Q1 2024 Lion Electric Co Earnings Call

Participants

Isabelle Adjahi; Vice President - Investor Relations, Sustainable Development; Lion Electric Co

Marc Bedard; Chief Executive Officer, Founder, Director; Lion Electric Co

Nicolas Brunet; President; Lion Electric Co

Richard Coulombe; Chief Financial Officer; Lion Electric Co

Kevin Chiang; Analyst; CIBC Capital Markets

George Gianarikas; Analyst; Canaccord Genuity

Benoit Poirier; Analyst; Desjardins Securities

Amrish Misra; Analyst; First National Bank

Dan Levy; Analyst; Barclays

Mike Shlisky; Analyst; D.A. Davidson & Company

Chris Souther; Analyst; B. Riley Securities

Presentation

Operator

Good morning, everyone, and welcome to Lion Electric's first-quarter 2024 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 Adjah, Vice President, Investor Relations and Sustainable Development. Please go ahead, Ms. Adjahi.

Isabelle Adjahi

Good morning, everyone. Welcome to Lion Electric's first quarter 2024 results conference call. Giving you a concept of telephonic, so there is just a philosophy you commit to commit further capital? Did you 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 read 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

Thank you, Isabel, and good morning, everyone. Thank you for joining us today to discuss Lion Electric's performance for the first quarter of 2020 for Q1 was marked by significant commercial and operational achievements we have been able to accomplish, despite important challenges mostly related to the timing of some subsidy programs.
Let me start by highlighting some of our achievements in Q1, the Canadian ZTF. fund. It took the first sizable application for 200 buses for which we have delivered 50 buses in Q1. We started delivering our alliance five chunks equipped with our Lion MD. battery packs, and we anticipate a gradual increase in landside production throughout the rest of the year as we fulfill orders and bolsters our market presence. We started the deliveries of our Lyon D school buses manufactured at our drilling episodes. We are planning the commercialization of our Alliance, a tractor truck. This summer, and we will make its formal commercial introduction at the ACT Conference in Las Vegas in two weeks. Our Lyonnais tractor will be equipped with our Lyon battery HDPE state of the art 105 kilowatt hours commercialization of our laminate tractor truck expected this summer marks the end of our new model development, allowing us to be fully focused on our vehicle optimization, including cost reduction. Q1 was also the first quarter within the last few years with almost no CapEx investment, allowing us to capitalize on our previous investments made in our three factories and be fully focused on manufacturing process improvements and supply chain optimization.
Lastly, our expertise has been recognized with the prestigious AM hub Chicago's Manufacturer of the Year Award as owners, manufacturers and organizations for being innovative and focusing on economic growth to date. We are proud to report that over 2000 of our vehicles are on the road and have collectively driven 25 million miles metrics that demonstrate Lions leadership in the medium and heavy-duty electric cars.
On the financial front, Q1 revenues remained steady year over year, with margins impacted by initial increased costs related to the introduction of our reliance five in light of the new models and the integration of our Lyon batteries. As previously communicated, while we are pleased with the free ZTS. approval and the deliveries of 50 buses in Q1. Under this program, revenues in Canada continued to be significantly impacted by the delays and challenges associated with the granting of subsidies related to the ZPS. program. This approval of 200 electric buses is a great news and definitely a step in the right direction. But this represents only a fraction are there programs with them. Revenues in the US were largely impacted by the timing of orders and deliveries tied to the EPA program being in the transition phase between to funding runs for this $5 billion program that is crucial for advancing electrification in this market.
In response to these timing challenges and to safeguard our liquidity, we continue to proactively make difficult but necessary decisions, including implementing additional cost control measures such as rightsizing our workforce. Combined with the measures announced late last year and early this year, we estimate that these initiatives will result in annualized cost savings of $40 million. Going forward, we are confident that the recent announcement of new funding programs such as the additional billion dollars of location under the EPA's clean heavy duty vehicles grant program, along with the renewal of Canadian programs such as eco. Can you imagine that CapEx school bus subsidy program will positively impact orders and deliveries for the rest of the year. Our focus remains on growing our order book and accelerating deliveries while diligently managing liquidity and controlling costs, including a significant improvement of our working capital.
Now that the supply chain crisis is behind us, Nicolas will now provide insight into our commercial performance. Nicolas?

