this significant manufacturing infrastructure in place, we do not plan to make any significant investments in growth CapEx for the foreseeable future. We also obtained certification for our MD battery pack, which powers our Lion5 trucks today and will be integrated shortly on our LionC school buses. This represents a significant milestone in the execution of our vertical integration strategy. And last but not least, we started the commercial reduction of the LionD school buses and the Lion5 truck, and we are planning to start the commercial production of the Lion8 tractor this summer. With our vehicle lineup nearly completed and with significant production infrastructure in place, we are well positioned to capture market share in the medium and heavy-duty EV space.Let me now comment on our Q4 results. During the quarter, we delivered 188 vehicles, leading to 29% revenue growth over Q4 2022. Despite maintaining a positive adjusted gross margin during the quarter, the 188 vehicles we delivered are below our expectations. This is mainly explained by 2 reasons. First, we incurred delays in the initial deliveries of the LionD school buses and the Lion5 trucks as we wanted to ensure optimal quality of these vehicles, which were the first ones going to customers, and as a result, initial deliveries were pushed out to Q1 and Q2 of this year.And second, our Q4 deliveries and the pacing of new orders were significantly impacted by the substantial delays incurred by the Canadian government with its Zero-Emission Transit Fund program, the ZETF, since several Canadians cool bus operators are still waiting for an official approval to start receiving our electric buses. The continued uncertainty and delays around the ZETF program had a major impact on momentum of electric school bus deliveries in Canada. The Canadian federal government and our clients currently work to evaluate and process sizable applications for school buses deployment that were filed several months ago.As a result of these delays and its impact on our world liquidity, we are taking immediate action by temporarily laying off approximately 100 employees, mostly impacting our night shift production workforce in Saint-Jerome. We will reassess our production needs on a regular basis in the upcoming months, mainly depending on the pace of the ZETF project's approval and deployment.Before turning it over to Nicolas and Richard to provide more detailed insights into our commercial operations and financial performance, let me reiterate that with our 1850 vehicles on the road that have driven 22 million miles in real operating conditions, and considering everything we have achieved over the past 15 years, we believe we are in an exceptional position for continued success. Our main objectives are an effective liquidity management and achieving profitability by remaining agile and actively focused on cost control. Further, we will continue to proactively improve the quality of our vehicles and increase our field technician service coverage to maximize customer experience and uptime with our vehicles.Nicolas?

[Nicolas Brunet, executive]

Thank you, Marc. I will start by addressing Q4 and fiscal 2023 deliveries, then discuss the order book and conclude with an update on certain subsidy programs.Starting with deliveries. We delivered 188 vehicles in Q4, consisting of 178 school buses and 10 trucks; 107 vehicles were delivered in Canada, and 81 in the U.S. Our school bus deliveries in Canada were impacted by the inability to deliver under the Canadian ZETF program, for which a number of our clients are in discussions with the government to obtain satisfactory of approval under the program. Furthermore, as previously explained, we experienced some delays in the first deliveries of the Lion5 trucks and the LionD school buses, which further impacted results. For fiscal 2023, we delivered 852 vehicle compared to 519 in 2022, a 64% increase on a year-over-year basis.Now shifting our focus to purchase orders. The order book currently stands at 2,076 vehicles, consisting of 1,791 school buses and 285 trucks, representing approximately $500 million. In addition to the challenging economic environment, the decline in the order book is in part attributable to the timing of certain subsidy programs, which are beneficial in the long term, but can cause some volatility on a quarter-to-quarter basis. For example, EPA awarded in January close to $1 billion of grant funding for purchase of clean school buses, but purchase orders cannot yet be placed under the programs parameters, and hence are not reflected in the order book.As previously announced, Lion was awarded a grant for 97 school buses and related charging infrastructure in this round, representing a total of $38 million for which we are working with the school districts to obtain formal purchase orders once allowed by the EPA. We see significant potential for additional opportunities for Lion in connection with this round, as we estimate that 70% of units were awarded directly to school districts, financial entities and third-party contractors. We are in dialogue with a number of these parties towards the potential deployment of Lion school bus.We are also very encouraged by customer engagement towards applications for the most recent rebate round of the EPA program, which closed on February 14. The EPA expects to award at least $500 million under this round with results to be announced in April. Now that the applications for the EPA's latest rebate round have closed, we are hopeful to see more momentum in a number of state-level programs, including in California, Colorado and New York, among others.On the truck side, we are particularly excited by 2 trucking programs from the EPA. First, the EPA's Clean Ports program, which was launched yesterday, is expected to allocate up to $2.6 billion toward zero emission, port equipment, and infrastructure, including drainage trucks. The application deadline for this program is set for May 28.Second, the EPA's Clean Heavy-duty Vehicles program, which is expected to allocate $1 billion towards the deployment of Class 6 and Class 7 clean trucks is expected to start in early spring of 2024. With the Lion5 and Line6 in commercial production today, and with the start of commercial production of the Lion8 tractor truck scheduled for mid-2024, we believe we are very well positioned for our customers to benefit from such funds. In summary, the grants environment, combined with customers' strong appetite for electric vehicles is very promising for the long term, despite causing some volatility in the short term, which we expect to persist for at least the next few months.I will now turn it over to Richard to discuss our financial performance. Richard?

