Microvast - Q2 2023

Transcript

Operator (participant)

Thank you for standing by. This is the conference operator. We welcome you to Microvast's Second Quarter 2023 earnings call. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, investment community professionals have the opportunity to participate in a question-and-answer session. To join the question queue, you may press Star, then one on your telephone keypad. Should you need assistance during the conference, you may signal an operator by pressing Star and zero. I would now like to turn the conference over to Rodney Worthen, Microvast Director of Investor Relations. Please go ahead.

Rodney Worthen (Director of Investor Relations)

Thank you, Operator, and thank you everyone for joining us today. Joining me on today's call are Mr. Yang Wu, Founder, Chairman, President, and CEO, Mr. Sascha Kelterborn, Chief Revenue Officer, and Mr. Craig Webster, Chief Financial Officer. Ahead of this call, Microvast issued its second quarter 2023 earnings press release, which can be found on the investor relations section of the company's website at ir.microvast.com. In addition, we have posted a slide presentation to accompany management's prepared remarks. As a reminder, please note that we will be making forward-looking statements on this call. These statements are based on current expectations and assumptions and reflect our views only as of today.

They should not be relied upon as representative of views for subsequent dates, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in the light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from expectations. For further discussion of the material risks and other important factors that could affect our financial results, please refer to our filings with the SEC, including our annual report on Form 10-K, filed on March 16, 2023, and the 10-Q, filed earlier today. During today's call, we may discuss non-GAAP financial measures, including adjusted gross profit, adjusted net loss, and Adjusted EBITDA, which we believe are useful as supplemental measures of Microvast's performance.

These non-GAAP measures should be considered in addition to, and not as a substitute for, or in isolation from GAAP results. These non-GAAP measurements have been reconciled to their most comparable GAAP metric in the tables included at the end of our press release. A webcast replay of this call will also be available on the investor relations section of our company website. With that, I will turn the call over to Mr. Wu for opening remarks.

Yang Wu (Founder, Chairman, President, and CEO)

Thank you, Rodney, and thank you all for joining us today. I would like to start off with a high-level overview of the quarter before providing some operational highlights. I will then turn the call over to Sasha Keltyborn, our Chief Revenue Officer, who will discuss some of our key wins in the quarter, followed by Craig Webster, our Chief Financial Officer, who will discuss the financials in more detail. I will then address our outlook for Q3 and the full year 2023, before opening the call up to questions. Please turn to slide 4 as I cover a few highlights from our second quarter. We posted 16% revenue growth in Q2 2023, delivering revenue of $75 million. This increase came from growth in our European business, along with the strong demand from customers in China.

We once again achieved a double-digit gross margin with an adjusted gross margin of 17.3%, a seven percentage point increase year-over-year. We ended the second quarter with a record backlog of $675.9 million, driven by a strong order intake of $271.3 million from our commercial vehicle business. This growing backlog demonstrates the rapid adoption of our new 53Ah cell technology across commercial vehicle and ESS applications. Turning to slide five, our most significant operational achievement in Q2 was our Phase 3.1 expansion in Huzhou for our 53.5Ah cell. This has now transitioned from trial production to shipping qualified products to our customers.

Since Q1, our contract capacity for deliveries of our 53.5Ah cell from Huzhou through Q2 2024 has increased from 50% to 75%. We expect customer orders and deliveries to increase further as the year progresses, especially for deliveries to the United States and Europe. We would also like to provide an update on our ESS container assembly operations, as you will see from slide six. Due to the rule change related to how domestic content is valued as a part of the Inflation Reduction Act, we have decided to locate all ESS container assembly operations in the United States. Because this change could have adversely impacted our customers, we expanded our Colorado footprint and will no longer base any of those operations in Mexicali. This company-owned facility in Windsor, Colorado, has a capacity to assemble 1,000 containers annually.

We are preparing Windsor to start assembly operations and expect to begin shipments of finished 4.3MWh ESS containers in early Q4 to customer job sites. We had originally planned to start shipments in Q3, and therefore, we expect some push out in recognizing revenues from our ESS business this year. The short-term impact on booking revenues this year is far outweighed by ensuring our assembly facility put our customers and partners in the best position to claim the domestic content bonus credit. I would now like to turn the call over to our Chief Revenue Officer, Sascha Kelterborn, who will discuss some of our key sales, partnerships, and achievements in the quarter.

