Good afternoon. Thank you for holding and welcome to Xos' Fourth Quarter 2021 Earnings Conference Call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q&A. At this time, I would like to turn the conference over to Xos' General Counsel, Christen Romero. Thank you. You may begin.

Thank you, operator and thank you everyone for joining us today. Hosting the call with me today are Xos' Chief Executive Officer, Dakota Semler; Chief Operating Officer, Giordano Sordoni; Chief Technology Officer, Rob Ferber and Chief Financial Officer, Kingsley Afemikhe. Ahead of this call, Xos issued its fourth quarter 2021 earnings press release and presentation, which we will reference today. These can be found on the Investor Relations section of our website at investors.xostrucks.com. On this call, management will be making forward-looking statements based on current expectations and assumptions which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect because of factors discussed in today's earnings news release during this conference call or in our latest reports and filings with the Securities and Exchange Commission. These documents can be found on our website at investors.xostrucks.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures and performance metrics. You should refer to the information contained in the company's fourth quarter 2021 earnings press release for definitional information and reconciliation of historical non-GAAP measures to the comparable GAAP financial measures. Readers should be cautioned not to put undue reliance on forward-looking statements. We'll now begin with a brief video recap of key milestones in 2021, which will be followed by prepared remarks from the Xos' leadership team.

Thank you everyone for joining us. Since 2018, we've been transitioning fleets in targeted high growth markets from internal combustion engine to electric commercial vehicles with industry-leading technology. We are proud to be one of the few commercial EV manufacturers with vehicles in customer fleets across the country. Xos continues to remain focused on scaling the business by centering on three primary areas. First, our commercial team is keenly focused on bolstering our distribution and service footprint by establishing partnerships with key customers and partners in high growth markets and providing service coverage in direct support territories. Second, we have built and continue to assemble a high performance team with experience in scaling truck and electric vehicle manufacturing. Third, our manufacturing and supply chain teams remain incredibly focused on ramping manufacturing capacity and establishing stronger ties with our supply base. I'll start this call by reviewing key fourth quarter highlights, our accomplishments in 2021 and briefly discuss why we remain excited about Xos' outlook. Afterwards, Gio will provide an operational update, including an overview of the supply chain environment followed by Rob, who will provide an update on product development and Kingsley will conclude with the review of our fourth quarter results and outlook for the first quarter of 2022. During 2021 and the first quarter of 2022, we achieved a number of milestones that underscore our commercial momentum in several high growth last mile markets. We expanded customer relationships such as our partnership with Merchants Fleet, the nation's fastest growing fleet management company to grow their EV portfolio for last mile delivery. Merchants has committed over $2 billion towards fleet electrification with the intent to buy more than 40,000 electric vehicles. We're excited to be supporting Merchants goal of having 50% of its fleet electrified by 2025 and 50%…

Thanks Dakota. While we were able to exceed our outlook for the fourth quarter, like our peers, we continue to experience supply chain headwinds that limit our production. As the entire world's been experiencing, there's tremendous disruption in the supply chain that makes it more difficult and more expensive for us to access the parts we need to build our vehicles. We've started to see some improvement in our ability to procure components, but I've described the outlook as improved, although uneven. We're doing everything we can to mitigate the effects of the supply chain crisis from bringing on additional talent to the supply chain team, increasing safety stock of our critical components, pivoting to new suppliers in some cases, and domesticating supply from Asia to North America, redesigning components and expediting logistics costs or expediting logistics when we absolutely need to. Some of these actions have led to increased costs, which Kingsley will address in his section. As we move through 2022, we expect the supply chain environment to remain a headwind to growth where we are better prepared to effectively navigate these headwinds and we strengthened our supply chain and logistics team. We recently announced the addition of Mike Chaffins to the team as our Vice President of Supply Chain. Mike is a tested industry veteran with 30 years of automotive experience at auto makers like Toyota, Mercedes-Benz and Nissan, along with tier one suppliers like Dana Incorporated. With the addition of more automation in our battery assembly line, we expect overall quality and production yield to improve, a key part of our ability to scale production. Chassis assembly at our flex plants has outpaced battery production. We expect to increase battery production. When we add an automated battery line to flex one in Tennessee later on in…