Nicolas Brunet

Thank you, Mack. Let me start by discussing delivery then address the order book and conclude with an update on certain subsidy program. During the quarter, we delivered a total of 196 vehicles, comprising 184 buses and 12 trucks.
Of these 165 were delivered in Canada with the remaining 31 delivered in the US. Notably, this includes 50 buses to one of our customers for which funding approval under the ZPS. program was obtained for an order of 200 school buses. While this initial ZTF. approval as a positive milestone. The 50 deliveries represent only a fraction of the program's potential, and we look forward to the government accelerating the processing of applications.
Additionally, we experienced a slowdown on EPA related deliveries as we are currently in between funding. I will elaborate on this in a moment in terms of purchase orders as of May seventh, 2020, for light vehicle order book stood at 24 vehicles consisting of 17 193 buses and 211 trucks, representing a combined total order value of approximately $475 million. The momentum in the purchase order book and the deliveries for the quarter was impacted by the timing of funding rounds in the EPA's clean school bus program.
First, the vast majority of awardees in this billion dollar grant round announced earlier this year are not yet able to issue purchase orders and accept Sequel two. As a reminder, EPA announced in January, the awards for the Grant Brown, which allocated close to $1 billion of funding for clean school buses and related infrastructure as part of this run line was awarded funding of $38 million for 97 schools.
Additionally, we estimate that 70% of the awards were allocated to parties that are not directly associated with the school bus OEM or dealers we have over the past month been proactively working with awardees and this grand rounds and we are in advanced dialogue with a number of them to potentially purchase mind school bus orders from this grant round are expected to be live shortly for deliveries later this year and in 2020.
Second, applicant under the latest rebate round of the ETA program, which is expected to allocate $500 million of funding are still awaiting the result of their allocation applications were filed on February 14th. We worked with a number of clients to file applications on their behalf and also and are also in dialogue with a number of potential clients with light awards under this round of the EPA program are expected to be announced imminently just as with the grant.
Now, this funding has not yet impacted our order book. So altogether, close to $1.5 billion are expected to soon be available for districts and private operators that purchase school buses in EPA's clean school bus program. Additionally, the recent launch of the EPA Clean heavy duty vehicles program, which allocates $932 million to purchase Class six and seven zero-emission vehicle, including over $650 million.
Specifically for school buses, is expected to further stimulate demand for electric school buses we are also excited for the upcoming opening in California of the zero-emission school bus infrastructure or ZD. program, which allocates $500 million for the purchase of electric school buses and charging interest combined with the upcoming EPA round I just discussed.
This translates into over $2.5 billion of funding to be available for school bus and infrastructure on the truck side, the Line five and line a tractor platform continue to drive strong interest from potential customers, which we believe positions us well to serve truck operators when the shift to easy access. Finally, 65 truck purchase orders were removed from our PO book relating to our clients that filed for creditor in Canada.
We remain hopeful that more applications under the DDTS. program will be approved, which would have an impact on both our upcoming deliveries from existing orders as well as drive momentum in the order place in Quebec the extension of both the eco Cameia NASH program for trucks and the Quebec school bus subsidy program until March 2025. It represents a favorable development as both of these programs offer very attractive subsidies.
I will now turn it over to Richard to discuss our financial performance. Richard?

