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1A. RISK FACTORS
Investing in our
securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed
above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks
set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and
results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment.
Additionally, the risks and uncertainties described are not the only risks and uncertainties that we face. Additional risks and
uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect
our business.
Risks Related to
our Business and Industry
We are an early
stage company with a history of losses, and expect to incur significant expenses and continuing losses for the foreseeable future.
We incurred a net
loss of $39.2 million for the year ended December 31, 2020 and have incurred a net loss of approximately $88.0 million
from November 7, 2018 (“inception’) through December 31, 2020. We believe that we will continue to incur operating
and net losses each quarter until at least the time we begin commercial deliveries of both of our Hybrid system and our Hypertruck
ERX system, which are not expected to begin until 2021 and 2022, respectively, and may occur later or not at all. Even if
we are able to successfully develop and sell our electrified powertrain solutions, there can be no assurance that they will be
commercially successful. Our potential profitability is dependent upon the successful development and successful commercial introduction
and acceptance of our electrified powertrain solutions, which may not occur.
We expect the rate
at which we will incur losses to be significantly higher in future periods as we:
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continue to market our first generation Demonstrator Hybrid
system and design, develop and produce our second generation (“next generation”) Hybrid system as well as our Hypertruck
ERX system;
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continue
to utilize our third-party partners for design, testing and commercialization;
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expand
our production capabilities to produce our electrified powertrain solutions, including
costs associated with outsourcing the production of our electrified powertrain solutions;
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build
up inventories of parts and components for our electrified powertrain solutions;
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produce
an inventory of our electrified powertrain solutions;
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expand
our design, development, installation and servicing capabilities;
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increase
our sales and marketing activities and develop our distribution infrastructure; and
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increase
our general and administrative functions to support our growing operations.
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Because
we will incur the costs and expenses from these efforts before we receive any incremental revenues with respect thereto, our losses
in future periods will be significant. Our business is capital intensive, and we can
be expected to continue to sustain substantial operating expenses without generating sufficient revenues to cover expenditures.
In addition, it is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight
into trends that may emerge and affect our business. In the event that actual results differ from our estimates or we adjust our
estimates in future periods, our operating results and financial position could be materially affected. We may find that these
efforts are more expensive than we currently anticipate or that these efforts may not result in revenues, which would further
increase our losses.
We are in the early stages of developing
key commercial relationships with suppliers and customers, and our ability to predict the outcome of those relationships is limited.
We are in the process of developing partnerships
to accelerate the development and production of our solutions and have deployed demonstration Hybrid system units to certain companies
we expect to be customers in the future, however all of our commercial relationships are in the early stages of development, and
we do not have the ability to predict with certainty the outcome of those relationships. Our partners may face delays or be unable
to meet our business requirements and standards at the quantity, quality and price levels needed for our business. The entities
that we expect to be customers in the future may decide not to do business with us. Because we are still getting to know our partners
and the commercial space in which we are doing business, these relationships could result in controversies or even litigation,
which could have a material adverse effect on our ability to continue our plans for strategic growth and ultimately our business
results.
We
are highly dependent on the services of Thomas Healy, our Chief Executive Officer, and if we are unable to retain Mr. Healy, attract
and retain key employees and hire qualified management, technical and vehicle engineering personnel, our ability to compete could
be harmed.
Our
success depends, in part, on our ability to retain our key personnel. We are highly dependent on the services of Thomas Healy,
our Chief Executive Officer, and largest stockholder. Mr. Healy is the source of many, if not most, of the ideas and execution
driving us. If Mr. Healy were to discontinue his service to us due to death, disability or any other reason, we would be
significantly disadvantaged. The unexpected loss of or failure to retain one or more of our key employees could adversely affect
our business.
We
do not currently maintain key man life insurance policies with respect to Thomas Healy or any other officer and we will continue
to evaluate whether to obtain such key man life insurance policies. Any failure by our management team and our employees to perform
as expected may have a material adverse effect on our business, prospects, financial condition and operating results.
If
we fail to manage our growth effectively, including failing to attract and integrate qualified personnel, we may not be able to
develop, produce, market and sell our electrified powertrain solutions successfully.
Any
failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and
financial condition. We intend to expand our operations significantly. We expect our future expansion to include:
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expanding
the management team;
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hiring
and training new personnel;
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leveraging
consultants to assist with company growth and development;
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forecasting
production and revenue;
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controlling
expenses and investments in anticipation of expanded operations;
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establishing
or expanding design, production, sales and service facilities;
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implementing
and enhancing administrative infrastructure, systems and processes; and
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expanding
into international markets, including Europe.
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We
intend to continue to hire a significant number of additional personnel, including software engineers, design and production personnel
and service technicians for our electrified powertrain solutions. Because our electrified powertrain solutions are based on a
different technology platform than traditional internal combustion engines, individuals with sufficient training in alternative
fuel and electric vehicles may not be available to hire, and as a result, we will need to expend significant time and expense
training any newly hired employees. Competition for individuals with experience designing, producing and servicing electrified
vehicles and their software is intense, and we may not be able to attract, integrate, train, motivate or retain additional highly
qualified personnel, particularly with respect to software engineers in the Austin, Texas area. The failure to attract, integrate,
train, motivate and retain these additional employees could seriously harm our business, prospects, financial condition and operating
results.
We have identified
material weaknesses in our internal control over financial reporting which, if not corrected, could affect the reliability of
our consolidated financial statements and have other adverse consequences.
We have identified
material weaknesses in internal control over financial reporting, which relate to: (a) segregation of duties (resulting from
the small number of individuals performing the accounting functions), including the lack of a formal journal entry review and
approval process; and (b) the design and operation of our information technology general controls. During 2020, we also had
a material weakness in our overall closing and financial reporting processes, including accounting for significant and unusual
transactions. Of these, we consider the last material weakness mentioned to have been fully remediated with the hiring of additional
internal legal and accounting support, as well as our engaging RSM US LLP to assist with technical matters during 2020.
A material weakness
is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility
that a material misstatement of our financial statements would not be prevented or detected on a timely basis. The remaining deficiencies
could result in additional misstatements to our financial statements that would be material and would not be prevented or detected
on a timely basis.
Our management has
concluded that these material weaknesses in our internal control over financial reporting are due to the fact that, prior to the
Closing, Legacy Hyliion was a private company with limited resources and did not have the necessary business processes and related
internal controls formally designed and implemented; coupled with the appropriate resources, level of experience and technical
expertise to oversee its business processes and controls surrounding: information technology general controls, and our closing
and financial reporting processes to address the accounting and financial reporting requirements related to significant and unusual
transactions.
Our management has
developed a remediation plan to address the remaining material weaknesses. Specifically, (a) to alleviate the information technology
controls issue, the Company plans to implement NetSuite, an Oracle cloud-based ERP and financial solution. This solution will allow
personnel to implement workflow controls; (b) to alleviate the segregation of duties issue, the plans to leverage NetSuite configuration
and workflow while expanding the accounting team and reviewing roles; and (c) to alleviate the lack of a formal journal entry review
and approval process, the Company will be implementing work flow steps within NetSuite to ensue all journal entries are approved
before posting to the general ledger. The material weaknesses will not be considered remediated until management has concluded,
through testing, that these controls are effective. Our management will monitor the effectiveness of our remediation plans and
will make changes management determines to be appropriate.
If not remediated,
these material weaknesses could result in further material misstatements to our annual or interim financial statements that would
not be prevented or detected on a timely basis, or in delayed filing of required periodic reports. If we are unable to assert
that our internal control over financial reporting is effective, or when required in the future, if our independent registered
public accounting firm is unable to express an unqualified opinion as to the effectiveness of the internal control over financial
reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our Common
Stock could be adversely affected and we could become subject to litigation or investigations by the NYSE, the SEC or other regulatory
authorities, which could require additional financial and management resources.
Risks
Related to our Financial Results
Our
financial results may vary significantly from period to period due to fluctuations in our operating costs and other factors.
Our
quarterly and annual operating results may fluctuate significantly, which makes it difficult for us to predict our future operating
results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including:
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the
pace at which we continue to design, develop and produce new products and increase production capacity;
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the
number of customer orders in a given period;
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changes
in manufacturing costs;
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the
timing and cost of, and level of investment in, research and development relating to our technologies and our current or future
facilities;
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developments
involving our competitors;
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changes
in governmental regulations or applicable law;
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future
accounting pronouncements or changes in our accounting policies; and
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general
market conditions and other factors, including factors unrelated to our operating performance or the operating performance of
our competitors.
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As
a result of these factors, we believe that period-to-period comparisons of our financial results, especially in the short
term, are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover,
our financial results may not meet expectations of equity research analysts, ratings agencies or investors, who may be focused
only on quarterly financial results. If any of this occurs, the trading price of our common stock could fall substantially, either
suddenly or over time.
We
may be unable to adequately control the costs associated with our operations.
We will require significant
capital to develop and grow our business, including developing and producing our electrified powertrain solutions and building
our brand. We expect to incur significant expenses which will impact our profitability, including research and development expenses
(including developing our next generation Hybrid system as well as our Hypertruck ERX system), component and service procurement
costs, sales and distribution expenses as we build our brand and market our electrified powertrain solutions, and general and administrative
expenses as we scale our operations and incur costs as a public company. In addition, we may incur significant costs servicing
our electrified powertrain solutions. Our ability to become profitable in the future will not only depend on our ability to complete
the design and development of our electrified powertrain solutions to meet projected performance metrics and successfully market
our electrified powertrain solutions and services, but also to sell our products at prices to achieve our expected margins and
control our costs. If we are unable to efficiently design, produce, market, sell, distribute and service our electrified powertrain
solutions, our margins, profitability and prospects would be materially and adversely affected.
Risks
Related to our Customers and Products
We
may not be able to successfully engage target customers or convert early trial deployments with truck fleets into meaningful orders
or additional deployments in the future.
Our success, and
our ability to increase revenue and operate profitably, depends in part on our ability to identify target customers and to convert
early trial deployments with truck fleets into meaningful orders or additional deployments in the future. Our Demonstrator Hybrid
system has been delivered to certain customers on an early trial deployment basis, where such customers have the ability to evaluate
whether the Demonstrator Hybrid system meets such customers’ performance and other requirements before such customers commit
to meaningful orders or additional deployments in the future. Although we have begun the process of commercializing our Demonstrator
Hybrid system, our Demonstrator Hybrid system is still undergoing testing, and it may not perform as we, or our customers, expect.
If we are unable to meet our customers’ performance requirements or industry specifications, identify target customers or
convert early trial deployments in truck fleets into meaningful orders or obtain additional deployments in the future, our business,
prospects, financial condition and operating results would be materially adversely affected. Moreover, if we or our customers
find that our Demonstrator Hybrid system does not perform as expected, we may cease to distribute our Demonstrator Hybrid system,
or recall some or all of our product, and future distributions may be delayed or cease for some period of time or indefinitely.