[Richard Coulombe, executive]

Thank you, Nicolas. I will start by commenting on Q4 results and then comment on fiscal 2023. I will then discuss our liquidity position and provide color for 2024.Starting with Q4 performance. Revenue amounted to $60.4 million, representing a 29% increase year-over-year. Despite lower-than-expected sales volume, we posted adjusted gross margin of 1.3%, which excludes the $9.8 million inventory write-down related to the LionA and LionM vehicles as compared to an adjusted gross margin that was negative 10.2% for the corresponding quarter in 2022. Our SG&A expenses, which amounted to $16 million, decreased from 33% of revenue in Q4 2022, to 27% of revenue this year, reflecting our disciplined approach to cost management.Our Q4 results included an impairment of intangible assets and property, plant and equipment of $36 million related to our decision to indefinitely delay the start of our commercial production of the LionA and LionM vehicles. We had a significant improvement in adjusted EBITDA, which was negative $6.3 million for the quarter as compared to negative $13.9 million in Q4 2022, resulting from improved adjusted gross profit and decreasing costs. Q4 CapEx amounted to $13.7 million, a significant decrease as compared to $39.1 million in Q4 '22, marking the end of our growth CapEx.On the development front, we continued to see a reduction in spend as we bring new platforms in production. Additions to intangible assets, mostly related to vehicle and battery-related development amounted to $17.8 million, down $2.5 million as compared to $21.3 million in Q4 2022.Now turning to fiscal 2023 performance. For fiscal 2023, revenue, which amounted to $253.5 million increased by 81% as compared to $139.9 million in 2022. Worth mentioning revenue generated in the U.S. more than tripled as compared to 2022 and accounted for over 1/3 of our revenue for the year. We achieved positive adjusted gross margins for the year with adjusted gross profit of $4.3 million or 1.7% of revenue, as compared to an adjusted gross loss of $12.9 million or negative 9.3% of revenue in 2022. Adjusted EBITDA amounted to negative $34.3 million for the year as compared to negative $54.8 million in 2022. This is a result of our revenue growth and effort in optimizing our cost structure.Turning to our liquidity position. We ended the year with $93 million of available liquidity, consisting of $30 million in cash and $63 million of immediate borrowing capacity on our revolver. It is important to note that inventory investment made over the last 2 years to achieve production ramp-up has been a significant driver of cash outflows. With the bulk of our ramp-up occurring during the supply chain crisis, we have built significant inventory of raw material on the balance sheet. With supply chain now easing such large inventory position is no longer required. Further, we have a number of finished vehicles on hand, which could be deployed rapidly, particularly in the event that certain customer obtains satisfactory approval from the ZETF. We therefore anticipate that inventory reduction will positively contribute to liquidity in 2024 with a targeted inventory reduction of $50 million to $75 million.Looking ahead to 2024, our focus remains on driving growth in orders and deliveries while diligently controlling costs. As previously mentioned, the ramp-up of the LionD, the Lion5 and the Lion batteries as well as the upcoming launch of the Lion8 tractor will put short-term pressure on our gross margin, particularly in the first half of the year. We anticipate that CapEx will be lower than $10 million, consisting largely of maintenance CapEx. Similarly, vehicle and battery development spending will be reduced by approximately 30% as compared to 2023, and amount to approximately $45 million as the development of new product nears completion and vehicles are brought to market. We remain committed to tight cost management and a concerted effort to reduce working capital, particularly focusing on reducing inventory levels.Last, we will continue to monitor our liquidity requirements, including a significant reduction in our inventory and will stay appraised of potential opportunities to strengthen our balance sheet to ensure financial resilience in the face of evolving market conditions. In summary, while we have made significant strides in our financial performance, we remain vigilant in navigating the challenges and opportunities that lied ahead, guided by our commitment to sustainable growth and financial cautiousness.Back to you, Marc.

