Ballard Power Systems Inc
TSX:BLDP
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
2.13
5.28
|
Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems Third Quarter 2018 Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instruction]I would now like to turn the conference over to Guy McAree, Director, Investor Relations. Please go ahead, sir.
Thanks very much and good morning, everyone. On today's call Ballard management is going to discuss the company's third quarter 2018 financial and operating results and today we've got Randy MacEwen, President and CEO, and Tony Guglielmin, our Chief Financial Officer here with us. We're going to be making forward-looking statements that are based on management's current expectations, beliefs and assumptions concerning future events. Actual results could be materially different. Please refer to our most recent annual information form and other public filings for a complete disclaimer and related information.Just a brief point on logistics for this call before we get started. We're not going to webcast slides this morning. Instead, this is an audio call only. However, financial results slides are available at our website on the Earnings, Interviews & Presentations page of the Investors section. Randy is going to provide a business overview and then Tony will review Q3 financial results and that will be followed by a Q&A. We want to ensure that we give everyone an opportunity to ask questions today. So the prepared remarks are going to be relatively brief. I'll turn the call over to Randy now.
Thanks, Guy. And welcome everyone to our third quarter 2018 earnings conference call. Upfront, I want to clearly acknowledge that our financial results for Q3 and our revised outlook for full year 2018 are disappointing. This is not where we expected to be.At the start of the year, we outlined our qualitative outlook expectations for 2018. We indicated that we expected revenue to be relatively flat year-over-year. We also indicated that we expected to strengthen our underlying business mix for long-term prospects. While we've delivered on our second objective, we will miss on our revenue outlook. Our Q3 results and full-year outlook have been adversely impacted primarily by recent headwinds in the China fuel cell market. These headwinds include the relatively slow pace of hydrogen fueling station rollout, evolving government subsidy rules, and delays in Fuel Cell Electric Vehicle, or FCEV, certifications. These and other factors are impacting the pace of end market adoption with knock-on impacts on demand and working capital pressures throughout the value chain. These challenges resulted in slower than expected stock sales by the Synergy-Ballard JV, and a resulting buildup of inventory and working capital pressures. As a consequence, the Synergy-Ballard joint venture will not meet its MEA purchase commitments for 2018. We continue to work with Synergy and other partners to address these issues and to support an eventual resumption of MEA purchases.However, given the uncertainties regarding the joint venture's ability to meet its take-or-pay commitment under its contract with Ballard, we've taken a prudent step of removing the remaining value of this contract from the order book and 12 months -- from the order backlog and 12-month order book as Tony will describe later. This adjustment, combined with the recent sale of our Power Manager business and the associated absence of Power Manager revenue in Q4 2018, result in a lowering of our full year outlook. We now expect full year 2018 revenue of approximately $90 million to $95 million. So again, I want to be clear that Q3 results and full-year 2018 results outlook are disappointing.However, I also want to be clear about 2 other important points. First, these challenges in China should not be interpreted, as an exit ramp from expected long-term growth but rather as a speed Volvo in a new and evolving market with disruptive technology. We continue to have high conviction on the opportunity for FCEVs in Heavy Duty Motive in China. This conviction was further strengthened during the quarter with our announcement of a strategic collaboration with Weichai Power. Now, as a reminder, Weichai is a leading automotive equipment manufacturer, including high volume production of diesel engines, power-trains and axles. They also have investments in Chinese bus and truck OEMs and in KION Group, the world's #2 forklift OEM. Last year the Weichai Group manufactured more than 600,000 engines, approximately 149,000 heavy-duty trucks and 200,000 forklifts, with total revenue of approximately $23 billion and an employee base of approximately 75,000. Weichai is focused on China's new energy business segment and plans to be the leader in China's fuel cell electric vehicle market. As part of their plan to achieve this goal, we announced our strategic collaboration, which includes the following key elements. A 19.9% equity investment by Weichai and Ballard, the establishment of a joint venture in China, a $90 million development and technology transfer program relating to our next generation LCS fuel cell stack and power modules for