‘IT’S TAKING A LOT LONGER’
QUEBEC-BASED LION ELECTRIC STRUGGLES TO GAIN TRACTION IN SOFTENING EV MARKET
From its very first earnings calls after going public in 2021, Lion Electric Co. has boasted that big-name companies, such as Amazon.com Inc., Ikea Systems BV, Canadian National Railway Co. and others, wanted its zero-emission electric trucks.
Those household-name clients helped build a wave of investor excitement that St. Jerome, Que.-based Lion Electric would have a first-mover advantage in the electric-truck market. But three years later, chief executive Marc Bedard admits the company’s dream of selling thousands of all-electric trucks hasn’t taken shape as quickly as expected.
“We were expecting that it could take a little bit of time,” he said. “To be honest, it takes a lot longer than expected, a lot longer.”
The situation provides a window into what’s happening with electric vehicles more broadly as governments implement green-transition policies and incentives. Transportation accounts for about 21 per cent of Canada’s greenhouse gas emissions, and emissions from freight movement have been increasing.
Lion Electric is targeting the urban medium- and heavy-duty market rather than long-haul trucking. Bedard has said the current technology is more suitable for urban delivery, and yet the company is still having trouble selling its trucks.
For now, that means Canada’s largest homegrown all-electric vehicle manufacturer is focused on the original market it targeted: the far smaller all-electric school bus market, which is about a tenth of the size of the truck market.
Nonetheless, supportive government policies in both the U.S. and Canada have driven sales of school buses for Lion, which has been both a blessing and a curse.
The company estimates that between half and two-thirds of the 1,800 school bus orders on its books are still waiting for Infrastructure Canada to disburse funds from its $2.75-billion Zero-emission Transportation Fund (ZETF). Bedard has been clear with investors that he’s not sure when exactly those funds will be disbursed.
“We don’t know what we don’t know,” he said.
Infrastructure Canada said it is disbursing ZETF funds on an ongoing basis, but could not discuss any particular cases.
For now, Lion Electric remains dependent on supportive government policies, and Bedard is hoping its bus business can drive the company forward until more customers start buying its trucks.
“Depending on the government is obviously not the right way to go on a longterm basis,” he said. “In the short term, any time you bring a new technology to market, you need some support.”
Of course, Lion Electric is far from the only company experiencing slower-than-expected sales of electric trucks. In the United States, Rivian Automotive Inc.— which, like Lion Electric, builds an all-electric delivery van for Amazon, although unlike Lion Electric, it also sells electric pickup trucks and SUVS — lost US$5.4 billion last year. Lion Electric lost US$103.8 million.
Both companies’ stock prices have plummeted, with Lion Electric’s stock declining to between $1 and $2 per share during the past year from US$33 per share at its peak in 2021.
But it’s not just electric-truck startups that are having difficulties. General Motors Corp. last week reopened its assembly plant in Ingersoll, Ont., where it makes the Brightdrop — an all-electric urban delivery van — after a six-month hiatus. A GM spokeswoman said the closure was due to a shortage of battery modules and that the company intends to expand its offerings later this year, but declined to comment on reports that demand has been softer than anticipated.
Bedard said it’s been a bit of a “perfect storm” for electric-vehicle manufacturers: the pandemic put the entire global economy on pause, followed by supply chain snags, price inflation, higher interest rates, labour shortages and recession fears.
Of course, all that was preceded by investors’ initial overexuberance, Bedard said.
“Even two years ago, when the stock price went through the roof, I was saying this is not good,” he said. “Because at some point, what goes up is going to go down and that was just inflated. The whole market was inflated, in my opinion."
Sentiment around electric vehicles in general may be in flux. In 2023, sales of passenger electric vehicles declined by 12.6 per cent in Canada, according to Fitch Solutions Inc., a market research company. But it reported that sales of commercial electric vehicles — a broad category that includes SUVS and crossovers as well as trucks — increased by 85 per cent in Canada.
As a result, electric vehicles represented 11 per cent of all vehicles in Canada at the end of 2023, up from 7.9 per cent in 2022. But that hasn’t yet translated into upticks in Lion Electric’s truck sales.
Last year, the company sold 852 vehicles, with trucks representing less than 10 per cent of them.
It has booked orders for 2,076 vehicles, with trucks representing about 13.7 per cent of them.
In 2023, the company posted US$253.5 million in revenue, far short of a July 2020 forecast — contained in its 2021 long-form prospectus — that estimated Lion Electric would record revenue of $1.67 billion in 2023 and $3.6 billion in 2024.
The factories that Lion Electric built in Illinois and Quebec have the capacity to produce around 5,000 vehicles per year and 1.7 gigawatt hours of battery production per year — far greater than Lion Electric’s total of roughly 1,850 vehicles on the road.
