Earnings Call Transcript - BLDP Q3 2023

Operator, Operator

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems' Third Quarter 2023 Results Conference Call. The conference is being recorded. I would now like to turn the conference over to Kate Charlton, Vice President, Investor Relations. Please go ahead.

Kate Charlton, Vice President, Investor Relations

Thank you, operator, and good morning. Welcome to Ballard's Third Quarter 2023 Financial and Operating Results Conference call. With us on today's call are Randy MacEwen, Ballard's CEO; and Paul Dobson, Chief Financial Officer. We will 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 our complete disclaimer and related information. I will now turn the call over to Randy.

Randy MacEwen, CEO

Thank you, Kate. And welcome, everyone, to today's conference call. We began the second half of 2023 with robust revenue growth driven by deliveries in our core heavy-duty mobility markets. Our Q3 revenues are up 30% compared to the prior year period and up 80% compared to the previous quarter. At the same time, our gross margin loss is more than half, due primarily to execution and our product cost reduction initiatives and scale benefits from higher revenues. We continue to track to our full year guidance ranges for operating and capital expenses and have reduced our cash burn in the quarter and year-to-date compared to the prior year period. We continue to focus on prudently managing our costs, while making strategic investments in technology and product development programs, including product cost reduction programs as well as advanced manufacturing and manufacturing scaling and customer experience. Consistent with focused strategic investments in our core business, we initiated a portfolio review of all current products and product development programs. Following this review, we've prioritized our investments in our core fuel cell stack and module programs that have leverage across our business model and target markets. We are discontinuing certain legacy products and discontinuing certain product development programs in non-core activities and markets. We've also discontinued any new corporate development investments. As part of this streamlining, we've proposed a further restructuring of Ballard Motive Solutions, which we no longer view as core, resulting in a noncash impairment charge to goodwill and intangible assets. When we made our investment in BMS two years ago, OEM customers were less certain about the adoption of hydrogen fuel cells in medium-duty and heavy-duty mobility applications. As a result, they weren't making significant in-house investments in fuel cell powertrain and vehicle integration. Therefore, a key objective in acquiring BMS was to offer OEM customers third-party integration support to remove friction in the adoption of Ballard fuel cell engines into the vehicle platforms, while also working to optimize powertrain performance. Since that time, the market has made important and exciting shifts. Many bus and truck OEMs have increased their conviction about the adoption of fuel cells and as a result, scaled their in-house investments in fuel cell powertrain integration. They now view the scope as core and proprietary to their fuel cell vehicle platforms, including their competitive position. There's also been a change in the market supply for more advanced vehicle controllers including power management to support vehicle OEMs. With the benefit of having secured several important customer platform wins over the past two years, we're now seeing scaling leverage from existing OEM customers that have launched platforms or are working on new platforms with in-house powertrain integration. As we look forward into our growing sales pipeline and opportunity set, we still see limited market need for niche third-party powertrain integration support as OEMs mature their fuel cell businesses and continue to increase their in-house fuel cell capabilities. We'd now like to turn to an update across our verticals, where we continue to make important progress. At Ballard, our strategy is to commercialize PEM fuel cell technology and products that can be applied across multiple market applications, where fuel cell technologies provide the strongest value proposition and where the barriers to hydrogen refilling infrastructure are lowest. These markets include bus, truck, rail and marine as well as select stationary power generation in certain off-road markets. We'll provide a brief update for these applications. In our bus vertical, we experienced higher shipments to our customers in Q3 compared to the prior quarter with strengthened shipments to U.S. customers. We believe these shipments are an early indicator of the momentum shift for fuel cell buses in North America. For example, the number of transit agencies in California either operating, ordered or have fuel cell buses in their decarbonization plans has increased from three in 2018 to 41 today. This increase has been driven by greater understanding of fuel cell bus advantages, including range, refueling time and operating rhythm consistent with legacy diesel and a growing recognition of the relative costs and operating advantages for scaling hydrogen refueling infrastructure rather than battery electric charging infrastructure. This is leading to higher sales activity levels in the U.S. bus market and we expect this to translate into firm orders in the coming quarters. We're also increasingly confident in the trend for fuel cell bus deployments in Europe, as evidenced by the impressive order activity of a key customer, Solaris, in the European market. Solaris has now ordered close to 350 modules year-to-date, including our recent orders for 60 and 170 modules. This figure has over doubled the current amount of fuel cell buses deployed by Solaris and shows an improving demand outlook for hydrogen-powered fuel cell buses in Europe. Moving to the truck market. As a reminder, last quarter we announced our partnership with Ford Trucks to supply fuel cells for heavy-duty truck platforms for the European market. We're pleased also to see the progress of our customer Quantron as they've deployed five delivery vans powered by Ballard fuel cells in Austria with IKEA as a customer. This vehicle is the first fuel cell-powered vehicle on the road in the European 7.5 tonne segment and is an expansion of the opportunity set in the truck market for Ballard as fleet customers begin to see powertrains with longer ranges in lower weight classes. In rail, we had a standout quarter for customer deliveries as revenues in Q3 were nine times higher than the amount delivered in Q2. The activity was driven primarily by shipments to our customer CPKC. We anticipate shipment to CPKC of additional modules this year after we announced a follow-on purchase order for further 2.4 megawatts of modules that will power switching and freight locomotives in their fleet. As a reminder, we've received orders for 3.6 megawatts of modules from CPKC