Good day and thank you for standing by. Welcome to Hyliion’s Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ prepared remarks, there will be a question-and-answer session. I would now like to turn the conference call over to Adam Bresser, Hyliion’s Senior Director of FP&A and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to Hyliion Holdings third quarter 2022 earnings conference call. On the call today are Thomas Healy, our Chief Executive Officer; and Jon Panzer, our Chief Financial Officer. A slide presentation accompanies this conference call and is available on Hyliion's Investor Relations website at investors.hyliion.com. Please note that during today's call, we will make certain forward-looking statements regarding the Company's business outlook. Forward-looking statements are predictions, projections and other statements about anticipated events that are based on current expectations and assumptions and as such are subject to risks and uncertainties. Many factors could cause actual results to differ materially from the forward-looking statements on this call. For more information about factors that may cause the Company's results to differ materially from such forward-looking statements, please refer to our earnings press release as well as our filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. You are cautioned not to put undue reliance on forward-looking statements and we undertake no duty to update this information unless required by applicable law. With that, I'll turn the call over to Thomas.

Hello and thank you for joining us today for our third quarter 2022 earnings call. I'd like to start off by taking a moment to welcome Jon Panzer, who is with me here today as Hyliion's new CFO. Almost two months ago, Jon joined the Company and has already made a powerful impact on the organization. He joins us after a long tenure at Union Pacific and brings a wealth of experience in financial leadership, investor relations, strategic technologies and transportation operations. In addition to leading numerous financial departments at Union Pacific, Jon previously led their IT department as well as their strategic planning. In today's call, we will cover progress and results from Q3 as well as add more color to how we are going to commercialize the Hypertruck ERX system and what we anticipate our initial go-to-market pricing to be. This past quarter has been a very exciting time at Hyliion as we have hit some key milestones on our path to commercialization. I will highlight a few and then provide more details later in the presentation. We started control fleet trials with our Hypertruck ERX system. This includes a trial with GreenPath Logistics and more recently with Wegmans and Detmar. We also closed the acquisition of an innovative fuel agnostic generator technology from GE Additive, which we first announced back in August. We are pleased to share that we closed the third quarter with $455 million of cash and investments on our balance sheet. Finally, on this call, we will be sharing more details on our Founders Program, which is an initiative around the early deployments of Hypertruck ERX powertrain. As I mentioned, we started our controlled fleet trials in Q3 as planned. Our first controlled fleet trial was executed with GreenPath Logistics, one of the leading clean technology fleets in the United States. GreenPath operates out of Dallas and hauls freight for some of the largest retail shippers in the United States. We are frequently asked what do these controlled fleet trials entail? To put it simply, it is a deployment of our technology into standard fleet operations, as conventional trucks will be used on a daily basis. In the course of a day, we've seen fleets put hundreds of miles on these trucks to deliver various goods. As we have executed these trials, we have had both highly skilled engineers and technicians on hand to monitor the vehicles. Customer feedback is very important to us, especially the feedback from drivers. I am proud to say that drivers are telling us how impressed they are with how the vehicle drives and performs. Moreover, it is easy to get in the vehicle and quickly understand how the powertrain works. Additionally, the natural gas infrastructure already in place has alleviated concerns about fueling. Lastly, fleets are saying that they can pull forward a strong ESG benefit by reducing their emissions without having to give up the standard operating features that they have grown accustomed to. Fleets have also shared with us their experience with plug-in electric vehicles, and it is clear that range and the lack of charging infrastructure continues to be a concern for the trucking industry. As we heard from some of the other companies in the electrification space this past week, fleets are seeing plug-in trucks as only being able to work for a small percentage of their fleet because of range limitations. They are also questioning the extremely capital-intensive deployment of chargers. While this is an issue being experienced today with battery electric trucks, we see it as being an even larger problem with hydrogen fuel cell trucks upon initial adoption, given the scarcity of hydrogen. This is where we see Hyliion's product roadmap as truly benefiting fleets and limiting their concerns of shifting into electrification. We're now beginning to see this firsthand with fleets. They will be able to operate the Hypertruck ERX powertrain without range anxiety because of its ability to achieve up to a 1,000 miles between refueling stops, as well as leverage the breadth of existing natural gas infrastructure. Now, shifting to some of the milestones we've accomplished, the start-up controlled fleet