If there’s a bright spot, it may be that Lion Electric has already built out its manufacturing facilities and forecast lower production volume than some of its rivals, which are also losing money but need even higher sales volumes to break even.
“If you look at the cash burn, or the earnings of the company, they’re actually doing a lot better than their peers in the market,” Rupert Merer, an analyst at National Bank Financial, said. “They’re still losing money, just not as much as other companies.”
Kevin Chiang, an analyst at CIBC Capital Markets who covers the company, earlier this year said Lion Electric had “turned the corner on investment intensity,” with an expected $10 million in capital expenditures in 2024 compared to $72 million and $148 million in the two previous years.
But Chiang said in a note that the company’s order book has declined for three consecutive quarters, which he attributed to “substantial delays” in government disbursement of ZETF funds as well as delays in delivering two truck and bus models resulting from a slower rampup of production.
Tamy Chen, a BMO Capital Markets analyst, said in a note that “truck operators (are) not acquiring meaningful volumes” of electrified vehicles, so she is lowering her sales estimate by 18 per cent for 2024 to a projected 1,120 vehicles.
Chen also said she expects the company will need an additional $70 million in financing this year. As of its fourth-quarter earnings, announced in February, Lion Electric had $30 million in cash on its balance sheet plus $63 million in immediate borrowing capacity.
But the big question for Lion Electric is when customers will start ordering trucks. Many of the bigname brands it touted as clients have been quiet for years now.
Lion Electric named Amazon as a key customer, announcing in its securities filings that it had a framework agreement dating back to 2020 to sell 500 trucks per year to the e-commerce giant between 2021 and 2025, and to reserve 10 per cent of its manufacturing capacity for it between 2026 and 2030. But so far, Amazon has ordered only 10 trucks, according to the company.
Canadian National Railway in March said it expects Lion to deliver its trucks this year as part of a pilot program it struck with the company that was announced in 2019. In 2021, Ikea announced it had partnered with Toronto-based Bolt Technologies Inc. to order 15 Lion Electric trucks to make “last-mile” deliveries.
Bolt chief executive Mark Ang said his company continues to buy more electric trucks from Lion Electric and other suppliers, though he compared adding EVS to adding a new workout routine at the gym.
“If all of a sudden you start exercising your quads or your glutes, you’re going to feel like you have rubber legs,” he said. “The same is true with building an EV fleet.”
Lion Electric’s trucks presented new mechanical issues that his mechanics needed to learn to solve, Ang said. Bolt’s drivers also needed to learn to operate them efficiently since the vehicles use regenerative braking to capture kinetic energy from their wheels and convert it to electricity.
A driver who uses the brakes less often may hamper the battery range by as much as 50 per cent, Ang said, so the company built an algorithm to learn which drivers are best-suited for trucks, and it altered its routes to fit the range of an electric truck. Bolt also deployed the trucks on routes that were more likely to encounter stop-and-go traffic because highway driving led to less battery range.
In total, the trucks were three to four times more expensive, and there are additional costs such as buying a charging station and building out the infrastructure, which includes bollards (short, vertical posts), emergency fire suppression equipment and lighting.
Despite those costs, Ang said, “You’ll get the payback if uptime is maintained north of 95 per cent, but (not) if uptime drops below that.”
Now that his company has invested in electric vehicles, and worked to achieve those cost savings, he said it will continue to buy more to get savings. But he added that many of the bigger companies that Bolt works with are sitting on plans to expand their own fleets after bumpy initial trials.
“They mostly operated those vehicles the same way as an ICE (internal combustion engine) vehicle and that’s just destined to fail,” he said. “You need a separate set of operating principles.”
In Quebec, Jean-françois Brossard, IT manager of Location Brossard, the largest heavy vehicle lessor in the province, said his company decided not to purchase from Lion Electric when it placed an initial order for 10 trucks this year. Instead, it used a bigger electric truck from an incumbent diesel manufacturer that cost approximately the same amount.
Brossard said the mechanical issues experienced by drivers have been similar to what his company experienced with the diesel counterparts.
“It’s really the opposite of what we expected,” he said.
In the next five years, he said 50 per cent of his fleet of thousands of trucks may be electric, which is one sign that the electric truck market is stirring to life — albeit slowly.
At Lion Electric, Bedard said the school bus market is dominating his company’s sales for now, but he’s nowhere close to giving up on the truck market.
“I feel the school bus market is still going to grow a lot,” he said. “But at some point, you know the truck market is going to kick in, and you know what’s the timing of that? Honestly, that’s a big unknown for all of us.”