prior to our announcement yesterday. We're increasingly optimistic about the adoption of hydrogen-powered locomotives in North America given the use case dynamics as well as the lack of existing electrified rail infrastructure and supportive decarbonization policies from end users. Outside of freight applications, our customer Stadler reached a significant milestone after it announced a firm contract for the sale of four hydrogen-powered trains to the California State Transportation Agency after signing a MoU roughly one year ago. Our marine vertical continues to see interest growing in short sea container ships, inland cargo and barge applications. We experienced year-over-year and quarter-over-quarter revenue growth in this segment, resulting in year-to-date revenues that have already surpassed the total reach for all of 2022. In our stationary power market, revenue activity was slightly lower as a result of lower shipments to North American customers in the quarter. We continue to see growing interest in our stationary products arising from data center standby power, EV charging, grid balancing and temporary mobile power solutions for construction, film and TV production, and outdoor events. Revenues from our emerging market segments were up modestly compared to the prior quarter, primarily as a result of shipments to customer first mode. These shipments followed the completion of a full year of operational trials in South Africa for the first build of their mining haul truck platform during which the vehicle demonstrated full payload capacity of 300 tons, an increase in efficiency relative to diesel that enabled higher operational speeds and the capability of climbing grades while fully loaded. We see this successful trial as additional validation of the value proposition for hydrogen fuel cells in heavy-duty transport. We're also excited to see our customer, Applied Hydrogen, develop a 30-ton excavator powered by a Ballard fuel cell module to begin trials and testing with one of the Nordic area's largest construction companies in 2024. Wrapping up our vertical-based discussion and given our performance in Q3, we want to reiterate our expectation of second-half revenues for the year to amount to approximately 70% of the full year total. We also want to provide an update on important policy changes in our key regions since our last earnings call. During the last few months, the European Union unveiled policies supportive of hydrogen. The first of these is an update to the EU's Renewable Energy Directive that sets the binding target for renewable energy consumption at 42.5% of total consumption, up from 32% previously. The directive also mandates a minimum requirement for 29% of energy used in transportation to come from renewable sources including hydrogen and provides a bonus for using renewable hydrogen in transportation to comply with the renewable energy targets. Additionally, in October, environment ministers from all EU member states agreed on a common position on CO2 emission standards for heavy-duty vehicles. In addition to the 2023 CO2 emissions reduction target of 15% already in force today, member states agreed on a truck decarbonization target of 45% for 2030, 65% for 2035, and 90% for 2040. While the current emission regulations apply to trucks over 16 tons, these new proposed rules significantly expand the decarbonization targets for trucks applying emissions reductions to all trucks over five tons. Individualized emission reduction targets will continue to be calculated for each OEM. And for city buses, the agreed decarbonization target is 85% by 2030 and 100% by 2035. The EU also announced the first auction of subsidies to the hydrogen bank, occurring later this month and voted in favor of the Net Zero Industry Act that aims to spur domestic manufacturing of net zero technologies. Consistent with policy momentum in the region, Europe is the largest geographic contribution to Ballard's year-to-date revenues and represents the largest proportion of our order backlog. The quarter also brought a landmark milestone on the policy front after the U.S. Department of Energy announced that seven regional hydrogen hubs have been selected to begin award negotiations for a total of $7 billion in federal stimulus from the BIL. These seven regions could produce more than three million metric tons of low carbon hydrogen contributing one-third of the U.S.'s 10 million metric tons target while unlocking more than $40 billion of investments. Of the seven hubs, six have use cases aligned with our target verticals, of which five have targeted heavy-duty transport as a priority use case. We're encouraged by the program's support for the full hydrogen value chain as it will simultaneously support the availability of low-cost, low-carbon hydrogen and the adoption of fuel cell vehicles and power systems. The industry also waits for the IRS to finalize its guidance on the tax credits available on the Inflation Reduction Act, including the 45V production tax credit. We believe these rules will provide the industry with the clarity needed to get projects past the final investment decision stage and into construction. Our business in North America continues to show momentum consistent with the advancement in policy for the region. In Q3, deliveries to customers in North America represent the largest share of revenues among our key geographic markets and were over double the amount recorded in Q2 supported by strength in our bus and rail verticals. Our industry is currently experiencing the most supportive policy environment it has ever seen, providing us with optimism for the long-term adoption of hydrogen fuel cells. On China, the overall China fuel cell electric vehicle market continues to lag the national targets set by policymakers and shows declining market activity in Q3. We've previously discussed the complicated policy environment, but believe the industry has been further stunted by liquidity constraints at local governments that do not have sufficient funds to order more vehicles and keep payment obligations current. With a total FCEV park in China at approximately 10,000 vehicles, it's difficult to see how China will achieve its 2025 target for 50,000 fuel cell electric vehicles by the end of 2025. We know there continues to be significant scaling of renewable energy in China, with a total of 172 gigawatts of renewable installations through the first nine months of 2023, accounting for 76% of China's total newly added power capacity. We also note there's significant hydrogen project development underway in China and electrolysis companies continue to scale production capacity. These factors support our confidence in the long-term market opportunities for hydrogen in this region. By 2030, hydrogen should be a key part of the energy transition roadmap in China and we expect green hydrogen to play a major role in the decarbonization of transport. I'll now turn the call over to Paul to comment on select financial highlights.