Richard Coulombe

Thank you, Nicolas. I will start by commenting on Q1 results. I will then discuss our liquidity position and provide color for the rest of 2024.
In Q1, we recorded quarterly revenue of $55.5 million, up 1% compared to Q1 2023, despite fewer vehicles delivered 196 compared to 220 in Q1 2023. Gross margin was negative 20.1% compared to negative 4.1% last year. As communicated previously, margins were impacted by initial increased manufacturing costs, mostly due to the introduction of LIND. nine five vehicles and to the initial production of Lion battery packs.
Our SG&A expenses stood at $14.5 million, excluding $0.4 million of noncash share-based compensation. This represents 26% of revenue in Q1 2024 compared to 28% in Q4 2023. In Q1, adjusted EBITDA was negative $17.3 million compared to negative $14.5 million in Q1 2020.
Our net investments in intangible assets mostly related to R&D, amounted to $8.2 million, down from $16.5 million in Q2, Q1 2023 as we continue delivering on significant development milestones. Total CapEx incurred significantly decreased to 400,000 compared to $23.1 million in Q1 2023 and mostly relates to maintenance CapEx. We now expect CapEx for 2024 to be approximately $5 million, lowering the previously communicated guidance for CapEx now moving on to liquidity.
At the end of Q1, we had available liquidity of $31 million, including $5 million in cash and $26 million in immediate borrowing capacity on our revolver. During Q1, we made good progress with our inventory reduction plan, achieving a $12 million reduction. This puts us on track to deliver on our objective of a $50 million to $75 million inventory reduction for the year.
Despite this $12 million inventory reduction, several specific factors impacted Q1 and resulted in a negative working capital of $21 million. First, accounts payable decreased by approximately $16 million, driven by nonrecurring payments to suppliers for purchases made prior to the launch of our inventory reduction plan and strategic CapEx incurred in 2023 for which payments were made this quarter.
We do not anticipate this trend to persist as we continue working closely with our suppliers in optimizing our supply chain management. Second, accounts receivable increased by approximately $7 million, largely attributed to overdue amounts mostly owed by government agencies. Substantial amounts were collected since and we are in active discussions to expedite remaining payments.
Third, unearned revenue balance with regards to the EPA program represented a net reduction of$ 5 million for the quarter as we are currently between EPA grant rounds we are focused on optimizing our balance sheet, which, as at March 31st, 2024 includes $329 million of current assets compared to $124 million of current liabilities and therefore, provides important opportunities to unlock liquidity.
As of April 30th, our liquidity position is largely unchanged relative to our March 31st position during the quarter. We also made difficult decisions to streamline our operations by implementing additional workforce and other cost reduction initiatives. These decisions were necessary to safeguard our liquidity and ensure our long-term sustainability considering the significant delays encountered in some of the subsidy programs, combined with the measures announced in November 2023 and February 2024.
These initiatives are expected to result in annualized cost savings of approximately $40 million. As we look ahead, we anticipate persistent volatility in the short term. Our focus will remain on growing our order book and accelerating deliveries while closely managing our liquidity, driving our inventory reduction plan and controlling our overall costs. In parallel, we stay appraised of potential opportunities to strengthen our balance sheet and ensure financial resilience in the face of evolving market conditions.
I will now pass it over to Marc for concluding remarks. Marc?

Marc Bedard

Thank you, Richard. Let me conclude by reiterating that despite having to navigate through the delays in the granting of some subsidy programs. We are very excited by the many opportunities that lie ahead. The shift to electrification might have taken a little longer than initially expected, but it is clearly happening and alliance is playing a key role in it as demonstrated by our leadership in the electric school bus market.
While we expect volatility in the short term, we are confident in the decisions we are making for our Company and will remain agile and proactive to maintain stability and forward momentum, which is part of our DNA. We will also maintain our steadfast focus on actively managing liquidity and controlling cost. Our ultimate objective being to generate EBITDA and free cash flow are key milestones of our financial stability and sustainable growth.
Thank you for your attention this morning. Let's now open the lines for questions.

Question and Answer Session

Isabelle Adjahi

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

Operator

(Operator Instructions) Kevin Chiang, CIBC.

Kevin Chiang

Hi. Thanks for taking my question and good morning, everybody. Maybe I'll start on the liquidity on the liquidity front, $31 million of available liquidity.
If I look at some of the moving parts, you have $27 million of debt due this year, about $8 million of lease liabilities due over the next 12 months. Capex is five. I think spending on R&D is probably in the $45 million range this year. So if you kind of add all that up that's about an$ 85 million spend before accounting for potential operating losses with liquidity at 31.
But maybe if you can just help me bridge how you manage that gap whether it's working capital tailwinds from from here on forward, maybe the delivery ramp as we get through the years. Just anything to provide some finer points to how you are you look to manage this as you ramp up deliveries I think.