We're very selective at Xos in terms of where we allocate engineering and resource and development resources. We continually review our product roadmap and priorities to ensure alignment with our deep focus on purpose built products that materially improve value and total cost of ownership for our customers in the last mile Classes 5 through 8 segment. 2021 saw a number of key engineering milestones, which align with our approach and provide significant improvements for our customers. Notably, we launched the Lyra Series, our second generation batteries with improved energy density and performance. Lighter batteries are critical to the commanding commercial vehicle use case and allow our customers to go further, carrying more freight while maintaining the TCO advantage that our vehicles provide. In addition to battery development, Xos' invests in targeted key technologies to improve quality of life and TCO to fleet operators. We've made significant progress in the development of our over the year update module, which will allow us to continually improve our vehicle's software backbone without causing any customer downtime. We've also progressed the development of the hub Xos' mobile charging unit designed to help fleets electrify before traditional infrastructure can be installed. All of these products will be integrated into our unified software platform; the Xosphere Initial customer feedback on the Xosphere has been resoundingly positive, and we're looking forward to showcasing major updates and feature editions to the Xosphere in our event in May. All of our products, whether it's our flagship Stepvan, our new vehicle programs, which we will be discussing in more detail in May, the hub charging solution or software features like the Xosphere, telematics and over the year updates, aligned with our targeted market focus in the last mile, Classes 5 through 8 segment and address key needs within that…

Thanks Rob and good afternoon to you all. I will now review our financial performance over the fourth quarter, then turn to our balance sheet and conclude with our outlook. Our revenue in the fourth quarter increased to $3.3 million from $0.9 million in the same period in the prior year, primarily driven by an increase in unit deliveries. We delivered 32 units over the quarter compared to five units in the same period in the prior year. Our teamwork diligently over the quarter to optimize production and deliver for our customers. On average selling prices, it's important to note that underlying demand in the industry remains strong. While you'll likely see ASP variability quarter to quarter due to the mix of unit type, configurations of the units reproduced, for instance, a variation of battery capacity and channel mix, we expect ASP's smooth out over time and be higher in 2022. Our cost of goods sold for the quarter was $5.7 million compared to $0.7 million in the same period in the prior year. We experience increased material costs and incremental logistics costs associated with exploiting the shipping of key components. We expect our gross margin to improve as we ramp volumes and benefit from higher fixed cost absorption. In addition, we anticipate the new expanded and automated battery line at our Tennessee facility will drive gains in manufacturing efficiency, improve quality control, increased production volumes, and reduced freight costs. We expect to incur additional costs, however, due to higher material prices and uncertainty around supply chain logistics. As such, we are taking proactive steps with our enhanced supply chain team to source domestically where we can and our leveraging our engineering skills to design for cost optimization as well as part availability. Turning now to expenses, fourth quarter GAAP…

Great. Thanks Kingsley for going over our financial section. Before we dive into our Q&A, we want to share with everybody that we remain confident about Xos' deliveries for the end of the rest of this year. We're excited about the factors that we can control in our business and about making quarter over quarter sequential improvements in our deliveries, in the supply chain and in the manufacturing and servicing of our vehicles in the field. Now we'll take the opportunity to open it up for questions and address anything that may have come up during our previous presentations.

[Operator instructions] So first up in our roster, we have a question from Daniel Ives at Wedbush Securities. [Operator instructions] All right well, we'll move on now in the meantime to Michael Shlisky at DA Davidson.

Thank you so much. Just, can we just first touch on the -- on the equity agreement with Yorkville, just for a moment based on what you had for cash costs at the end of 2021, it sounds like this is more of like a - wouldn't say an emergency, but if things get out of hand type of scenario where you'd have to actually tap that, you have any, the base case scenario for your -- outlook for the year does not anticipate using any of that, is that -- does that make sense?

Kingsley, do you want to take that one?

Yeah, absolutely. Thanks for the question. As you know, we have a lot of flexibility in our business model and we've improving our house with new products since we've been delivering over the quarter. How we think about it is that this is an option that we assess as a managing team, which we would use very sparingly and only in a situation where we think that it would be value additive for the company growth opportunities. Clearly as a management team, we strongly believe in our company and we think equities and price levels is where it should be and we like the extra flexibility. Overall, as you know, we are CapEx light and we are assessing a range of financing options which are available to us because we're a real company delivering real trucks and we have access to the balance sheet that we can use for [Indiscernible].