Paul Dobson, CFO

Thank you, Randy. In Q3, Ballard delivered $27.6 million in revenue, with more than 75% of our revenue coming from heavy-duty motive applications. The share of product revenues as a proportion of the total continues to climb as our increased product backlog begins to translate into higher product shipments. Earlier in the year, we outlined what our shareholders could expect from us in 2023, including that Q1 would be the trough for gross margins and we have been executing successfully. This quarter, we saw encouraging progress in our gross margin as it was minus 10% in Q3 or an improvement of 12 points compared to Q2. As mentioned by Randy earlier in the call, this improvement was largely a result of initial successes in our product cost-down initiatives, scale benefits from higher revenues, and a reduction in inventory provisions. We reported total operating expenses of $36.3 million in Q3 and capital expenditures of $7 million for the same period. Given the current macroeconomic uncertainty, we have focused on reducing our cash burn as the total use of cash amounted to $34.1 million in Q3 compared to $48.4 million in the prior year. We are maintaining our guidance for total operating expenses and capital expenditure, but now expect capital expenditures for the year to fall within the lower end of the range. We ended the quarter with $781 million in cash and no debt. In summary, Ballard is well positioned with industry-leading talent, fuel cell technology and products for our market applications, key customers and partners across our target markets, a growing product order backlog, industry-leading deployment experience, and a strong balance sheet. We are confident we can deliver long-term shareholder value while making a meaningful impact by providing zero-emission fuel cell power for a sustainable planet. With that, we will turn the call back over to the operator for questions.

Operator, Operator

The first question comes from Michael Glen with Raymond James.

Michael Glen, Analyst

Maybe just to start, Randy, can you just give some thoughts on what your market share is right now in the European bus market? And are you happy about where your market share is right now? Is there more you can do to pick up more bus customers in Europe?

Randy MacEwen, CEO

Yes. Thanks, Michael. Currently, we have about 370 buses in the European market utilizing Ballard fuel cell engines. Our market share within the total bus installed base in Europe is likely over 90%. However, for order intake in 2023, that figure is lower, and I estimate our market share for European bus order intake to be around 75% to 85% right now. We're seeing some new competitors emerge that are adopting different fuel cell technologies, especially from Toyota. While I would love to maintain a 100% market share like we have in the U.S., our long-term goals are to achieve a very high market share in buses, trucks, rail, and marine.