Richard Coulombe

Dan, good morning, Evan, thanks for the question. So liquidity wise, no, as I said it earlier, we have a I guess, a liquidity position right now of $31 million, consisting of $5 million of cash and our $26 million available on our borrowing facility.
The key element for us in terms of driving liquidity is really market right now that our balance sheet, our short-term assets known right now because we have cash of $323 million versus $123 million of trade liabilities. So that's kind of ratio of 2.6. And this is what we're focusing on. Our inventory reduction plan is a key driver to one very happy that we were able to reduce our inventory by $12 million, and that's what it was a transition quarter in composites in AMI.
We really have worked closely with our supply chain and and kind of adjusted the the cadence is across the board and really align it to our current order book. So so really confident that we're going to achieve our inventory reductions. As you stated CapEx, all right now, we spent like only $400 paid this quarter and we're going to remain very disciplined there. And we believe right now, $5 million. It's a number that we can company to work with. And again, we're not going to necessarily commit to that.
We're going to really be very disciplined there are any other contributor down significantly year over year. So also in SG&A will continue to be very disciplined as well. And you see that trend over the last several quarters and on our it's really going down as a percentage of revenue.
So I would say those are the elements of that that will help us navigate through the year. And obviously, as a management team. We continue looking at market opportunities to strengthen our balance sheet. But right now our focus is really driving our working capital initiatives.

Kevin Chiang

Okay. That makes sense. I mean, my second question, I appreciate some of the some of the moving parts here in growing that vehicle order book. Just given how dependent are these orders seem to be on government subsidies and grants.
But in your kind of high level, just given the experience you've had over the past couple of years, any change in your sales strategy or any thoughts in changing your sales strategy to maybe accelerate some of these purchases to maybe in some may be will drive more near term order activity? I guess based on just based on your experience with how these government subsidies get rolled out and some sometimes some of the timing timing uncertainty that that seems to weigh on your order activity.

Nicolas Brunet

It got a mixture of I'll take this one. Look, obviously, when there are subsidy programs out there that are attractive and they are out there on the the buyers for the product want to be able to access that funding. And as you would expect that, of course, and we are in somewhat of a unique position, particularly in the US right now, where there's actually a budget cycle that back.
You'll recall that late last year, the EPA announced the award for $1 billion of both for school bus and infrastructure under the ground round of the EPA Clean school bus program. And then in February and the third round of the program, just back to the discount program was all the applications were filed in February. And for that billion dollars in assets, some of them, the first billion have been awarded, but purchase orders are not yet allowed, so just following its course.
And then the second tranche of the $500 million. The applications were filed and that the results are not yet known. This is all very attractive for us selling activity. It just hasn't materialized into the order book just yet for the wraparound, we expect that purchase orders will be allowed imminently and then for the discount, and we expect the allocation to be known imminently as well.
So they're not coming. Of course, when you look at the order book to take a snapshot on a given quarter of, yes, those programs can cause volatility, but it's enormous demand that stimulated out there from these programs. And so that's so so I guess now in terms of changing the sales strategy, we have had we filed some applications directly on both of these programs.
You'll recall we had 97 units for $38 million that were awarded directly to us in the ground now. And as I mentioned, we filed also a lot of applications for our clients in the discount round, the whole sector filed a lot of applications on their own. So that demand is coming. We expect shortly on both of these these programs as for that new programs that are being put in place, the clean heavy duty program from the EPA, which allocates a $650 million school buses that the program in California that's opening very shortly.
That's $500 million just for the State of California. And so certainly those that those subsidies bring a lot of appeal and a lot of incentives for our clients to buy. And if you get a subsidy as much as $350,000 to purchase the vehicle. Well, yes, it's natural that a lot of the the the potential buyers will wait to know the results of those programs.
Now, Pacific Canada and of course, the Mark alluded to it in his prepared remarks. The does that ETF is a program that can generate a lot of demand. We believe we have over half of our order book that is contingent on that ETF approval. We've had the first order for one of our customers for 200 units that was approved, which is which is very interesting.
And we know that a number of parties have applications that have been filed as well. So like I said that these programs can create some volatility on a quarter-to-quarter basis. But if we take a bit of a longer look at things. It's very attractive demand and we think the selling strategy with these programs.

Kevin Chiang

Thanks for the color there. I appreciate that, and I'll jump back in the queue here.

Operator

George Gianarikas, Canaccord Genuity.

George Gianarikas

I good morning, everyone, and thank you for taking my questions. And then just as a follow-up to the last question about these programs and the momentum you see underneath the surface, can you just help us maybe understand what you think the cadence of vehicle deliveries will be throughout this year. Obviously, it sounds like Q1 started at the low point. Maybe just a little bit of visibility and color as to how you think we should progress over the last three quarters of the year?