Sascha Kelterborn (CRO)

Thank you, Mr. Wu, and thank you all for joining us today. First, I would like to provide a little bit more color on our backlog. As Mr. Wu mentioned, our backlog increased 6 times year-over-year, driven by both the rapidly expanding energy storage business in the U.S. and strong commercial vehicle demand in Europe. Over 80% of our record, $675.9 million backlog, is compromised of orders for our 53.5 amp-hour cell from customers in the U.S. and Europe. We also saw increasing demand in South Korea and India, where we successfully secured several important projects. Now, please turn to slide seven as I cover a few highlights from the second quarter. During the quarter, we received the first purchase order from a leading U.S. commercial vehicle OEM for deliveries from Clarksville starting in 2024.

Additionally, we received an order from a leading European port vehicle OEM for a new heavy-duty port application. Both projects further expand our footprint in serving commercial vehicle customers. We also signed a general purchase agreement for 1,000 units for our 21 amp-hour Gen 3 pack with JBM Group, the leading Indian bus OEM. Delivery started in May and extends to the second quarter of next year. JBM Group is a global automotive conglomerate with operations in more than 25 locations across 10 countries, and Microvast presently represents the main supplier of lithium technology for JBM. Turning to slide eight. We substantially increased our backlog for one of our largest customers, Iveco Group, during this quarter. Earlier this year, we announced an initial contract for a new 53.5 amp-hour battery pack, which will power their new Crossway low-entry city and intercity bus platforms.

Furthermore, we are providing Weichai, a leading multinational industrial equipment company, with our Gen 4 high-power battery for the hybrid truck platform. Weichai is operating globally with a focus on the new energy vehicles and strategies such as hybrid and fuel cell technologies. Microvast is also extending our partnership with REFIRE, a leading hydrogen technology company, to equip over 100 units of the 4.5 tons hydrogen truck with our Gen 3 packs. REFIRE is a long-term partner of ours, focused on R&D and product development for advanced fuel cell systems. Microvast is a major supplier of batteries to both Weichai and REFIRE for the hybrid and fuel cell product offerings, and we are proud to support them in the global transition to clean energy. Another positive benefit here is that we strengthen our technology references for fuel cell applications, which presents opportunities for future development and partnerships.

We had another excellent quarter in building up our European business. Our European revenue increased 91% year-over-year in the second quarter and accounted for 13% of our total revenue, up from 8% of revenue a year ago. This growth was driven by the continuously ramp up of several customer projects. In addition to Iveco Group, GAUSSIN, and REFIRE several deliveries, multiple customers have placed multi-year contracts. Looking ahead to the next quarter, we expect to add significant multi-year contracts to our backlog for European commercial vehicle customers, dedicated to both existing and new technologies. I will now turn the call over to our Chief Financial Officer, Craig Webster, to review our financial performance in the quarter.

Craig Webster (CFO)

Thank you, Sascha. I'll spend the next few minutes discussing our Q2 2023 financial results. Please turn to slide 10. I will summarize the main line items from our Q2 P&L. We recorded another strong quarter, with Q2 revenue of $75 million, an increase of 16% from $64.4 million in Q2 2022. Growth was primarily driven by an increase in sales volume, led by strong sales in China and increasing deliveries in Europe as our OEM customers ramp up their production volumes. On a year-to-date basis, revenue was $121.9 million, up 21% from $101.1 million in the prior year six-month period. Our gross margin improved to 15.3% in Q2 2023, compared to 7.5% in Q2 2022.

After adjusting for non-cash settled share-based compensation expense and cost of sales, adjusted gross margin increased to 17.3% in Q2 2023, compared to 10.4% in Q2 2022, a 6.9 percentage point improvement. The increase in gross margin was due to a combination of improved economies of scale, more favorable product mix, and lower raw material prices. Operating expenses were $39 million in Q2 2023, compared to $50.4 million in Q2 2022. Consistent with the past few quarters, the largest contributor to the decrease in operating expenses was the decline in our share-based compensation expense, which totaled $16.3 million in the quarter, compared to $28.6 million in Q2 2022.