[Marc Bedard, executive]

Thank you, Richard. Before we open the line for questions, let me conclude by reiterating that while we expect the current environment to continue to result in volatile orders flow and deliveries for at least the next few months, we remain very enthusiastic about our future and fully committed to leveraging all investments made over the last 15 years to reach our ultimate objective of becoming profitable and free cash flow positive. Until then, we remain fully committed to taking appropriate measures to safeguard our liquidity.Thank you for your attention this morning. And let's now open the line for questions.

[Isabelle Adjahi, executive]

Operator, we will now open the lines for questions. I just want to ask you to limit the number of questions asked to allow other participants to ask their question. You can, of course, go back in the queue if you have any follow-up questions.

[Operator]

[Operator Instructions] Our first question comes from Rupert Merer from National Bank.

[Rupert Merer, analyst]

I think, we can start with the ZETF funding. I'm wondering, do you have any visibility from the government on the timing for when they could release some of that at ZETF funding?

[Marc Bedard, executive]

Yes. Rupert, this is Marc. Let me start by saying that the Canadian government has been a great partner over the years, and we all know that they are supporting electrification in Canada. And one example is that, their target is to get 35% of the total medium and heavy duty vehicle sales by 2030 to be 35%. So that's a lot, and it's exactly aligned with what the ZETF is supposed to be doing. So there has been a lot of delays.I understand right now there's a lot of ongoing dialogue with the potential customers, and we're also in dialogue with the ZETF at the same time. And as you know, it's a major part of our purchase order book as well. So I think everybody is on the same page and there has been a lot of volume on their end. This is what I'm getting, and there are terms, negotiations as we speak, but we're very enthusiastic about the outcome of that. We feel this is obvious that this is going to go through at some point, and we're looking -- we're really looking forward to that. So we're staying tuned, we're a good partner, and we feel that we're well-listened as well.

[Rupert Merer, analyst]

Do you believe that when they finish this process that they come up with a framework that allows for all of the funding to move forward in a fairly short order? Or is it going to be more of an approval of grants on a case-by-case basis?

[Marc Bedard, executive]

Well, we all hope the same thing, that the grant will be in such a form that it will be very easy for the operators to apply and get their funding, and maybe that was part of the issue. So I cannot talk about the future, but I know that $2.75 billion is a lot of money to invest for them, understanding as well that transit buses are included in there. But in all the discussions we've had in the past, I mean, it was very clear that a lot of that money will go for the school buses as well, and we have yet to see that. So, looking forward to it.

[Rupert Merer, analyst]

All right. Very good. Secondly, if we can talk about inventory, it's encouraging to hear that we could bring that down $50 million to $75 million. What's an appropriate amount of inventory for the company in the long run? And what are the opportunities to further bring that down maybe to more of a just-in-time model? Or if you can discuss what sort of inventory level you think you need to hold in the future? Are there any critical components that absolutely, you can't move to more of a just-in-time model?

