Earnings Call Transcript - BLDP Q1 2022

Operator, Conference Operator

Thank you for standing by. This is the conference operator. Welcome to the Ballard Power Systems First Quarter 2022 Results Conference Call. 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 First Quarter 2022 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. We will keep our prepared remarks relatively brief to allow sufficient time for questions. I'll now turn the call over to Randy.

Randy MacEwen, CEO

Thanks, Kate, and welcome, everyone, to today's conference call. We join today's call with continued confidence in our industry backdrop and a growing global commitment to the energy transition. Our climate crisis, coupled with the recent reprioritization of energy security, is forcing administrations into action. The European Commission is taking clear action to boost hydrogen technology scale-up and deployment. As a continuation of the repower EU announcement earlier this year, which outlined plans to quadruple the EU's previously planned hydrogen supply by 2030, the commission last week announced plans to increase its annual electrolyser manufacturing capabilities tenfold by 2025. This would increase annual green hydrogen production from 1.7 gigawatts to 17.5 gigawatts. We view this as an accelerant to support the adoption of fuel cell electric vehicles across Europe. In the first quarter, Ballard delivered $21 million in revenue, a 19% increase from Q1 2021, while also securing new orders totaling $27.8 million. This activity reflects an increase in our order backlog to $99.8 million at the end of Q1. Our order intake was largely driven by increased customer activity in Europe in both truck and bus markets. Ballard's focus remains on the large addressable markets of medium- and heavy-duty mobility, including bus, truck, rail, and marine, as well as select stationary power generation markets. These are the applications where our hydrogen fuel cell technology has the strongest value proposition. I'll briefly talk through our Q1 progress and highlights in key applications and regions. We continue to see strong customer engagement in European and U.S. bus markets, driven by repeat orders from key customers, including New Flyer and Solaris. As of the end of Q1, Ballard has deployed fuel cells across 17 different European countries and approximately half a dozen U.S. states. We anticipate increased market expansion as European countries roll out strategies and policies to support energy security and decarbonization. In the U.S., the federal government increased Low-No funding for bus fleet operators to $1.1 billion, six times that of the previous year to support zero emissions bus rollout. In the truck market, we continue to make progress with our partnerships. Today, at the ACT Expo in California, Linamar and Ballard announced the unveiling of our concept hydrogen-powered Class 2 truck chassis. The technology demonstration platform will be showcased this week and displayed in a RAM 2500 truck chassis. Testing on the new platform is underway and will continue in 2022 and 2023. Our development program with MAHLE continues on schedule with integration of Ballard's fuel cell module and testing on the concept engine ongoing and expected to continue throughout the year. Ballard also continues to invest and partner with geographically diverse vehicle integrators to adjust to different market demands and stages of maturity in the truck sector. Today, we announced we've entered into a strategic collaboration with Wisdom Motor, Temple Water Group, and Bravo Transport Services, which is Hong Kong's largest transit operator, to accelerate the adoption of commercial fuel cell buses in Hong Kong. Temple Water, owner of Bravo Transport, together with Ballard co-invested in funding for Wisdom, a company that designs and manufactures zero-emission commercial vehicles. These funds will support Wisdom's expansion and development of its hydrogen zero-emission fuel cell truck plus and special vehicle offerings for international markets. Wisdom's hydrogen fuel vehicle product lines will exclusively deploy Ballard's leading PEM fuel cell technology, with modules supplied by the Weichai-Ballard joint venture in China. As we discussed on the Q4 earnings call, we continue to look at new routes to market to accelerate adoption, leveraging parallel go-to-market strategies by partnering with both OEMs and Tier 1s on one hand, and vehicle integrators on the second. This collaboration announced today with Wisdom is our first investment in a vehicle OEM and positions us to participate in the growing Hong Kong market while supporting demand for products from the Weichai-Ballard joint venture. In Rail, we expanded our scope of work with CP in Canada. Ballard will support the expansion of CP's hydrogen locomotive program from 1 to 3 locomotives with expected delivery later this year. In Europe, Siemens Mobility completed the production of the purpose-built 400-kilowatt Mireo Plus H train and last week announced its first rollout. The train and its new infrastructure are intended to replace multiple unit diesel trains in commuter and