After adjusting for non-cash SBC expense in SG&A, our adjusted operating expenses in Q2 2023 were $22.7 million, compared to $21.7 million in Q2 2022, an increase of $1 million, with increasing headcount costs as we expand our business being the largest contributor. GAAP net loss was $26.1 million in Q2 2023, compared to net loss of $44.2 million in Q2 2022. After adjusting for non-cash SBC expense and changes in fair value of our warrant liability, adjusted net loss was $8.3 million in Q2 2023, compared to an adjusted net loss of $14.9 million in Q2 2022. On a year-to-date basis, adjusted net loss was $19.9 million, compared to an adjusted net loss of $44 million in the prior year six-month period.

You can see the impact of these adjustments in slide 11. Reconciliations of these non-GAAP metrics and those comparable GAAP metrics are included in the tables at the end of our earnings press release. Slide 12 shows the geographic breakdown of our revenue for Q2 2023 compared to the prior year period. As you can see, our European business showed a strong 91% year-over-year increase and accounted for 13% of our revenue, up from just 8% a year ago, as key customers begin their vehicle ramp-up. We continue to expect growth in our European revenues throughout the second half, especially for the 53.5Ah cell, in line with vehicle build plans from our customers.

Although our U.S. revenue increased a modest 1% year-over-year, we continue to expect U.S. revenue to rise this year as we begin deliveries on our 1.2 gigawatt hour ESS project in the second half of the year. As Mr. Wu mentioned, there is a near-term impact to when we recognize some of those revenues after making the strategic decision to make Windsor, Colorado, our dedicated ESS assembly hub. Looking ahead, we expect U.S. revenue growth to pick up in Q4 and to continue to accelerate next year as Clarksville comes online. Turning to slide 13, we entered the quarter with cash, cash equivalents, restricted cash, and short-term investments of $195.8 million. Net cash used in operating activities during the quarter was $29.8 million, which was primarily due to operating loss and working capital.

Negative free cash flow in the quarter of $87.6 million resulted from this net operating cash outflow, as well as our capital investment program. The majority of this capital expenditure in Q2 was to fund our capacity expansions in Clarksville and Huzhou, which totaled $52.5 million. We also have capital expenditures totaling $5.2 million, relating to improvements to our existing facilities and ongoing R&D projects. Looking ahead, we estimate that full-year capital expenditures will remain in the range of $180 million-$210 million and will primarily be used for the Clarksville Phase 1A capacity expansion. As Mr. Wu mentioned, we are pleased to report that our Clarksville facility remains on track for a Q4 start of trial production. Turning to slide 14, we show you the financial resilience of Microvast.

Our total debt outstanding of $93 million is very modest, and you can see that the maturity profile requires only $6.5 million to be repaid in the second half. Looking further out, total debt repayments up to 31 December 2025 are a very manageable $33.6 million. All of this debt is for our China operations, and none of it has any recourse to our U.S. holding structure or assets. Turning to the U.S. operations, these currently remain free of leverage, and we are making solid progress on the debt financing, which is likely to be secured by the Phase 1A expansion. We expect that facility to be in place during Q3. As outlined on slide 15, we closed the second quarter with record backlog of $675.9 million....

up from $486.7 million in the first quarter, and an over six times increase year-over-year. The 39% sequential growth in our backlog was once again driven by commercial vehicle projects in Europe. Our solid backlog underpins our expectations of multiple years of fast growth, given the rapid and accelerating adoption of our 53.5Ah cell for commercial vehicles and ESS projects. Currently, the 53.5Ah cell accounts for over 80% of our total backlog. Turning to Slide 16, based on our backlog, we anticipate high utilization rates for our Phase 1A expansion in Clarksville. At full utilization on Phase 1A, Clarksville has an IRA Section 45X potential of around $80 million per year. With the ability to monetize these credits early, Clarksville has the capacity to self-fund its additional expansions.

If we fill Phase 1A, it generates IRA credits. If Phase 1A has no spare capacity, we need to expand, which generates additional IRA credits. We would only expand if we have obtained customer commitments. That's the golden rule. You can see from Slide 17 that we are targeting adjusted gross margins in a 20% range next year as we scale our business and putting us on a path to profitability over the next 2-3 years. We're already starting to see that gross margin expansion this year. We expect to achieve continued margin improvement through our key levers of industrialization, automation, utilization, and relentless innovation. With that, I will turn it back over to Mr. Wu to review our outlook.