We plan to accept
reservation orders for the sale of our electrified powertrain solutions that are cancellable, and our initial pre-launch sales
order for Hypertruck ERX equipped trucks is cancellable.
Our electrified powertrain
solutions are still in the development and testing phase and commercial deliveries of the Hybrid system and the Hypertruck ERX
system are not expected to begin until late 2021 and 2022, respectively, and may occur later or not at all. As a result,
we plan to accept reservation orders for our electrified powertrain solutions that will be cancellable by customers without penalty.
Given the anticipated lead times between reservation orders and the delivery date of our electrified powertrain solutions, there
is a heightened risk that customers who place reservation orders may ultimately decide not to convert such reservation orders
into binding contracts and take delivery of their ordered electrified powertrain solutions from us due to potential changes in
customer preferences, competitive developments and other factors. As a result, no assurance can be made that reservations will
not be cancelled or that reservations will result in the purchase of our electrified powertrain solutions, and any such cancellations
could harm our business, prospects, financial condition and operating results.
We may also enter
into contracts for the sale of our electrified powertrain solutions that include various cancellation rights in favor of the customer.
For example, in May 2020, we entered into a pre-launch sales agreement (the “Agility Pre-Launch Agreement”)
with Agility Logistics Cargo Transport Co. WLL (“Agility Transport”), a company organized under the laws of and based
in Kuwait and a subsidiary of Agility Public Warehousing Company K.S.C.P. Under the Agility Pre-Launch Agreement, Agility
Transport agreed to order 1,000 trucks equipped with our Hypertruck ERX system in one or more future purchase orders, subject
to certain testing and performance requirements and termination rights. If we are unable to deliver our Hypertruck ERX trucks
according to the performance requirements and delivery timelines set forth in the contract, Agility Transport has the right to
cancel our order. Additionally, even if we satisfy such performance requirements and delivery timelines, Agility Transport may
terminate the Agility Pre-Launch Agreement by giving us 360-days’ advance notice after the date on which we have delivered
a Hypertruck ERX demonstration truck. Furthermore, the Agility Pre-Launch Agreement does not specify the terms or periods
upon which these purchase orders may be entered into, such that the sale of any Hypertruck ERX equipped trucks to Agility Transport
is subject to the parties reaching an agreement on the terms of one or more purchase orders, including as to the amount of the
deposit to be paid by Agility Transport to us in connection with such purchase order. Failure to reach agreement on the terms
of such purchase order could result in Agility Transport refusing to purchase all or a portion of the 1,000 Hypertruck ERX equipped
trucks that it pre-ordered. Should a dispute arise under the Agility Pre-Launch Agreement, we may face challenges enforcing
the terms of such contract due to the jurisdictional challenges involved with instituting legal proceedings against a foreign
entity and enforcing an award against such entity in a foreign jurisdiction. As a result, no assurance can be given that Agility
Transport will not terminate the Agility Pre-Launch Agreement prior to purchasing all or any portion of the 1,000 Hypertruck
ERX equipped trucks it pre-ordered under such agreement or that we would be able to enforce such agreement against Agility
Transport. Any of these adverse actions related to the Agility Pre-Launch Agreement or any future customer contracts could
harm our business, prospects, financial condition and operating results.
We
intend to sell our electrified powertrain solutions to large commercial vehicle OEM
customers and large volume customers, and the failure to obtain such customers, loss of sales to such customers or failure to
negotiate acceptable terms in contract renewal negotiations could have an adverse impact on our business.
Although
we intend to sell our electrified powertrain solutions to commercial vehicle OEMs and other large volume customers, we may not
be able to establish relationships with such OEMs or large volume customers if customer demand is not as high as we expect or
if commercial vehicle OEMs face pressure from their existing suppliers not to purchase our electrified powertrain solutions. We
may enter into long-term contracts with certain of these commercial vehicle OEMs and other large volume customers, who have
substantial bargaining power with respect to price and other commercial terms, and any long-term contracts would be subject
to renegotiation and renewal from time to time. Failure to obtain new customers, loss of all or a substantial portion of sales
to any future customers for whatever reason (including, but not limited to, loss of contracts or failure to negotiate acceptable
terms in contract renewal negotiations, loss of market share by these customers, insolvency of such customers, reduced or delayed
customer requirements, plant shutdowns, strikes or other work stoppages affecting production by such customers) or continued reduction
of prices to these customers could have a significant adverse effect on our financial results. There can be no assurance that
we will be able to obtain large volume customers, not lose all or a portion of sales to any future large volume customers or that
we will be able to offset any reduction of prices to these customers with reductions in our costs or by obtaining new customers.
The
level of any future sales to commercial vehicle OEMs, including the realization of future sales from awarded business or obtaining
new business or customers, is inherently subject to a number of risks and uncertainties, including the number of vehicles that
these commercial vehicle OEMs actually manufacture and sell. Further, to the extent that the financial condition, including bankruptcy
or market share, of any of our largest customers deteriorates or their sales otherwise continue to decline, our business, prospects,
financial position and operating results could be adversely affected. Accordingly, we may not in fact realize all of the future
sales represented by our awarded business. Any failure to realize these sales could have a material adverse effect on our business,
prospects, financial condition and operating results.
Demand
for our products will ultimately depend on our end users, some of whom operate in highly cyclical industries, which may subject
us to the performance of their industries and can result in uncertainty and significantly impact the demand for our products,
which could have a material adverse effect on our business, prospects, financial condition and operating results.
Demand
for our products will ultimately depend on our end users, some of whom operate in highly cyclical industries and have felt the
impact of COVID-19 and other factors on demand for output in their industries. Decisions to purchase our electrified powertrain
solutions may depend on the performance of the industries of our end users and if demand for output in those industries decreases,
the demand for our products will likely decrease. Demand in these industries is impacted by numerous factors, including commodity
prices, infrastructure spending, housing starts, real estate equity values, interest rates, consumer spending, fuel costs, energy
demands, municipal spending and commercial construction, among others. Increases or decreases in these variables may significantly
impact the demand for our products. For example, lower diesel fuel costs, higher CNG costs or lower CNG availability would reduce
our products’ cost savings, which could have a material adverse effect on our business, prospects, financial condition and
operating results. Additionally, some of our end users have felt the impact of the COVID-19 pandemic, which has resulted
in reduced demand for commercial vehicles and may affect fueling infrastructure such as CNG stations. If we are unable to accurately
predict demand, we may be unable to meet our customers’ needs, resulting in the loss of potential sales, or we may produce
excess products, resulting in increased inventories and overcapacity in our contracted production facilities, increasing our unit
production cost and decreasing our operating margins.
If
our electrified powertrain solutions fail to perform as expected, our ability to develop, market and sell our electrified powertrain
solutions could be harmed.
Our
electrified powertrain solutions may contain defects in design and production that may cause them not to perform as expected or
may require repair. We currently have a limited frame of reference by which to evaluate the performance of our electrified powertrain
solutions upon which our business prospects depend. There can be no assurance that we will be able to detect and fix any defects
in our electrified powertrain solutions. Our electrified powertrain solutions may not perform consistent with customers’
expectations or consistently with other vehicles that may become available. Any product defects or any other failure of our electrified
powertrain solutions and software to perform as expected could harm our reputation and result in adverse publicity, lost revenue,
delivery delays, product recalls, negative publicity, product liability claims and significant warranty and other expenses and
could have a material adverse impact on our business, prospects, financial condition and operating results. Additionally, problems
and defects experienced by other alternative fuel truck companies or electric consumer vehicles could by association have a negative
impact on perception and customer demand for our electrified powertrain solutions.
The performance
characteristics of our electrified powertrain solutions, including fuel economy and emissions levels, may vary, including due
to factors outside of our control.
The performance characteristics
of our electrified powertrain solutions, including fuel economy and emissions levels, may vary, including due to factors outside
of our control. Our electrified powertrain solutions are still being designed and developed, and there are no assurances that
they will be able to meet their projected performance characteristics, including fuel economy and emissions levels. External factors
may also impact the performance characteristics of our electrified powertrain solutions. For instance, the estimated fuel savings
and fuel economy of vehicles installed with our electrified powertrain solutions may vary depending on factors including, but
not limited to, driver behavior, speed, terrain, hardware efficiency, payload, vehicle and weather conditions. Additionally, GHG
emissions of vehicles installed with our electrified powertrain solutions may vary due to external factors, including the type
of fuel, driver behavior, the efficiency, regulatory testing, and certification of the engine, where the engine is being operated
and the characteristics of the vehicle itself, including but not limited to the vehicle’s software controls, drivetrain
efficiency, aerodynamics and rolling resistance. These external factors as well as any operation of our electrified powertrain
solutions other than as intended, may result in emissions levels that are greater than we expect. Additionally, the amount of
GHG emissions of both the Hybrid and Hypertruck ERX solutions will vary due to, but not limited to, the factors mentioned above.
The ability of our electrified powertrain solutions to have a net carbon negative profile, will depend on the availability of
renewable natural gas (“RNG”) as well as the infrastructure necessary to purchase RNG through fuel providers. Any
limitation on the ability to purchase RNG, such as a decrease or a limitation on the number of natural gas fueling stations or
limitation on the production of natural gas and RNG in particular, will negatively impact the anticipated carbon intensity profile
of our electrified powertrain solutions. In addition, the carbon intensity profiles could vary based on the source of RNG, which
could reduce a fleet’s ability to have favorable carbon intensity scores. Due to these factors, there can be no guarantee
that the operators of vehicles using our electrified powertrain solutions will realize the expected fuel savings and fuel economy
and GHG emission reductions.
Our
beliefs regarding the ability of our electrified powertrain solutions to limit carbon intensity and reduce GHG emissions and contribute
to global decarbonization may be based on materially inaccurate assumptions.
We
believe that our electrified powertrain solutions, to the extent adopted, may have the ability to limit carbon intensity and reduce
GHG emissions from trucking operations, however, these beliefs are based on certain assumptions, including, but not limited to,
our projections of the extent of natural gas and renewable natural gas use in the future, fuel types used, the ability to obtain
carbon credits and driver behavior and our electrified powertrain solutions’ efficiencies and performance. To the extent
our assumptions are materially incorrect or incomplete, it could adversely impact our business, prospects, financial condition
and operating results. In addition, if our assumptions regarding the ability of our solutions to limit carbon intensity and reduce
GHG emissions from trucking operations are materially incorrect or incomplete, or if our beliefs regarding the availability of
our products are materially incorrect or incomplete, it is possible that our competitors’ technology may be better at limiting
carbon intensity and reducing GHG emissions in certain circumstances and in certain markets.
We
have limited experience servicing our electrified powertrain solutions and our integrated software. If we are unable to address
the service requirements of our customers, our business, prospects, financial condition and operating results may be materially
and adversely affected.