Okay. Also wanted to touch on the mix for a moment as well. In the fourth quarter were there any of units that were sold to Wiggins or other kind of non-truck providers? And is there any part of that -- is there any of that in the first quarter outlook or really anything 2022 in your -- the Xos' powertrain business?

Yeah. I'll start with responding to your question and thanks, Mike, for that question. In the fourth quarter, we did have several deliveries that went to powertrain customers, including Wiggins, which is one of our initial customers in that segment of the business, but we also delivered trucks in that quarter. And that's actually what drove a little bit of the ISPs or the ASPs that you saw towards the end of fourth quarter there. And we expect to continue making deliveries in the powertrain business throughout this year that'll also be factored into Q1 as well as several other quarters throughout the year.

Okay. Let me just throw one more out there for you. I know you have some five launches coming up. Probably don't want to give it away here on the call. Can you give us any thoughts as to how far afield will these be, are they in the Class 5 through 8 what you've been talking about all along, or is this going to be like a variant to your current product, any kind of narrowing down if you would prior to May, we'd love to hear that you can share.

Absolutely. So our focus still remains on solving what we believe is the most interesting segment in all the electrification landscape, which is Class 5 through 8 last mile and regional haul vehicles. So the new products that we're going to be launching are within those categories and not just supporting vehicles or fleets with actual vehicles, but also with the technology that is going to help them deploy vehicles quickly and rapidly make that transition to a fully electric fleet. So we're excited to be launching that at our Xos Fleet Week event, which is the week of May 10th and we're inviting all of our analysts as well as customers, some of our suppliers and other partners that'll be in Long Beach, California and it's going to be an exciting event to really see what we have to come for the rest of this year, as well as for several years to come with new products.

And Mike, just to add to that, I'm, sure you've noticed focus is extremely important to us. Everything we do is focused around the fleet customer in that Class 5 through 8 segments and really with an aim at reducing their total cost of ownership so that they can grow the population of electric vehicles in their fleet as quickly as possible.

Okay. Looking forward to your event in May, I'll leave it there. Thank you.

Next up, we have a question from Jerry Revich at Goldman Sachs.

And nice to see you all. Thank you. I'm wondering if we can talk about the production ramp over the course of the quarter, where we exit rate from a production rate standpoint based on activity that was going on behind you folks, looks like that might have been a better number than we started the quarter with, but I'm wondering if you just comment on that if you don't mind.

Yeah. Thanks for the question, Jerry. It's definitely not as smooth as we'd like it to be. It's still lumpy because of the supply chain. From a capacity perspective, a team growth perspective, we're really proud of what we've been able to put in place, but the rate at which we produce vehicle changes a little bit depending on part availability. So we're still managing through that supply chain crisis, which affects that production rate both on the chassis assembly side, as well as the battery production side.

And in terms of the plan mix of products over the course of '22, I know we're not talking about number of units, but can we talk about how your expectations of vehicle type mix have evolved in this supply chain environment?

Yeah, so the products that we're shipping and we shipped in Q4 and continue to deliver through Q1 is really our Stepvan product. It's our primary category and it's what we plan to support through most of this year. We will have some other vehicles in the mix there, including power trains, and some of what we're going to talk about in the upcoming Xos Fleet Week, but the majority of vehicles that we're delivering and we have backlog for is in the Stepvan or medium duty parcel delivery and last mile delivery category.

Super. Okay. And can I just ask on the CapEx plan for the year, can you just update us on what expected expenditures are, and as we look at the SG&A and R&D run rate that we are headed in the first quarter, is that the run rate we should be thinking about?

Yeah, absolutely. So the number we've put out there for the whole year is going to be $30 million, between $30 million to $40 million, and that's going to be spending as we mentioned expanding the line in Tennessee and as well as some other engineering investments. So, our business is very, very flexible as you know, and it's based around deliveries and working capital and the growth in the business. From a cash perspective, we're really comfortable where we are and investing in our business and the facility we’ve announced today gives us a bit of flexibility, but I said earlier, to Mike's question, we feel comfortable where we are cash wise and we like to have that option there to tap that if we need to. So, yeah, so we're in a good place.

