Editor’s Note: This article is part of Joanna Makris’ Behind the Wall series, where she provides retail investors with the inside scoop on the hottest technologies and trends from today’s business leaders, industry experts and money managers. Today’s discussion is with Fraser Atkinson, CEO of GreenPower Motor Company (NASDAQ:GP).

No doubt about it: electric vehicles are one of the most tangible changes regular folks can make in the fight against climate change. And the Biden administration recognizes that. This week, we went Behind the Wall to take a deep dive into Biden’s trillion dollar infrastructure bill and the implications for public and commercial transportation.

Now that the $1 trillion infrastructure bill is law, investors are naturally trying to make sense of which companies will benefit and how much. While the headlines have many investors feeling optimistic about the electric vehicle (EV) sector, details on exactly how the plan will stimulate more investment and adoption are still hazy. The answers aren’t obvious, largely because the timing of all of this stimulus isn’t clear.

So to make sense of what’s going on, we sat down with Fraser Atkinson, CEO of GreenPower Motor Company (NASDAQ:GP), an interesting small cap company building zero emission electric vehicles for the cargo, delivery and school sectors. According to Atkinson, much of the recent sell off in EV stocks is due to “the uncertainty of the extent of future bills and what exactly the rules are with the existing bill.”

Atkinson and I talked about why EV suppliers are in a “no man’s land of waiting for the rules,”  why the electric revolution is about so much more than luxury cars and what’s going on in a complicated global supply chain. Here’s what happened.

Biden Stimulus: Green and Clean 

Here’s an interesting facet of the electric revolution that’s not getting much headline attention.

Buried deep in the almost 3,000 page document that is now law is a line item which allocates federal funds to help localities purchase brand-new battery-powered school buses. The infrastructure bill has specifically allocated $2.5 billion for new “zero-emissions” or electric school buses purchases and $2.5 billion for low-emissions school buses under a new Clean School Bus Program administered by the U.S. Environmental Protection Agency. The funds will be awarded in $1 billion increments ($500 million each for zero emissions and low emissions) over the next five years. As Atkinson [points out, “that provides a huge impetus for a handful of companies that produce products for that sector. But here we are waiting for the rules.”

The U.S.’s approximately 500,000 school buses move 26 million children between schools and homes daily. That’s more than four times the number of New York City daily subway riders. Over 95% of  public buses run on diesel, accounting for more than 5 million tons of yearly greenhouse gas emissions, and exposure to their exhaust fumes have been linked to lower test scores and worse respiratory health for children.

“I would estimate that there’s somewhere around 500 all-electric school buses,” says Atkinson. That’s 0.1 of 1%. So there’s 500,000 [buses] in operation today across the nation. So a state like California coming forward and saying, ‘we want 1000 of these’ starts to have a material impact in terms of creating momentum and creating the dynamics with the OEMs to increase production, to meet that kind of cadence.”  And with GreenPower being one of a handful of potential suppliers, the opportunity could be a seachange for the company.

Fleet Electrification 

Commercial fleets are expected to be another big beneficiary of the Biden Bill. Already, many of the largest technology and logistics companies — Amazon (NASDAQ:AMZN), Fedex (NYSE:FDX), UPS (NYSE:UPS) — have all announced strategies to electrify their fleets. For its part, GreenPower recently announced a deal with transportation supplier TCI Trucks for its EV Star Cab and Chassis.

The reason for the move toward electrification is simple economics. As Atkinson points out, “the average FedEx truck only drives 75 to 80 miles a day. So it’s not a high requirement in terms of the battery capacity in order to operate that vehicle.” According to the CEO, ”our 22 foot electric cargo van [is] completely sold out right now.”

For any startup EV manufacturer, the twofold conundrum of managing a convoluted supply chain while cost-effectively scaling manufacturing is no easy feat. GreenPower is doing something a bit unconventional with its manufacturing strategy. Instead of adopting a strict build-to-order business model, like most EV manufacturers, the company is building an inventory of vehicles that can be finished to customer requirements.

For its 40 foot school bus and various models on our EV Star platform, the company doesn’t do all the finishing work, but instead builds to the shell. This more flexible manufacturing process should allow the company to respond more cost-effectively to customer demand. “We’re now at a point where we need to redefine a manufacturing strategy that can really upscale what we’ve been doing,” says Atkinson.

Read on and watch the video and share with me your take on electrification at jmakris@investorplace.com.

Joanna Makris: Let’s dive in. You know quite a bit about the infrastructure bill [and] a lot of investors are feeling more optimistic about investment in the EV sector. How do you think this bill will really stimulate more investment and adoption in the EV sector?