trials checked another box on our path to commercialization. It has been one year since we set out these milestones, and I am proud of how we've continued to execute on time and on track with our path to commercialization of the Hypertruck ERX system. During the quarter, we have also conducted summer testing of the Hypertruck ERX powertrain by taking four vehicles out to Davis Dam in Arizona and putting the trucks through their paces in various test conditions. This included driving up a steep grade fully loaded, and then turning around and heading back down the same grade. Davis Dam, for any of you who aren't familiar with it, features one of the toughest terrains in the nation, including a 6% grade that is sustained for over 11 miles. Not only is the road itself difficult, but we were also testing in temperatures of up to 110 degrees Fahrenheit. I am pleased to say that all four trucks successfully completed the testing. Turning to our deployment plan for the Hypertruck ERX system, I'd first like to discuss pricing. As I'm sure many of you are aware, it is well known in the industry that electric trucks are expected to be more expensive than diesel trucks. This will be the case for trucks outfitted with the Hypertruck ERX system as well. But one of our key advantages is that we expect operating costs for trucks with our system to be significantly lower, thanks to the low cost of natural gas and renewable natural gas when compared to diesel. Let's take a moment to compare the three options of electrification, BEV plug-in, hydrogen fuel cell, and the Hypertruck ERX powertrain. When a fleet considers its options and thinks about adopting a hydrogen fuel cell vehicle, not only is the vehicle expected to be more expensive, but the fuel is going to be significantly more expensive than diesel as well. For plug-in electric, the trucks are expected to be more expensive, but the cost of fuel will be about the same as diesel. However, when you look at our solution, the Hypertruck ERX truck will cost more than a diesel truck, but the fuel is about 1/3 to 1/4 the cost of diesel fuel, which gives Hyliion a big advantage. As we bring our product to market, one of Hyliion's key focus areas is to be able to offer fleets a cost benefit over other electrified solutions, as well as to give them a product that can be comparable to diesel when taking into account the upfront purchase price and lifetime fueling costs. What we've heard from fleets and others in the industry is that hydrogen fuel cell trucks are expected to come to market around $500,000 to $600,000. BEV plug-in vehicles are expected to be in the mid $400,000 range. We are planning to offer our solution at a price in the high $300,000s with flexibility to adjust that number based on component cost inflation. All the foregoing prices include the benefit of the $40,000 Inflation Reduction Act tax credit. As such, we expect to be on the lower end of price compared to other electrified solutions in terms of upfront vehicle costs while keeping our distinct advantage in fueling costs as well. Turning to our go-to-market strategy, as we've previously shared, our long-term strategy is that Hyliion is a powertrain company and we expect to sell our solutions directly to the OEMs for them to integrate into their production lines. However, as we launch the product, we plan to source de-contented chassis from the OEM and then we'll utilize our facility here in Austin, Texas and Mod Centers that are close to the OEM's factory to install our Hypertruck ERX product. In the beginning, when we are not in the OEM's data book and not yet on their production lines, we will sell the entire vehicle, and then over time we'll transition to selling just the powertrain to the OEMs as we scale volume. Through this model, we will procure the chassis from the OEM and they will stand behind their warranty on the actual chassis and the cab itself while Hyliion will be responsible for the powertrain and the associated components. As we've previously shared, we'll first go to market with the Peterbilt 579 truck and then look to expand to other OEMs as we go forward. Now I would like to share a little bit more about the launch of our Hypertruck ERX system that will begin late next year. Earlier this year, we set out to secure orders for our first 200 production slots for what we are calling our founders program. As we look at the learnings from our hybrid system and what it took to be successful, we realize that one of the biggest hurdles is having trucks deployed across the country where they are more difficult to support. So the Founders Program trucks will be deployed out of a highly launched facility in Dallas, Texas. If any of you have ever been to the Southern Dallas area, it is filled with many warehouses operated by some of the largest logistics companies in the country. We decided that there is no better place than Dallas to roll out our new technology. The Founders Program will feature white-glove service and support from the launch facility as we deploy our initial units. At the launch facility, we will not only have service bays for supporting and maintaining our solution, but we will also plan to have onsite fueling to make it convenient for fleets to fill up on renewable natural gas. We will encourage our fleet customers to utilize the launch facility at their convenience, but we are also working on a nationwide service plan with partners who will be authorized to work on our powertrain. As we go forward, we'll share more details on where our launch facility site will be located and who some of our service partners will be. Fleet interest in the Founders Program and desired participation in the initial 200 trucks