Nicolas Brunet

Yes, hydrogen, mid-tier again, hey, look, we don't have perfect visibility. But when you look at it, we are very well advanced in delivering the units that we were awarded as part of round one of the key program. We are now, as I mentioned before, the $1 billion in assets about to be available for. We expect for purchase orders of school buses from the next to Ram. There's obviously a certain time that's required two for that for the clients that placed a formal purchase order from them as well as the planned infrastructure.
And so we alluded to some volatility in the short term that is in part driven by that what our what we are hoping for that does that that cadence of deliveries under the EPA program will pick up in the second half of the year. Typically, there's about a two year window in order for the clients who received the vehicle, we pride ourselves in being able to deliver a relatively fast. And so again, we hope and expect that the cadence will pick up in the second half of the year and continue throughout 20.

George Gianarikas

Great, thank you. And maybe just second question on the commercial market opportunity. Any update on the Amazon relationship and any discussions you've had with them.

Nicolas Brunet

Thank you. And look, the beds by commercial. You mean you mean trucks presumably have looked at that the truck market, we've said it numerous times is about 10 times the potential of the school bus market. It's got the TCO dynamics that we think are more favorable. And there has been a continued regulation that is promoting zero emissions vehicle, but that said that the market is significantly behind the truck market is significantly behind where the school bus market is. We see some interesting developments.
Of course, you mentioned Amazon, you saw that they are deploying with another party, some tractors trucks. We view this as very positive industry news and you know, our goal with the trucks to deliver quality products to get into large fleets and form relationships so that they can adopt and appreciate our product and then scale up this business as the market picks up.

George Gianarikas

That's finished. Thank you.

Operator

Benoit Poirier, Desjardins.

Benoit Poirier

Please go ahead and yes, sorry, good morning. I want to come back on the ZTF. program. You mentioned some delays in terms of funding and we didn't see any new funding in the Canadian budget.
So are there any milestone we should monitor going forward? And and I've heard also the word that you have currently a lot of dialogue with customers waiting, obviously for the EUR1.5 billion funding to come with the EPA, how would you qualify your bidding pipeline as of now and also any thoughts about the upcoming U.S. election, whether it influence the dialogue with the customers or the different funding agencies?

Marc Bedard

Good morning. By the way, this is Mark, and I'll take the one on the on the GTF, as you probably know, I mean, it's been going on for almost three years now and some operators started that process some almost three years ago. And so the process is obviously a little bit complicated, but we are seeing good movement right now. And I think you know, the first approval for the 200 buses is a major step. So we are very satisfied with this at this point with the with obviously the approval of you know, this quarter and we were able to deliver 50 of those buses as well.
So with respect to this EBITDA, we see good momentum right now. We see good dialogue as well. As you know, the operators are discussing with the ZTF., and we're basically supporting the operators in their request. And we know that some operators are still waiting for the formal offer from the Z.
Yes, one thing I can tell you, though, is that, you know, the operators, they are looking forward to electrify their fleets and done, and this is a great step. I mean, we are trying to slow down their diesel purchases right now waiting to receive the green light from the DTX., but this is with respect to the ZTF., we see that as very good news right now, an alternative to the economics of the EPA in terms of the EPA bidding pipeline than it had been describing a very healthy look when this first round was announced, the subsidy amount were the highest the objective of the program as the spread out across all states as much as possible.

Nicolas Brunet

Now the amounts are gradually lowering There remains, in our view, a very attractive, but more and more about to selling into the larger school districts served by larger operators and sort of more at scale deployments, which which I think plays better into our selling activity. We also have, of course, now the factory in Juliet that's up and running that we can we can showcase. So I described the pipeline that's very healthy.
In terms of your your third question on the elections, but of course, we don't know what we don't know. But the feedback I point out the $5 billion EPA program as something that's approved that being deployed, as you can see up quite rapidly on top of the 1.5 that I mentioned just now the $930 million from the clean heavy duty program. We expect there will be another funding round this year, somewhere in the fall under this program.
So we are getting deployed pretty rapidly and we'd ask that, you know, in terms of school buses, it's a a societal view in our opinion that the school buses that emissions and school buses should be eliminated if a use case. That makes a lot of sense, both in terms of health for the children, but also operationally speaking and so on. So feel pretty good about that.
And I'll add that on top of the federal money that we see coming in the space, I mentioned that because that's the program $500 million in California, there are other examples in Colorado and Texas and Illinois. And so there's some quite a lot as at the state level. And on top of subsidies, there's regulation also with a number of states that are that are making it mandatory overtime for school buses to be for the electric.