bus, commercial truck, and forklift applications in China and a commitment by Weichai to supply at least 2,000 fuel cell modules for fuel cell electric vehicles in China, employing Ballard technology. This transaction will strengthen our balance sheet through equity investments of approximately $183 million including approximately $163 million from Weichai, and a further investment of approximately $20 million from existing strategic shareholder Broad-Ocean Motor. We view this strategic collaboration with Weichai as an important validation of the SCE value proposition in Heavy Duty Motive applications and Ballard's technology leadership in the PEM fuel cell industry. We expect this partnership, including our joint venture with Weichai to be a positive long-term catalyst for our business and for shareholder value. We expect the transaction will close in Q4 subject to the completion of definitive agreements, regulatory approvals and absent other customary closing conditions. Second, I also want to be clear about our long-term opportunity set, strategic positioning and embedded value. We know there will be some volatility in market conditions and resulting financial and operating results when you're commercializing highly disruptive technology that represents a transition in the transportation and energy paradigms. But our resolve remains high. We're excited and committed to our vision to deliver fuel cell power for a sustainable future. This vision is supported by 3 global megatrends of decarbonization, air quality and electrification of propulsion systems.We're excited by the long-term growth prospects for FCEVs and Heavy Duty Motive applications of bus, commercial truck, rail and marine where customer requirements include long range, rapid refueling, heavy payloads, and route flexibility. We know there are attractive markets and they're moving in our favor. We also know that the automotive industry is undergoing extraordinary transformation and disruption driven by electrification, shared mobility and autonomy. We believe these technologies will impact passenger car utilization rates by increasing daily range requirements and increasing hours of operation. We believe the higher utilization rates will create a larger sweet spot for fuel cell technology.We also see long-term market opportunities for fuel cell powered drones in a variety of commercial applications, and we continue to make progress. In each of these markets fuel cell Heavy Duty Motive passenger cars and drones, we're taking the necessary steps to ensure we have long-term market share and long-term value. We'll continue investing in the industry-leading talent, technology, products intellectual property, field experience and our brand.Finally, we have great partners and customers. In addition to our announced partners and customers in China including Weichai, Broad-Ocean, Synergy, Re-Fire and CRRC, we also have great partners and customers outside of China, including ABB, ADL, Audi, ElDorado, Hyster-Yale, Kenworth, Ncell, New Flyer, Nisshinbo, Plug Power, Siemens, Solaris, UPS, Van Hool, VDL and Wrightbus. I'm excited about Ballard's future within China, within Europe and the U.S. These are the early adopter markets. I fully expect our results over the long term to bear this out. With that let me turn the call over to Tony for his review of Q3 2018 results, Tony?
Thanks, Randy, and good morning everyone. As Randy mentioned top line revenue in Q3 was down at $21.6 million, down 32% on a year-over-year basis, largely a result of a decline in Power Products revenue. Overall Power Products revenue decreased 47% or $10.1 million to $11.2 million in the quarter. This was driven by a 65% decline in Heavy Duty Motive revenue to $6.3 million, the result of lower shipments to customers, principally in China including only modest MEA shipments to the Synergy-Ballard joint venture.Technology Solutions revenue was down only slightly by $200,000 to $10.4 million. However, we saw solid growth in our underlying Technology Solutions business as Q3 2017 included revenue of $3.6 million associated with the Synergy-Ballard JV technology transfer contract, which was not repeated this year.In terms of gross margin in Q3, we saw a 2 point decline to 30% reflecting the absence of the same one-time technology solutions revenue in Q3 2017. Cash operating costs increased 13% in Q3 to $10.6 million. This was driven primarily by higher research and product development expenses including work on our recently announced next-generation LCS stack and modules.Adjusted EBITDA was negative $3.6 million for the quarter compared to positive $0.9 million in Q3 2017 reflecting reduced gross margin dollars on lower year-on-year revenue as well as the increased cash to operating cost in the quarter. Net loss in Q3 was negative $6 million, compared to negative $1 million in Q3 last year and earnings per share were negative $0.03 in Q3 compared to negative $0.01 in Q3 2017.Cash used in operating activities was negative $7.7 million in the quarter consisting of cash operating losses of $4.9 million and working capital outflows of $2.8 million. The working capital increase was driven