was oversubscribed, but we believe this is an appropriate number needed to confirm the performance and reliability of the first Hypertruck ERX production units. This past quarter, we rounded out our first 200 orders by adding a 10 truck order from Ruan, one of our Hyper Truck Innovation Council members. Ruan is one of the many fleets to have participated in our ride and drive events and were impressed with how the vehicle performed and so are our powertrain as a strong solution for their path to electrification. As previously mentioned, we believe that the successful completion of testing, validation, and certification work that we are doing as well as the continued deployment of fleet trials will be an inflection point for orders. As these milestones are achieved and now that we have announced target pricing, we will move forward with continuing to grow our order backlog for delivery in 2024 and beyond. Finally, I would like to reiterate that we are still on track to start production in late 2023 and plan to deliver all 200 Founder Program trucks to our customers by the end of Q1 of 2024. Now I'd like to shift gears and talk a little bit about our Hybrid Solution and some of the progress we have made. We are pleased to share that we recognized $0.5 million in revenue this past quarter. While we continue to deliver more and more vehicles, we also have a backlog of orders of over $1 million for this solution. As we have shared in past quarters, truck availability continues to be an issue along with supply chain delays, which is one of the reasons we have started deploying our hybrid systems pre-installed on trucks as well. As a result, we have shifted some of our installs out to the right. As we look to 2023, our plan is to continue to recognize quarterly revenue from our Hybrid Solution that is comparable to this quarter as we move to the commercial launch of our Hypertruck ERX system. I now would like to spend a few minutes talking about our recent acquisition of GE Additive's KARNO technology. On September 26, we closed on the acquisition of a new innovative generator technology out of GE's Additive Division. We paid $15 million in cash and $16 million in stock or 5.5 million shares. GE's level of share ownership in Hyliion equates to about 3% of our total equity. Through the acquisition, we not only acquired the KARNO generator technology and its associated IP, but we also received an exceptionally talented group of engineers, who are experts in generator technology as well as fuel injection, flameless oxidation, emissions, and 3D printing or additive manufacturing. As a little background for anyone who isn't familiar with the KARNO technology, it is a fuel agnostic generator that will be utilized in our Hypertruck powertrain platform in the years ahead. The generator can operate on over 20 different fuel sources, including hydrogen, and pulls forward efficiencies that are significantly higher than today's conventional generators. It also offers superior emissions performance especially when running on hydrogen. We have been working with GE for over a year on this technology. They initially approached us back in 2021 because they saw that our powertrain solution was a strong fit with the generator they were designing. We decided to kick off a development agreement, but when we saw the performance levels of the generator and recognized how revolutionary it can be, we decided that the best move for Hyliion was to acquire the technology outright and bring it in-house. Many of us does what makes this technology so unique, and there are two key areas to highlight. The first is the flameless oxidation fuel injection process. This is the same or similar technology that is utilized in GE Aviation jet engines and Hyliion has secured a license to use this in the KARNO generator. In addition to superior fuel handling, the key components of the generator are produced on a metal 3D additive manufacturing printer, as opposed to using conventional manufacturing processes. This will allow us to truly rethink how parts are designed and manufactured. These unique parts enable us to achieve much higher efficiencies out of the generator. As we commercialize this generator, we see it as not only a solution that can be utilized in our powertrains onboard the truck, but it could be used for other applications as well. For example, these generators could actually be used for stationary power generation to charge electric vehicles. Our fleet customers are seeing on a daily basis that the grid is not able to support the power needs of electric semi-trucks. With the KARNO generator, we believe we may have a strong solution to this problem. Our plan is for the technology to be commercially launched a few years after the Hypertruck ERX solution. To recap, Hyliion's roadmap for the Hypertruck powertrain is to first start with a natural gas internal combustion engine made by Cummins as the generator. This variance of the product is called the ERX. After that, we will launch the Hypertruck KARNO, which will use the new KARNO generator in order to produce electricity onboard the truck. The third evolution will utilize fuel cell technology as the generator. Our plan is to work with others who produce fuel cells in order to integrate their solutions into our powertrain. As you look at the hyper truck roadmap, we've designed a powertrain platform that can evolve with new fuels and revolutionary generator technology. This is one of the key reasons we have invested so much time and effort into our proprietary software integration, as this will be utilized across all three platforms. With that, I would like to turn the call over to Jon to discuss our financial results.