regional transport and bring rail-related CO2 emissions to zero. As a two-car train, the Mireo Plus H has an operating range of up to 800 kilometers and is as powerful as its electric multiple-unit counterpart, with a top speed of 160 kilometers per hour. One key element needed to make hydrogen technology competitive with diesel fuel in daily operation is a fast refueling process. Deutsche Bahn, who has identified hydrogen train technology as an important method to achieve climate neutrality, has developed a new method that for the first time enables a hydrogen train to be refueled as fast as a diesel-powered train. The fast refueling of hydrogen trains will make the technology competitive in daily operation, particularly for the demanding timing of regional passenger service. The Mireo will begin operational testing on the rail this year and is expected to enter demonstration service in Bavaria in 2024. We continue to see exciting momentum in the marine market, specifically in our current target markets of coastal and inland applications. In the quarter, we saw growth in our maritime customer base as we received orders from new customers and a project expansion with an existing customer. We also announced DNV type approval of our FCwave module just after the quarter end. This marks a significant milestone for us as Ballard is the first to receive type approval for a hydrogen fuel cell from DNV. This classification removes a significant roadblock in helping the marine industry deploy zero-emission technologies and meet global emission reduction targets. This lengthy and technically onerous approval process gives confidence in our product safety, performance, and durability for marine applications and will accelerate our customer approval time for proposed maritime projects deploying Ballard's fuel cell engines. In Off-Road, a key milestone was also announced by Anglo American, launching the world's first hydrogen-powered mining truck. The first of four 290-tonne class hydrogen fuel cell mining trucks has now been launched at the Mogalakwena platinum mine in South Africa. Each mining truck employs a 2-megawatt hydrogen battery hybrid drivetrain, including 800 kilowatts of fuel cell power. Each of these trucks, when operating with a diesel drivetrain, uses 3,000 liters of fuel per day. Converting these trucks to green hydrogen results in a significant reduction in fossil fuel consumption and emissions, particularly when extrapolated amongst full mining fuel cell truck deployments. As part of this project, on-site green hydrogen production, storage, and refueling infrastructure has been developed, including the largest electrolyzer in Africa and a solar plant to support the operation of the haul truck. Years in the making, this key project milestone illustrates the importance of hydrogen in decarbonizing heavy-duty mobility, helping companies like Anglo achieve their carbon neutrality goals. With the goal of carbon neutrality at their operations by 2040 and haul truck diesel emissions accounting for about 10% to 15% of their total Scope 1 emissions, Anglo plans to expand this initial pilot of four trucks to the entire fleet of 40 trucks at the mine over the coming years. In stationary power generation, we increased our revenue by 450% from Q1 last year. For select stationary power applications, we're able to leverage our FCWave technology. While initially designed for the marine market, our FCWave module is also being deployed in multiple stationary power applications. Increased demand from the stationary power market resulted in the largest number of FC modules shipped in a quarter. Now looking at other key geographic regions, sales in the European market remained strong, accounting for 45% of our quarterly revenue. In North America, we continue to see an increase in sales, up 47% from Q1 2021. Strength in both Europe and North America is primarily driven by follow-on orders from key bus customers. In Q1, we saw a decrease in revenue contribution from China compared to Q1 last year. The lack of policy clarity for the implementation of the demonstration city clusters is being exacerbated by COVID restrictions and lockdowns. As has been widely reported, many areas of China are seeing another wave of COVID. The recent lockdown in Shanghai and other key centers across the country have impacted business. While our manufacturing facility in Weifang has not been shut down, day-to-day business operations amongst companies and governments are seeing significant delays. We're also experiencing shipment delays in our supply chain but are working to mitigate the impact. We continue to evaluate opportunities for Ballard and the Weichai-Ballard joint venture to further strengthen our long-term positioning across the regions in the near term and post-subsidy in the long term. We've also noted an increase in interest and opportunity in emerging markets outside of Europe, North America, and China. Following the end of the quarter, we signed an MOU with Doosan Fuel Cell to accelerate fuel cell bus adoption, with initial market focus in South Korea. Doosan, which is active in developing solid oxide fuel