We
have limited experience in servicing our electrified powertrain solutions and expect to increase our servicing capabilities as
we begin commercial production of our electrified powertrain solutions. Servicing hybrid and electric vehicles is different than
servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing
techniques. We plan to partner with a third party to perform some or all of the servicing on our electrified powertrain solutions,
and there can be no assurance that we will be able to enter into an acceptable arrangement with any such third-party provider.
Our customers will also depend on our customer support team to resolve technical and operational issues relating to the integrated
software underlying our electrified powertrain solutions. Our ability to provide effective customer support is largely dependent
on our ability to attract, train and retain qualified personnel with experience in supporting customers on platforms such as ours.
As we continue to grow, additional pressure may be placed on our customer support team, and we may be unable to respond quickly
enough to accommodate short-term increases in customer demand for technical support. We also may be unable to modify the
future scope and delivery of our technical support to compete with changes in the technical support provided by our competitors.
Increased customer demand for support, without corresponding revenue, could increase costs and negatively affect our operating
results. If we are unable to successfully address the service requirements of our customers or establish a market perception that
we do not maintain high-quality support, we may be subject to claims from our customers, including loss of revenue or damages,
and our business, prospects, financial condition and operating results may be materially and adversely affected.
Our
electrified powertrain solutions rely on software and hardware that is highly technical, and if these systems contain errors,
bugs or vulnerabilities, or if we are unsuccessful in addressing or mitigating technical limitations in our systems, our business
could be adversely affected.
Our
electrified powertrain solutions rely on software and hardware, including software and hardware developed or maintained internally
or by third parties, that is highly technical and complex and will require modification and updates over the life of the vehicle.
In addition, our electrified powertrain solutions depend on the ability of such software and hardware to store, retrieve, process
and manage immense amounts of data. Our software and hardware may contain, errors, bugs or vulnerabilities, and our systems are
subject to certain technical limitations that may compromise our ability to meet our objectives. Some errors, bugs or vulnerabilities
inherently may be difficult to detect and may only be discovered after the code has been released for external or internal use.
Errors, bugs, vulnerabilities, design defects or technical limitations may be found within our software and hardware. Although
we attempt to remedy any issues we observe in our products as effectively and rapidly as possible, such efforts may not be timely,
may hamper production or may not be to the satisfaction of our customers. Additionally, if we are able to deploy updates to the
software addressing any issues but our over-the-air update procedures fail to properly update the software, our customers
would then be responsible for installing such updates to the software and their software will be subject to these vulnerabilities
until they do so. If we are unable to prevent or effectively remedy errors, bugs, vulnerabilities or defects in our software and
hardware, we may suffer damage to our reputation, loss of customers, loss of revenue or liability for damages, any of which could
adversely affect our business and financial results.
Future
product recalls could materially adversely affect our business, prospects, financial condition and operating results.
Any
product recall in the future, whether it involves us or a competitor’s product, may result in negative publicity, damage
our brand and materially adversely affect our business, prospects, financial condition and operating results. In the future, we
may voluntarily or involuntarily, initiate a recall if any of our products (including the batteries we design, develop and manufacture)
prove to be defective or noncompliant with applicable federal motor vehicle safety standards. Such recalls involve significant
expense and diversion of management attention and other resources, which could adversely affect our brand image, as well as our
business, prospects, financial condition and operating results.
We
may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully
defend or insure against such claims.
Product
liability claims, even those without merit or those that do not involve our products, could harm our business, prospects, financial
condition and operating results. The automobile industry in particular experiences significant product liability claims, and we
face inherent risk of exposure to claims in the event our electric powertrain solutions do not perform or are claimed to not have
performed as expected. As is true for other commercial vehicle suppliers, we expect in the future that our electrified powertrain
solutions will be installed on vehicles that will be involved in crashes resulting in death or personal injury. Additionally,
product liability claims that affect our competitors may cause indirect adverse publicity for us and our products.
A
successful product liability claim against us could require us to pay a substantial monetary award. Our risks in this area are
particularly pronounced given the relatively limited number of electrified powertrain solutions delivered to date and limited
field experience of our products. Moreover, a product liability claim against us or our competitors could generate substantial
negative publicity about our products and business and could have a material adverse effect on our brand, business, prospects,
financial condition and operating results. In most jurisdictions, we generally self-insure against the risk of product liability
claims for vehicle exposure, meaning that any product liability claims will likely have to be paid from company funds, not by
insurance.
Insufficient
warranty reserves to cover future warranty claims could materially adversely affect our business, prospects, financial condition
and operating results.
Once
we begin commercial production of our electrified powertrain solutions, we will need to maintain warranty reserves to cover warranty-related claims.
If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition
and operating results could be materially and adversely affected. We may become subject to significant and unexpected warranty
expenses as well as claims from our customers, including loss of revenue or damages. There can be no assurances that then-existing warranty
reserves will be sufficient to cover all claims.
Risks
Related to our Production Processes and Supply Chain
We
face significant barriers to produce our electrified powertrain solutions, and if we cannot successfully overcome those barriers
our business will be negatively impacted.
The
commercial trucking industry has traditionally been characterized by significant barriers to entry, including the ability to meet
performance requirements or industry specifications, acceptance by OEMs and our end users, large capital requirements, investment
costs of design and production, long lead times to bring components to market from the concept and design stage, the need for
specialized design and development expertise, regulatory requirements, establishing a brand name and image and the need to establish
sales capabilities. If we are not able to overcome these barriers, our business, prospects, financial condition and operating
results will be negatively impacted and our ability to grow our business will be harmed.
Our success will
depend on our ability to economically outsource the production, assembly and installation of our electrified powertrain solutions
at scale, and our ability to develop and produce electrified powertrain solutions of sufficient quality and appeal to customers
on schedule and at scale is unproven.
Our business depends
in large part on our ability to execute our plans to develop, produce, assemble, market, sell, install and service our electrified
powertrain solutions. We currently produce our Demonstrator Hybrid system at our facility in Cedar Park, Texas and expect to begin
production of our next generation Hybrid system in 2021, at the earliest, and our Hypertruck ERX system in 2022, at the earliest,
in each case at our outsourcing partners’ facilities. We anticipate that a significant concentration of this production,
assembly and installation will be performed by a small number of outsourcing partners. While these arrangements can lower operating
costs, they also reduce our direct control over production and distribution. Such diminished control may have an adverse effect
on the quality or quantity of products or services, or our flexibility to respond to changing conditions.
Production
or logistics in supply or production areas or transit to final destinations can be disrupted for a variety of reasons including,
but not limited to, natural and man-made disasters, information technology system failures, commercial disputes, military
actions, economic, business, labor, environmental, public health or political issues or international trade disputes.
Our continued development
of our electrified powertrain solutions is and will be subject to risks, including with respect to:
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the
equipment we plan to use being able to accurately produce our electrified powertrain
solutions within specified design tolerances;
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the
compatibility of our electrified powertrain solutions with existing and future commercial
vehicle designs;
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long-
and short-term durability of the components in our electrified powertrain solutions
in the day-to-day wear and tear of the commercial trucking environment;
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compliance
with environmental, workplace safety and similar regulations;
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securing
necessary components on acceptable terms and in a timely manner;
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delays
in delivery of final component designs to our suppliers;
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our
ability to attract, recruit, hire and train skilled employees;
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quality
controls, particularly as we plan to expand our production capabilities;
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delays
or disruptions in our supply chain;
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other
delays and cost overruns; and
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our
ability to secure additional funding if necessary.
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Our
production facilities, the production facilities of our outsourcing partners and suppliers and the equipment used to produce our
electrified powertrain solutions would be costly to replace and could require substantial lead time to replace and qualify for
use, which may render it difficult or impossible for us to produce our electrified powertrain solutions for some period of time.
The inability to produce our electrified powertrain solutions or the backlog that could develop if our production facilities and
the production facilities of our outsourcing partners and suppliers are inoperable for even a short period of time may result
in the loss of customers or harm our reputation. Although we maintain insurance for damage to our property and the disruption
of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available
to us on acceptable terms, if at all.
We and our future
production partners have no experience to date in high volume production of our electrified powertrain solutions. We do not know
whether we or our future production partners will be able to develop efficient, automated, low-cost production capabilities
and processes and reliable sources of component supply, that will enable us to meet the quality, price, engineering, design and
production standards, as well as the production volumes, required to successfully mass market our electrified powertrain solutions.
Even if we and our future production partners are successful in developing our high-volume production capability and processes
and reliably source our component supply, we do not know whether we will be able to do so in a manner that avoids significant
delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, or
in time to meet our vehicle commercialization schedules or to satisfy the requirements of customers. Any failure to develop such
production processes and capabilities within our projected costs and timelines could have a material adverse effect on our business,
prospects, financial condition and operating results.
We may experience
significant delays in the design, production and launch of our electrified powertrain solutions, which could harm our business,
prospects, financial condition and operating results.
Our electrified powertrain
solutions are still in the development and testing phase, and commercial deliveries of the Hybrid systems and the Hypertruck ERX
system are not expected to begin until 2021 and 2022, respectively, and may occur later or not at all. Any delay in the financing,
design, production and launch of our electrified powertrain solutions, including future production of our next generation Hybrid
system and Hypertruck ERX system at our outsourcing partners, could materially damage our brand, business, prospects, financial
condition and operating results. There are often delays in the design, production and commercial release of new products, and to
the extent we delay the launch of our electrified powertrain solutions, our growth prospects could be adversely affected as we
may fail to grow our market share. We will rely on our outsourcing partners to produce our electrified powertrain solutions at
scale, and if they are not able produce products that meet our specifications, we may need to expand our production capabilities,
which would cause us to incur additional costs. Furthermore, we rely on third-party suppliers for the provision and development
of many of the key components and materials used in our electrified powertrain solutions, and to the extent they experience any
delays, we may need to seek alternative suppliers. If we experience delays by our third-party outsourcing partners or suppliers,
we could experience delays in delivering on our timelines.
We, our outsourcing
partners and our suppliers may rely on complex machinery for our production, which involves a significant degree of risk and uncertainty
in terms of operational performance and costs.
We, our outsourcing
partners and our suppliers may rely on complex machinery for the production, assembly and installation of our electrified powertrain
solutions, which will involve a significant degree of uncertainty and risk in terms of operational performance and costs. Our
production facilities and the facilities of our outsourcing partners and suppliers consist of large-scale machinery combining
many components. These components may suffer unexpected malfunctions from time to time and will depend on repairs and spare parts
to resume operations, which may not be available when needed. Unexpected malfunctions of these components may significantly affect
the intended operational efficiency. Operational performance and costs can be difficult to predict and are often influenced by
factors outside of our control, such as, but not limited to, scarcity of natural resources, environmental hazards and remediation,
costs associated with decommissioning of machines, labor disputes and strikes, difficulty or delays in obtaining governmental
permits, damages or defects in electronic systems, industrial accidents, fire, seismic activity and natural disasters. Should
operational risks materialize, it may result in the personal injury to or death of workers, the loss of production equipment,
damage to production facilities, monetary losses, delays and unanticipated fluctuations in production, environmental damage, administrative
fines, increased insurance costs and potential legal liabilities, all which could have a material adverse effect on our business,
prospects, financial condition or operating results.