Thank you, Thomas, and good morning, everyone. It is great to be here. Turning to the financial results for the third quarter, we reported revenue of $0.5 million related to hybrid sales, including a full hybrid truck compared to $200,000 in the second quarter of this year, and no revenue in the third quarter of a year ago. Operating expenses totaled $62.9 million for the quarter inclusive of expenses related to the acquisition of KARNO, as Thomas noted. The KARNO purchase was recorded as an asset acquisition with the key financial statement impacts shown in the table on the right side of this slide. The transaction included a cash payment to GE of $15 million and the issuance of 5.5 million Hyliion shares worth $16.1 million on the day of closing. Hyliion also incurred $1.2 million of direct transaction expenses for a total purchase valuation of $32.3 million. Of this amount, $28.8 million was recorded as research and development expense and $3.6 million as property and equipment. Excluding KARNO, operating expenses were $34.2 million compared to $32.2 million in the second quarter, and $26.8 million in the third quarter of 2021. As Hyliion continues to make progress on our development roadmap, R&D expenses, excluding KARNO, totaled $23.9 million up from $20.1 million in the second quarter of this year, and $18.2 million in the third quarter of 2021. SG&A expenses for the quarter were $10.3 million, down $1.9 million sequentially from the second quarter, but up from $8.7 million last year. In total, Hyliion reported a net loss of $63.4 million for the third quarter and $34.6 million excluding KARNO acquisition expenses. This is up about $1 million compared to the net loss of $33.5 million we incurred in Q2 of this year, and compares to the $26.6 million loss from Q3 of last year. We ended the quarter with total cash, short-term, and long-term investments of about $455 million compared to $500 million at the end of the second quarter. The change during the quarter reflects the $15 million of cash used for the KARNO acquisition and $30 million of cash spent to fund our core operations. Looking forward, we now expect our full year 2022 revenue to be approximately $2 million, which is at the low end of the range we projected for the year during last quarter's call. As Thomas mentioned, supply chain delays are affecting our ability and our customers’ ability to obtain trucks and components needed to deliver hybrid systems that we have on order. Fourth quarter revenue will also depend on the number of units we sell as full truck hybrid sales and the number of hybrid system sales, which we also expect are full year operating expenses to be $130 million, which is at the low end of the $130 million to $140 million range that we projected last quarter. This estimate excludes the $28.8 million KARNO R&D expense, but is inclusive of all ongoing KARNO costs since the close of the acquisition. Year-to-date expenses excluding KARNO total $92 million. We continue to believe that we have sufficient financial resources to fund current commercialization activities for our Hypertruck ERX powertrain, as well as for initial development activities for the KARNO product. That being said, we will start to see increases in working capital, primarily as we acquire components needed for assembly of production trucks late next year. The lead time for certain components remains long and unpredictable. By beginning to acquire some parts in the coming months, we will reduce the risk that supply chain issues delay our planned start of truck deliveries. With that, I will turn it back over to Thomas for closing remarks.