Michael Glen, Analyst

When you consider the competition in Europe and the situation in the U.S., are you facing the same competitors in the U.S. market, or are there different competitors you are up against?

Randy MacEwen, CEO

Yes. Today, the situation is different. There are various bus OEMs in Europe compared to the North American market. In the transit sector, New Flyer holds a strong market position, with about two-thirds of the transit bus market share in North America, and they offer 40-foot and 60-foot articulated buses equipped with Ballard fuel cell engines. Currently, nearly all fuel cell bus opportunities in North America are going to New Flyer. In Europe, the market is more fragmented, with roughly eight to ten fuel cell bus options available. Solaris is capturing a significant portion, but there are also competitors like Hool, Wrightbus, ADL, and a few others. There are about two competitors that are directly challenging us at this time, but I anticipate an increase in competition as we move forward. Additionally, we have collaborated with about four smaller bus OEMs, signing new orders and conducting initial trials over the past year. We haven't made any announcements yet, as we are awaiting larger-scale deployments from those manufacturers, but we're already integrated into their platforms. Overall, we are involved with around six out of eight bus OEMs that are offering fuel cell buses in Europe.

Operator, Operator

Next question comes from Aaron MacNeil with TD Cowen.

Aaron MacNeil, Analyst

Paul, I'm wondering if you could share some perspective on how to think about gross margin breakeven. And specifically, I'm wondering what sort of revenue level do you require with your current pricing and cost structure to break even on a gross margin basis? And if you have it handy, how do we split that $30.3 million in terms of directly variable cost of product services versus how much is fixed?

Paul Dobson, CFO

Sure. Sure. And thanks for the question. So in the Capital Markets Day, what we laid out is that we would expect to be gross margin breakeven at some point in late 2024 sort of on a quarterly basis, not breakeven for the full year. That would be in 2025. I think that guidance, we probably make that more like we'd be breakeven in the early quarter in 2025 at this point on increasing revenues. We have about $28 million or so in sort of fixed overheads, depreciation, and overheads that the gross margin or the contribution margin needs to overcome. And so as we see increasing orders and increasing revenue, that's when we would expect breakeven to occur at that timeframe.

Aaron MacNeil, Analyst

Got it. In the prepared remarks, both of you mentioned the reduced cash burn in the portfolio review. Can you provide an early indication of what the operating expense and CapEx guidance could be for 2024? And to be clear, I can appreciate that you're not going to provide a range, but I'm more just looking for directionality.

Paul Dobson, CFO

Sure. For this year, our cash burn is significantly improved compared to last year. Year-to-date, our total cash burn is approximately $36 million lower. This improvement comes from several factors, including higher interest earned on our cash due to rising interest rates. Additionally, we've made some reductions in working capital. Our cash from operating activities has improved by about $25 million compared to last year. We've increased our capital expenditures by roughly $15 million year-over-year, but corporate development expenditures have decreased by about $27 million. Overall, our investing activities are down by $12 million. When we combine the $12 million reduction in investing activities with the $25 million improvement in operating activities, we see a total year-to-date cash runway improvement of around $35 million to $36 million. Regarding our guidance for 2024, we're currently working on finalizing our strategic plan. Generally, we expect operating expenses to be similar to what they were in 2023, although we anticipate inflationary increases of about 3%. As for capital expenditure guidance, we predict it could be between $5 million and $10 million lower than this year.

Operator, Operator

The next question comes from Rob Brown with Lake Street Capital Markets.

Rob Brown, Analyst

I wanted to follow up on the U.S. bus market. You mentioned some statistics about more transit agencies pursuing fuel cell projects. Can you share your perspective on how the U.S. market is evolving and what the timeline looks like for rollouts?