The only thing I would reiterate also to Kingsley's point is that majority of our cash uses is actually dedicated to building vehicles. We're putting products on the road every single quarter, getting them into customer's hands and not just vehicles, but also in our charging infrastructure solutions, like the Xos hub and that's really unique in this space. We want to make sure that we continue to make sequential improvements every quarter in getting more and more vehicles on the road so that we can continue to support our growth and investments into future R&D and engineering. And even within that R&D spend bucket, there's a lot of focus on cost in the vehicle and part availability. So an example of an engineering project that we would undertake is how to re-engineer a certain part of the vehicle, or allow us to procure a component from North America instead of from Asia to help manage around this really difficult supply chain environment both from a product functionality perspective, as well as a cost savings perspective and a logistics timing perspective.

We've got a question now from Steven Fox at Fox Advisors.

Hi, good afternoon. Two questions if I could. I was wondering if you could dive in a little bit more into the expansion that's taken place in Tennessee, and yet to come in terms of how it -- what exactly is still to come relative to what you've done, and then also how it would flow into benefiting the financials and then I had a follow up.

Yeah, I can take that one. Thank you for your question, Steve. Currently the batteries that we produce are coming from our facility here at headquarters in Los Angeles. The investments that we're making are to expand battery production into that Flex One facility in Tennessee that will actually be producing batteries later this year, our Lyra battery series in the Tennessee plant. So currently what's happening in Tennessee is mostly chassis assembly, but we'll add battery battery production capability there as well. And that'll be an even more automated system than what we have in place here in -- headquarters in Los Angeles today.

Yeah, just to add on to that from a financial perspective, if you think about it from a gross margin perspective, we'll have reduced logistics costs, we'll have higher throughputs to absorption of costs over more units overall. And when you combine that with the work that we're doing with Robin Engineering and also with supply chain and designing for optimization and also for price, that's what gives us the confidence in gross margin improvements over the course of the year.

Great. That's helpful. And then just as a follow up, given everything that's going on in the supply chain and given current events of just the last month and you guys called it out that it's going to be difficult for a while. Why not focus more on powertrain? It seems like that would be the path of lease resistance to get more commercial credibility, grow revenues leverage your costs etcetera.

Yeah. So I'll start there and feel free to add in, but we've really been focused on continuing to deliver vehicles because the demand is still very, very strong. One of the things that we've seen even as recently as the geopolitical conflicts in Ukraine is the price of fuel and subsequently the price of diesel fuel has gone up significantly. So in the wake of that, diesel fleets and commercial vehicle fleets have become even more likely to adopt electric vehicles because the TCO or total cost of ownership savings are even more advantaged as they make this switch. So we're seeing greater interest in demand and adoption still amongst our on highway vehicle customers. But it is still a growing segment within the business the powertrain segment. And so I think as we are focused on building our core business and supporting fleets, we want to make sure that we preserve all of our capital as well as our vehicle inventory and battery inventory for those core customers and then continue to support powertrain customers as that grows and we can make -- really more achieve more stability within the supply chain.

Great. That's helpful. Thank you.

Moving on now to a question from Mike Ward, The Benchmark Company.

Thanks. Good afternoon, everyone. Thanks for taking my question. First off, just on a strategic standpoint, it looks like you have distribution partnerships and then you have other agreements like strategic partnerships with merchants and Yancey. How are you looking at it? Like as we go out over the next five to 10 years, it seems like most of them are going to be through your deliveries will be through a lot of these partnerships or distribution agreements. Am I reading that correctly?