Thanks, Jon. Before we open the call up to Q&A, there are a few more points I'd like to share. First, this past quarter we released our inaugural ESG report. This report can be found on our website and we encourage you to take a look at it. Also, this past quarter, we had the pleasure of visiting the White House for an event celebrating the passage of the Inflation Reduction Act. Under this act, the Hypertruck ERX qualifies for a $40,000 tax credit, which will make the adoption of our technology even that much easier for fleets. Additionally, as some of you may have already seen, we continue to release new educational videos on YouTube and our website that highlights some of the facts around moving to an electric-based future. These videos not only focus on Hyliion, but talk about the shift to electric trucking as a whole by highlighting some other solutions such as BEV plug-in vehicles, as well as fuel cell technology. We encourage anyone who is interested in learning more about what fleets need to know as they look at new technologies to go watch these videos. Lastly, I'd like to close the call by sharing that demand for Hyliion solutions remains strong and continues to increase. We are continuing to hit the milestones we set out a year ago and we remain on time and on budget with the commercial launch of the Hypertruck ERX powertrain. We look forward to giving fleets a viable path to electrification that enables them to reduce their emissions. With that, we will open the call to questions. Operator, please go ahead.

Thank you. Your first question comes from Steve Fisher with UBS. Your line is open.

Thanks. Good morning. But just to start off on the revenue recognition for the first 200 units, I just want to clarify. It sounds like we should assume that it's going to be the full upper $300,000 per unit since you're going to be selling them the whole truck. And if that's correct, I guess your COGS are just going to include whatever the agreement you have with PACCAR?

That's correct. So in the initial vehicles, first 200 and then even after that we anticipate that we will be recognizing revenue for the entire vehicle. As we shared on the call, as we go forward, as we scale volumes, and continue to build the relationship with the OEMs, that's when we will shift into more of a conventional powertrain setup where we will be selling the components over to the OEM and they'll do the integration.

Okay, great. And maybe a little bit early for this. But I guess any sense of the split between, what's going to be in the first quarter of '24 versus kind of what's late '23?

So, we haven't added exact specificity to that yet. So what we have said to the fleets and what we are expecting is we will start the production late '23, start shipping units in that time frame. And then by the end of Q1 of '24, we will have all 200 of those initial Founder Program trucks returned to fleets deployed in operations and those will all be being delivered and based out of that Dallas launch facility that we mentioned. So, we haven't given exact color to how many in '23 versus '24, but I would assume that it’s heavier weighted in the Q1 than it is in the end of '23 though.

Okay, makes sense. And then how should we think about the quarterly cash burn now that you have KARNO in there and there is more inflation, but obviously making more progress and getting closer to commercialization? I think you mentioned that, it was about $30 million of burn for the core business and then add the $15 million for KARNO. So, what's the right run rate now we should think about for the next handful of quarters on cash burn?

Yes. Hi. This is Jon. I'll take that question. So, as you noted, we are running, I think, just a little bit under $30 million a quarter for the first three quarters this year, and it was about $30 million in the third quarter excluding the $15 million that we paid to GE. So you got those numbers right. And as you have seen kind of through '21 and '22, we have slowly started to grow expenses and cash flow has been very consistent with that. Fourth quarter, again, we will look relatively similar. So there is not going to be any real step changes that we anticipate in operating expenses and therefore cash burn through the core. I will reiterate as I just mentioned that, on the working capital side, we are about ready to start putting trucks together. So, we are going to be buying components, chassis and batteries and so forth. And just given the supply chain circumstances, we will want to fix some of those up early. So, we'll probably start to see a little bit of impact in the coming quarters. But the core operation, you will probably just see a very slow increase and then we will see some working capital.

Okay. And working capital, are we thinking like single-digit millions of dollars initially?

Well, it's going to grow between now and late next year, when we start to put the trucks on the market. I don't know exactly; we have just started to put orders in for components. But I think you'll see a little bit here in the fourth quarter, and then it's a number that's just going to grow and it'll add up over time. So, it's going to be tens of millions over the next year or so, single-digit tens of millions somewhere in that range, but it'll be kind of a slow increase, and then we will start delivering trucks.