We are dependent
on large commercial vehicle OEMs and producers of glider kits and rolling chassis to provide vehicles for our electrified powertrain
solutions.
Because we do not
manufacture complete commercial vehicles, we are dependent on commercial vehicle OEMs and producers of glider kits and rolling
chassis to provide vehicle chassis for our electrified powertrain solutions. If OEMs are unable or unwilling to integrate the
installation of our electrified powertrain solutions into their commercial vehicle production lines, we may have to rely on producers
of glider kits and rolling chassis and commercial truck upfitting and modification companies. To the extent that there are limitations
on the availability of glider kits or rolling chassis, either due to the unwillingness or inability of OEMs and producers to produce
and provide them to us or our installation partners, or a change in governmental regulations or policies, we would need to develop
our own commercial vehicle on which to install our electrified powertrain solutions. Either case could have a negative impact
on our ability to sell our electrified powertrain solutions at the prices, or achieve the margins, or in the timeframes that we
anticipate. Additionally, if commercial vehicle OEMs limit or fail to provide a warranty on vehicles with our electrified powertrain
solutions, we will incur additional costs by contracting with a third party to provide warranty services. Any of the foregoing
would have a material adverse effect on our business, prospects, financial condition and operating results.
We will rely on
third parties, including commercial truck upfitting and modification companies and commercial vehicle OEMs, to install our electrified
powertrain solutions in vehicles, which is subject to risks.
We intend to enter
into agreements with commercial truck upfitting and modification companies and commercial vehicle OEMs to install our electrified
powertrain solutions. Using third-party contract manufacturers and installers for the production and installation of our
electrified powertrain solutions is subject to risks with respect to operations that are outside our control. We could experience
delays if our outsourcing partners do not meet agreed upon timelines or experience capacity constraints that make it impossible
for us to fulfill purchase orders on time or at all. The installation of our solutions may also void the warranty of a vehicle
or a vehicle’s components, such as our engine and transmission, which may reduce customer demand for our solutions. Additionally,
we may permit returns of vehicles installed with our electrified powertrain solutions, which may result in significant additional
costs to us if we are required to convert the vehicles back to their original form. There is risk of potential disputes with our
outsourcing partners, and we could be affected by negative publicity related to our partners whether or not such publicity is
related to their collaboration with us. Our ability to successfully build a premium brand could also be adversely affected by
perceptions about the quality of our outsourcing partners’ products. In addition, although we are involved in each step
of the supply chain, production and installation processes, because we also rely on our outsourcing partners and third parties
to meet our quality standards, there can be no assurance that the final product will meet expected quality standards.
We may be unable
to enter into new agreements or extend existing agreements with third-party contract manufacturers and installers on terms
and conditions acceptable to us and therefore may need to contract with other third parties or significantly add to our own production
capacity. There can be no assurance that in such event we would be able to engage other third parties or establish or expand our
own production capacity to meet our needs on acceptable terms or at all. The expense and time required to complete any transition,
and to assure that our electrified powertrain solutions produced at facilities of new producers comply with our quality standards
and regulatory requirements, may be greater than anticipated. Any of the foregoing could adversely affect our business, prospects,
financial condition and operating results.
We are dependent
on our suppliers, some of which are single or limited source suppliers, and the inability of these suppliers to deliver necessary
components of our vehicles at prices and volumes, performance and specifications acceptable to us could have a material adverse
effect on our business, prospects, financial condition and operating results.
We
rely on third-party suppliers, some of whom are single-source suppliers,
for the provision and development of many of the key components and materials used in our electrified powertrain solutions,
such as natural gas generators. Any failure of these suppliers or outsourcing partners
to perform could require us to seek alternative suppliers or to expand our production capabilities, which could incur additional
costs and have a negative impact on our cost or supply of components or finished goods. While we plan to obtain components
from multiple sources whenever possible, some of the components used in our vehicles will be purchased by us from a single source.
Our third-party suppliers may not be able to meet their product specifications and performance characteristics or our desired
specifications, performance and pricing, which would impact our ability to achieve our product specifications and performance
characteristics as well. Additionally, our third-party suppliers may be unable to obtain required certifications for their
products for which we plan to use or provide warranties that are necessary for our solutions. If we are unable to obtain components
and materials used in our electrified powertrain solutions from our suppliers or if our suppliers decide to create or supply a
competing product, our business could be adversely affected. Additionally, we have entered into a commercial matters agreement
with Dana, pursuant to which we agreed to, among other things, purchase from Dana and its affiliates, unless we are
directed by a customer to use a different vendor, any component, product or service required or utilized by us that Dana or any
of its affiliates manufactures, sells or provides or unless Dana is unwilling or unable to supply on reasonably competitive terms
such component, product or service. While we believe that we may be able to establish alternate supply relationships and can obtain
or engineer replacement components for our single source components, we may be unable to do so in the short term (or at all) at
prices or quality levels that are favorable to us, which could have a material adverse effect on our business, prospects, financial
condition and operating results.
Increases
in costs, disruption of supply or shortage of our components, particularly LTO battery cells, could harm our business.
Once
we begin commercial production of our electrified powertrain solutions, we may experience increases in the cost or a sustained
interruption in the supply or shortage of our components. Any such increase or supply interruption could materially negatively
impact our business, prospects, financial condition and operating results. The prices for our components fluctuate depending on
market conditions and global demand and could adversely affect our business, prospects, financial condition and operating results.
For instance, we are exposed to multiple risks relating to price fluctuations for LTO cells. These risks include:
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the
inability or unwillingness of current battery manufacturers to build or operate battery cell production facilities to supply
the numbers of LTO cells required to support the growth of the electric vehicle industry as demand for such cells increases;
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disruption
in the supply of cells due to quality issues or recalls by the battery cell manufacturers;
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a
fewer number of manufacturers of LTO cells compared to lithium nickel manganese cobalt oxide (“NMC”) or lithium
nickel cobalt aluminum oxide (“NCA”) cells; and
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an
increase in the cost of raw materials.
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Any
disruption in the supply of battery cells could temporarily disrupt production of our electrified powertrain solutions until a
different supplier is fully qualified. Moreover, battery cell manufacturers may refuse to supply electric vehicle manufacturers
if they determine that the vehicles are not sufficiently safe. Furthermore, fluctuations or shortages in petroleum and other economic
conditions may cause us to experience significant increases in freight charges. Substantial increases in the prices for raw materials
may increase the cost of our components and consequently, the costs of products. There can be no assurance that we will be able
to recoup increasing costs of our components by increasing prices, which could reduce our margins.
Risks Related to Our Industry and Competitive
Landscape
Our future growth
is dependent upon the commercial trucking industry’s willingness to adopt alternative fuel, hybrid and electric vehicles.
Our growth is highly
dependent upon the adoption of alternative fuel, hybrid and electric vehicles by the commercial trucking industry. If the market
for alternative fuel, hybrid and electric vehicles and our electrified powertrain solutions does not develop at the rate or in
the manner or to the extent that we expect, or if critical assumptions we have made regarding the efficiency of our electrified
powertrain solutions are incorrect or incomplete, our business, prospects, financial condition and operating results will be harmed.
The market for alternative fuels, hybrid and electric vehicles is new and untested and is characterized by rapidly changing technologies,
price competition, numerous competitors, evolving government regulation and industry standards and uncertain customer demands
and behaviors.
Factors that may
influence the adoption of alternative fuel, hybrid and electric vehicles include:
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perceptions
about alternative fuel, hybrid and electric vehicle quality, safety, design, performance,
reliability and cost, especially if adverse events or accidents occur that are linked
to the quality or safety of alternative fuel, hybrid or electric vehicles;
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perceptions
about vehicle safety in general, including the use of advanced technology, such as vehicle
electronics, alternative fuel and regenerative braking systems;
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the
decline of vehicle efficiency resulting from deterioration over time in the ability of
the battery to hold a charge;
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changes
or improvements in the fuel economy of internal combustion engines, the vehicle and the
vehicle controls or competitors’ electrified systems;
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the
availability of service and associated costs for alternative fuel, hybrid or electric
vehicles;
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volatility
in the cost of energy, oil, gasoline, natural gas, hydrogen and renewable fuels could
affect buying decisions, which could affect the carbon profile of our solutions;
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the
availability of refueling stations, particularly compressed natural gas (“CNG”)
stations;
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government
regulations and economic incentives promoting fuel efficiency and alternate forms of
energy, including new regulations mandating zero tailpipe emissions compared to overall
carbon reduction;
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the
availability of tax and other governmental incentives to purchase and operate alternative
fuel, hybrid and electric vehicles or future regulation requiring increased use of nonpolluting
trucks;
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the
availability of rebates provided by natural gas fueling stations and natural gas providers
to offset the costs of natural gas and natural gas vehicles;
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the
ability of Hyliion, fleets, utilities and others to purchase and take credit for renewable
fuel and energy, specifically RNG, through LCFS programs or similar programs that take
advantage of RNG credits in approved states;
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the
availability of tax and other governmental incentives to sell natural gas;
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perceptions
about and the actual cost of alternative fuel itself, as well as hybrid and electric
vehicles; and
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For example, if the
market price of oil is low, there may be corresponding decreases in the cost of diesel fuel, which may impact the market for electric
vehicles. Additionally, we may become subject to regulations that may require us to alter the design of our electrified powertrain
solutions, which could negatively impact customer interest in our products.
Although we hope to be among the
first to bring electrified powertrain solutions to market, competitors have already displayed electrified vehicle prototypes and
may enter the market before us.
We face intense competition
in trying to be among the first to bring electrified powertrain solutions to market. Most of our current and potential competitors
have greater financial, technical, manufacturing, marketing and other resources than we do. They may be able to deploy greater
resources to the design, development, manufacturing, distribution, promotion, sales, marketing and support of their alternative
fuel and electric truck programs. Additionally, our competitors also have greater name recognition, longer operating histories,
larger sales forces, broader customer and industry relationships and other resources than we do. These competitors also compete
with us in recruiting and retaining qualified research and development, sales, marketing and management personnel, as well as in
acquiring technologies complementary to, or necessary for, our products. Additional mergers and acquisitions may result in even
more resources being concentrated in our competitors. We cannot provide assurances that our electrified systems will be the first
to market. Even if our electrified systems are first, or among the first, to market, there are no assurances that customers will
choose vehicles with our electrified systems over those of our competitors, or over diesel powered trucks.