Yeah. Thanks Mike for the question. So to answer a little bit about our distribution strategy, we take a hybrid approach in markets like California, where there's strong support from the local governments, as well as we already have a strong existing service footprint from keeping vehicles on the road here for many years we really are planning and intending to go direct. So we'll continue to support those customers with the direct Xos services dealer, where they can find their vehicle for procurement needs met, all of their vehicle servicing, parts inventory, as well as our Xos energy solutions, where they can actually provide charging infrastructure for those customers. Where the distribution partners have been incredibly strong is in some of those markets that we haven't already built an established foothold or brick and mortar presence. So the announcements with Yancey and the announcements with MHC are really to help bolster our existing customer relations in places like in the Midwest and in the Southeast where we don't already have a lot of vehicles already on the road. And why we selected those partners is they're some of the strongest in their space. MHC is the largest distributor of Kenworth Products in the country and through their network, they built out a network of about 120 vehicle locations where they distribute vehicles from service vehicles and provide full service leasing solutions. So as we're supporting our existing large national account customers, and as they're bringing to the table more regional and smaller and medium size fleet customers, it becomes a great approach to support the market and to get vehicles distributed really across the country. The other reason why it's important is we need to have service and support coverage whenever we launch in a market. A customer needs to know that they have the peace of mind, their vehicle is going to be maintained day in, day out, regardless of what happens. If there is a collision or anything that occurs to the vehicle, they won't have parts inventory on hand. So when we think about these distribution partners, they become a great place to have onsite parts inventory, where they can support the existing vehicles in the field and even bring them up for charging if the charging infrastructure for those customers hasn't been deployed yet or if they don't want to have one of our hub solutions. So we really have been able to scale deployments and deliveries. As these partnerships are growing, we expect them to be a larger mix of the overall distribution spread, but we continue to anticipate some of our large direct national accounts to be a significant source of volume for us over the near and long term horizon.

And do they have exclusive agreements with you or can they bring in other suppliers?

So most of these distributor partners are existing dealers. So the relationships are not exclusive. They sell existing diesel trucks. In the case with MHC, it's Kenworth and Yancey has with Bluebird. So they have several relationships that are already in place, but we're proud to say that we are one of really the only options that are electric vehicles that they're distributing and carrying inventory for those customers.

Makes perfect sense. On the CapEx side, I think the $30 million to $40 million you've targeted this year, Kingsley that's down from some of your previous assumptions. Is that a timing or an efficiency type change?

Yeah, so it's a mixture of both. It's mostly efficiency. I think comes to our CapEx investments, expenditure is coming out low than we forecasted in the past, which is great. We're able to achieve volumes and scale to both of our flex plants. And so looking through this year, we forecast continued efficiency and expenditure and really the ability to ramp up deliveries from both of those plants. As Gio mentioned before, the real limiting factor for us right now is supply chain. Isn't really that expansion in the capacity, what we're doing is working to optimize the capacity to reduce the logistics cost as I mentioned, increase the efficiency by having the battery line in Tennessee, which is always in our plans.

Yeah. And that was always the plan with flex manufacturing was to not have a massive facility that we're only using a small fraction of. We wanted to be able to roll out these facilities in a capital efficient way and add capacity as we grow. That's a really core part of the strategy. And our flex manufacturing partners have done a lot more than just provide a building. They are key partners when it comes to setting up manufacturing and working with our in-house manufacturing team to scale up production. They also provide labor availability in a really difficult and tight labor market as I mentioned in my earlier comments. So they've been fantastic fruitful relationships for us on the manufacturing scale up side, and also a great way for access control costs.

Okay. And that efficiency should be ongoing. So as I look out the timeline of when you turn that corner between cash positive, it's probably brought forward by several quarters assuming the supply chain gets back up to a more normalized level.

There's a lot of factors that go into that. I think the supply chain is the greatest uncertainty, which we can't control everything within. But if we start to see more normalization towards the end of this year and into 2023, we do expect that those efficiencies and CapEx will help us get to that point sooner

Excellent. Thank you. Really appreciate it.

And moving on now to Donovan Schafer at Colliers Securities.

Great quarter. Cool to see things coming along, again, of course the supply chain is challenging, but that's true for everyone. So it seems like you guys are making pretty good strides in spite of all that. I am curious Gio if you can give any kind of sense, just for overall context, what kind of a build rate could you obtain, if there were no supply, if the supply chain was just perfect, what kind of a build rate could you guys do?

Yeah, thanks for the question Donovan. The capacity numbers that we have spoken about in the past in reference to chassis assembly at our flex plants is a thousand each. So a thousand chassis per flex plant, but as the supply chain sorts itself out, we're anticipating being ready to scale beyond that and doing everything that we can. A lot of the measures that we're taking right now to mitigate the effects of the supply chain are not just diversifying suppliers. It's also reassuring or nearshoring components to North America to save on timing and cost. We're trying to avoid expediting components and air freight from other countries. A good example of that is in our wire harnesses. That's a component that we traditionally source from Asia, and it's tricky because we've had to get involved not only at the tier one level, but also at the tier two level, helping our tier one source connectors, for example. So that's what we did in that situation is re-shore that component to North America with our partners at Commercial Vehicle Group, CBG and that's an example of one of dozens, if not hundreds of changes that we're making to help get ourselves back on track.