Your next question is from the line of Andres Sheppard with Cantor Fitzgerald. Your line is open.

Congrats on the quarter. Just a couple of clarifying questions from us. So on Slide 9, it looks like it says that we should expect 2023 quarterly revenues from the hybrid system to be in line with Q3 results. So does that mean that we should be modeling roughly $2 million in revenue for next year for the hybrid? Thank you.

Hey, Andres. Yes. So, I think that makes sense. What we're saying is, we did $0.5 million in revenue this quarter, and we're expecting as we go into '23 to the launch of the ERX, it’ll be that similar $0.5 million per quarter. So, I think your assessments are in the right ballpark there.

Wonderful. Thanks, Thomas. And then in regards to OpEx. So, you've looks like you've lowered your guidance for the year from let's call it $135 million previously as the midpoint to now $130 million. As I look at the past three quarters, you're already pretty close to that annual number. So does that mean that we should expect a lower than usual OpEx number in Q4? Thanks.

Yes. I'll take that one. As I mentioned, just for clarity, a quarter ago when we projected, we projected $130 million to $140 million of total OpEx for the year. That was before we announced the acquisition of KARNO. And so, as I just mentioned in the prepared remarks, that projection is now on the low end, but it does exclude the acquisition accounting entry of writing off the $29 million of R&D. So, I want to clarify that, because it's an unusual item that has come up lately. Our expectation for the full year is to be at the low end of the range that we gave last quarter. So, we expect to be around $130 million excluding the $28.8 million R&D expense related to the KARNO acquisition that we recorded this quarter.

I see that helps. Thanks for clarifying that. Maybe one last one if I could. In the past you've provided updates on the ERX orders and reservations numbers. Looks like at this quarter obviously you talked about the founders program and having that first 200 orders into production slots. But I'm wondering, are there any changes to the reservations or the number of orders or what was the thought process, I guess it not necessarily quantifying at this quarter? Thank you.

Thanks, Andreas. And actually, a question that we figured we would get on this call. So to give a little more color to it, earlier this year, we asked the sales team would go out and fill the first 200 production slots. This was going to be the founders program. It's going to be out of that launch facility. It's going to have a service element to it, a white-glove service. That was the initiative to go fill the first 200. In order to expand past that, we wanted to establish what was our pricing going to be. We've just come out with that on this call. Now we're going to ask the sales team to continue to grow that backlog. As we look at the founders program, we were oversubscribed. We had more interest in it than the 200 so that was great to see. Now that we've got pricing out there that we're public with, we'll look to grow that backlog. As we've said, I think there are a couple of big milestones here that we're about to hit. One is the controlled fleet trials and expanding fleet trials next year. Feedback thus far has been very positive, and we're going to look to get the truck in the hands of more fleets next year. I think that's going to give fleets confidence to start placing orders. We are going through the commercialization process of certifications and validation of the technology. That's what fleets want to see. We do expect to continue to grow that order backlog, but up to now the focus has been on filling that first 200.

Your next question is from Bill Peterson with JPMorgan. Your line is open.

Yes. Hi. Good morning, guys. Thanks for taking the questions. For the control fleet testing, can you share maybe more color on some of the key learnings you have, any areas for improvement? What your plans are for winter testing and what you're looking to achieve there? I guess how many vehicles do you need also to support the testing in total?

Sure. So I'll break that down into a couple things. So first, the controlled fleet trials. So, they've been going very well as we mentioned, GreenPath Logistics, Wegmans, Detmar, we've been able to execute upon and we're running. From that standpoint, learnings have been really just tweaks to the control algorithms, how to make sure that our powertrain is responding to the driver feedback in the best possible way. We've been very pleased with the reliability and performance of the trucks. Overall, yes, it's going well and the feedback from fleets has been great. One other thing while we're on this topic, I will add is some of the fleets we've been working with have also had experience with BEV plug-in trucks. It's been interesting. They've had some BEV plug-in trucks while they've had our truck there as well. Happy to say that drivers have spoken very highly of what we're bringing forward. I will say drivers have tremendous range anxiety with BEV plug-in trucks. The range is just not there compared to what a normal diesel truck can get. Moreover, they have had instances of these trucks running out of battery power and having to get towed back home to be put on the charger. So, that's something that we're not experiencing obviously with the Hypertruck ERX, as we have plenty of range. They are using the existing infrastructure out there, so that's been good. The batch of vehicles that we're in right now, as we previously shared, was going to be around 10 units out there. That's where we're at right now. We're just about to start the build of the next batch of trucks, which is going to be around 20 more vehicles, and then it'll be those vehicles that will bring us into the start of production in late '23. We're using the current batch, and we'll use the next batch in these fleet trials. As I said, we're very pleased with how they're going thus far.