[Richard Coulombe, executive]

It's Richard here. I'll take that one, Rupert. Obviously, we feel that, as I said earlier, our inventory in a very challenging supply chain environment. And right now, as I mentioned earlier, we don't need to have or carry buffers that we've been carrying in the last couple of years. So right now, we are very focused on reducing inventory levels to healthier levels. Hard to say what is the timing and optimal inventory in the current context, that's perfectly what Marc just described. So our goal is to really monitor our order book, make sure we have the appropriate level of inventory to deliver based on our customer needs. So, that's what we're focusing on.Like I said, right now, we are really focused on reducing our inventory. We mentioned $50 million to $75 million. This is obviously raw material. It's also finished goods that we could deliver quite quickly if some of these ZETF application in particular, are approved. So that's the short term view of $50 million to $75 million, and we'll take it from there afterwards.

[Rupert Merer, analyst]

Just a quick follow-up to that. So you're now producing your own battery packs, and I know you do have some batteries and battery packs in inventory. With that, do you anticipate that you'll be running your own battery production at a reasonable level in the coming quarters, or do you hold back on your own battery pack production while you work off the inventory?

[Marc Bedard, executive]

No. We will -- we are starting to integrate our own battery packs on our vehicles, Rupert. So you're going to see some Lion5 deliveries, and they are equipped with our Lion battery MD pack. So those are the first vehicles with our battery packs. That being said, though, I mean, obviously, using the 1000 BMW battery packs that we have in stock right now is also top of mind, and this is part of what Richard has been talking about [Technical Difficulty] production as well. So it's really a mix of taking down this [Technical Difficulty] the manufacturing in Mirabel.

[Operator]

The next question comes from Kevin Chiang from CIBC.

[Kevin Chiang, analyst]

Maybe I'll ask about, I guess, I guess, how you think about your sales strategy as you look to build out your vehicle book. I appreciate you guys have been generally more conservative in how you framed your backlog or your order book size versus maybe some of the other companies out there, but it is down 3 quarters in a row. You have a significant amount of excess capacity. It seems like it would make sense to find a way to kind of ramp up sales here to leverage better fixed cost absorption. That seems like that could work.And then maybe as a follow on, do you need the freight recession to [Technical Difficulty] become more open to buying some of the nonschool bus vehicles you have in the market? Just wondering how much the freight recession might have impacted customer dialogue over the past year, just given where the freight economy was in 2023?

[Nicolas Brunet, executive]

Kevin, Nick here. Let me start by addressing, I had trouble understanding the second part of your question, but let me start with the first part. On the order book side, obviously the order book is a point in time and it's not reflective of necessarily of really the ongoing client dialogue. And what I alluded to this in the [Technical Difficulty] especially on the bus side, there's significant volatility caused by the timing of the subsidy program. When you look at it, there are unprecedented amounts being deployed towards electric school buses, specifically the EPA.I mean, that's a great example. Allocated close to a $1 billion in amount that was doubled from the initial plan in the grant round of the second phase, if you will, of the $5 billion program that was allocated in January. As we announced, there's about $38 million of units that was directly allocated through our applications for our clients, of course. And there's really a number of dialogue as well as 70% of that rounds, close to 2000 vehicles are allocated to free agents, but the program does not yet allow anyone to place purchase orders and that won't be available. That won't be allowed until we expect April. And so this is great amounts of money that are coming in the space, all for enthusiastic buyers of electric school buses, but they can't show in the order book just yet.At the same time, the EPA just closed on Feb 15 applications for again $500 million of back to the voucher round this time, and this is another situation where we see a lot of client enthusiasm towards applying under the program and ultimately looking to purchase with EPA-subsidy, the electric school buses but not yet reflected in the order book.Same. If you look at the ZETF, right? There's clearly a lot of enthusiasm in the program. Half of the order book for us is tied in there. There's a big number of applications that we know of that are -- the clients are making on their own, and they're awaiting the outcome of that. And so these subsidy programs, when you take, let's say, a medium term time frame, they're very exciting. They will drive very significant volume, we believe. But in the short term, they cause the volatility that we're discussing this morning. So things are going in the right direction, without a doubt. But there's volatility in the short term caused by really the specificity of those subsidy programs.