cells for stationary and marine applications, recognizes PEM fuel cells as a technology of choice for mobility applications and a new growth engine for their organization. Under the MOU, Doosan will integrate Ballard's PEM fuel cell stacks with its hydrogen fuel cell bus powertrain in South Korea, with the aim to have fuel cell buses on the road in the next two years. Doosan is an experienced and capable organization with a strong market position in Korea, opening a new geographic opportunity for Ballard with a strong partner. Doosan's decision to utilize Ballard's PEM technology is a strong endorsement of our industry-leading position, capabilities that are underpinned by leading on-the-road experience. We continue to deploy, develop, and prioritize strategic partnerships to expand our market penetration and accelerate the adoption of fuel cells across our medium- and heavy-duty mobility and stationary power market opportunities. Shifting to more detail on our financials, in Q1, we experienced continued downward pressure on our gross margin. This compression is consistent with our 2022 plan, reflecting expected changes in our revenue mix, selling prices, and cost structure. Regarding revenue mix, we have a heavier weighting of module product sales, including some new modules that are in early volume production. Concerning selling prices, we've been pricing certain low-volume customer pilot projects based on securing platform wins with strategic accounts. On cost, fixed overhead costs are elevated as we invested in advanced manufacturing and production capacity expansion. Like others, we've also seen some inflationary cost pressures in our supply chain and freight costs. While we expect compressed gross margins in the near term, we're confident in margin expansion in the mid- to long term driven by important progress on our product cost reduction program. Also, as higher production volumes increase and customers transition from pilot projects to commercial deployments, and we continue progress on our product development cost reduction program, we expect to see concurrent gross margin expansion. We ended the quarter with a strong balance sheet and cash position of $1.1 billion. Last quarter, we initiated 2022 guidance on total operating costs and capital expenditures to provide clarity on our capital allocation plans and priorities. Our guidance remains unchanged and is on track to spend between $140 million and $160 million in total operating expenses this year and between $40 million to $60 million in capital expenses. Our strategy is to invest ahead of the curve in talent, technology, products, capabilities, and customer experience. We believe this will position the company for significant market share as the adoption of hydrogen accelerates over the coming years. On the technology and operational front, we continue to make important progress on our 3x3 stack cost reduction plan and remain on track to achieve our 2024 target. Corporate development work continues to be a strategic priority in 2022. We are evaluating potential acquisitions, investments, and partnerships to improve our competitive positioning, expand our product portfolio and solutions across the value chain, simplify and enhance the customer experience, accelerate fuel cell adoption in target markets, and facilitate business scaling. Ballard's business model is designed to leverage our core fuel cell technology across multiple large and attractive addressable applications in medium- and heavy-duty mobility, including our key use cases in bus, truck, rail, marine, and off-road as well as stationary power market opportunities. We believe this business model will provide us with long-term scale and unit volume advantages, which will translate to a cost advantage and complement Ballard's technology leadership and vertical integration. We believe this business model provides Ballard with a compelling revenue scaffolding effect as well as diversification and resiliency in our revenue streams for the long term across products, applications, regions, and customers. So where are we today? Ballard sits at the convergence of highly supportive drivers with disruptive fuel cell technology. We see a context with powerful market drivers, increasingly supportive policies, the continued and expected growth of secure and low-cost renewables, and an encouraging outlook for the adoption of green hydrogen, growing market and customer engagement as all stakeholders lean into the energy transition, and improving customer economics given the higher cost of carbon-based fuel, platform wins, and progress on pilot projects with strategic accounts across all of our verticals, growing field deployments, leading field data, complementary strategic partnerships, and a strong balance sheet supporting our increased investments. It's an exciting context as we continue to make important progress across our business to fully realize our purpose to deliver fuel cell power for a sustainable planet and create value for our stakeholders, including shareholders, customers, and employees. And with that, I'll turn the call back to the operator for questions.