by $5.8 million in the higher inventory primarily to support expected Heavy Duty Motive shipments in Q4 and into 2019.In terms of liquidity, we ended Q3 with cash reserves $23.2 million, down from $35.2 million at the end of Q2. This reduction in cash reserves is the result of the cash used in operating activities in the quarter as well as approximately $4 million spent on the acquisition of the AFCC assets in the quarter. Subsequent to the end of the quarter, we did receive $1.3 million in net cash from the closing of the sale of the Power Manager business and as Randy mentioned, we anticipate a cash infusion of approximately $183 million on closing of the transactions with the Weichai Power and Broad-Ocean. As Randy noted, we expect these transactions to close in the fourth quarter subject to completion of definitive agreements, regulatory approvals and other customary conditions. Use of the proceeds is expected to include investments in our core fuel cell business, contributions to fund the new joint ventures' operation consistent with Ballard's equity ownership in the JV, as well as to support potential M&A transactions.Finally, our 12-month order book stood at $59.6 million, down from $96 million at the end of Q2. The difference of $36.4 million largely reflects the removal of MEA shipments to the Synergy-Ballard joint venture over the coming 12 months. Our order backlog, which reflects total committed orders on hand stood at $122.7 million at the end of Q3, down from $283.3 million at the end of Q2. Again, the decline in the order backlog largely reflects the removal of the MEA revenue from the Synergy-Ballard joint venture.With that, we'll turn the call back over to the operator for questions.
[Operator Instructions] Our first question is from Carter Driscoll with B. Riley FBR.
So obviously maybe dig a little deeper into maybe some of the dynamics that are changing in China. Can you talk maybe first about what you're seeing on the subsidy front? I mean, we've seen some changes in the way that they are kind of moving the target. They've done it to solar pretty aggressively. The China has a history of moving subsidy targets appropriately. Maybe you could characterize that. And then I want to follow up and dig a little deeper into the actual JV and some of the mechanics there.
Sure. Yes, on the subsidy front, I guess there are kind of 4 key things we look at in the China market to kind of on the ground assessment of the way things are working there. One is vehicles being permitted and the subsidies can have an impact on which vehicles get permitted because originally I would have said that the sweet spot based on the China subsidies would have been systems in the 30-kilowatt range and more recently, I would say 45 and 60 kilowatts will be more in favor given some of the changes that have occurred this year. So when we look at the platforms that have been certified in China, probably we have now 20 bus and truck platforms with Ballard technology inside that are on the MIIT promotions list. So I think there's about 15 buses and 5 trucks that we have certified. So that's an important statistic that we track monthly. Second one, Carter, relates to really the number of fueling stations in operation and the fueling station subsidies have, for the most part, been fairly static up until recently and I think we'll probably see more evolution on the fueling station subsidies and hopefully some improvement on the subsidies in certain markets in China. But there are today about 16 fueling stations in service, 25 under construction and 44 in planning. The third thing we look at is how are the actual vehicles that have been deployed operating and we have today around 350 vehicles that are actually in daily operation in China with I think more than 2.6 million kilometers of service. So we've got a pretty good database now in terms of continuing to track how vehicles are performing and just looking at for some of our buses, for example, recently we're looking at very high fuel cell availability rates, which is very encouraging. And then the fourth thing as you point out is really the subsidy regime and subsidy regime can vary by province and there are -- we track these subsidy regimes in each province. I would say I personally have a conviction that the subsidies will continue to be attractive through 2020 and I'm personally not expecting a significant reduction in subsidies after 2020 although I think some of the specifications to meet the subsidies may change. And so there's still a lot of work going on in China to understand what the road map should be for 2025 and 2030 in terms of technology specifications and still continue to be some work among the number of different groups on what the appropriate subsidy should be over time as well. The good news is that I feel that Weichai Power as a key partner will have good visibility and potential influence on the subsidy regime in terms of understanding what's going to be coming out, whether it's 2 years from now or 3 years from now and working hard to try and make sure the subsidy regime reflects the offering that we are planning to work with Weichai on.