Okay, thanks for the additional color. I don't know if you mentioned, I might have missed it, but thanks for kind of providing some pricing. But how should we think about the margin structure, I guess under sort of the two forms? One would be your sort of first go to market strategy, and then how we should think about it when it's actually being built by the OEM directly?

Yes, I'll take that one. We have some pretty good ideas of what costs are going to look like. We're getting ready to put together the first trucks. There are a little bit of unknowns in the component costs, but we're starting to narrow in on what those numbers are. As you would expect initially that putting together a new product, the first costs are going to be higher than what you hope your long-range expectations are because you're, you know, we mentioned, Thomas mentioned we'll be putting together the units, some here and some in mod centers. We do expect that that cost will come down over time as we get efficiencies from volume purchases and eventually on the OEM assembly line. So, yes, we expect to be a little upside down to start off with to be straight up with it, but certainly have a line of sight to get costs out of it, as we grow volumes and we can get some better insights into component pricing and things like that.

Your next question is from the line of Mark Delaney with Goldman Sachs. Your line is open.

Yes. Thanks for all the details provided today, and thanks for taking my questions. I guess first in terms of the payback period for ERX, and I know that you are communicating pricing. Maybe you can share what you're hearing from some of the customers in terms of how long it'll take for them to make up for any premium compared to buying a more traditional truck? You talked about the fuel savings. How many years before they made breakeven now that we know the pricing please?

Absolutely. This is one of the things that we believe we have a strong value proposition to the fleet. When we look at the ROI, we are going to be able to offer fleets a positive ROI. If you look at that upfront vehicle cost, then you look at the cost of the fuel over time comparing that to diesel, we are expecting a payback in just under three years to the fleet. If you look at kind of the normal operating duration for a fleet, that's in the five to seven years for a truck that can give them over $100,000 in savings over what a conventional diesel would be. I will preface all that by saying it varies based on the conditions the fleets are running in, how many miles they're putting on per year, and how long a haul it is, right? But hopefully that gives you a general sense. When we are talking to fleets about what they're hearing with BEV plug-in and fuel cell vehicles, they are not seeing the opportunity to recoup those costs, those high upfront costs, at least for kind of longer miles over the road type applications. We see that as a strong advantage for us because not only can we pull forward that ESG benefit, the climate change benefit, and reduced emissions for fleets, but we are also giving them the ability to have a truck that can return a positive ROI for them.

That's really helpful. And the kind of relates to my second question was the competitive pricing you were showing at potential prices for a BEV or fuel cell. I don't know if you could elaborate a little bit more on the specs you were looking at. I mean, are those BEV or fuel cell trucks that could do the same kind of range as the ERX or is it more of kind of average cross market? I know some of the competitive offerings maybe go a lower range just to trying to understand how you incorporated that into the comparisons? Thanks.

So the pricing we gave on BEV of what we are hearing from fleets are more vehicles that are being advertised in that kind of 200-mile range. We're pulling forward that 1,000-mile range. Obviously, the BEV has much lower range than that. We have heard some BEV trucks having the opportunity of being up in the 300-mile kind of range. I expect those prices could even potentially exceed what we just mentioned for BEV pricing. One thing that I think is really key to note and I think this is kind of a notorious thing with BEVs as someone who drives a BEV, what it says on your dashboard of what you're going to get for range is not really what you're going to get for range, and we're hearing that is true in the trucking industry as well. When fleets actually put these trucks in operation, they're climbing hills, they got heavy loads, and it's draining the batteries quickly. Fleets are actually telling their drivers to reduce the expected range of the vehicle for BEV plug-in because in real-world conditions it comes back less. This is going to cause fleet staff to buy more assets, more trucks, just to be able to move the same amount of goods. That's going to further make it a tougher value proposition for BEV plug-ins.