Operator, Conference Operator

The first question comes from Rupert Merer with National Bank.

Rupert Merer, Analyst

Sorry, technical difficulties. With the Wisdom deal that you announced today, can you talk about how that has come together? And is there an existing relationship between Weichai and this group?

Randy MacEwen, CEO

Yes, Rupert, thanks for the question. It's actually an interesting context on how this came together. So effectively, we've been looking at the Hong Kong market for some time. And as you know, actually, in your own personal experience previously, Rupert, the Hong Kong market has been looking at hydrogen fuel cell technology for 25 years. Spending time with the Hong Kong transit operators, including Bravo, we were introduced to Wisdom as a company that would be very well positioned to be a supplier of fuel cell buses to the Hong Kong market. Through that introduction, with Temple Water, who is now effectively a controlling shareholder, both on Bravo and Wisdom, we saw this opportunity to really embed Ballard fuel cell technology into these platforms designed for buses and trucks by Wisdom for international markets. I think we'll see very important progress in the Hong Kong market in the coming 12 to 24 months.

Rupert Merer, Analyst

So is Weichai involved directly in this other than, say, through the Ballard-Weichai joint venture?

Randy MacEwen, CEO

Yes. So this is a company, Wisdom, that manufactures their buses in China. The founders of the company have prior experience in the Weichai organization, so they're well known to Weichai. I think this is a great opportunity for the Weichai-Ballard joint venture to have the opportunity through Ballard to effectively see product moving into international markets.

Rupert Merer, Analyst

Great. Just one final follow-up on this. What's the timeline on this? Do they have any expectations for, say, the first deliveries of prototypes and then potential commercial deployment?

Randy MacEwen, CEO

Yes. We'll wait for Wisdom to take the lead on their public disclosure, but you'll see, I think, an important demonstration project in 2022.

Operator, Conference Operator

The next question comes from Aaron MacNeil with TD Securities.

Aaron MacNeil, Analyst

Quick question on one of your bus partners. They recently announced a big reduction to their full-year EBITDA guidance and cited issues like shortages of microprocessors. I guess I'm just wondering, is this microprocessor issue pervasive across all of your bus customers, or do you see it as an isolated incident? And additionally, like when do you typically recognize revenues? And will this shortage impact your near-term revenue?

Randy MacEwen, CEO

Yes, Aaron, thanks for the question. First of all, I think it's important to understand that whether it's bus, truck, rail, or marine, all the applications, their supply chain impacts are affecting all verticals. Paul and I just spent a couple of weeks in Europe and met with a number of bus OEMs as well as customers in other verticals. On the bus side, there are two key takeaways for me: first was the very strong sentiment we are seeing from those OEMs for the adoption of fuel cell buses. They're selling both battery electric and fuel cell electric typically, and they're seeing growing demand for fuel cell buses based on real-world experience from some of the transit operators. The sales activity is at record levels for these bus OEMs looking to deploy zero emissions, particularly fuel cells. The second thing we heard was that they were all struggling with the supply chain. It's not just microprocessors; in some cases, it could be hoses or even a modest part of the bill of material of their bus, which is impacting delivery schedules. The second part of your question in terms of when we recognize revenue, we typically recognize revenue when we ship the product and the ownership of that asset turns over to that customer. There have been delays in the bus market on a couple of fronts: ongoing delays for transit operators to conclude their tendering processes and their government funding arrangements, along with challenges in timing projects with the supply chain. This could be exacerbated considering what's happening in China currently. I do think we're going to see opportunities in later-stage markets, for example, aerospace, where we don't see near-term deployments of that type of technology. The trend is to move toward Ballard, dominating revenue based heavily on product sales, and always planned to transition TS to a smaller percentage of revenue, with that revenue moving towards newer, later-stage markets.