Okay, appreciate the detail, Randy. So maybe back to the Synergy JV, so clearly the inventories were building. At what point did you realize that this was going to be more than kind of a temporary blip? And then, remind us again just the mechanics of the take or pay. And how much it sold of the -- I believe it was 150 over 5 years. Just remind us again what's left so let's just have a clear picture of what you've removed from the backlog and the timing of that, the 12 month versus the total left that was in that take or pay contract.
Sure. I'll ask Tony in a second to comment on the mechanics and also the prepayment terms that we have. One of the important things here is we don't have any AR exposure, which is something we were careful about in terms of how we structure our arrangements. But the one thing I would say is, even as recently as April the indication was that we probably wouldn't have enough volume for 2018 and there was actually an increase in the purchase order requirements for Q3 and Q4 for Ballard MEA supply. So we did that on the information we've received from the JV as recently as April which suggested -- indicated a very strong second half of the year for Ballard. But couple of the key customers, end customers in terms that were expected to take in the thousands of -- deploy thousands of vehicles, they are moving the timeline for those deployments to the right and that's impacting the timing of uptake. So I don't -- frankly don't see it as a, I'll call it, a market demand issue as much as a market adoption issue in terms of the pace of adoption. So that's been relatively recently. We expected to ship -- Tony will have the number, but it was in the range of about $8 million of product in Q3 and a similar number and potentially higher in Q4 and unfortunately that has been shifted. I think one of the things that we want to do is make sure that all of our partners in China are successful for the long term. And I would say the way that the subsidies work in China now as well where you have a requirement for the vehicles to actually operate for 20,000 kilometers before the subsidies are paid out. That's a change that impacted the cash flow cycle through the value chain as well. And so as doctors look to do their next scaling of deployments, in some cases they need to get some kilometers under their first deployments to enable the second ones from a cash flow perspective. So those are some of the challenges that we're seeing. It's an evolving market, it's dynamic, and I'm not surprised that there are challenges, I'm surprised at the size of this challenge to be honest, given the indications we had this year, but it's -- the context isn't surprising.
Before I ask Tony to maybe actually take the number offline, but Broad-Ocean was one of those companies that was going to be taking those tax out of the joint venture and they're investing another tranche you and yet they are part of the slowdown or at least pushout of adoption. Can you characterize your discussions with them in terms of some of their challenges? Are they similar to what you've echoed? Are they more cautious on the rollout? There seem to be doubling down on you in terms of a direct investment and upping that as Weichai and then unfortunately it's going to be overshadowed by the near-term adoption. The hurdle is having such a branding partner to adopt that. Maybe could you contrast the Weichai, your anticipation of how Weichai scales. I realize it's a little jumping the gun because they haven't finalized the agreement but I'm assuming it's probably not materially before the end of 2019, before you see those 2000 units begin to roll off. Is that a fair time frame for that?
Yes, that's absolutely fair. I think the bulk of those will be in 2020 and it'll go into 2021 as well. But I think what's important to understand about Weichai is you're really talking about a company that in many ways is similar to an automotive OEM in the way they think. So the discussions with them have been really about what is the roadmap to have the best technology and products for a high volume in 2025 and 2030. So it's not about trying to look at a subsidy regime for a short period of time. It's about making sure we have the best technology at the right price points for long-term market adoption in scale. That's what they do. And when you look at their capabilities on designing and manufacturing engines, diesel engines in high volume and axles and a number of other automotive components, all the way through the powertrain, it's a -- I would say really important that we are able to attract this quality of counterparty that's looking at the long term because these markets, I believe, are going to be high growth. You know they're not happening in quarters, they're happening in -- over years. But they will happen and I believe Weichai -- through the Weichai-Ballard JV will look at the center of this opportunity in China.
Maybe just a point of clarification before I'll just check, if I may, Tony. So the point of clarification on the synergy JV, so as you talk about maybe the shift from 30-kilowatt to 45 KW in dollars, the new stack is that potentially because that flow through in the JV and maybe replace some of what the anticipated original volumes and M&As we're going to go into.