Fraser Atkinson: Well today, being as we approach the middle of January 2022, what I call the EV OEM startups — which GP [GreenPower] is clearly part of that group or ecosystem — have been under a lot of selling pressure in the capital markets. And I think that’s because of the uncertainty of the extent of future bills and what exactly the rules are with the existing bill. What I mean by that is that the infrastructure bill that has been signed has specifically allocated $5 billion for the electrification, or zero-emission school buses and including some transit. That provides a huge impetus for a handful of companies that produce products for that sector. But here we are waiting for the rules. So there seems to be the euphoria of all this impetus — and it’s not just at a federal level, but several of the states as well — [but] now we’re in kind of that no man’s land of waiting for the rules and waiting for the ability to deploy under that infrastructure bill.

What are your thoughts in terms of next steps and catalysts? What are you looking for as a company in this space?

We see a lot of state initiatives being drivers, probably a lot faster than the federal. Because they’re already set up. They already have programs in place and they’re coming to the table with their own programs. For example, California just announced their funding plan for the current calendar year, or for their current operating year… Their plan will be reviewed with their first public session this coming Thursday [Jan. 13], which gives you an idea of how current it is. And that program allows for or provides for 1,000 all-electric school buses and 1,000 all-electric transit buses over three years. They’re allocating $400 million over the three years for school buses and over $200 million for the transit buses.

So this is already being proposed. We know what the rules are. We are going through a period of engagement. And we would expect that they will be live sometime [in] the end of February or early March. That’s not too far away. So, whereas the federal [is] more money than what California [is] putting forward — but probably somewhat equal on a per capita basis — it’ll be a little longer once the rules are published in terms of the timing and deployment in the marketplace. But we would see that that is probably going to have an impact starting this summer.

Does that take place via a traditional RFP [request for proposal] process? How does that selection and evaluation process take place at the state level?

In the case of California — similar to the New York voucher program, the NYSERDA, and the New Jersey [program], which is probably one of the most generous programs out there right now — in all cases it’s a matter of, as [an] OEM, you need to have your products listed as eligible vehicles and as buyers you either need to buy direct or through dealers. There’s an approved dealer network that needs to be on the list… If you have all of those ingredients for a potential fleet operator that can buy through a dealer, or in some cases buy direct from companies like ourselves, then it’s a known amount for the vouchers that are available for each vehicle. So, in some respects, it provides for a much, much faster go-to-market strategy because you don’t need to do the RFP or RFQ [request for quotation] process.

So we’re hitting on the bus sector. If I have this right, less than 1% of buses right now are electric. Is that right? How does this transition begin to accelerate?

In the case of school buses, I would estimate that there’s somewhere around 500 all-electric school buses. That’s 0.1 of 1%. So, there’s 500,000 in operation today across the nation. And, as I say, there’s maybe 500, tops 1,000. So a state like California coming forward and saying, “We want 1,000 of these” starts to have a material impact in terms of creating momentum and creating the dynamics with the OEMs to increase production, to meet that kind of cadence.

I also wanted to talk a little bit about commercial fleets, which are expected to be a big beneficiary of the Biden bill. We’ve already seen a lot of the really big technology and logistics companies like Amazon, FedEx, UPS all making announcements about their move toward electrification. Your company announced to deal with TCI Trucks recently. So talk to us a little bit about what you’re seeing in the fleet and logistics space and why companies are motivated to make this transition.

Well, right now our hottest seller is a 22-foot all-electric cargo van. So it’s right in the hear of [it]. It’s not intended for the last-mile delivery, which tends to require limited payload… You’d probably be surprised, but the average FedEx truck only drives 75 to 80 miles a day. That’s it. So it’s not one of these vehicles that needs 300 miles in a day to operate its duty cycle. It’s fairly, you know — it isn’t a high requirement in terms of the battery capacity in order to operate that vehicle. And likewise, the payload.

We operate in the mid mile. We’re looking at the logistics vehicles that need to operate 12, 14, 16 hours a day and need to have a payload of several metric tons. Our 22-foot all-electric cargo van accomplishes that… We are completely sold out right now. And, while we haven’t announced any of our results on New Jersey, we were advised independently that we have more than any other OEM in terms of the approved vouchers on New Jersey. And most of those are the 22-foot cargo van. So we’re just simply — [as] soon as they’re off the production line and we get them homologated for that particular customer — [we] deliver and [are] onto the next level of production.

As you know as an early-stage EV manufacturer, one of the biggest challenges really is scaling manufacturing. One of the interesting things I’ve seen about your company is that you’ve shifted from a strictly built-to-order business model to building an inventory of vehicles that can then be finished according to customer requirements. Tell us a little bit more about that and how that helps the company prepare for revenue and acceleration.