Operator, Conference Operator

The next question comes from Craig Shere with Tuohy Brothers.

Craig Shere, Analyst

So Rupert covered a lot on the Wisdom deal. Do you have any indication of total prospective investment?

Randy MacEwen, CEO

We're not announcing anything in terms of the size of the investment round that they're completing, like valuation, etc. For us, this is not a material investment, and we're a minority investor here in Wisdom.

Craig Shere, Analyst

Got you. And you made reference to the stationary power sales picking up. I guess your FCwave is moving into that market. It looks to be the best quarter in some time. Do you see this foreshadowing more material traction, not just does this work, but potential to have stationary power lead the charge on the top line over the next 18 months?

Randy MacEwen, CEO

Yes, great question, Craig. I think there are a couple of things I'd highlight about stationary power. It's the opportunity for us to leverage the same technology and products we're designing for these medium and heavy-duty motive applications with a strong value proposition. We like that aspect of the business model. The second thing about stationary power is that there can be very large deployments. We foresee stationary power becoming a significant stand-alone revenue and profit stream for us in the future. I think in the future we will see some volatility in the stationary power market segment due to the way projects can vary in size and scale. However, the trend we've seen is indicative of new market opportunities where we can deploy this technology, and there are several market segments in stationary power that are now looking at hydrogen fuel cells for the first time. It's an exciting development for us.

Operator, Conference Operator

The next question comes from Leo Mariani with KeyBanc.

Leo Mariani, Analyst

I wanted to follow up on the comments regarding the margins. Historically, Ballard has maintained strong gross margins, but we seem to have posted a negative margin for the first time in many years, which surprised me. Could you elaborate on your strategy? It seems like you are selling some products below cost to gain market share. Is this approach intended to be temporary, lasting for just a few quarters? Do you anticipate that as we approach the end of the year or next year, we will start to see improved margins?

Paul Dobson, CFO

Charlie, it's Paul here. Yes, there are a few different dynamics occurring, some of which we've mentioned and some perhaps not. The change in revenue mix more towards products and away from TS is having some downward pressure on the margin. TS margins have a much higher contribution margin than Power Products, which is affecting it. There is also pressure on contribution margin in both Power Products and TS due to supply chain, higher labor, inflationary pressures, and higher materials and freight-in costs. We've talked about these in prior quarters. The team is doing a good job managing it, and we're building some inventory qualifying new suppliers to manage through that. We've seen lead times and delivery times pushed out a bit, and costs have risen but not by huge amounts. The biggest impact is really from higher fixed overheads, which increased by about $2.4 million from Q1 '21, accounting for about 11 points of gross margin. This increase aligns with earlier disclosures about overall spending and spending ahead of the growth curve to scale up production in anticipation of higher volumes. Overall, higher spending is consistent with the guidance we've previously shared about the overall increase in spending. The other half of this fixed overhead increase is due to not receiving COVID subsidies, which we received in Q1 last year. There’s also a small amount of sublease rent that hasn't been renewed. Lastly, there's increased depreciation from spending on fixed assets. As Randy mentioned, all of this was expected. Given the trends and drivers of increased investment, we foresee gross margin percentages being in the single digits this year. We're confident expansion will occur as sales volumes increase, allowing costs to be spread over higher sales.