Randy MacEwen, CEO

Yes, Rob, thank you for your question. An interesting development has been the recognition of the advantages of fuel cell buses, not just in terms of range and refueling time, but also in scaling infrastructure. At two recent U.S. bus conferences, multiple transit operators discussed the comparative benefits of fuel cell buses compared to battery electric buses. For instance, the Philadelphia Transport Authority, which operates about 1,300 buses, presented two slides. One illustrated that fuel cell buses can meet all routes, while battery electric buses cover only about 20% of the routes. The other slide highlighted the significant cost advantage of refueling infrastructure over recharging infrastructure for the fleet. This case study is noteworthy as cities like New York, Chicago, Las Vegas, and Philadelphia are now discussing fuel cell buses more than before. We are witnessing an inflection point in market understanding that should lead to long-term orders. The availability of low-cost, low-carbon hydrogen in the U.S. will greatly enhance the total cost of use, with hydrogen hubs expected to contribute in the mid-term, around 3 to 5 years from now. Regarding the timing for buses in the U.S., I anticipate deployments will range from 20 to 120 units per city per project announcement over the next few years. However, from 2025 to 2029, we anticipate a substantial shift as California’s transit buses, under the ICT policy, must transition to zero emissions for all new buses by 2029. Thus, significant scaling is expected from 2025 to 2029, and these opportunities are emerging across the U.S.

Rob Brown, Analyst

Could you provide an update on your plans for U.S. production capacity? Where do things stand at this time?

Randy MacEwen, CEO

Yes. Rob, we're still working against that and doing our comparative analysis, looking at the European market, looking at the U.S. market, looking at the relative advantages and incentive support that's available in the market. We expect to conclude most of that work late this year, but we did indicate we probably would be Q1 next year before we're in a position to make a final determination. As you can appreciate, there's been a number of companies applying for U.S. funding opportunities to scale clean energy technologies, including fuel cells and electrolyzers and the agencies that have funding available to support these types of manufacturing expansion plans are quite busy managing these applications. So we are in an application process. I don't know if we'll be successful or not. But we do see that the timing on response from funding agencies has been protracted.

Operator, Operator

The next question comes from Mac Whale with Cormark Securities.

Mac Whale, Analyst

I'm curious about the backlog; the new orders appear somewhat weak considering the backlog and the incoming orders. Is there a possibility that your customers are shifting to a more short-term focus? Your guidance for revenue split in the second half suggests that you still anticipate good sequential growth. Can you explain how these two aspects of the results align?

Randy MacEwen, CEO

Yes, I think that's a fair characterization. We did see weak order intake in the quarter. However, I want to highlight the sales pipeline. If I were to describe the sales pipeline, I would use three terms: growth, progression, and diversification. We are experiencing over a 10% growth in a very large sales pipeline this quarter. More importantly, we are seeing significant progression of opportunities through different stages of the pipeline. In terms of diversification, we're receiving substantial contributions from various verticals, particularly from bus, truck, and rail, which together account for about 75% of the total sales pipeline. This indicates a good level of diversification. Additionally, there are some very large projects in marine and stationary segments that could significantly enhance the order book and revenue outlook as we advance, although they are still in the early stages. Therefore, despite the weak order intake this quarter, I'm quite encouraged by the end-market interest and the sales activity, as well as the growth and progression of the sales pipeline. I would view this more as a timing issue. We anticipate orders arriving in the fourth quarter and into early next year.

Mac Whale, Analyst

Okay, that's helpful. I think Paul already provided an update on the breakeven margin with reference to the September Analyst Day. I'm curious about the goal discussed during the Analyst Day regarding expanding across the value chain. Given the write-down, are you considering any changes to that expansion plan? Are there new areas you believe are more promising for entry compared to, for example, third-party integration? Is there a shift happening in that regard?

Randy MacEwen, CEO

Yes. Mac, I think you've highlighted this. A couple of years ago, we were investing in a couple of strategic themes, one of them being selectively expanding across the value chain. And we have seen this shift in the marketplace from a few years ago where vehicle OEMs really didn't have in-house commitment or in-house resources to support onboarding a fuel cell engine onto their powertrain effectively when we had examples where that didn't go very well. And so what we've seen, though, is a very significant shift in understanding of the value proposition for hydrogen fuel cells in medium- and heavy-duty mobility and the strategic importance that vehicle OEMs are now placing on powertrain integration and they view this as really part of their core business and part of their competitive positioning. So what we've seen is that a number of vehicle OEMs, many of whom we've onboarded as customers during the last two years and provided support through that process, have really scaled up their in-house powertrain integration and vehicle integration services and aren't looking to companies like Ballard to provide that third-party, I call it niche service support. So we are effectively retrenching and deprioritizing the selective expansion across the value chain from two perspectives. One is from a corporate development perspective. And secondly, from a number of programs and the number of engineers we have working on powertrain integration. So effectively what we're doing is sticking to the knitting in terms of the fuel cell stack and core modules and making sure that we protect the balance sheet for long-term sustainability.