Tesla, Inc. and Nikola
have announced their plans to bring Class 8 long haul BEVs and FCEVs to the market over the coming years. Tesla announced its
BEV and Nikola announced its plug-in BEVs. Cummins, Daimler, parent of Freightliner Trucks, Dana, Navistar, PACCAR, parent
of Kenworth Trucks, Inc. and Peterbilt Motors Company, Volvo, XOS and other commercial vehicle manufacturers have announced their
plans to bring Class 8 BEVs or FCEVs to the market. Furthermore, we will also face competition from manufacturers of internal
combustion engines powered by diesel fuel. We expect additional competitors to enter the industry as well.
We expect competition
in our industry to intensify from our existing and future competitors in the future in light of increased demand and regulatory
push for alternative fuel and electric vehicles.
Developments in
alternative technology or improvements in the internal combustion engine may adversely affect the demand for our electrified powertrain
solutions.
Significant developments
in alternative technologies, such as battery cell technology, advanced diesel, ethanol or natural gas, or improvements in the
fuel economy of the internal combustion engine, may materially and adversely affect our business, prospects, financial condition
and operating results in ways we do not currently anticipate. Existing and other battery cell technologies, fuels or sources of
energy may emerge as customers’ preferred alternative to our electrified powertrain solutions. Any failure by us to develop
new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development
and introduction of new and enhanced alternative fuel and electric vehicles, which could result in the loss of competitiveness
of our electrified powertrain solutions, decreased revenue and a loss of market share to competitors. Our research and development
efforts may not be sufficient to adapt to changes in alternative fuel and electric vehicle technology. As technologies change,
we plan to upgrade or adapt our electrified powertrain solutions with the latest technology, in particular battery cell technology,
which may also negatively impact the adoption of other our products. However, our electrified powertrain solutions may not compete
effectively with alternative systems if we are not able to source and integrate the latest technology into our electrified powertrain
solutions.
Risks Related to Technology,
Data and Privacy-Related Matters
We are subject
to cybersecurity risks to operational systems, security systems, infrastructure, integrated software in our electrified powertrain
solutions and customer data processed by us or third-party vendors or suppliers and any material failure, weakness, interruption,
cyber event, incident or breach of security could prevent us from effectively operating our business.
We are at risk for
interruptions, outages and breaches of: (a) operational systems, including business, financial, accounting, product development,
data processing or production processes, owned by us or our third-party vendors or suppliers; (b) facility security
systems, owned by us or our third-party vendors or suppliers; (c) transmission control modules or other in-product technology,
owned by us or our third-party vendors or suppliers; (d) the integrated software in our electrified powertrain solutions;
or (e) customer or driver data that we process or our third-party vendors or suppliers process on our behalf. Such cyber
incidents could: materially disrupt operational systems; result in loss of intellectual property, trade secrets or other proprietary
or competitively sensitive information; compromise certain information of customers, employees, suppliers, drivers or others;
jeopardize the security of our facilities; or affect the performance of transmission control modules or other in-product technology
and the integrated software in our electrified powertrain solutions. A cyber incident could be caused by disasters, insiders
(through inadvertence or with malicious intent) or malicious third parties (including nation-states or nation-state supported
actors) using sophisticated, targeted methods to circumvent firewalls, encryption and other security defenses, including hacking,
fraud, trickery or other forms of deception. The techniques used by cyber attackers change frequently and may be difficult to
detect for long periods of time. Although we maintain information technology measures designed to protect ourselves against intellectual
property theft, data breaches and other cyber incidents, such measures will require updates and improvements, and we cannot guarantee
that such measures will be adequate to detect, prevent or mitigate cyber incidents. The implementation, maintenance, segregation
and improvement of these systems requires significant management time, support and cost. Moreover, there are inherent risks associated
with developing, improving, expanding and updating current systems, including the disruption of our data management, procurement,
production execution, finance, supply chain and sales and service processes. These risks may affect our ability to manage our
data and inventory, procure parts or supplies or produce, sell, deliver and service our electric powertrain solutions, adequately
protect our intellectual property or achieve and maintain compliance with, or realize available benefits under, applicable laws,
regulations and contracts. We cannot be sure that these systems upon which we rely, including those of our third-party vendors
or suppliers, will be effectively implemented, maintained or expanded as planned. If we do not successfully implement, maintain
or expand these systems as planned, our operations may be disrupted, our ability to accurately and timely report our financial
results could be impaired, and deficiencies may arise in our internal control over financial reporting, which may impact our ability
to certify our financial results. Moreover, our proprietary information or intellectual property could be compromised or misappropriated,
and our reputation may be adversely affected. If these systems do not operate as we expect them to, we may be required to expend
significant resources to make corrections or find alternative sources for performing these functions.
A significant cyber
incident could impact production capability, harm our reputation, cause us to breach our contracts with other parties or subject
us to regulatory actions or litigation, any of which could materially affect our business, prospects, financial condition and
operating results. In addition, our insurance coverage for cyberattacks may not be sufficient to cover all the losses we may experience
as a result of a cyber incident.
We also collect,
store, transmit and otherwise process customer, driver and employee and others’ data as part of our business and operations,
which may include personal data or confidential or proprietary information. We also work with partners and third-party service
providers or vendors that collect, store and process such data on our behalf and in connection with our products and services.
There can be no assurance that any security measures that we or our third-party service providers or vendors have implemented
will be effective against current or future security threats. While we have developed systems and processes designed to protect
the availability, integrity, confidentiality and security of our and our customers’, drivers’, employees’ and
others’ data, our security measures or those of our third-party service providers or vendors could fail and result
in unauthorized access to or disclosure, acquisition, encryption, modification, misuse, loss, destruction or other compromise
of such data. If a compromise of such data were to occur, we may become liable under our contracts with other parties and under
applicable law for damages and incur penalties and other costs to respond to, investigate and remedy such an incident. Laws in
all 50 states require us to provide notice to customers, regulators, credit reporting agencies and others when certain sensitive
information has been compromised as a result of a security breach. Such laws are inconsistent and compliance in the event of a
widespread data breach could be costly. Depending on the facts and circumstances of such an incident, these damages, penalties,
fines and costs could be significant. Such an event could harm our reputation and result in litigation against us. Any of these
results could materially adversely affect our business, prospects, financial condition and operating results.
Any unauthorized
control or manipulation of the information technology systems in our electrified powertrain solutions could result in loss of
confidence in us and our electrified powertrain solutions and harm our business.
Our electrified powertrain
solutions contain complex information technology systems and built-in data connectivity to accept and install periodic remote
updates to improve or update functionality. We have designed, implemented and tested security measures intended to prevent unauthorized
access to our information technology networks, our electrified powertrain solutions and related systems. However, hackers may
attempt to gain unauthorized access to modify, alter and use such networks, trucks and systems to gain control of or to change
our electrified powertrain solutions’ functionality, user interface and performance characteristics, or to gain access to
data stored in or generated by the truck. Future vulnerabilities could be identified and our efforts to remediate such vulnerabilities
may not be successful. Any unauthorized access to or control of our electrified powertrain solutions, or any loss of customer
data, could result in legal claims or proceedings and remediation of such problems could result in significant, unplanned capital
expenditures. In addition, regardless of their veracity, reports of unauthorized access to our electrified powertrain solutions
or data, as well as other factors that may result in the perception that our electrified powertrain solutions or data are capable
of being “hacked,” could negatively affect our brand and harm our business, prospects, financial condition and operating
results.
Inability to leverage
vehicle and customer data could impact our software algorithms and impact research and development operations.
We rely on data collected
from the use of fleet vehicles outfitted with our products, including vehicle data and data related to battery usage statistics.
We use this data in connection with our software algorithms and the research, development and analysis of our products. Our inability
to obtain this data or the necessary rights to use this data could result in delays or otherwise negatively impact our research
and development efforts.
We may need to
defend ourselves against patent, copyright or trademark infringement claims or trade secret misappropriation claims, which may
be time-consuming and cause us to incur substantial costs.
Companies, organizations
or individuals, including our competitors, may own or obtain patents, trademarks or other proprietary rights that would prevent
or limit our ability to make, use, develop or sell our electrified powertrain solutions, which could make it more difficult for
us to operate our business. We may receive inquiries from patent, copyright or trademark owners inquiring whether we infringe
upon their proprietary rights. We may also be the subject of allegations that we have misappropriated their trade secrets or other
proprietary rights. Companies owning patents or other intellectual property rights relating to battery packs, electric motors,
fuel cells or electronic power management systems may allege infringement or misappropriation of such rights. In response to a
determination that we have infringed upon or misappropriated a third party’s intellectual property rights, we may be required
to do one or more of the following:
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cease
development, sales or use of our products that incorporate the asserted intellectual
property;
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pay
substantial damages;
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obtain
a license from the owner of the asserted intellectual property right, which license may
not be available on reasonable terms or at all; or
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redesign
one or more aspects or systems of our electrified powertrain solutions.
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A successful claim
of infringement or misappropriation against us could materially adversely affect our business, prospects, financial condition
and operating results. Any litigation or claims, whether valid or invalid, could result in substantial costs and diversion of
resources.
Our business may
be adversely affected if we are unable to protect our intellectual property rights from unauthorized use by third parties.
Failure to adequately
protect our intellectual property rights could result in our competitors offering similar products, potentially resulting in the
loss of some of our competitive advantage and a decrease in our revenue, which would adversely affect our business, prospects,
financial condition and operating results. Our success depends, at least in part, on our ability to protect our core technology
and intellectual property. To accomplish this, we will rely on a combination of patents, trade secrets (including know-how), employee
and third-party nondisclosure agreements, copyrights, trademarks, intellectual property licenses and other contractual rights
to establish and protect our rights in our technology.
The protection of
our intellectual property rights will be important to our future business opportunities. However, the measures we take to protect
our intellectual property from unauthorized use by others may not be effective for various reasons, including the following:
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any
patent applications we submit may not result in the issuance of patents;
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the
scope of our issued patents, including our patent claims, may not be broad enough to
protect our proprietary rights;
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our
issued patents may be challenged or invalidated by our competitors;
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our
employees, consultants or business partners may breach their confidentiality, non-disclosure and
non-use obligations to us;
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third-parties may
independently develop technologies that are the same or similar to our;
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the
costs associated with enforcing patents, confidentiality and invention agreements or
other intellectual property rights may make enforcement impracticable; and
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current
and future competitors may circumvent our intellectual property.
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Patent, trademark,
copyright and trade secret laws vary throughout the world. Some foreign countries do not protect intellectual property rights
to the same extent as do the laws of the U.S. Further, policing the unauthorized use of our intellectual property in foreign jurisdictions
may be difficult. Therefore, our intellectual property rights may not be as strong or as easily enforced outside of the U.S.
Also, while we have
registered trademarks in an effort to protect our investment in our brand and goodwill with customers, competitors may challenge
the validity of those trademarks and other brand names in which we have invested. Such challenges can be expensive and may adversely
affect our ability to maintain the goodwill gained in connection with a particular trademark.
Our intellectual
property applications for registration may not issue or be registered, which may have a material adverse effect on our ability
to prevent others from commercially exploiting products similar to ours.