Yang Wu (Founder, Chairman, President, and CEO)

Thanks, Craig. Please turn to Slide 19. We maintain guidance for our full year revenue to be in the range of $348 million-$368 million, representing year-over-year revenue growth of 70%-80%. Even with a near-term delay in the shift to Windsor, Colorado, we are very encouraged by our continued backlog growth, which greatly increased our visibility into 2024 and beyond. For the third quarter, we expect the revenue to be in a range of $72 million-$80 million, up 97% from Q3 a year ago at the midpoint, driven by the continued ramp of our European commercial vehicle projects as well as orders from customers in Asia Pacific.

As we continue to enhance our substantial backlog position, we retain clarity into the second half of 2023, propelled by our commercial vehicle segment and expansion of our energy storage business in the United States. We see strong demand trajectories for Microvast battery solutions across the globe and anticipated that growth and the momentum to carry forward as customer orders remain robust throughout this year and into the next. We are proud of what we have achieved thus far in the first half of the year, with Huzhou Phase 3.1 successfully ramping up to qualified production of our 53.5Ah cell. Its production will continue ramping up in the second half. Additionally, we succeeded in securing the new company-owned facility in Colorado to begin assembling our complete U.S.-made ESS solution for customers across the country.

As we look to second half, our focus shifts to bringing our Clarksville Phase 1A operation online and beginning trial production in Q4, so we can hit the ground running as we enter 2024. While we must continue to execute, we are encouraged by our backlog growth, gross margin improvement, and the customer excitement as our new and up-upcoming capacity expansions begin to fulfill orders around the world. I would like to take this moment and personally thank the Microvast team for their tireless work and commitment to our mission. Our focus on results and our ability to execute have been, and will continue to be, a competitive advantage for Microvast. Now, I will turn the call back over to the operator to start the Q&A session.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Colin Rusch with Oppenheimer. Please proceed.

Colin Rusch (Equity Research Analyst)

Thanks so much. Can you speak to the key drivers of the cost savings at the gross margin line, and how much was driven by the supply chain, how much from utilization improvement, and, and how that likely evolves for the balance of the year?

Craig Webster (CFO)

Colin, I'll take that one. Some of it's definitely coming from product mix, which is just more 53.5 amp hour. As that ramps up throughout the year, we expect, you know, utilization is gonna increase, and you can see that in the trajectory for, like, future quarters. Certainly, there's been benefits in raw material prices has, has helped some as well. Some of it's also sort of that geographic shift as well. More revenue is being recognized in Europe.

Colin Rusch (Equity Research Analyst)

That's super helpful. Then when we look at the backlog number, you know, at, at the analyst day, you talked a little bit about some of the awards that you've gotten. You know, could you give us an update on where you're at in terms of incremental awarded contracts and which end markets those may be coming from?

Craig Webster (CFO)

Sasha, do you wanna deal with the first bit, and then I'll in terms of the additional backlog, and then I'll give a bit more color.

Sascha Kelterborn (CRO)

Sure.

Craig Webster (CFO)

in terms of 2024, yeah?

Sascha Kelterborn (CRO)

Sure. Sure, Greg, I will. Thanks, Colin, for the question. Generally speaking, yeah, we will increase our backlog purely dedicated and on the commercial vehicle, right? This means in the bus section, it means on the truck section. The 53.5 amp hour is, is dedicated for that, and, and we see a couple of significant wins upcoming in the next quarters. We already increased due to the fact that the European OEMs are now doing their start of production rollout. We increased existing contracts, and we were able to, to gain further backlog in this contract as well.

Craig Webster (CFO)

Colin, I'll just add, add a bit more context here as well. You, you saw that over 80% of the backlog is 53.5 amp-hour. We're just starting to, you know, ramp that up. As we do that, that's one that's gonna help us with that gross margin expansion because we just hit, you know, higher utilization. Then in terms of production planning, over 60% of the backlog is the 24. The backlog gives us two really big areas of comfort. It underpins the numbers for this year, and we know we've got to have a big Q4. That's not a sales challenge, right? The sales are there, they're in backlog. We've just got to produce as much as we can. Everything that we can produce, it's got a home for.

Then as we look out to, you know, 2024, you know, we can see already that we're gonna have already a, you know, a significantly bigger year than this year, and that's all again, based on 53.5 amp hour.

Colin Rusch (Equity Research Analyst)

Excellent. Thanks so much for the detail, guys. Then the last one for me is just, you know, how are you seeing the competitive landscape evolving for commercial vehicle batteries? Obviously, the 53.5Ah cells have been really well received by the market. Are you seeing other OEMs start to follow your lead on that?