Randy MacEwen, CEO

And Leo, just to address your question on the customer side, it's important to understand where we are as an industry. Many countries now have hydrogen strategies, but that hasn't translated into clear policy levers for early adopters to see a value proposition. There's a gap between cost structure today and the low volumes' value proposition. We’re consciously working with customers who have lean economics to maximize opportunities. We've intentionally made pricing decisions to secure key project wins, leading to pricing pressure to make that happen; a conscious decision on our part. Once we're on these platforms, we tend to be very sticky.

Leo Mariani, Analyst

Okay. That's very good color for sure. And then with respect to the revenue trend, would you all generally expect your first quarter revenue to kind of be the low for the year, and do you think it slowly creeps up as we get into the second half? Any qualitative comments about your revenue direction?

Randy MacEwen, CEO

Yes. Historically, we typically have a lower portion of revenue in H1 and a higher portion in H2, usually around 40-60%. We expect to see a similar trend this year, based on the data points we have.

Operator, Conference Operator

The next question comes from Jonathan Lamers with BMO Capital Markets.

Jonathan Lamers, Analyst

Randy, on the Linamar-Ballard concept vehicle shown at the ACT Expo this week, what needs to happen next before the partnership can begin a commercial relationship with an OEM to produce vehicles?

Randy MacEwen, CEO

Yes, great question. The ACT Expo in Long Beach is important, where we highlighted that Linamar-Ballard concept Class II powertrain in the Ram 2500 chassis. We see a market opportunity for high-utilization, light-duty Class II trucks, particularly those returning to base for centralized depot refueling. Linamar has taken a good look at this market opportunity and is investing in technology, like its conformable hydrogen storage tank technology that's integrated into the platform. Testing will occur in 2022 and 2023, sharing results with OEMs and starting to design the Linamar-Ballard concept Class II powertrain for multiple vehicle platforms. This process will take several years because of vehicle OEM design cycles, but we see this as a long-term market opportunity that is very attractive and importantly backed by a committed partner.

Operator, Conference Operator

The next question comes from Michael Glen with Raymond James.

Michael Glen, Analyst

Randy, you've spoken in the past about a revenue inflection point for the business taking place, say, 2024 and beyond. When you look at everything taking place right now, has that influenced your own view on when we should think about that revenue inflection taking place?

Randy MacEwen, CEO

Yes, Michael. I think the revenue inflection point we've anticipated has been strengthened by several factors. Looking at what's happening across all the verticals, bus, truck, rail, marine, and stationary applications, customers and pilot projects are progressing as we had contemplated. For example, Siemens, we've closely worked on developing this fuel cell engine for the Siemens Mireo Plus H train for 3.5 years, and it's now launched. We're seeing increasing end-user interest. There's intense demand from the truck market's end-users, which significantly outpaces that of vehicle OEMs. We're collaborating with truck upfitters and early-stage partners to hasten market adoption. We still see that inflection point occurring in the 2024-2025 timeframe, with a steep growth curve through 2030. This progress across multiple verticals and geographies with blue-chip customers supports that foundation.

Michael Glen, Analyst

Just to talk about competition a bit. There have been several companies pursuing fuel cell development programs. Could you speak about what that process was like in aligning with Doosan? How many companies were you competing with, and did you see a step-up in competition versus prior processes?

Randy MacEwen, CEO

Yes, Michael. In all these verticals, the vehicle OEMs are very sophisticated. For instance, CP as an end user and our partners in Marine like ABB all conduct thorough assessments of technology and field data. Doosan, being sophisticated in fuel cells, validated our technology through a disciplined process, which speaks volumes about their view on our capabilities. Doosan is a strong partner in the Korean market, and with many existing opportunities for collaboration, this will open doors for us. The market is increasingly competitive, but we believe we maintain a lead and are actively working to extend it through improved technology and lower costs.

Operator, Conference Operator

The next question comes from Sameer Joshi with H.C. Wainright.

Sameer Joshi, Analyst

In the press release, you mentioned the development of next-generation fuel stacks and engines for different target markets. Can you speak a little bit more on this? Are these developments at the stack level? What are they focused on?