[Kevin Chiang, analyst]

I appreciate that.

[Nicolas Brunet, executive]

If you don't mind, Kevin?

[Kevin Chiang, analyst]

[Indiscernible] For sure. So if I look at some of the products you've launched like the Lion5, Lion6, those seem to be a little bit more maybe tied to the freight economy, people using those vehicles to deliver goods. And last year, and part of 2022, we did go through and are going through a freight recession. Just wondering how much that might have impacted customer dialogue, right? Like if a shipper is facing 10%, 15% decline in volumes, are they at the table also talking about transitioning the fleet to electric? Or is that a conversation that might have gone pushed out until the freight economy looks a little bit better?

[Nicolas Brunet, executive]

Yes. That's a good question. Without a doubt, we're operating in a more challenging economic environment for the purchasers of trucks, for shippers, as you said. At the same time, there is a -- we see that clients are increasingly realizing they will need to transition to zero emission. The dialogue is really split, I would say, between some of the smaller operators looking to do a few handful of units to try out the product. They will benefit, of course, from some of the subsidies, particularly here in Canada.And we also have dialogue with much larger players that are looking to figure out the solution at scale. That's what I mean when I say they realize they will need to do this transition. And certainly during the most active years of shipping, it felt like this dialogue was a little pushed aside because of the need to focus on current operation, maximize profitability. And so we've seen a return of that dialogue. It's not tomorrow demand, but it's the big demand that will drive the market.When you think about it, the electric truck market, it's still at its total infancy. There's less than 1500 all electric trucks registered in North America as of December 2023. We're one of the few players that has critical scale. We're part of this dialogue with the large and the small operators, and actually we're the fourth largest player when you look at registration. So we're encouraged by the dialogue.Subsidies will help. We don't think they're as needed in the truck as they are in the school bus space, but they will help. And as I mentioned this morning, the EPA is stepping things up quite big with a $2.6 billion funding program for ports that opened yesterday, and for which applications are due by the end [Technical Difficulty] in early spring with EPA this time for the Class 6 and 7. Obviously the ports is for a Class 8 tractor. So all in all, there's certainly good movement there.

[Kevin Chiang, analyst]

Okay, maybe just a clarification question on the inventory comment made the $50 million to $75 million. Was that kind of a net number, so accounting for what inventory -- I suspect, would be headwind to inventory as you ramp up production? Or was that more of like a gross comment that today you're setting at $50 million to $75 million, and you could take that out, but offset -- potentially be offset to that as you ramp up production, that would obviously be a working capital headwind as it is [indiscernible]

[Richard Coulombe, executive]

No, no. We're really looking at a net reduction in the reduction $50 million to $75 million, considering the growth like that all factored in, like we finished the year with $250 million of inventory. Like I said earlier, we have some finished goods there that were -- we know, we are going to move in a short period of time. And then, we're very focused on, again, disciplined on raw material and the current context right now allows it.So we're really trying to bring parts in more of a just-in-time approach. So that's going to be the focus. And the $50 million to $75 million is going to be net.

[Kevin Chiang, analyst]

Net number. Perfect. That's very helpful.

[Operator]

The next question comes from Mike Shlisky from D.A. Davidson.

[Michael Shlisky, analyst]

I seem to ask this every quarter, so I'll ask it again here. Do you feel like 2024 will be a year of growth for deliveries overall? Perhaps we're seeing a challenge first few months here, but do you think, net-net, you'll be growing this year?