So just to clarify, obviously there is a difference between the stock and the modules and there are 45-kilowatt modules that are just entering the market now and have been worked on this year and that's been part of the challenge is this transition from 30-kilowatt to 45-kilowatt. So you will see more about that I think in the coming months. The stack, we have with the Synergy-Ballard JV is the 9SSL existing technology. The LCS stack, we will -- you know manufacture and commercialize in the Weichai joint venture. There may be opportunities to do more with the existing Ballard-Synergy joint venture but we're still in negotiations and discussions on that.
Okay. I'll take the rest offline.
No problem. Carter, just -- let me just address your earlier question and others have the same question on the Synergy JV MEA. So just a couple of data points. So we have shipped up till the end of Q3 about $32 million of MEAs to the joint venture out of that, quote, take-or-pay contracts. So we've shipped about $32 million. In terms of what was still remaining in the backlog and order book we removed a little bit, about $32 million, $33 million was what's in the 12-month order book. That's what we'd expected, which was the cadence we had been shipping over the last year. So think about a year's worth of MEAs that we've removed. And then in terms of the remaining order backlog, the total backlog we've removed about $135 million, which would have been the balance of the take or pay plus as Randy mentioned, we had -- they had expected higher orders, so we'd reflected that. So about $135 million has come out of the total backlog. So as you look at the numbers, that's what we've removed from both the order book and backlog.
Yes, and I want to…
You zeroed headcount. You zeroed it out.
Yes, yes, precisely. We had -- look we -- the take-or-pay is still in existence. As Randy said, we're currently working through it, but we thought it was most prudent to zero out everything and if we are successful in, which we hope to be in negotiating with them, we will reconsider how much we put back in. But we've zeroed it out completely for now.
Yes, I just wanted to be clear on this way. No one's throwing in the towel on this opportunity. Obviously there are great assets, that joint venture in Shandong province. Go and visit it, you'll be highly impressed. We've had very high production of stacks at the joint venture in 2018. In the first half of the year, obviously. So what we are working with is to try and help resume demand and adoption that will trickle through to MEA supply and -- but we thought the prudent thing to do given the context was, as you say, to zero it out and make sure that expectations are set there. And as we, if and when we are able to see resumption, then we can come back and provide an update.
Our next question is from Rob Brown with Lake Street Capital Markets.
In terms of demand resumption, could you -- I know it's hard to say exactly, but could you give us a sense of sort of the timing, what has to kind of fall into place and how long those items take at this point and then how many customers sort of have you that's running and maybe a sense of what those customers have in terms of [ real uplifts ].
Yes, I'm reluctant to provide a specific time. What I can tell you is we have live discussions that are active for thousands of fuel cell vehicles that we translate to pretty high volume for this type JVs. So really trying to move existing stock inventory. And we are getting closer to closing out some of those contracts. Whether we close those out or not, I don't want to be determinative of, but I'm a very encouraged by the progress we've made, particularly in the last couple of weeks, with the 2G customers.
Okay, good. And then do you need -- is it months and quarters for fueling stations to be built that you have to wait for or can you kind of -- how long, I guess, any sense on what sort of need to happen to get those pieces to fall in place?
Yes, the fueling station adoption has been a little challenging. In a couple of cases you see situations where the fuel station -- fueling station is constructed, but it takes a long time to get the permits or they are kind of permitted on a trial basis. So there have been some events in China not really -- frankly not related to hydrogen fueling stations, related to other fueling stations that have caused some delays on the hydrogen fueling station. So it's difficult to know exactly when these things will move forward. But I'm pretty encouraged when I think about where we were a couple of years ago with basically close to zero fueling stations. And while we only have 16 fueling stations in service today throughout a very large country, another 25 under construction and 44 in planning. So I think by the end of 2019, you're going to start to see quite a few more fueling stations in service and I expect the number in construction and planning to increase as well.