We cannot be certain
that we are the first inventor of the subject matter to which we have filed a particular patent application, or if we are the
first party to file such a patent application. If another party has filed a patent application to the same subject matter as we
have, we may not be entitled to the protection sought by the patent application. We also cannot be certain whether the claims
included in a patent application will ultimately be allowed in the applicable issued patent. Further, the scope of protection
of issued patent claims is often difficult to determine. As a result, we cannot be certain that the patent applications that we
file will issue, or that our issued patents will afford protection against competitors with similar technology. In addition, our
competitors may design around our issued patents, which may adversely affect our business, prospects, financial condition and
operating results.
Risks Related to
Environmental and Regulatory Matters
The unavailability, reduction or
elimination of government and economic incentives for alternative fuel use due to policy changes or government regulation could
have a material adverse effect on our business, prospects, financial condition and operating results.
Any reduction, elimination
or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for
such subsidies and incentives due to the perceived success of the electric vehicle industry or other reasons may result in the
diminished competitiveness of the alternative fuel and electric vehicle industry generally or our electrified powertrain solutions.
While certain tax credits and other incentives for alternative energy production, alternative fuel and electric vehicles have
been available in the past, there is no guarantee these programs will be available in the future. If current tax incentives are
not available in the future, our financial position could be harmed.
In particular, we
are influenced by federal, state and local tax credits, rebates, grants and other government programs and incentives that promote
the use of RNG and natural gas as a vehicle fuel. These include various government programs that make grant funds available for
the purchase of natural gas vehicles, as well as D3 RIN and LCFS programs, which encourage low carbon “compliant”
transportation fuels (including CNG) in the California and Oregon marketplace by allowing producers of these fuels to generate
LCFS Credits that can be sold to noncompliant regulated parties and the AFTC under which a tax credit is available for natural
gas vehicle fuel sales made through the end of 2020 but which may not be available for vehicle fuel sales made after December 31,
2020, particularly if other legislative priorities result in insufficient focus on this program during upcoming congressional
sessions. Additionally, we are influenced by laws, rules and regulations that require reductions in carbon emissions or the use
of renewable fuels, such as the California Low Carbon Fuel Standards and the Oregon Clean Fuels Program. These programs and regulations,
which have the effect of encouraging the use of natural gas as a vehicle fuel, could expire or be repealed or amended for a variety
of reasons. For example, parties with an interest in gasoline and diesel, electric or other alternative vehicles or vehicle fuels,
including lawmakers, regulators, policymakers, environmental or advocacy organizations, OEMs, trade groups, suppliers or other
powerful groups, may invest significant time and money in efforts to delay, repeal or otherwise negatively influence regulations
and programs that promote natural gas. Many of these parties have substantially greater resources and influence than we do. Further,
changes in federal, state or local political, social or economic conditions, including a lack of legislative focus on these programs
and regulations, could result in their modification, delayed adoption or repeal. Any failure to adopt, delay in implementation,
expiration, repeal or modification of these programs and regulations, or the adoption of any programs or regulations that encourage
the use of other alternative fuels or alternative vehicles over natural gas, would reduce the market for natural gas as a vehicle
fuel and harm our operating results, liquidity and financial condition. For instance, California lawmakers and regulators have
implemented various measures designed to increase the use of electric, hydrogen and other zero-emission vehicles, including
establishing firm goals for the number of these vehicles operating on state roads by specified dates and enacting various laws
and other programs in support of these goals. Although the influence and applicability of these or similar measures on our business
and natural gas vehicle adoption in general remains uncertain, a focus by these groups on zero tailpipe emissions vehicles over
vehicles with an overall net carbon negative emissions profile, but with some tailpipe emissions operating on RNG, could adversely
affect the market for natural gas vehicles, including those powered by our electrified powertrain solutions. If these economic
incentives are reduced or eliminated, there could be a reduction of the supply of natural gas, a corresponding increase in the
price of natural gas, and our electrified powertrain solutions may not be net carbon negative, which could have a material adverse
effect on our business, prospects, financial condition and operating results.
Additionally, other
changes to governmental regulations and policies could impact the competitiveness of natural gas as a fuel source. For instance,
a limitation or ban on extraction methods like fracking, could have a negative impact on the availability and price of natural
gas and may adversely affect the growth of the alternative fuel automobile markets. Additionally, an increase in the economic
incentives for other fuel sources or BEVs, such as through the subsidization of other fuel sources or higher permitted weight
limits for BEVs or FCEVs or the reduction or elimination of the higher permitted weight limits for natural gas vehicles, could
make our products less competitive. Such changes in regulations and policies could materially and adversely affect our business,
prospects, financial condition and operating results.
We
are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in building
our production facilities.
Our
operations are and will be subject to international, federal, state and local environmental laws and regulations, including laws
relating to the use, handling, storage, disposal of and human exposure to hazardous materials. Environmental and health and safety
laws and regulations can be complex, and we have limited experience complying with them. Moreover, we expect that we will be affected
by future amendments to such laws or other new environmental and health and safety laws and regulations which may require us to
change our operations, potentially resulting in a material adverse effect on our business, prospects, financial condition and operating
results. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury,
fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant,
and violations may result in substantial fines and penalties, third-party damages, suspension of production or a cessation
of our operations.
Contamination
at properties we will own or operate, we formerly owned or operated or to which hazardous substances were sent by us, may result
in liability for us under environmental laws and regulations, including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act, which can impose liability for the full amount of remediation-related costs without regard
to fault, for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human
health and for damages to natural resources. The costs of complying with environmental laws and regulations and any claims concerning
noncompliance, or liability with respect to contamination in the future, could have a material adverse effect on our financial
condition or operating results. We may face unexpected delays in obtaining the required permits and approvals in connection with
our planned production facilities that could require significant time and financial resources and delay our ability to operate
these facilities, which would adversely impact our business, prospects, financial condition and operating results.
Our business could
be negatively affected by unfavorable changes to federal or state tax laws or the adoption of federal or state laws or regulations
mandating new or additional limits on the production of GHG emissions, the cost of natural gas and “tailpipe” emissions.
Federal or state
laws or regulations may be adopted that would impose new or additional limits on the emissions of GHG. The potential effects of
GHG emission limits on our business are subject to significant uncertainties based on, among other things, the timing of the implementation
of any new requirements, the required levels of emission reductions, the nature of any market-based or tax-based mechanisms
adopted to facilitate reductions, the relative availability of GHG emission reduction offsets, the development of cost-effective,
commercial-scale carbon capture and storage technology and supporting regulations and liability mitigation measures, the
range of available compliance alternatives, and our ability to demonstrate that our products qualify as a compliance alternative
under any new statutory or regulatory programs to limit GHG emissions. If our solutions are not able to meet future GHG emission
limits or perform as well as BEV, FCEV or other alternative fuel vehicles, for instance due to unavailability of RNG in a particular
area or a decline in RNG production or an increase in our cost, our solutions could be less competitive. Additionally, federal,
state or road taxes could be added to natural gas fuel, which would increase the operating cost of our products. Furthermore,
additional federal or state taxes could be implemented on “tailpipe” emissions, which would have a negative impact
on the cost of our products and a positive impact on the cost of BEVs and FCEVs relative to our solutions. Such new federal or
state laws or regulations could have a material adverse impact on our business, prospects, financial condition and operating results.
We, our outsourcing
partners and our suppliers are or may be subject to substantial regulation and unfavorable changes to, or failure by us, our outsourcing
partners or our suppliers to comply with, these regulations could substantially harm our business and operating results.
Our electrified powertrain
solutions, and the sale of motor vehicles in general, our outsourcing partners and our suppliers are or may be subject to substantial
regulation under international, federal, state and local laws. We continue to evaluate requirements for licenses, approvals, certificates
and governmental authorizations necessary to manufacture, sell or service our electrified powertrain solutions in the jurisdictions
in which we plan to operate and intend to take such actions necessary to comply. We may experience difficulties in obtaining or
complying with various licenses, approvals, certifications and other governmental authorizations necessary to manufacture, sell
or service their electrified powertrain solutions in any of these jurisdictions. For instance, our electrified powertrain solutions
are novel technology that may not be readily classified into categories by governmental agencies. If we, our outsourcing partners
or our suppliers are unable to obtain or comply with any of the licenses, approvals, certifications or other governmental authorizations
necessary to carry out our operations in the jurisdictions in which we currently operate, or those jurisdictions in which we plan
to operate in the future, our business, prospects, financial condition and operating results could be materially adversely affected.
We expect to incur significant costs in complying with these regulations. For example, if the battery packs installed in our electrified
powertrain solutions are deemed to be transported, we will need to comply with the mandatory regulations governing the transport
of “dangerous goods,” and any deficiency in compliance may result in us being prohibited from selling our electrified
powertrain solutions until compliant batteries are installed. Additionally, although we do not believe that our current after-market
Hybrid system is required to obtain certifications from the EPA in the event that regulators determine that certifications are
necessary, we may be prohibited from selling our Hybrid system until such time as we obtain the required certifications. Any such
required changes to our battery packs or Hybrid system will require additional expenditures and may delay the shipment of vehicles.
In addition, regulations related to the electric and alternative energy vehicle industry are evolving and we face risks associated
with changes to these regulations, including but not limited to:
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increased
subsidies for corn and ethanol production, which could reduce the operating cost of vehicles
that use ethanol or a combination of ethanol and gasoline;
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increased
support for other alternative fuel systems, which could have an impact on the acceptance
of our electric powertrain system; and
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increased
sensitivity by regulators to the needs of established automobile manufacturers with large
employment bases, high fixed costs and business models based on the internal combustion
engine, which could lead them to pass regulations that could reduce the compliance costs
of such established manufacturers or mitigate the effects of government efforts to promote
alternative fuel vehicles.
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To the extent the
laws change, our electrified powertrain solutions and our suppliers’ products may not comply with applicable international,
federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be
burdensome, time consuming and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects,
financial condition and operating results would be adversely affected.
We are subject
to evolving laws, regulations, standards and contractual obligations related to data privacy and security, and our actual or perceived
failure to comply with such obligations could harm our reputation, subject us to significant fines and liability or adversely
affect our business.
We intend to use
our in-vehicle services and functionality to log information about each vehicle’s use in order to aid us in vehicle
diagnostics and servicing. Our customers or their drivers may object to the use of this data, which may increase our vehicle maintenance
costs and harm our business prospects. Collection of our customers’, employees’ and others’ information in conducting
our business may subject us to various legislative and regulatory burdens related to data privacy and security that could require
notification of data breaches, restrict our use of such information and hinder our ability to acquire new customers or market
to existing customers. The regulatory framework for data privacy and security is rapidly evolving, and we may not be able to monitor
and react to all developments in a timely manner. For example, California requires connected devices to maintain minimum information
security requirements. As legislation continues to develop, we will likely be required to expend significant additional resources
to continue to modify or enhance our protective measures and internal processes to comply with such legislation. In addition,
non-compliance with these laws or a significant breach of our third-party service providers’ or vendors’
or our own network security and systems could have serious negative consequences for our business and future prospects, including
possible fines, penalties and damages, reduced customer demand for our vehicles and harm to our reputation and brand.