[Nicolas Brunet, executive]

Well, Mike, Nick here speaking. There's a lot of moving pieces in 2024, but the short of it is, yes, we are aiming for a year of growth in deliveries. When I say the moving pieces, obviously the half the order book is tied to ZETF applications. And so that is a big driver of our deliveries for the upcoming year. As we mentioned in the prepared remarks, we see some volatility in the next few months, again driven by these subsidy programs. But without a doubt, we're aiming for 2024 to be a growth -- a year of growth in the limits.

[Michael Shlisky, analyst]

Great. I also want to ask about market share, especially in school buses. There's been a large supplier of batteries go bankrupt recently. They supply at least one of the bus makers on the EV side. I'm curious if you thus far seen some expansion in your share and expect more in 2024, more than you would have expected given perhaps there's at least one company not delivering right now. Just curious whether there's been a lot of brands switching out there, in your opinion.

[Nicolas Brunet, executive]

Yes. Look, we're -- the market share front, we're looking to capture all the market share that we can. Just like I alluded to in trucks, when we think market share, we like to stick to the facts and we look at registrations, and by the stats that we see, we are the number one player in all electric school buses in North America. And I'm talking specifically the class, type C and D combined. Of course, we saw that bankruptcy as well.Are we seeing a shift in applications? Not yet, but at the same time, one of the things that I think will distinguish us is the extent to which we are delivering on the program, specifically the EPA program. We're close to 80% delivered on our allocations of the first round, and we think as the program moves forward, the OEM's ability to deliver rapidly will be an important factor.

[Operator]

Our next question is from George Gianarikas from Canaccord Genuity.

[George Gianarikas, analyst]

I know it's a volatile environment. You mentioned some issues with allocations of orders, but I was wondering if you mentioned liquidity, if you could give us sort of in broad strokes, what you're expecting 2024 to look like from an EBITDA perspective, and maybe a gross margin perspective, just so we can kind of compartmentalize what your cash needs will be throughout the year.

[Richard Coulombe, executive]

George, it's Richard. Listen, right now, we don't provide any guidance. I can maybe comment on the liquidity front. We -- like I said earlier, we closed the year with $93 million, $30 million in cash, $63 million on our revolving facility. We believe we have sufficient run rate for the year. Key drivers for us in terms of liquidity. Obviously, we're coming towards the end of our investment cycle, right? We -- this year, we're looking at CapEx that's going to be lower than $10 million. We talked about the inventory reduction plan between $50 million and $75 million. We continue to be very focused on overall cost control, cost reduction, SG&A, We expect the trend to continue with the percentage of sale, you saw the improvement year-over-year, and that's going to continue. We have a lot of initiatives on product cost savings. So that's another focus area for us. And R&D, same thing, as we introduce new products in the market, we see the R&D spend going down. We're looking at a 30% reduction this year. So those elements makes us feel really comfortable with our cash position.

[Marc Bedard, executive]

George, maybe one additional comment as well. Obviously, the growth CapEx being behind us is a big, big thing, right? And you don't see that very often in EV space. So I think it's great. And also what we did this morning, like letting go 100 people. Obviously this is not the kind of thing that we wanted to, but we're taking the action to make sure that we're protecting our liquidity, without a doubt.

[George Gianarikas, analyst]

And maybe as a follow up, the previous question was about market share. One of the larger competitors in the space has talked about expecting to order about 30% -- to win, excuse me, about 30% of orders related to at least round 2 of the EPA Clean School Bus program. Maybe again, in broad strokes, what would be satisfactory for you in terms of just the market share win rate for those 2 programs?

[Marc Bedard, executive]

Yes. Look, we for us, George, expectations of winning in a program that's lottery driven, right, because that's what it is, is more speculative than we're going to be here. And so I'm not going to comment about specific numbers. I will say we are #1 player in the space by registration today, by market share. Our market share has been more weighted in Canada relative to the U.S., and we expect to -- we're hoping to see continued improvements in the proportion of our wins under the EPA program. The dialogue with the customers is very constructive, but ultimately we want to talk with purchase orders and not with these types of forward-looking estimates.

[Operator]

Next question comes from Dan Levy from Barclays.