And is this kind of takes a pause or goes out of the model, what could you help us understand what's left in terms of the order book for Heavy Duty Motive and kind of some of the, I guess the timing of the revenue recognition over the next few quarters? I think, I think the European JIVE program is a big piece of it, but maybe help us understand how that plays out.
Yes, maybe I'll just comment on the European context and Tony can supplement. There are kind of 3 key programs and initiatives we're focused on in Europe, Rob. The first obviously is as we've discussed before JIVE I and it's taken longer than we expected for some of those clusters to be awarded. Obviously, Germany was announced earlier this year. We had expected the UK cluster to be announced and awarded by now and that's taking longer. But in total, those are I think in the aggregate of around 142 buses for JIVE I. JIVE II is 152 buses and we feel very well positioned for JIVE II and some of those have been announced in modest number so far. But I do think in terms of 2019 JIVE I and JIVE II we should have much better clarity on the awards and the timing for deployments. Some of those JIVE I modules are being shipped currently. And then beyond JIVE I and JIVE II, I'm actually excited about what goes beyond that moving from 142 and 152 bus programs to much higher bus programs. And I'm pretty encouraged by some of the activity I see there and I think you'll see some -- I think very powerful announcements in the coming quarters on what happens post JIVE.
Yes, just a bit more color just more specifically, in the order book that we announced at the end of the quarter, over half of that is related to technology solutions, principally in our key customers, Audi, Nisshinbo, Siemens is an example. So, that's over 50% of that order book. Out of the balance, probably about -- probably 30% to 40% is still in heavy duty. And that's split between Europe as well as some U.S. opportunities. So right now, in terms of what's in the order book for Europe, it's the previously announced deals that we expect to be delivering in -- largely around the German cluster. We don't have anything in there yet. Nothing's been awarded for the UK cluster. And then we have something -- also something in the neighborhood of $5 million -- $5 million to $10 million spread across backup power material handling and the UAV business. So, 50% to 60% is in the TSM and we're building -- once we can of course announce any success in the European bus, the JIVE programs that will come into the order book.
We should point it out. Obviously, the order book does not include any contribution from the Weichai transaction. And as that close as we expect it to do in Q4, we'll see an appropriate adjustment to the order book as well.
Okay. Just wanted to clarify kind of in terms of 2019, how much -- will you have unit shipments in 2019 of that 2,000 or will just be the tech transfer revenue for Weichai?
Yes, it's -- right now, one of the things we're concluding as we move towards closing is the final cadence of the 2,000 units that's part of the discussions. There will be some shipments, they have some -- as part of the 2,000 program, Weichai has some commitment to delivering number of units in 2019, but it's a relatively modest number compared to the total 2,000. So, we'll have more visibility on that as we get past closing and as we get into our outlook for next year and the backlog. There will be some but the bulk of it is certainly into late '19 into 2020.
Our next question is from Amit Dayal with H.C. Wainwright & Co.
Follow-up on the synergy development, has -- what has transpired with Synergy deal? You had previous invisibility in the April time frame from them. Anything to do with your new agreement with Weichai in terms of giving them exclusivity with the new generation of technology, et cetera? And has this created a little bit of a pause in terms of how they want to pursuit going forward given what is coming up with Weichai?
Yes, Amit, that's a good question. I would say the pace of market adoption is a separate issue. Clearly, their ambitions for Synergy to try to acquire the rights to future Ballard technology and we moved in another direction obviously with Weichai. So that does have some impact on the relationship and does have some impact on transition, but the real issue here is about the pace of market adoption and their outlook for 2018, as you kind of go through it month-by-month has changed pretty significantly recently. It's a compounding factor, our Weichai relationship, but what's encouraging is there actually is an active 3-way discussion between Ballard and Weichai and Synergy to explore opportunities to support Synergy going forward. Don't know if that will translate to any firm support for the joint venture going forward, but it's an encouraging development.
And in the context of this development, I mean, are there any new risks in terms of closing the agreement with Weichai at the terms that have been originally agreed to? I mean, is there anything new that might push that out or cause any other issues?