That’s a really good summary because, when we did our Nasdaq up listing in August 2020 — so almost a year and a half ago — that gave us the capital to move from production pursuant to customer orders to where we could produce certain lines of product. There’s some products, you know, like a 40-foot low-floor transit — that’s a custom build. You need to have the engineer drawings and everything else completed and agreed upon with that customer before you start building that kind of product. But for our 40-foot school bus and our various models on our EV Star platform, we can build up to a point in inventory. We can’t do all the finishing work, but we can build to the shell. So we’ve been very actively building out a number of our models on the EV Star, being our cab and chassis and some of the passenger vehicles, as well as we had started a process of building five of our 40-foot Type-D school bus. We call that the BEAST: the battery electric automated school transportation vehicle. Then we doubled it at the beginning of January 2021. So, a year ago, we opted to 10 of those a month. And they take almost a year to build, from the start through to the ability to be able to deliver to customers.

Now we’re reassessing that model and saying, “Well, how do we scale?” You know, instead of incrementally growing at five to 10 to 15. That’s interesting, but [it] isn’t going to meet the appetite of the marketplace as I was describing with all of that funding that’s coming in. So we’re now looking at a strategy of how we can have specific facilities dedicated to a sector such as the school sector that can really ramp up our ability to produce product.

And then on your question on the supply chain, that’s something that’s affecting the automotive sector globally. [It] doesn’t matter whether you’re in the EV sector or a internal combustion engine [ICE] producer… I saw an interesting comment from the CEO of Blue Bird (NASDAQ:BLBD). They produce the largest number, the biggest volume of traditional school buses than any other producer in the nation. And he was saying that they have over 2,000 vehicles that are waiting for more than 25 parts. That’s a lot, that’s a huge impact in terms of your supply chain. [But] in our sector, we don’t have as many parts on our vehicle. [If] you’ve got the batteries, if you’ve got the traction motor, if you have certain key aspects of the electronics that are required to build your vehicle, there’s fewer underlying parts to build our product compared to a traditional ICE vehicle.

An engine, for example, is 2,200 parts. We have no engine. So, what we had started — once again, going back to our Nasdaq up listing — is that Brendan Riley our president and really our procurement team really got focused on nailing down our supply chain. He’s been working on that for a year and a half in terms of forward-looking, on hoarding certain parts that he thought would have shortcomings… You know, certain aspects of our build, we’ve got redundancy on all of our batteries, our high-voltage systems. And then our TM4 traction motor that we use both on the EV Star as well as our BEAST school bus — we met with the folks that produce that product. It’s owned by Dana Automotive, they actually produce it in China. We met with them earlier, or last fall I should say. And they assured us that they have actually some excess capacity. And they viewed us as a very, very strong customer so they said, “Just keep us in the know in terms of what you expect over the next couple years and you can expect that we deliver on time.” So we’ve done our best. But, having said that, we’re still seeing shipping delays. There’s supply-chain delays. And there’s even energy delays with some of our contract manufacturers in Asia where they have to shutter their operation for 2, 3, 4 weeks because of various issues that they’re contending with.

I did want touch on a little bit about your manufacturing, the majority of which is outsourced to China and Asia. What do you say to investors that are concerned about the increasing tensions between the countries, tariff wars, costs and even the fact that China dominates so much of the EV supply chain?

We were entirely beholden to [that]. And when you say [that], it’s not just China, it’s really that whole corridor in Asia. We’re all the way down to Singapore. We’ve got some key contract manufacturers. [But] we have been able to diversify. All of our final assembly is done in Southern California. And, more recently, we have been able to secure — this is going back almost a year ago — we were able to secure our first Buy America compliance deal. And that was on the heels of getting Buy America compliance on our EV Star passenger vehicle.

So we’re now in a position that we can build entirely onshore with a Buy America-compliant vehicle and not be beholden to, you know, an Asian contract manufacturer. So we’ve certainly mitigated — we haven’t completely eliminated it yet. But, you know, the flip side is that having a manufacturing-light approach has given us the ability to build out the extent of product catalog that we enjoy today.

Touching on that manufacturing-light approach, a big umbrella issue around investors investing in the EV space is the large operating losses that we’re seeing in all of these companies which are early stages in ramping their manufacturing and production. Talk to us a little bit about how you see the operating model growing. You’ve talked about a 30% gross margin level. [What’s] your path towards profitability and how you get there?

We’re very proud of the fact that we have built a business model that has a path to profitability… Of the OEM EVs that constitute the startups or the early-stage companies — that wouldn’t include a Tesla (NASDAQ:TSLA) and others — there’s only one other that has a positive gross profit. And it’s 4%. So, we’ve tracked at 30% when we talk about deals internally with our sales group. It’s 30% as our blended target.