Mac Whale, Analyst

Okay. I believe that in the long term, this should be beneficial, right? You can concentrate on areas like cost reduction and performance. You mentioned the improvements in the bipolar plates and similar efforts. I think we can expect to see more of that and potentially speed up those initiatives instead of just providing basic support for your downtown customer.

Randy MacEwen, CEO

Yes. It's really two things. One, the real advantage that the vehicle OEMs are onboarding and in-housing more capability and taking that scope and doing it as proprietary. So we don't need to provide that, to use your language, handholding. And then secondly, as you point out, to make sure we're focusing our resources and accelerating the activities where we have core strength, which is the fuel cell stack and fuel cell engine.

Operator, Operator

The next question comes from Rupert Merer with National Bank.

Rupert Merer, Analyst

Just following up on the last question from Mac there. With some of your customers taking on in-house integration, I imagine there's some overlap there with what you would consider a balance of plant. Does that introduce any complexity around standards for interconnection of your product across multiple platforms and maybe force you to have nonstandard products?

Randy MacEwen, CEO

Yes. Good question. A couple of things I'd highlight is one of the things we've done in terms of our own scope of work as we look at our product roadmap moving forward, is that we historically didn't include DC/DC conversion in our scope of work. And we have, over the last two years, really started to include DC/DC converters in our scope of work. What we are looking to do is to make sure we have a fuel cell module that is applicable to all vehicle OEMs without any major deviation, and we're looking to standardize. Now there might be some modest application engineering support required by a vehicle OEM, which we're strongly positioned to support. But we're not talking about really substantive changes to the bill of materials.

Rupert Merer, Analyst

Okay. Very good. And then with your focus on cost reduction, you'll be able to narrow down to a few areas where you have core expertise. You mentioned you saw some benefits of cost reduction in this quarter. Just wondering if you can give us an update on where you're at today and how you are progressing towards your ultimate targets?

Randy MacEwen, CEO

Yes. I think there are two areas where we're seeing really good development on cost reduction. One relates to the MEA and the second relates to balance of plant components. We have significant efforts organizationally over the last number of years on our cost-reducing MEAs from a processing perspective as well as from a material perspective. Those are starting to show up in production, and we'll see I think even more evidence of that into 2024. Then we have a very significant team that we've built over the last number of years that's working on balance of plant components. We have typically five or six really heavy-hitters in the bill of materials that we've been working with suppliers on and have seen significant cost reductions on some key balance of plant components, some of which still have not got into production yet, but we will see that into 2024. So we're progressing very well, as we mentioned at the Capital Markets Day. On the 3x3 program, we had been 55% of the 70% target had been achieved already. We're still tracking to that 70% target. I think more importantly now is this balance of plant component cost reduction as that is a significant part of the overall fuel cell engine cost structure. So we're very excited about what we're seeing. And I think as we look out to 2025 and 2030 and think about the longer-term cost reduction, not just with MEAs, but now introducing lower-cost bipolar plates under Project Forge that we have internally and that we talked about a few months ago in June, as well as moving forward with balance of plant component cost reduction and some of the advanced manufacturing initiatives. We're looking at pretty significant reduction beyond that 70% stack and module cost reduction that we talked about over the last two or three years.

Operator, Operator

The next question comes from Jordan Levy with Truist Securities.

Jordan Levy, Analyst

I appreciate all the insights. I know it's still a bit early to discuss the outlook for 2024, but considering the different segments you're involved in and how quoting activity is evolving, could you elaborate on which segment, whether it's rail and bus or another area, might either thrive or decline in 2024? Are there any surprising trends or shifts you're currently observing in the quoting activity?