No, I don't see any wrinkles or developments here related to our Q3 results if that's what you mean or relating to our outlook. We've been transparent, we've gone through a diligence process with Weichai and I don't think Weichai would prioritize near-term quarterly financial results as why they're making an investment here. They've got a long-term outlook and I think their proposed equity investment is for the long term. And I don't think there's going to be as much attention in terms of our current outlook for 2018 and 2019 as compared to making sure we've got the best technology and products for 2020, 2025, 2030.
Got it. And just one final question from me and I'll take my other questions offline. Has this development with Synergy sort of -- given management different perspective in terms of how to prioritize opportunities in other geographies although their applications rely so much on how China is building up?
No, I think -- I appreciate the question, I do think though we've always viewed that we have 3 key markets, right? So, China, the European theater and we can see the US but it's primarily, California at this time. And so we've always viewed that we probably have 50% of our revenue coming from Asia Pac over the next few years, 25% from Europe and 25% from the US, which provides us a certain level of diversification. But I think we have to be very clear, while we are excited about Europe and excited about California, China will be the largest market and in order to penetrate that market with local subsidy regimes, you need to have strong local partners that have strong balance sheets, great relationships with government, have great relationships with the end markets and in the case of Weichai and to a certain extent Broad-Ocean as well have some captive customer base in their network. And so, we feel very confident about the partners we've selected, the quality of the counterparties, the size of the counterparties has been reflective of the evolution of the market, and I think the business model we have in China is materially different than the business model we see in Europe and the US at this time, where we're traditionally selling engines or in some cases stacks, but primarily engines to OEMs rather than looking at licensing, technology transfer and supply of core technology in the form of MEA. So, different business model for different markets and as a result need to have different approach. The China strategy we have is very much focused on having the right approach given the localization and I feel like we've continued to evolve as that market's matured. I think the diversification we have also comes from the number of markets that we're serving, not just geographically, but vertically as well. And so we see great opportunity in heavy duty motive, in bus, commercial truck, rail and marine, all leveraging the same core technology, the same core IP, the same core talent and similarly in the automotive market, we see opportunities there that leverage the same core technology and same core talent. So, I think there's a lots of resiliency in our business model, lots of diversification in our business model, but if you have a very large customer like we've had here in Q3 and Q4, move away from a purchase commitment that we built product for. It's going to have some -- it's going to cause some difficulty and that's what we've experienced.
Understood. Appreciate the color, Randy. And I'll take my other questions offline.
Our next question is from Jeff Osborne with Cowen & Company.
Most of them heard and asked, but quick question…
Yes, I apologize, Jeff, we're not hearing you at all.
Yes, I was asking about the CapEx intensity of the JV with Weichai. Can you just talk about what the CapEx budget is for the JV?
Yes. So, just as we think -- so just in terms of the JV and we'll have certainly be able to provide much more visibility on, Jeff, as we get the deal wrapped up and announce, but the expectation is that JV will close very quickly and start to build up its plant and equipment and capacity to be in a position to do assembly as early as the second half of 2019, which will mean that the JV will be acquiring capital, will be buying equipment. So, we would anticipate Ballard will be funding at least at closing as you may recall we are in at 49%, we've talked Broad-Ocean is expected to come in as a 10% partner. So, as we think about our funding contribution or the capital going into the JV, we're thinking about the 39% of our contribution. So, I'm a bit reluctant to give a hard number right now about what that number might look like, but one could expect in the first year, they'll be spending probably I'm going to say $20 million to $30 million over the first year just acquiring equipment, getting set up. What our actual contribution is we'll be in a much better position to talk about that as we get into the -- our 2019 outlook. And again, obviously -- stating the obvious, we are going to be well capitalized to make that contribution once the $183 million of equity comes in. So apologies, I can't give you more crisp number now, but we'll certainly have more to provide once the deal closes.
Makes sense. And then how do we think about the OpEx levels relative to the revenue slowdown? Is there any cuts that you're doing or should we continue at this elevated level? Just give them the initiatives on product development that you highlighted in terms of R&D going up sequentially, et cetera.