We are subject to U.S. and foreign
anti-corruption and anti-money laundering laws and regulations. We can face criminal liability and other serious consequences for
violations, which can harm our business.
We are subject to
the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201,
the U.S. Travel Act, the USA PATRIOT Act and possibly other anti-bribery and anti-money laundering laws in countries
in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents,
contractors and other collaborators from authorizing, promising, offering or providing, directly or indirectly, improper payments
or anything else of value to recipients in the public or private sector. We can be held liable for the corrupt or other illegal
activities of our employees, agents, contractors and other collaborators, even if we do not explicitly authorize or have actual
knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal
fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and
fraud litigation, reputational harm and other consequences.
We are subject to governmental export
and import control laws and regulations. Our failure to comply with these laws and regulations could have an adverse effect on
our business, prospects, financial condition and operating results.
Our products and solutions
are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs
regulations and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of
Foreign Assets Control. U.S. export control laws and regulations and economic sanctions prohibit the shipment of certain products
and services to U.S. embargoed or sanctioned countries, governments and persons. In addition, complying with export control and
sanctions regulations for a particular sale may be time-consuming and result in the delay or loss of sales opportunities.
Exports of our products and technology must be made in compliance with these laws and regulations. If we fail to comply with these
laws and regulations, we and certain of our employees could be subject to substantial civil or criminal penalties, including the
possible loss of export or import privileges, fines, which may be imposed on us and responsible employees or managers and, in extreme
cases, the incarceration of responsible employees or managers.
In addition, changes
in our products or solutions or changes in applicable export or import laws and regulations may create delays in the introduction
and sale of our products and solutions in international markets, increase costs due to changes in import and export duties and
taxes, prevent our customers from deploying our products and solutions or, in some cases, prevent the export or import of our products
and solutions to certain countries, governments or persons altogether. Any change in export or import laws and regulations, shift
in the enforcement or scope of existing laws and regulations, or change in the countries, governments, persons or technologies
targeted by such laws and regulations, could also result in decreased use of our products and solutions or in our decreased ability
to export or sell our products and solutions to customers. Any decreased use of our products and solutions or limitation on our
ability to export or sell our products and solutions would likely adversely affect our business, prospects, financial condition
and operating results.
Changes in laws
or regulations and U.S. trade policy, including the imposition of tariffs and the resulting consequences, could adversely affect
our business, prospects, financial condition and operating results.
We are subject to
laws and regulations enacted by national, regional and local governments and agencies. Compliance with, and monitoring of, applicable
laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application
may also change from time to time and those changes could have a material adverse effect on our products and business. In addition,
a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our
business and results of operations.
The U.S. government
has adopted a new approach to trade policy and in some cases has attempted to renegotiate or terminate certain existing bilateral
or multi-lateral trade agreements. It has also imposed tariffs on certain foreign goods, including steel and certain commercial
vehicle parts, which have begun to result in increased costs for goods imported into the U.S. In response to these tariffs, a
number of U.S. trading partners have imposed retaliatory tariffs on a wide range of U.S. products, which makes it more costly
for us to export our products to those countries. If we are unable to pass price increases on to our customer base or otherwise
mitigate the costs, or if demand for our exported products decreases due to the higher cost, our operating results could be materially
adversely affected. In addition, further tariffs have been proposed by the U.S. and our trading partners and additional trade
restrictions could be implemented on a broader range of products or raw materials. The resulting environment of retaliatory trade
or other practices could have a material adverse effect on our business, prospects, financial condition, operating results, customers,
suppliers and the global economy.
We intend in the
future to expand internationally and will face risks associated with our international operations, including unfavorable regulatory,
political, tax and labor conditions, which could harm our business.
We will face risks
associated with our future international operations, including possible unfavorable regulatory, political, tax and labor conditions,
which could harm our business. We anticipate having international operations which would subject us to the legal, political, regulatory
and social requirements and economic conditions in any future jurisdictions. Additionally, as part of our growth strategy, we
intend to expand our sales and servicing services internationally. However, we have no experience to date selling and servicing
our electrified powertrain solutions internationally and such expansion would require us to make significant expenditures, including
the hiring of local employees and establishing facilities, in advance of generating any revenue. We are subject to a number of
risks associated with international business activities that may increase our costs, impact our ability to sell our electrified
powertrain solutions and require significant management attention. These risks include:
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conforming
our electrified powertrain solutions to various international regulatory requirements
where our electrified powertrain solutions are sold, or homologation;
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difficulties
in obtaining or complying with various licenses, approvals, certifications and other
governmental authorizations necessary to manufacture, sell or service our electrified
powertrain solutions in any of these jurisdictions;
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difficulties in staffing and managing foreign operations;
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difficulties
attracting customers in new jurisdictions;
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difficulties
establishing new partnerships, including with respect to installation centers, assembly
facilities, suppliers and the truck OEMs necessary to install our technology in vehicles;
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foreign
government taxes, regulations and permit requirements, including foreign taxes that We
may not be able to offset against taxes imposed upon we in the U.S., and foreign tax
and other laws limiting our ability to repatriate funds to the U.S.;
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fluctuations
in foreign currency exchange rates and interest rates, including risks related to any
interest rate swap or other hedging activities we undertake;
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U.S.
and foreign government trade restrictions, tariffs and price or exchange controls;
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foreign
labor laws, regulations and restrictions;
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changes
in diplomatic and trade relationships;
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political
instability, natural disasters, global health concerns, including health pandemics such
as the COVID-19 pandemic, war or events of terrorism; and
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the
strength of international economies.
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If we fail to successfully
address these risks, our business, prospects, financial condition and operating results could be materially harmed.
Risks Related to
Capital and Tax Matters
We may need to
raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when
we need them, our business, prospects, financial condition and operating results could be negatively affected.
The design, production,
sale and servicing of our electrified powertrain solutions is capital-intensive. In connection with the consummation of the Business
Combination on October 1, 2020, we raised net proceeds of approximately $516.5 million (net of transaction costs and
expenses). As of December 31, 2020, all outstanding warrants were either exercised or redeemed, with gross proceeds of $140.8
million raised, of which $16.3 million was collected during the first quarter of 2021. However, we may subsequently determine that
additional funds are necessary earlier than anticipated. This capital may be necessary to fund our ongoing operations, continue
research, development and design efforts, create new products and improve infrastructure. We may raise additional funds through
the issuance of equity, equity related or debt securities or through obtaining credit from government or financial institutions.
We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise
additional funds when we need them, our business, prospects, financial condition and operating results could be materially adversely
affected.
Changes in tax
laws may materially adversely affect our business, prospects, financial condition and operating results.
New income, sales,
use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely affect our
business, prospects, financial condition and operating results. Further, existing tax laws, statutes, rules, regulations or ordinances
could be interpreted, changed, modified or applied adversely to us. For example, U.S. federal tax legislation enacted in 2017,
informally titled the Tax Cuts and Jobs Act (the “Tax Act”), enacted many significant changes to the U.S. tax laws.
Future guidance from the IRS with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or
modified in future legislation. The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), has already
modified certain provisions of the Tax Act. In addition, it is uncertain if and to what extent various states will conform to
the Tax Act, the CARES Act or any newly enacted federal tax legislation.
Our ability to
use net operating loss carryforwards and other tax attributes may be limited in connection with the Business Combination or other
ownership changes.
We have incurred
losses during our history and do not expect to become profitable in the near future, and may never achieve profitability. To the
extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any,
until such unused losses expire, if at all. As of December 31, 2020, we had U.S. federal net operating loss carryforwards
of approximately $82.2 million.
Under the Tax Act,
as modified by the CARES Act, U.S. federal net operating loss carryforwards generated in taxable periods beginning after December 31,
2017, may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning
after December 31, 2020, is limited to 80% of taxable income. It is uncertain if and to what extent various states will conform
to the Tax Act or the CARES Act.
Under Section 382
of the Code, substantial changes in our ownership may result in an annual limitation on the amount of net operating loss carryforwards
that could be utilized in the future to offset our taxable income. Generally, this limitation may arise in the event of a cumulative
change in ownership of more than 50% within a three-year period. We have completed such analysis and determined that such an ownership
change occurred in 2017. This will limit the usage of our 2017 and prior year net operating losses, and will cause $2.0 million
of such losses to expire unused, regardless of future taxable income. No other such ownership changes have occurred through December
31, 2020. Due to this, as well as our overall profitability estimate as noted above, we have recorded a full valuation allowance
related to our net operating loss carryforwards and other deferred tax assets due to the uncertainty of the ultimate realization
of the future benefits of those assets.
We may not be
able to obtain or agree on acceptable terms and conditions for all or a significant portion of the government grants, loans and
other incentives for which we may apply. As a result, our business, prospects, financial condition and operating results may be
adversely affected.
We anticipate applying
for federal and state grants, loans and tax incentives under government programs designed to stimulate the economy and support
the production of alternative fuel and electric vehicles and related technologies. We anticipate that in the future there will
be new opportunities for us to apply for grants, loans and other incentives from federal, state and foreign governments. Our ability
to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs
and approval of our applications to participate in such programs. The application process for these funds and other incentives
will likely be highly competitive. We cannot assure you that we will be successful in obtaining any of these additional grants,
loans and other incentives.
Risks Related to
Ownership of Our Securities
Concentration
of ownership among our existing executive officers, directors and their respective affiliates may prevent new investors from influencing
significant corporate decisions.
As of December 31,
2020, our executive officers, directors and their respective affiliates, as a group, beneficially own approximately 35.7% of our
outstanding common stock. As a result, these stockholders are able to exercise a significant level of control over all matters
requiring stockholder approval, including the election of directors, amendment of our Certificate of Incorporation and approval
of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of us or
changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.
Our Certificate
of Incorporation designates specific courts as the exclusive forum for certain stockholder litigation matters, which could limit
the ability of our stockholders to obtain a favorable forum for disputes with us or our directors, officers or employees.
Our Certificate of
Incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against current
or former directors, officers or other employees for breach of fiduciary duty, other similar actions, any other action as to which
the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware and any action or proceeding concerning the validity
of our Certificate of Incorporation or our Bylaws may be brought only in the Court of Chancery in the State of Delaware (or, if
and only if the Court of Chancery of the State of Delaware does not have subject matter jurisdiction thereof, any state court
located in the State of Delaware or, if and only if all such state courts lack subject matter jurisdiction, the federal district
court for the District of Delaware), unless we consent in writing to the selection of an alternative forum. This provision would
not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the federal
courts have exclusive jurisdiction. Our Certificate of Incorporation also provides that, unless we consent in writing to the selection
of an alternative forum, the federal district courts of the U.S. shall be the exclusive forum for the resolution of any complaint
asserting a cause of action arising under the Securities Act. This provision may limit our stockholder’s ability to bring
a claim in a judicial forum that it finds favorable for disputes with us and our directors, officers or other employees and may
have the effect of discouraging lawsuits against our directors, officers and other employees. Furthermore, our stockholders may
be subject to increased costs to bring these claims, and the exclusive forum provision could have the effect of discouraging claims
or limiting investors’ ability to bring claims in a judicial forum that they find favorable.