Randy MacEwen, CEO

Thank you, Jordan. I want to revisit the fact that 75% of our sales pipeline is in bus, truck, and rail, and I’d like to focus on the rail market for a moment. We previously mentioned that rail might be a segment that could exceed expectations, and I believe we are witnessing that. Our focus in rail is primarily on two areas: the European and northern North America commuter passenger rail market and the North American freight market. In North America, there are 35,000 diesel locomotives that need to be replaced to achieve emissions reductions. It's important to note that in both the North American freight and commuter rail markets, there are increasing regulations, especially in California. California has introduced policies mandating significant measures to cut locomotive emissions, requiring that passenger, industrial, and switching locomotives built in 2030 or later operate in a zero-emission configuration. The deadline for line haul locomotives is 2035. While these dates might seem distant, since line haul locomotives typically have a 15-year lifespan, it’s crucial to start developing solutions in the next couple of years. Recently, we announced a partnership with Stadler, which showcased the first fuel cell FLIRT train at an important conference in Florida last month. This train will enter service with the San Bernardino County Transportation Authority in 2024, and Stadler has received an order for four fuel cell trains for the Amtrak California intercity service, with the option for an additional 25. Each FLIRT train is equipped with six Ballard fuel cell rail HD plus engines, each producing 100 kilowatts. While we haven’t received the orders for the four trains yet, we expect them, as we are their supplier. This train offers a maximum speed of about 80 miles per hour and a range of just under 300 miles, presenting a significant opportunity in the North American market. In addition, we’ve made announcements with CPTC, which has ordered around 30 fuel cell engines from Ballard this year for mainline, switcher, and shunter applications, and they are progressing with a plan for decarbonization. That represents a positive market outlook. I previously mentioned the transition happening in the bus market, where transit operators are increasingly recognizing the benefits of range and fast refueling, including performance in various weather conditions and the flexibility between recharging and refueling infrastructure. I believe the bus market will contribute the majority of our order inflow, though it typically involves smaller engines than rail, marine, and stationary markets. Those other markets can be quite variable, and in any given quarter, they could represent a larger share of revenue than we've seen historically.

Jordan Levy, Analyst

That's super helpful. And then just as a quick follow-up, you mentioned stationary. I know that it's kind of early in the progression there, but certainly a big market. Maybe if we could just get an update on what you're seeing there and how you're thinking about that segment?

Randy MacEwen, CEO

Yes, we are still learning a lot about this market. I've spent considerable time with our team studying the data center market and what I refer to as temporary power applications, such as those needed for filming or construction sites. The data center market represents a significant growth trend that we believe has opened up compelling market opportunities that we had not fully recognized a few years ago. The growth in this sector is extraordinary, with data center sites now requiring 20, 40, and even up to 200 or 400 megawatts of power. We are focusing on standby power solutions. I recently visited a customer showcasing a comprehensive standby power solution for data centers, and they are among the leaders in this field, demonstrating their setup to major clients like Amazon and Microsoft, who are grappling with permitting challenges for data centers in urban areas. These challenges often stem from the use of diesel engines in standby power systems. We see potential for fuel cells to facilitate permitting for large data centers, including the standby power aspect. While the opportunity is still being validated, the data center sector is projected to require gigawatts of power in total, presenting a significant market for us. We aim to affirm the viability and value proposition of fuel cells from a total cost of ownership perspective. In terms of stationary applications, we are observing emerging markets for temporary use. During my recent visit to GeoPura, I saw their hydrogen power units being manufactured by Siemens Energy, highlighting several promising opportunities showcased on their website. We're also encountering challenges with grids lacking the necessary resilience or power to support electric vehicle recharging. Interestingly, in scenarios where battery electric technologies prevail, there could still be demand for fuel cells to provide backup power, opening up additional opportunities for us.

Operator, Operator

The next question comes from Manav Gupta with UBS.

Manav Gupta, Analyst

I just had one question. Can you help us understand over a longer term how the development of hydrogen hubs in the U.S. can be a tailwind for your business?

Randy MacEwen, CEO

Yes, it's really about having access to affordable, low-carbon hydrogen in the market. The hydrogen hubs, along with the production tax credit, should see us receiving guidance from Treasury on how to interpret the production tax credit by the end of this year. These two factors, the hydrogen hubs and the $3 per kilogram incentive for emissions below 0.45 kilograms of CO2 per kilogram of hydrogen, are critical in enabling and advancing the hydrogen market, including applications for fuel cell mobility and stationary fuel cells.

Operator, Operator

This concludes the question-and-answer session. I would now like to turn the conference back over to Randy MacEwen for any closing remarks.

Randy MacEwen, CEO

Thank you for joining us today. Paul, Kate, and I look forward to speaking with you next quarter. Thank you.

Operator, Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.