The school buses are less than that because of a number of dynamics in the marketplace and the fact that product isn’t used as much as the others. So we’ve got a different sort of total cost of ownership in that space than other ones. But our view is that we maintain it close to the 30. Or [have] larger deals where we get the gross profit dollars that get us to that sort of a positive-cash-flow profitable business model. The combination of the two is, you know, what we had envisioned as we had developed out over the past number of years. And so where we are today is that, with our cash costs, with a 28 to 30% GP [gross profit], we need sales of less than $10 million in a quarter and we’re break-even/positive cash flow. And that’s, you know, when you look at our overall sector and the kind of revenue numbers that are attainable with the funding that’s coming in, $10 million in a quarter isn’t a big number on a relative basis.

And going back to that manufacturing-light, the one thing we always like to point out is that… You know, I’m not sure what device you have, [but] I do have an Apple (NASDAQ:AAPL) for my smartphone. And that was manufactured in Shenzhen. And I’ve been to the Foxconn facility. Nobody ever talks about Apple having issues with their Chinese manufacturing and things like that because they manage their supply chain, they’re on the floor managing the manufacturing process. They proudly define their role as, you know, “This was designed in Cupertino, California.” Not manufactured in California or even the States. That’s where it’s designed. So we’ve taken a number of lessons from their playbook in terms of how they’ve managed that manufacturing process. And we think that’s, to date, a really sound model for us in terms of getting to the stage we’re at. But going back to my earlier comment, we’re now at a point where we need to redefine a manufacturing strategy that can really up scale what we’ve been doing.

EV valuations have been running red hot, as you know. To me, this seems like an interesting small-cap way to play the electrification theme. For investors looking at this stock, what are some of the next milestones and catalysts that could be happening over the next couple of months?

For us, the thing to watch is how we’re going to accomplish a larger manufacturing profile. We don’t think it’s a sales or marketing issue… As I mentioned, our cargo van’s totally sold out. We need to produce a lot more school buses than the rate that we’re producing right now given the impetus that’s coming into the marketplace. So, I think for us that’s a big part of it. And I think from an industry point of view, in terms of those companies that had early successes in the capital markets, the key is what’s behind it in terms of what they’re bringing to market. I mean, we’ve been delivering products for over five years and you know, for some of the companies that are just coming into the marketplace, they’re still sorting out prototypes. They’re still figuring out how they’re going to produce.

It’s not easy… For the legacy companies that produced ICE vehicles, they just can’t take their manufacturing facility and turn it into an EV manufacturer overnight. I think you’re seeing that with a lot of these traditional manufacturers in terms of the struggles they’re having in bringing EV products to market. So I think those are a number of the dynamics to see, or to watch, as well as those companies that are really defining a business model that can make money.

Is there anything investors are missing in this space when they think about the EV sector? Particularly given the selloff, [which] has been interesting in the space. You could say a lot of it’s macro-driven. What would you say is a misperception or misunderstanding in this space?

Well, I think there’s probably a couple. I’ll go back to your question on the supply chain, or the discussion on that part… We’re seeing huge increases in the materials. You know, you look at lithium and in terms of the base lithium, it’s increased multiple times over the past year. So we’re not talking a 10 to 20%. We’re talking a wholesale change in that commodity price. That doesn’t lead to continued decline in battery prices. And so I think there’s a need to be as efficient as you can in terms of accomplishing payload and duty. And in terms of range. With our purpose-built product, that allows us to maximize both of those. But I think some companies that do a lot of retrofit and refurbs, that aren’t as efficient in their use of the underlying batteries, you know, to have batteries simply stay even in terms of pricing let alone the costing potentially going up… BYD (OTCMKTS:BYDDF), for example, [has] announced to price increases in their batteries on an equivalency of energy density.

So I think that’s going to be a little bit of a surprise to the marketplace. [But] we believe we’re ahead of that in terms of how we’ve planned out our product builds and the utilization of the batteries within our products. And I think the other thing is that these super big numbers that people announced — going back to the marketing and the capital markets and everything — everybody had [the] expectation that if you announced an order then you had this sort of revenue potential. Well, you still need to build the product. And you still need to build a product that works. So I go back to who’s delivering product in the marketplace. There are a handful of companies. We compete with some, we work with others. And it’s a much smaller universe of those companies that are really in the business, delivering product that customers love.

Your comments and feedback are always welcome. Let’s continue the discussion. Email me at jmakris@investorplace.com.

On the date of publication, Joanna Makris did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

Click here to see her Behind the Wall series, where she gets up close to CEOs, industry experts and money managers and gets answers that are normally heard by institutional investors.