In addition, the
enforceability of similar exclusive forum provisions in other companies’ certificates of incorporation has been challenged
in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court
could rule that this provision in our Certificate of Incorporation is inapplicable or unenforceable. In March 2020, the Delaware
Supreme Court issued a decision in Salzburg et al. v. Sciabacucchi, which found that an exclusive forum provision providing for
claims under the Securities Act to be brought in federal court is facially valid under Delaware law. We intend to enforce this
provision, but we do not know whether courts in other jurisdictions will agree with this decision or enforce it. If a court were
to find the exclusive forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an
action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business,
prospects, financial condition and operating results.
A significant portion of our total
outstanding shares of our common stock are restricted from immediate resale but may be sold into the market in the near future.
This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial
number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market
that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. As of December
31, 2020, 67.1% of our common stock was subject to transfer restrictions pursuant to the terms of a letter agreement entered into
at the time of the IPO, and may not be transferred until the earlier to occur of (a) one year after the closing or (b) the
date on which we complete a liquidation, merger, stock exchange or other similar transaction that results in all of our public
stockholders having the right to exchange their shares of common stock for cash, securities or other property. Notwithstanding
the foregoing, if the last sale price of our common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock
dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30 trading day period commencing
at least 150 days after the closing, such restricted shares will be released from these transfer restrictions. Upon expiration
of the transfer restrictions, the holders will be eligible to sell their shares into the market.
We may issue additional
shares of common stock or preferred stock, including under our equity incentive plan. Any such issuances would dilute the interest
of our stockholders and likely present other risks.
We may issue a substantial
number of additional shares of common or preferred stock, including under our equity incentive plan. Any such issuances of additional
shares of common or preferred stock:
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may
significantly dilute the equity interests of our investors;
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may
subordinate the rights of holders of common stock if preferred stock is issued with rights
senior to those afforded our common stock;
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could
cause a change in control if a substantial number of shares of our common stock are issued,
which may affect, among other things, our ability to use our net operating loss carry
forwards, if any, and could result in the resignation or removal of our present officers
and directors; and
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may
adversely affect prevailing market prices for our common stock.
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General Risks
We have been, and may in the future
be, adversely affected by the global COVID-19 pandemic, the duration and economic, governmental and social impact of which is difficult
to predict, which may significantly harm our business, prospects, financial condition and operating results.
There has been a widespread
worldwide impact from the COVID-19 pandemic, and we have been, and may in the future be, adversely affected as a result. Numerous
government regulations and public advisories, as well as shifting social behaviors, have temporarily limited or closed non-essential transportation,
government functions, business activities and person-to-person interactions, and the duration of such trends is difficult
to predict. Reduced operations and production line shutdowns at commercial vehicle OEMs due to COVID-19, limitations on travel
by our personnel and personnel of our customers and increased demand for commercial trucks within our customers’ fleets caused
some customers to delay the planned installation of our Hybrid system on their trucks past the second quarter of 2020, and future
delays or shutdowns of commercial vehicle OEMs or our suppliers could impact our ability to meet customer orders. We also instituted
certain temporary cost reduction measures such as reducing or deferring discretionary spending.
The specific timing
and pace of our resumption of normal operations will depend on the status of various government regulations and the readiness of
our suppliers, vendors and workforce. Although we are working to resume meetings with potential customers, we ultimately remain
uncertain how we may be impacted should COVID-19 concerns increase in the future. Moreover, travel restrictions and social
distancing efforts in response to the COVID-19 pandemic may negatively impact the commercial trucking industry, such as reduced
consumer demand for products carried by the commercial trucking industry, for an unknown, but potentially lengthy, period of time.
Our operations and
timelines may also be affected by global economic markets and levels of consumer comfort and spend, which could impact demand in
the worldwide transportation industries. Because the impact of current conditions on an ongoing basis is yet largely unknown, is
rapidly evolving and has been varied across geographic regions, this ongoing assessment will be particularly critical to allow
us to accurately project demand and infrastructure requirements globally and deploy our workforce and other resources accordingly.
If current global market conditions continue or worsen, or if we cannot or do not resume reduced operations at a rate commensurate
with such conditions or resume full operational capacity and are later required to or choose to reduce such operations again, our
business, prospects, financial condition and operating results could be materially harmed.
We will incur increased costs as
a result of operating as a public company, and our management will devote substantial time to new compliance initiatives.
As a result of operating
as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company,
and these expenses may increase even more after we are no longer an emerging growth company, as defined in Section 2(a) of
the Securities Act. As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act,
the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules adopted, and to be adopted, by the SEC and
the NYSE. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.
Moreover, we expect these rules and regulations to substantially increase our legal and financial compliance costs and to make
some activities more time-consuming and costly. The increased costs will increase our net loss. For example, we expect these
rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and
we may be forced to accept reduced policy limits or incur substantially higher costs to maintain the same or similar coverage.
We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact
of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of
directors, our board committees or as executive officers.
The JOBS Act permits “emerging
growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other
public companies that are not emerging growth companies.
We qualify as an “emerging
growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”). As such, we take advantage of certain exemptions from various reporting requirements
applicable to other public companies that are not emerging growth companies, including (a) the exemption from the auditor
attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley
Act, (b) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (c) reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders
may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of
(a) the last day of the fiscal year (i) following March 4, 2024, the fifth anniversary of our IPO, (ii) in which
we have total annual gross revenue of at least $1.07 billion (as adjusted for inflation pursuant to SEC rules from time to time)
or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock
that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (b) the
date on which we have issued more than $1.0 billion in non-convertible debt during the prior three year period.
In addition, Section 107
of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or revised
accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An
emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply
with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected
not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application
dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private
companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which
is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period
difficult or impossible because of the potential differences in accounting standards used.
We cannot predict
if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common
stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock
may be more volatile.
We are or may be subject to risks
associated with strategic alliances or acquisitions and may not be able to identify adequate strategic relationship opportunities,
or form strategic relationships, in the future.
We have entered into
strategic alliances and may in the future enter into additional strategic alliances or joint ventures or minority equity investments,
in each case with various third parties for the production of our electrified powertrain solutions as well as with other collaborators
with capabilities on data and analytics, engineering, installation channels, refueling stations and hydrogen fuel cells. These
alliances subject us to a number of risks, including risks associated with sharing proprietary information, non-performance by
the third party and increased expenses in establishing new strategic alliances, any of which may materially and adversely affect
our business. We may have limited ability to monitor or control the actions of these third parties and, to the extent any of these
strategic third parties suffer negative publicity or harm to their reputation from events relating to their business, we may also
suffer negative publicity or harm to our reputation by virtue of our association with any such third party.
Strategic business
relationships will be an important factor in the growth and success of our business. However, there are no assurances that we will
be able to continue to identify or secure suitable business relationship opportunities in the future or our competitors may capitalize
on such opportunities before we do. Moreover, identifying such opportunities could require substantial management time and resources,
and negotiating and financing relationships involves significant costs and uncertainties. If we are unable to successfully source
and execute on strategic relationship opportunities in the future, our overall growth could be impaired, and our business, prospects,
financial condition and operating results could be materially adversely affected.
When appropriate opportunities
arise, we may acquire additional assets, products, technologies or businesses that are complementary to our existing business.
In addition to possible stockholder approval, we may need approvals and licenses from relevant government authorities for the acquisitions
and to comply with any applicable laws and regulations, which could result in increased delay and costs, and may disrupt our business
strategy if we fail to do so. Furthermore, acquisitions and the subsequent integration of new assets and businesses into our own
require significant attention from our management and could result in a diversion of resources from our existing business, which
in turn could have an adverse effect on our operations. Acquired assets or businesses may not generate the financial results we
expect. Acquisitions could result in the use of substantial amounts of cash, potentially dilutive issuances of equity securities,
the occurrence of significant goodwill impairment charges, amortization expenses for other intangible assets and exposure to potential
unknown liabilities of the acquired business. Moreover, the costs of identifying and consummating acquisitions may be significant.
Our employees
and independent contractors may engage in misconduct or other improper activities, including noncompliance with regulatory standards
and requirements, which could have an adverse effect on our business, prospects, financial condition and operating results.
We are exposed to
the risk that our employees and independent contractors may engage in misconduct or other illegal activity. Misconduct by these
parties could include intentional, reckless or negligent conduct or other activities that violate laws and regulations, including
production standards, U.S. federal and state fraud, abuse, data privacy and security laws, other similar non-U.S. laws or laws
that require the true, complete and accurate reporting of financial information or data. It is not always possible to identify
and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may
not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject
to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions
are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have
a significant impact on our business, prospects, financial condition and operating results, including, without limitation,
the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgement, integrity oversight
and reporting obligations to resolve allegations of non-compliance, imprisonment, other sanctions, contractual damages, reputational
harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our business,
prospects, financial condition and operating results.
Work stoppages or similar difficulties
could significantly disrupt our operations.
A work stoppage, including
due to the COVID-19 pandemic, at the production facilities of one or more of our or our outsourcing partners’, suppliers
and commercial vehicle OEMs could have a material adverse effect on our business. In addition, if a significant customer were to
experience a work stoppage, that customer could halt or limit purchases of our products, which could result in shutting down the
related production facilities. Also, a significant disruption in the supply of a key component due to a work stoppage at one of
our suppliers could result in shutting down production facilities, which could have a material adverse effect on our business.
Our business and operations could
be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur
significant expense, hinder execution of business and growth strategy and impact the price of our common stock.
Shareholder activism,
which could take many forms or arise in a variety of situations, has been increasing recently. Volatility in the price of our
common stock or other reasons may in the future cause us to become the target of securities litigation or shareholder activism.
Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert
management’s and our Board’s attention and resources from our business. Additionally, such securities litigation and
shareholder activism could give rise to perceived uncertainties as to our future, adversely affect its relationships with service
providers and make it more difficult to attract and retain qualified personnel. Also, we may be required to incur significant
legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, the price of our
common stock and could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties
of any securities litigation and shareholder activism.
If securities or industry analysts
do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations
regarding our common stock adversely, the price and trading volume of our common stock could decline.
The trading market
for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us,
our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our
stock adversely, or provide more favorable relative recommendations about our competitors, the price of our common stock would
likely decline. If any analyst who may cover us were to cease their coverage or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which could cause our stock price or trading volume to decline.