Benoit Poirier

Okay. Thank you very much. I apologize for the long list of question and I'll get back in the queue.

Marc Bedard

Thank you.

Operator

Amrish Mishra, National Bank.

Amrish Misra

Good morning, everyone.

Nicolas Brunet

Good morning, Rupert.

Amrish Misra

Coming back to the liquidity it seems like the biggest moving parts over the next couple of quarters is going to be the level of inventory. Can you talk about about the cadence of some of the drop in inventory that 50 to $75 million production that you're looking at, can that be front end loaded this year? And do you have opportunities to reduce inventory by more than that level if needed?

Nicolas Brunet

I think Kevin and Rupert, listen, as I said earlier, Q1 for us was the quarter where we really work with our supplier base and we kind of realigned in our approach of shifting from a build to stock Build to Order approach. So Q1 was like a transition quarter that some of our suppliers had already known built some inventory for us that's already bought some raw materials.
So so so Q1, despite I would say all that, the alignment that let's say that occurred during the quarter, we accepted some inventory in exchange for prepayment terms and so on, just to again get through that transition phase. And despite all of that, we managed to reduce inventory by $12 million. So I anticipate that not Q2/Q3. We will continue seeing an improvement of that inventory reduction.
So I don't see the numbers increasing in the next few quarters and internally for sure driving a higher number. We'll see how things play out. But we see a lot of it is connected to the order book and how many orders we're going to secure from YK.

Richard Coulombe

Ron, as Nick pointed out, that if you have some there's a lot of moving parts, but it's hard for me to at this point to talk about a different set of numbers, but I feel very confident with the $50 million to $75 million. And we should see I'm expecting Q2 to be another good quarter in terms of inventory reduction also the Rupert, this is Mark.

Marc Bedard

Yes, the with respect to the current assets, I mean, Richard referred to that earlier, we have $329 million of current assets and $124 million of current liabilities. So that gives us, you know, a a a a almost a two well, a $200 million of unlucky of liquidity that we can unlock as well. And obviously, it's mostly inventory, as Richard just mentioned, but it's also what accounts receivable.
There's a lot of accounts receivable in there. And there's a lot of, you know, accounts receivable coming from the government and so good accounts receivable and then, you know, just a matter of timing before getting dose and it's up it's an area where we have we will unlock we will be on luck, we will I'm sorry, we will be able to unlock some some liquidities going forward.

Amrish Misra

So liquidity, I believe you say the same today as it was at the end of March, you have a forecast for where that could end up at the end of Q2 with all of the initiatives that you're looking at.

Richard Coulombe

But listen, I'm not going to get into forecasting cash flow. Like I said, we were highly focused on our working capital initiatives. As I noted earlier, our April 30th balances more or less the same as that March.

Marc Bedard

And as we drive our initiative confident it's going to be a key contributor, particularly Rupert will also need to keep in mind, I mean, the right-sizing that we've done, we feel that was necessary and very responsible from us, and this is $40 million in annualized savings and a lot of this was coming from the overhead as well. So you will start to see the result of this rightsizing going forward. But that was a major decrease, obviously in the in the burn rate.
And Doug, you can add this also to what we've been doing with respect to CapEx, which, as you know, less than $5 million for the whole year. And $400,000, I mean, in the first quarter. Just keep in mind that last year, during Q1 of last year, we had CapEx of $23 million, and we had R&D of $16.5 million in Q1, our R&D was $8.2 million. So I think in all of this is going in the right direction.

Amrish Misra

Great. And then a follow up on on the supply chain. Can you talk about how supply chain is progressing? Are you seeing any further relief on prices for key items like like Japan cells or other critical parts?

Marc Bedard

Yes. Well, that's a good question. I mean, obviously, with the bid technologies evolving, I mean, we absolutely see some reduction in cost at some point. What is top of mind for us is bringing that India the inventory. But at some point we will start to see some some results in the low-dose cohort going down. So it will not be a short term thing because of the inventory by me, we are consuming right now. But yes, absolutely. I mean, going forward and I would say on a medium term, there we are absolutely expecting, you know, some customers.