[Trevor Young, analyst]

Trevor Young on for Dan Levy. So looking at the order of book, I can appreciate that the timing of the awards under your major bus programs are significantly impacted by the timing of the government subsidy programs. But I guess we're looking for a sort of inflection in the order book. And I was just curious. If you could -- I know you can't guide to it, but could you quantify what we could expect as these programs, the timing aligns? And would these jumps in order books be larger than some of the larger sequential jumps you've seen in the past?

[Nicolas Brunet, executive]

Look, could they -- I guess, they could, Dan (sic) [ Trevor ], I mean, if I'm -- if you look at it essentially again, there was $1 billion allocated in the grand round right, the second round of the EPA program. And as I mentioned, 70% of that is allocated to what we'd call free agents, meaning it's not Lion, it's not other OEMs, it's not their dealers. That's -- so it's close to 2000 units that are, we believe, up for grabs by everyone, including us, and we're working hard at it. And then, there is a $500 million in the rebate program that is -- that just closed on Feb 14, right? And so -- and that will be allocated in April.So when you look at it, starting in April and the next few months, there will be a lot of funding that can result in purchase orders for the next few months. And so, yes, the jump could potentially be bigger than we've seen in the past. I'll also mention that when these programs come out, it really is the OEMs like us, or certainly we do make the promotion of these programs and make sure that the clients are aware. We filed a lot of applications on behalf of clients, but more and more that program gains maturity and the school districts and operators are aware of the program and file on their own and then pick an OWM. So there will be a lot of dollars out there dedicated to bus purchases that are up for grabs.So technically speaking, absolutely, yes, the jumps in the future could be higher in the order book when obviously it starts potentially in April and then in the subsequent months.

[Trevor Young, analyst]

That's very helpful. Then there's a follow up. We've seen these reports coming out about the finalized EPA targets for light vehicles specifically, it sounds like the emissions targets might get softened a little bit, at least through 2030. And I was just curious if there was any meaningful reads here for your end markets. I appreciate that light vehicle is a different world, but is there any reason to think that the sentiment might translate over into your realm as well, for EPA rules? Yes.

[Nicolas Brunet, executive]

From our standpoint, we've seen no change. First of all, especially when you look in the school bus space, I think we're past the point of convincing customers, and in general, society around the benefits of electric school buses relative to diesel for a school bus application. On top of EPA targets, really, there are state level, provincial level regulation that's coming into place. And so, no, what's happening in the light vehicle sector hasn't impacted us.And in the truck space, we've said it in the past, the truck space, there is medium and heavy-duty here is a few years behind the school bus for sure, but it's a much bigger market, as I mentioned earlier, they really is. It's a discussion topic that has been more active with the large operators that really have these targets out there. There's regulation, there's targets as well, right, and with these large companies that essentially need to figure out the solution going forward. And so, in short, Dan (sic) [ Trevor ], no impact as it relates to the light duty.

[Marc Bedard, executive]

And then also with respect to the greenhouse gas emissions, if you want to lower them, one of the best ways to attack the medium and heavy duty trucks and buses. For every bus that you're doing, it's like taking off basically at least 5 cars from the street. So that's really the best way to get to your goals of bringing down the greenhouse gas emissions. And when you're looking in Canada, like, you know, the 35% target that they have for 2030, 2030 is tomorrow. So we do not see how this could decrease, and we really see that, that will be the best way to achieve their goals. And that's exactly what we echo on the U.S. side and in Europe as well.

[Operator]

Our next question comes from Chris Souther from B. Riley.

[Christopher Souther, analyst]

Would you be able to quantify the impact on the delays for the initial LionD, Lion5 vehicles in the fourth quarter there, like versus how much you were expecting versus the push out there, I think, would be helpful?