Your next question is from Donovan Schafer with Northland Securities. You may begin.

Hey guys, this is Luke on for Donovan. I just wanted to follow up on the ERX testing with those three fleets with GreenPath, Wegmans and Detmar. I was just wondering what the range of use cases that these testing sites are representing with long haul, short haul, freight, et cetera, or just kind of the day-to-day in the life of one of these trucks? And how it varies between these three occasions?

So, we've approached it with going to the fleet and letting them choose how they want to run it. We've seen 100 miles being put on the vehicle in a day. It has been a situation where the vehicles have been coming back to a home base. So it's probably been more operated like a regional as opposed to true long-haul drivers sleeping in the trucks. It's been more regional type ranges in like a 100 miles a day. I mean, they've been going out and putting miles on the trucks. But that's really up to the fleet's discretion. One thing you will see coming out shortly here is that initial movement of freight with GreenPath; we actually moved some cargo for Shell, some of their lubricant products and the video will be coming out on that soon here. You can see these structures being put into just normal standard operation and letting the drivers work the trucks. For us, we're taking that feedback and then looking at how can we continue to make the product better.

Your final question comes from the line of Noel Parks with Tuohy Brothers Investment Research. Your line is open.

Just a couple of things. Looking at the KARNO acquisition, I'm just curious whether the expense outlook and the capital that you anticipated before the deal are in reality tracking to your expectations pretty much?

Yes, they are as far as we know. I think we mentioned back during the acquisition that we thought we would spend around $75 million to $100 million over the time it would take to develop the KARNO ERX. From what we've learned so far, we still think that's a reasonable number. Again, looking kind of into this quarter, and next quarter, they're fully integrated Hyliion employees and the impacts of their spend capital, and operating expense are kind of reflected in our outlook. We feel confident in it, and the numbers are still pretty solid.

Great. I don’t know if this is something you've touched on before, but as far as your incorporation of the KARNO technology is there anything in the recent government incentive packages that stands to benefit in particular from that?

So, we do see that there are government opportunities out there for the KARNO, actually potentially great government opportunities. If you think about being able to deliver them a truly fuel agnostic generator that they could throw jet fuel in it, they could throw diesel in it, gasoline, you name it, they could put it in the generator and it's going to use it. I think that opens up a lot of opportunities. Just kind of being energy independent makes sense. We see strong opportunities there; we will be pursuing and looking at government funding opportunities to assist with the KARNO and also speaking with the government about how they could potentially use it. While we're on the KARNO topic, I’ll just share, I was up at the Ohio facility recently spending time with the engineering team and it's some truly innovative solutions. We've shared this flameless oxidation process that converts the fuel into heat. They had it set up on a test bench up there. I got to see it; you're bringing fuel in, you’re looking at it through a clear chamber, and you can't see anything happening, but all around it all the metal parts are glowing red because it's producing heat. Some really neat stuff and something that we see as being truly innovative for the trucking industry, but also, as you were mentioning, potential other industries as well.

This concludes the question and answer portion of today's call. At this time, I would like to turn the call over to Hyliion’s CEO, Thomas Healy for closing remarks.

Well, thank you, and we appreciate everyone joining today's call. As I mentioned during the Q&A, stay tuned for a video that we'll be putting out here to showcase the control fleet trials with GreenPath Logistics and that movement of freight for Shell. One other thing to note is if anyone was on the line today and didn't get an opportunity to ask a question, we will be posting on Twitter shortly here seeking any additional questions and then Jon and I will do a quick video answering some of those. So please join in on that as well. But otherwise, thanks for joining and hope everyone has a great quarter.

Ladies and gentlemen, this does conclude today's conference call. You may all disconnect and have a wonderful day.