Okay. And then for ASPs, I was just curious if you can kind of give us and my one way to kind of roughly bracket or wrap our minds around things is, if you're really focusing on the step vans right now, you can imagine a version of the step van where it's a 60, maybe the lowest one anyone would buy would be a 60 kilowatt hour module, but then some people might want the longer range and go up to 120 or maybe even more. So what are what's the ASP range and maybe, I'm sure every contract may be different, but just roughly, is it for the shortest range full non-power -- not a power train sale, but a full vehicle sale for the lowest range offering. Does that get to come in about a 100 K and then the longest range ones come in, I don't know, 180 or I don't know what?

Yeah. I'll start really quickly just on ASPs when it comes to the vehicles and then Kingsley, I'm sure you have additional clarification, but per ASPs, there's a lot of different factors and it's not just the battery system. It's also how the vehicles configured, what box goes on it, what the powertrain is in it. If it has a lift gate, there's a variety of different factors. I think what we're trying to do as we go out into the market is build a vehicle that's going to be within 20% to 30% of a competitively priced diesel vehicle. And what that allows us to really deliver on is a total cost of ownership savings that the fleet can see within the first three to five years. Now, fuel price is going up has actually helped that TCO calculation, but we also have been impacted by material surcharges and supply chain costs. So year over year, we actually did take a price increase and we do have some material surcharges that we're passing on to our customers that we've received from our suppliers. So we do expect to see some incremental growth that in the ASPs, just because of the environment we're in and the inflationary pressures on the supply chain, but ASPs do vary and depending upon the product mix, some of which is still to be determined for the rest of the year, it will be some of those shorter range vehicles and probably the base case is still a 100 mile range vehicle or 120 kilo hour step in and going up from there.

Okay. That's very helpful. We're always trying to read the -- do some kind of reading animal end trails or something, trying to interpret what the ASP might tell us if it, the mix is moving this way or that way or whatever. But I understand there are a lot of moving parts there. So last question I want to ask about, is does this definitely intrigues me, and I know it's not new for you guys with the Xos' hub, you did mention that, Rob, you said that you guys have progressed that product and kind of making incremental changes there, emphasize some of its importance. And I think of, yeah, I also cover solar trackers in the solar space and I've realized there that the successful companies are ones with demonstration sites. They have to be able to get a customer to see how it installs and it's kind of a different world there, but it's a real -- it almost seems to define success or failure in that market. And so I'm curious if you guys see the Xos' hub as that kind of on that level for EV for commercial electric vehicles and just what are some of the particulars of what you've expanded, the ease of deployment, number of vehicles, what are you advancing there?

Yeah, I'll start and Rob, feel free to add a more technical details. The reason for the hub was because we had customers that were experiencing the challenges of adopting large scale electrification infrastructure, not just installing five to 10 or even 20 trucks, but how do we think about installing and deploying thousands of vehicles across a disparate net network of different locations? So we developed the hub to be able to a rapidly deploy vehicles and have charging infrastructure on site when those vehicles get delivered, even if permanent infrastructure can take anywhere from six to 12 months. And that customer that we initially started working with has begun testing and evaluating the units that we've built and ultimately has decided to really move forward with that. And we continue to see strong interest in the product to be able to rapidly support large deployments of vehicles in different locations. The benefit of the hub is not to utilize it as permanent infrastructure. It's a temporary solution to help make sure that trucks can get charged in the near term as they're manufactured and come directly from the factory to a fleet depot or a fleet yard. So we're planning to continue to ramp that and working with customers on different configurations to meet their needs based upon the size of their depots, based upon the power input coming off of the grid. And exactly how many vehicles are going to deploy across the country. But Rob, I'm sure you have more context to add to that.