Richard Coulombe

Yes. And I can add maybe know a lot of it is going to be on the new platform like that, but we thought through what obviously, there was some pressure on it. There was some pressure on our margins coming from the line five introduction by the introduction of our own batteries. So so obviously, as we see volume growing on those platforms. And as we continue building more of our own batteries, we definitely see costs are going down. So so there's a lot of effort on that front.

Amrish Misra

Great. Thank you. I'll leave it there and thank you.

Operator

Daniel Levy, Barclays.

Dan Levy

Hi, this is Daniel on for Dan. Thanks for taking my question to start off and help us understand the gross margin dynamics in the quarter. Could you provide us with some color on your visibility to future product launch headwinds and any other sort of puts and takes we should be aware of and how much of a drag were product launches on gross margins in 1Q?

Richard Coulombe

Well, listen, on gross margin. We already communicated previously that there will be some volatility in the short term as we introduce the new or the new platforms. So definitely this quarter, that's about a couple of things, right, that was it was it was a quarter with relatively low volume. We introduced a normalized filing, the started and we started introducing our own batteries on our platform.
So obviously, all of that impacted the margin in the quarter. And we have several quarters where our margin was positive in this quarter because we were expecting to go back into negative territory given given what I just mentioned. And there will be a bit of volatility again in the short term as we continue ramping up on the new platform.
But again as we see volumes picking up in the second half. And as we continue and we don't see materially in those platforms on again, the plan is to come back into positive territory as soon as possible. So a lot of efforts there and as Mark pointed out, we did take a lot of cost out and over the three rounds of restructuring and are looking at $40 million of savings on an annual basis.
We're going to start feeling the full effect of those savings. Let's say it's going to be about $10 million a quarter in Q3. So we should see roughly $5 million of tailwind in Q2. And then the full the full impact that will be seen in Q3, Q4. So that's also going to our margin went forward.

Dan Levy

Thank you. That's very helpful. And then just a quick follow-up on your commentary on the workforce reduction and what sort of offsets either to a reduced workforce? And are you currently comfortable with the current size of your headcount?

Marc Bedard

Of course? Yes, Daniel. Yes, we are basically I mean, we've most of the adjustment was done with respect to the overhead. So there was almost no direct labor with the recent data that we've done. And you probably remember also that kind of the second wave in February of this year, which was basically taking out, you know, the second shift for now.
So that was, you know, mostly direct labor at this point, but we had to adjust to the reality of, you know, some some into incentive, you know, that were late with what we are seeing now feel pretty good that we have, you know that right? So for what we can expect, you know, for the foreseeable future. So we've been growing a lot within the last few years and 2024 is really a year of adapting to those conditions.
And it's also a year of launching new products of the 95 to REMC, the Lion MD batteries, the Lion HD. batteries. And in Q3 of this year, the Lyonnais tractor. So obviously, all of this, you know, as an impact on the gross margin. But at the same time, I mean, we're going to the market, I mean, with a great lineup of a lot of product, and that will bring volume up over time.
So to go back to your question, I feel very good about the right-sizing we're doing. I feel very good. You know that the growth CapEx that we've been investing within the last three years are behind us because it's not only a matter of we like investing that money, but you know, controlling those projects as well. And this is all behind us. And after Q3 of this year, we will also be done with any new product development, which is amazing and this is going to drive them and obviously, you know the R&D costs going forward.
So it's all about focus. We're very focused on growing the pipeline and our real goal, as I said earlier, is some of this to go back to note to having a positive EBITDA and generating free cash flow. And this is what everybody at line is focused on is very helpful.

Dan Levy

Thank you.

Operator

Thank you. Mike Shlisk, D.A. Davidson.

Mike Shlisky

Yes, hi. Good morning and thanks for taking my question. I wanted to ask about the lining that coming out soon. I don't want to jump the gun here, but I think what your comments earlier, Nick, Amazon had has just placed an order for 14 of another brand's Class ACV.s for use in the port.
And I guess at this point with a couple of the malls that are already on the market of Class ADV. Could you maybe give us a sense as to if you update us as to what the differentiators are of the line eight and kind of what scale you think you'll get there over the next guy, but the 18 months or so.