Sascha Kelterborn (CRO)

That's a good question, Colin. We're not only producing the 53.5, but this is one of the leading future products of ours, and we see that further OEMs are adopting this cell technology. They see clearly the advantage of life cycle and fast charging capability, and this plays a very important role for their total cost of ownership calculations. I will report most likely in the next and in Q3 and Q4 about some further very nice, you know, updates on the 53.5, especially on the commercial vehicle side. You will see that there, we are right now in the process of getting these things moved ahead.

You can see that the 53.5 is not only up, rising in Europe, but we have also interesting demands as you can see on our slides, also with JBM in India. They are not only dedicated to 21 ampere, but they are also moving towards 53.5. It's picking up in general, the technology plays a major role for us in the commercial vehicle application. We have also the 48, which is the same standard, same LBC cell, which will also play a big role, especially on the fuel cell side, which we talked about. This will be also a topic where we will see more increasing demand on the commercial vehicle side.

Colin Rusch (Equity Research Analyst)

Yeah, some clarification on that, but I'll take it offline. Thanks so much, guys.

Sascha Kelterborn (CRO)

Okay.

Operator (participant)

Our next question is from Amit Dalal with H.C. Wainwright. Please proceed.

Amit Dalal (Executive Director)

Thank you. Good afternoon, everyone. With respect to sort of the margin outlook, you know, looks like some revenues are being pushed out from 3Q to 4Q. Will that impact margin performance next quarter, three days, gross margins?

Craig Webster (CFO)

Hi, Amit.

Amit Dalal (Executive Director)

Hello.

Craig Webster (CFO)

It's only gonna be a little bit of revenue at a push out in the next year. There's a chance that we can recover it because, you know, what we don't include in backlog is a lot of China revenues, and as you've seen from previous quarters, Q4 is always super strong for China, that could make up some of that. You know, whether it's gonna be for an energy storage or commercial vehicle customer, you know, what we're ramping up is 53.5 amp hour. Pushing a little bit out is not gonna impact, is not gonna impact margins.

Amit Dalal (Executive Director)

Okay, thank you for that. I mean, it's good to see, you know, the execution on that front continuing to come through. On the operating expense side, is this sort of where we will be for the rest of the year, Craig, in terms of, you know, total OpEx, what we saw for Q2?

Craig Webster (CFO)

you know, what will happen is, particularly on, like, sales side, I mean, is we're probably gonna get very close to doubling revenues from where we are today in Q4. You're gonna have some more sales expense around that. R&D expense is not gonna increase significantly throughout the year. G&A is manageable. I think we've guided you before that where we're trying to manage this year is around sort of $20-$25 in cash OpEx, and it's still the target. I think, you know, we've got all of the, we've got all of the infrastructure, you know, in place to, like, deliver these increasing revenues, so I, I just don't see, I don't see, you know, much impact.

What we'll be focused on, you know, really Q3, Q4, that's gonna impact margins, is just improving yields. As we improve yields, we'll, we'll improve margin.

Amit Dalal (Executive Director)

Okay, thank you. Just one last one for me. On the separator side, maybe any updates, you know, with respect to how you was setting, you know, timeline expectations, you know, for that offering?

Craig Webster (CFO)

You just broke it right at the start, Amit. What was the first bit on?

Amit Dalal (Executive Director)

For the separator product. Any update on, you know, the timeline?

Craig Webster (CFO)

Oh, sorry.

Amit Dalal (Executive Director)

Yeah, on the timeline for commercialization. You know, post the developments, last quarter. Just wanted to see how the timeline for bringing the product to market might have changed.

Yang Wu (Founder, Chairman, President, and CEO)

This is Yang Wu. In separator right now, we are focusing on, you know, our China, you know, the 10 million square meter small production line. We want to make it strong and then send a sample cell first, and we're still in the planning to build a, you know, bigger factory in later years.

Amit Dalal (Executive Director)

Okay. Thank you. That's all now.

Operator (participant)

Our next question is from Sean Milligan with Janney. Please proceed.

Sean Milligan (Director and Senior Equity Research Analyst)

Hey, guys. Nice quarter, and thanks for taking my questions. Craig, I was trying to kind of back in. You gave a total backlog of $676 million. You talk about China having $370 million contracted volumes, and then I think you said, like, 80% of backlogs, the 53.5 amp-hour cells. Just like, can you clarify, like, how much backlog you have for Clarksville at this point?