Yeah. Two things in general, one from a grid perspective, the hub decouples the timing of the charging of the trucks from the pricing and the timing of the power optimal availability on the grid. That alone gives you an economic capabilities and so why we intend these to be temporary. There are business cases and benefit fits to them in not just the vehicle space, but in some adjacent markets. And some of those adjacent markets, we had a meeting this morning, for example, where one of them popped up. The world changes when you go from taking a glossy brochure to a customer to taking a product, because then they start really seriously getting their heads around what they're going to do with it. And so one of the values of having even the earliest units is that when we put them in front of customers, we get real feedback about, oh, well, now that I see it, now that I've got it here, I actually need this little tweak or that little tweak or it's perfect. But until we get that in the customer's hands now do something with it. We don't know which way the wind is blowing. And so this is the most valuable forward looking information for as an engineer that I can collect is what's the customer really willing to pay for? Not just, what do they say in a questionnaire? What would you like? Does it levitate? Oh, that would be nice. Yeah. Well, would you pay a $100 million to levitation? No. Oh, well, what would you pay for? And having real product in the customer's hands makes that a crystal clear conversation.

Yeah. Having that customer feedback has been really important for us on the hub, as well as our other products. We've seen a lot of interests on the hub for unexpected places, not just fleets looking to charge commercial electric vehicles. So that's been really interesting. And the other thing, Donovan, I think you asked about product development and some of the changes we're making, it's important that the hub be a connected product like our trucks. So that's one of the things that we're focused on is making sure that we can pull data from the hub and help fleet managers and our customers make more intelligent decisions on how to use their capital equipment. So whether it's a truck or a hub, that's really the core of what we're doing or more than just a hardware company, we're more than just a truck OEM. There's also a layer of software and services behind our hardware products that make them a lot more valuable.

Okay, great. Very helpful. Thank you guys. I'll take the rest of my questions offline. Thank you.

All right. We'll move on to a question now from Bank of America Global Research, Sharif Elkhaldy.

I just wanted to ask about your dealership agreements. So we've discussed at length, the advantage of having a growing dealership network and we've discussed MHC and Yancey. Looking at two sort of original anchor dealerships, Thompson and SD Lone Star, we've seen deliveries through our channel checks to Thompson, but just the purchase and distribution agreement with SD Lone Star still stand and are you delivering units against it?

Yeah, so we have delivered vehicles through Lone Star in their Texas locations. And we continue to make headway with them. As a customer they've been really supportive and it helped facilitate a lot of good dialogues with end user fleet customers, but they are a part of our fleet network as well.

Good. And on the R&D costs you expect them to climb throughout the year. Can you give us a range of where you expect them to run through the year?

Yeah. So we have a number of exciting projects that we're working on which be excited to talk to you about when you come to Fleet Week in May the guidance you said is that we will carry on investing in R&D when you look at R&D relative to revenue it's going to decline over time. I think what's exciting about Xos is the impact they're able to have with the capital we've deployed in R&D and as Rob mentioned the R&D is super focused on a commercial use case and on near term near revenue, I will talk more about in May.

[Operator instructions]

If we also want to go back to Dan, I'm not sure if you was able to get audio working.

I don't believe Dan was able to re-join.

I will let you know that I haven't had any other ones or any other signals for questions.

Great. Well, thank you everybody again for joining our call this evening or this afternoon We really appreciate the opportunity to share with you the exciting progress that Xos continues to make in our manufacturing environment, as well as in our production environment, even amidst all of the supply chain disruptions that we've seen through 2021 and coming into 2022. In summary, we remain incredibly confident in XOS' prospects moving forward. There is an incredible opportunity right now that we are at the center of an electrifying, the medium and heavy duty last mile commercial vehicle space and Xos is already delivering product to fleet operators and some of the largest customers within those segments. We also continue to make progress on the manufacturing forefront in making quarter over quarter improvements in our delivery rates and our production rates within our facilities here in Los Angeles, as well as in Tennessee and Mexico. And lastly, we've actually really focused on making sure we're delivering the solutions that help fleet scale their electric fleets more rapidly. So with products like our Xos Hub, Xos Energy Solutions, and the Xosphere, which Rob talked a little bit about and will share more at our Excess Fleet Week really have helped fleets not only deploy electric trucks, but deploy them more smoothly and more rapidly, which is our end goal here. Thank you everybody again for joining us and have a great rest of your day.

Thank you, ladies and gentlemen, once more, thanks so much for joining us. That will conclude today's webinar. Thank you for your participation and once again, have a wonderful day.