Randy MacEwen, CEO

Yes. We continue to invest in existing stack and module platforms while also designing next-generation stacks and modules for the verticals we've discussed, bus, truck, rail, and marine. Where we can leverage that same technology for other verticals, such as off-road and stationary power, we seek to maximize that leverage. This entails developing higher-performing products, generally with higher power output, focused on high-power density and efficiency across these segments. We're progressing toward more standardized products, including standardized balance of plant components, such as compressors and humidifiers. We foresee a strong product roadmap, which we'll detail further later this year in our Investor and Analyst Day.

Sameer Joshi, Analyst

Got it. And then just one on revenues. I think you have about $65 million of your backlog you expect to deliver this year. Is there any chance you may be able to accelerate those deliveries? Or are there risks of delays due to various issues in Europe?

Randy MacEwen, CEO

Yes, Sameer. We see both opportunities to accelerate order book deliveries this year and potential delays. Before our Q2 call, we can provide more context, but there are accelerants for opportunities and some risk with projects taking longer. Lead times for various materials have increased across the industry affecting both us and our vehicle platform customers. This will be critical to watch over the next three to four months.

Operator, Conference Operator

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

Robert Brown, Analyst

Randy, my question is on the CP Rail project expansion. What is this expansion trying to address, and what drove the expansion? What are the next steps in the project development?

Randy MacEwen, CEO

Rob, thanks for the question. When we began working with CP, they were looking at line freight locomotives for long-distance goods transport. They've added two additional market segments for switchers and shunters with three different locomotives. All diesel powered are transitioning to hydrogen fuel cell technology. In 2022 and 2023, it's vital to validate that technology in these three different locomotive designs. This transition serves their commitment to decarbonize, as diesel use reflects their largest GHG emission source.

Robert Brown, Analyst

Okay, good. In terms of the EU market development, I know you've got your partners and you're working toward objectives. When can we start seeing the next steps in terms of demonstration vehicles and ultimately, OEM product rollouts?

Randy MacEwen, CEO

Yes, great question. We see significant activity in bus, truck, and rail this year, leading to additional market opportunities and order pipelines. We're particularly excited about the strong posture from bus OEMs regarding long-term market opportunities. Several projects involving over 100 fuel cell buses are planned for deployment. We estimate these will rapidly translate from sales pipelines to order books to revenue. The overall posture we're encountering is stronger than ever, and we're very encouraged by the market's direction. Truck markets will take longer than buses to scale, but we anticipate more demonstration projects in 2022.

Operator, Conference Operator

The next question comes from Alex Kania with Wolfe Research.

Alex Kania, Analyst

Just a question thinking about the European opportunities here. I know you're due for a, I guess, a more detailed update on the Repower EU strategy that they released a couple of months ago. Are there other important things we should be focusing on with respect to the hydrogen aspects of that policy statement?

Randy MacEwen, CEO

Yes. The Repower EU plan for affordable, secure, and sustainable energy has several intriguing levers, not just about hydrogen, but also accelerating permitting of renewable energy projects. Think of the trend in renewable energy adoption, which has scaled significantly over the past decade but remains low compared to what's anticipated. Renewable energy is the lowest-cost new power source entering grids, driving greener energy. High-volume storage is essential for supporting these renewables, and hydrogen plays a vital role. Regarding the Repower EU hydrogen front, the program to accelerate green hydrogen adoption is taking center stage. I've said we anticipate production numbers potentially exceeding expectations for 2025, removing the long-discussed chicken-and-egg conundrum. We primarily focus on applications that return to base or have centralized depot refueling. However, the opportunity for long-haul trucks requiring fueling stations also underscores support for green hydrogen production infrastructure, promoting growth in the freight truck market.

Operator, Conference Operator

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

Randy MacEwen, CEO

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

Operator, Conference Operator

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