Craig Webster (CFO)

Okay. I might have misspoke, but there's very little backlog for China in there. China is a much more short-term market, so this is the, this is the beauty of the backlog, right? It's over 80% is 53.5 amp-hour. Backlog is about 10% for China market, and the balance is split roughly 50/50, Europe with the, then US. The way we look at backlog for Clarksville is, like, whatever we can produce for an energy storage customer that could come from the US. Right now, the only production we have is Huzhou.

All 53.5Ah cell production this year is going to come from Huzhou, because that's what's available. Does that answer your question?

Sean Milligan (Director and Senior Equity Research Analyst)

Yeah, that's helpful. Then you talk about 1,000 units per year for the container manufacturing or assembly facility. I'm just trying to think, that's above... Is that in preparation for a Phase 1B of Clarksville? Because it's more than the output you'll have, right?

Craig Webster (CFO)

Yeah. Yeah, look, Sean, good question. I suppose the easy way to think about it is 1,000 containers is about a $1 billion a year in revenue. Phase 1A is roughly like, you know, excluding IRA, Phase 1A is going to be about $500 million. Phase 1B would be the same with another $500 million. The beauty about Windsor is that it's sized for the Phase 1A and Phase 1B.

Sean Milligan (Director and Senior Equity Research Analyst)

Okay, that's really helpful. Then, I guess, like, one last question, if you can take it. In, in terms of, timing for the, you know, the larger utility scale storage projects, are you waiting on, some of the domestic content revision clarity? Like, what, what are your customers telling you in terms of, of what they're waiting to put in additional firm orders there?

Yang Wu (Founder, Chairman, President, and CEO)

Actually, we're not waiting for. We are, we are, you know, working so hard to increase the capacity as much as possible, and right now the purchase order is more than what we can make. It's a good problem to have.

Sean Milligan (Director and Senior Equity Research Analyst)

Okay, great. Thank you, guys, and nice quarter.

Craig Webster (CFO)

Thanks a lot, Sean.

Yang Wu (Founder, Chairman, President, and CEO)

Thank you.

Operator (participant)

There are no more phone questions at this time. I would like to turn the call back over to Rodney to address questions that have come in via email.

Rodney Worthen (Director of Investor Relations)

Thank you, operator. We'd like to take, just a couple questions from the online, for the management team. In relation to the backlog growth, can you give a bit more color onto what is happening and where you see the backlog going from here?

Craig Webster (CFO)

Okay. Well, both. It's, it's demand from commercial vehicle customers is super strong. I think Sasha can touch a bit more on that, and then energy storage customers, well, you know, which is U.S. As Yang W just mentioned, you know, it's more of a like, what we've got available than, than, than sales. And our expectation is that the Clarksville Phase 1A is gonna be super high utilization as soon as it's running. And based on, you know, orders, you know, we're, we've, we've got customers that want to book out 25 capacity already. And as we get that 25 capacity booked, we have to take, you know, we have to take prepayment, like cash comes in early, and then we can use that to then fund, you know, the, the additional capacity expansion needed.

Sasha, do you, do you want to add anything else on, on commercial vehicle backlog growth?

Sascha Kelterborn (CRO)

Yeah, let me add three things. Craig, thanks a lot. In general, we are gaining also further volumes in other markets like South Korea, Taiwan. We're increasing our, our backlog in India. We are further increasing backlogs for projects which are dedicated to 2025, 2026 onwards with in on commercial vehicle side, also in Europe. And what we clearly see is that similar to the development of Europe, we're getting more and more prototype orders into the U.S. Also here, we will see over 2024, 2025 upcoming further, further, further backlog increases. Also, on the commercial vehicle side, we see that European customers, which we have, are moving to the U.S., winning their electrification projects, and they're using as well, the same technology, what they're using Europe today already with the 53.5.

they're taking that technology also to the U.S. market.

Rodney Worthen (Director of Investor Relations)

All right. That's, that's it. Turn it back over to the operator.

Operator (participant)

Thank you. This will conclude the question and answer session. I would like to turn the conference back over to Mr. Wu for closing remarks.

Yang Wu (Founder, Chairman, President, and CEO)

Hey, thank you all. Thank you all joining us today. You know, take your time and hope you guys, you know, everybody think Microvast more with your beautiful dreams. Thank you.

Operator (participant)

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.