Marc Bedard

Yes. No, I feel there's a mike because there's many differences there. But nowhere, as Nick was saying earlier, I mean every time that, you know, there is a good news in the EV space. This is good news for the Old Navy market. I think you know right now that that or is it more about EV against, you know, the at the IT market observers know in some market that could be a resistance to change than anything else. So we're glad when the other companies are having good news, that's why we feel this is good enough with all the market.
That being said, though, I mean we feel very good about our products and our DNA is really about adding purpose-built as school buses and purpose built trucks. So those trucks, you know, we're we have the operator in mind, the first day, we started thinking about those. So that's going to generate a lot of cost savings going forward. And this is great for the operators.
So we feel the total cost of ownership is very good and the line a tractor will be will be lunch, I mean, in two weeks in diabetes at the actual and we feel this one is a game changer and we can see that great momentum with Alliance five as well. The people are driving the Line five. We started the deliveries has as you know of those trucks, we feel, you know, we'll really responding to the needs of the operators, and this is all that matters.
So great quality product, real easy product that are fully purpose-built and also all the software and all the communication tools that we have a benefit from the last time, the last eight years that we've been we've been selling easy in the school bus space as well. So we feel that, you know, those truck that we're putting to market, we'll be a great game changer in the space.

Mike Shlisky

Great. And then the follow-up question was just on the Q1 numbers here. Real quick one. Just the average price per vehicles was a bit higher this year over last year. Is that a function of just the mix between buses and trucks. And we're still kind of trying to figure out whether any of them credit risk or credit revenues from environmental credits or other things that we should be aware of? Or is it just purely on all our vehicles QUARTER, our vehicle and charging infrastructure?

Nicolas Brunet

No, no, nothing unusual there. So let's just mix was the reason for the average for yes, problem personnel, Yandex, correct. Yes, direct direct.

Mike Shlisky

Okay, processing. Thanks so much, everybody. Thank you, everyone.

Operator

Chris Souther, B. Riley.

Chris Souther

Yes, thanks for taking my question on maybe just on the truck order book, looked like it was reduced during the quarter on beyond what the sales were during the quarter? And can you comment on on what the moving pieces were there?

Nicolas Brunet

Yes. As I mentioned in the prepared remarks, we had an order of 65 units in the truck order book that was for a client that filed for creditor protection. And so in light of that, we took out those 65 units from the from the order book that is the bulk of it.

Chris Souther

Okay, thanks. I missed that. You're obviously a lot of moving pieces on some intense, certainly programs that educate today. We're looking at on the current order book and visibility on deliveries, could you give us a refresh on the current orders was between the TFTPA. or other orders that are customer depending on the timing and quarters that are maybe less constructive on the delivery times?

Nicolas Brunet

Yes, over over half of the order book, Chris is conditional on that ETS approval. As we mentioned this morning, first approval for an order of 200 units with a pain and we started delivering on that. As it relates to the EPA, there is very, very little in there only what remains from a from the first round. And as I mentioned, there's billion in that we expect will be generally available for orders, and we're having a very healthy, encouraging client dialogue for that, but there's close to nothing in the order book, yes.

Chris Souther

Okay. And then just maybe last one, a little more clarity on the nuclear process to get subsequent orders do you have any sense as to like what you made the 200 bus order that you recently received, you know, get get through all the red tape and the like and where the other stand as far as that similar process in Japan, just wanted to see if we can get some better sense of of fear of still where we are with that rest, the rest of that is the order book.

Marc Bedard

Yes. So with respect to the 200 orders, how we are in discussion with the operators? Well, the and it's a matter of, you know, putting in the infrastructure and delivering those buses. So the there will be there will be deliveries obviously this year and work on coordinating with the operator to make sure that we please them and we deliver as soon as possible.
As I said earlier, we see very good dialogue right now between the operators and the DTX. Many of those have been in discussion for more than two years with the DPF, but it's a process where there are many steps and many of them are getting to the last steps.
And hopefully I mean that that will conclude into an approval of the you know, those are those files, but we see we see a good momentum right now and we see a lot of willingness also from the operators to get their electric buses to have to carry the kids to school, which is a which is great. So we feel that this order of 200 buses and this approval is a very good sign of where it's going.

Chris Souther

Thanks. Thank you.

Operator

We have no further questions on the call. So I will hand the floor back to management to conclude by

Isabelle Adjahi

thanking everyone for your interest and look forward to a discussion with you. So feel free to contact me for any for that question. There. You have an FX.

Operator

This concludes today's conference call. Thank you all very much for joining.