Yes. So, it's a great question. So we obviously saw -- we're looking at a 13%, 15% increase this year in OpEx. Now, we've talked about through the year. A good chunk of that is very much related to the LCS stack and module development. That product is reaching a point of mature -- at least a launch. We've talked about the commercial launch next year. So you can expect that that will start to go down. The other thing as you know is part of our OpEx budget is our large and experienced engineering group that we will deploy on the Technology Solutions program. So, as the Weichai TS program or the Technology Solutions, technology transfer wraps up next year, you could expect more of our key resources working on that, which moves some of those costs into COGS. So as we think about OpEx for next year, obviously, we'll talk more in '19, we would expect at this point anyway not to see any additional increase. So, hopefully flat, perhaps potentially even slightly down, but we'll have more to talk about in the outlook.
Our next question is from Craig Irwin with Roth Capital Partners.
So I wanted to ask a little bit about cash needs over the next few months. What do you expect your cash consumption to be in the fourth, first quarters? Is it likely to see sort of a tighter use of cash than what we saw this past quarter? Are there some levers maybe you can pull to have a balance sheet that gives you a little bit more leeway into the way Weichai investment?
Craig, so just in terms of our cash. Absolutely, our cash burn this year has been relatively high, but we are looking at just if I had to pick a number, we're probably looking at maybe burning $10 million in Q4, just to pick a number, approximately. But I would add -- but we are sitting with about $35 million of inventory on our books at the end of Q3. I mentioned the build-up in Q3, it's actually been building up really throughout the year. We do expect those inventories to start to transition to as we started shipping, particularly into the heavy-duty market, Europe and in the U.S. So we expect to start seeing a reversal in our working capital requirements. How much of that converts to cash by year-end versus Q1 really depends on timing. So we do expect to see a much less -- a much slower use of cash as our working capital position improves through Q4 and into Q1. So probably I'll leave it like that insofar as our core cash operating requirements, our CapEx needs are not significant. We've talked about the AFCC assets. We don't see any material CapEx requirements in our core business. So as I say, when you put it all together, maybe about a $10 million burn in Q4 and then going into next year -- putting aside the Weichai, which would only be funded out of any -- the equity contribution much, much lower requirement for cash.
The next question I had was actually about inventories. You saw a $5 million sequential increase in the quarter, how much of this inventory -- this $33 million in inventory is the MEA that were slated to be delivered to Synergy? And is the specification of the MEAs in inventory is something where you can -- you could very easily just reallocate them to other products or is this something where you do need a very specific product set to burn that off?
Yes, so to answer the 2 questions, about $6 million or $7 million of MEAs in inventory that would have been there to meet the Q4 shipments, Q3, Q4 shipments. So that's how much was sitting there. But as to the second question it's absolutely fully deployable into other product. It's going to be absorbed into the shipments, to Plug Power for example and some of our other LCS products. So it's entirely redeployable and that's one of the reasons why I say we expect inventories to come down, part of that will be a drawdown on those MEAs as we deploy them into other products.
Okay. And then last question if I may, CapEx this quarter was a little bit higher than the last several. Can you say where the [ $6-and-change million ] was spent? And I know you don't invest money unless you expect to return. Can you maybe give us a timeline for the products to be rolling across that new equipment?
Yes, absolutely. The big -- the material part of the CapEx in the quarter was the acquisition of the AFCC assets that we announced, very early in the quarter. It's about a little over USD 4 million was -- of that total was for the AFCC assets. And as you may recall when we announced that it was really across a range of products, including test stands to support TS as well as our own product development. Some equipment for MEA manufacturing to substantially increase our MEA capacity. So about $4 million of that was AFCC related and it's going to support our business for the next several years across all of the products. In terms of our -- as we think, as I mentioned earlier, as we think forward now -- we're not looking for anything significant in terms of the CapEx requirements within the Ballard core fuel cell business.
This concludes the question-and-answer session. I would like to turn the conference back over to Randy MacEwen, CEO for any closing remarks.
Thanks for joining our call today. We'll look forward to our next call after Q4.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.