[Marc Bedard, executive]

Yes, Chris, I mean, obviously no, we cannot provide the exact figure, but that was significant, right? Some of it is explaining the difference between what the Street was looking at in the final number that we got at 188, which was clearly below our expectations. So that was a mix of that, and the ZETF. But for us, I mean, quality is always #1 and not easy to bring any new product to market. We see that.I mean, there's very few new EV products coming to market, and when you do that, you need to take your time. So our goal was really to start delivering them by the end of the year. But we've had a few challenges, like in terms of software updates and those kind of things, where we felt that since those will be the first deliveries, the customers deserve the best. And So we will catch up. I mean, what we lost at the end of Q4 is going to take us 2 quarters to catch up. But we feel good, though, about the quality of the product we're bringing to market. And you probably saw some feedback also on some of the customers that started to receive the LionD, and it's very positive.

[Christopher Souther, analyst]

Okay, maybe just if we take out the ZETF and kind of look at the backlog, how many of the remaining school, all electric school buses are LionD? And can you give us any sense around breakdown of expected timing, excluding that kind of Canadian program that is obviously out of your control? I just wanted to get, if we could get a better feel for other timing delays beyond that one that we're seeing here? I think, you called out a little bit with the EPA for April for this past grant one, but kind of a broader peek at the order book, I think would be helpful for folks

[Marc Bedard, executive]

Yes. So the majority, more than half of the order book with the ZETF and conditional to that. The rest, Chris, is, I'd say, still the majority of that is in the type C market. We have a good amount of demand for the type D in the order book, especially for a product that we hadn't delivered yet. But the bulk of it is in the type C. Nonetheless, you generate the most demand with a vehicle when you put it on the street, which is what we're doing now. And so, we expect production of the type D to ramp up and demand to ramp up concurrently.

[Operator]

Our next question is from Etienne Larochelle from Desjardins.

[Etienne Larochelle, analyst]

My first question is on the headcount cut you announced this quarter. I'm just curious if you could provide more color on how much in OpEx savings this could translate to and if you will incur any charges for this in the upcoming quarters?

[Marc Bedard, executive]

Yes. So yes, the headcount number is 100 people that we've let go. And most of them are on the night shift. So basically, at this point, we're temporarily eliminating the night shift. And a lot of them are manufacturing people, but some of them are overheads, as well. So basically, we're reducing the overhead at the same time. So was that your question? I missed part of your -- the second part of your question.

[Etienne Larochelle, analyst]

Yes. So I was just curious if you could provide more color on how much in OpEx savings this could translate to and if you wouldn't incur any charges in the upcoming quarters related to that, and the 150 you previously announced back in December.

[Marc Bedard, executive]

Yes. Well, the 150, we're already obviously benefiting from this cap, I mean there is some with -- in addition to the savings. Obviously, we're making on a temporary basis because the goal is to -- for those employees to go back to work as soon as we get approvals from ZETF for the delivery of our vehicle. So we still hope that this will be the case.If not, the annual saving that we're looking at with this is around $8 million us. So that's the kind of saving we're looking at when you're including the payroll and obviously the other expenses related to the night shift, but the real goal is to get great news from the ZETF and bring back our people.

[Etienne Larochelle, analyst]

And maybe as a follow up with supply chain issues and shipping costs easing over the last couple of months. I'm just curious if you've seen a reduction in your bill of material cost?

[Marc Bedard, executive]

Well, we saw some reduction -- a lot because of all the initiatives we had that Richard was alluding to in the past. He was saying that we're working a lot on the bill of material, I mean, savings. So there is some of that. Obviously, with the amount of inventory that we have, it could take a little while as well to start seeing the benefit of those cost savings, because we have $250 million of inventory. And the real goal is obviously to use that inventory as soon as possible to get the benefit of the $50 million to $75 million inventory reduction that Richard was talking about. But this is top of mind for us to keep reducing the cost of the bill of material. And we have people working full time on that without any compromise on quality.

[Operator]

[Operator Instructions] We have no further questions on the call at this time, so I'll hand the floor back to you.

[Isabelle Adjahi, executive]

Well, thank you, everyone, for joining the call today. We really look forward to continue this discussion, and feel free to contact me for any follow up question you may have. Have a nice day.

[Operator]

Thank you. This concludes today's conference call. You may now all disconnect your lines.