Quebec’s Lion Electric Co. transforming an industry by cranking out electric school buses

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In a former hockey equipment factory just northwest of Montreal, Marc Bedard is staking an early claim for Quebec in the electric-vehicle revolution.

Here, in a low-rise building where Bauer Hockey previously assembled elite-level skates for NHL players, Mr. Bedard’s Lion Electric Co. LEV-N is cranking out electric school buses and commercial urban trucks for the Canadian and U.S. markets – and betting it can transform an industry almost as traditional as classroom reading, writing and arithmetic.

It’s Friday morning and the normally ear-splitting sound of workers building battery racks, mounting suspensions and assembling wiring is more of a hum as the regular two-shift-a-day operation is reduced to one heading into the weekend. A gloved employee is gluing a window into a bus – a process fairly unique to Lion, as most other manufacturers embed them into the chassis. Another staffer lies under the hood of a bus nearby working on its high-voltage innards, his redshirted torso barely visible under the hulking metal.

It’s far from the robot-driven, well-oiled automation that’s standard now in the megafactories of Japanese automakers or U.S. machinery groups such as John Deere DE-N. One analyst who recently visited Lion said there were more shop-floor employees than he’d seen at established manufacturers, and that many parts of the production process remain manual – a fact Lion attributes in part to the customization of vehicles for different clients, especially school buses.

Still, the company isn’t some corner garage startup. Okay, one plant employee was eager to see the photos our photographer took of him. But that was more about having a moment of fun on the job than a sign of wide-eyed amateurism.

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Production flow is clearly defined on the Lion factory floor and the company has adopted some of the best practices of long-established heavy equipment makers, according to Michael Shlisky, a stock analyst with D.A. Davidson & Co. in New York, who toured the plant in December. This includes the use of kitting and sequencing, digitalization of processes and the use of third-party logistics services to help manage inventory, he said.

Like Bauer, the first company to make skates with the blade permanently attached to the boot, Mr. Bedard sees Lion as a disrupter in an industry ripe for change. Whether Lion becomes king of the jungle or lunch for its competitors is, for now, less important than the noble mission it sees for itself: Help save the environment and bolster the health of our children. You might not be able to afford a $140,000 Tesla Model X, or even a Nissan Leaf, but your kids will likely soon be riding an EV bus to school.

Some 800 LionC buses and Lion6 trucks are on the road with thousands of kilometres on their odometers for such clients as Amazon.com Inc., Ikea and First Student Inc. As Lion’s founder and chief executive, Mr. Bedard’s big challenge now is to get more of them out the door as quickly as possible or risk losing the first-mover momentum he says is critical to success.

“Ten years ago I was saying we need to get prepared for the storm that’s coming; like EV is going to be something that’s going to hit everyone,” Mr. Bedard said in an interview. “This is happening now. So I feel that we have no time to lose.”

It’s been a decade since Tesla Inc. rolled out its first EV for public sale and North American car culture set out on its slow journey toward electrification. Today, while consumers navigate the challenges of limited vehicle-charging infrastructure and high EV purchase costs, governments are jostling to grab a piece of the emerging pie as the new industry takes shape.

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Ontario is banking on its established auto industry players to drive the electric shift. Last year, the province landed a $5-billion new investment by Stellantis NV and LG Energy Solution to partner on Canada’s first EV battery factory in Windsor. In December, General Motors Co. opened a refurbished plant in Ingersoll that now makes electric delivery vans.

And this week, the province invested $23.6-million to help fund an expansion by parts maker Magna International Inc. Premier Doug Ford, who said he didn’t believe in giving millionaires rebates on $100,000 Tesla cars, nevertheless wants Ontario to build at least 400,000 EVs and hybrids by 2030.

The addressable market for electric trucks

and school buses is huge

Calculated as number of vehicles (diesel and other) currently sold

per year times price per EV

Medium- and heavy-duty

urban trucks

School buses

=10,000

=10,000

335,000/year

45,000/year

US$10-bln

US$100-bln

john sopinski/the globe and mail, Source: lion electric;

iconicbestiary on Freepik

The addressable market for electric trucks

and school buses is huge

Calculated as number of vehicles (diesel and other) currently sold

per year times price per EV

Medium- and heavy-duty

urban trucks

School buses

=10,000

=10,000

335,000/year

45,000/year

US$10-bln

US$100-bln

john sopinski/the globe and mail, Source: lion electric;

iconicbestiary on Freepik

The addressable market for electric trucks and school buses is huge

Calculated as number of vehicles (diesel and other) currently sold per year times price per EV

Medium- and heavy-duty urban trucks

School buses

=10,000

=10,000

335,000/year

45,000/year

US$10-bln

US$100-bln

john sopinski/the globe and mail, Source: lion electric; iconicbestiary on Freepik

Quebec, blessed with clean hydropower, is taking a slightly different tack. It is pushing hard to be a hub for mining critical minerals, and for manufacturing battery components and heavy commercial EVs. Premier François Legault’s government has pledged tens of millions to help Lion and others become champions in their sectors.

The Premier says the province is ready to take on even more risk to be “on the right side of economic history.” Now, he just needs Mr. Bedard and other business leaders to pull off their growth plans and turn a profit.

Lion delivered a record 156 vehicles in the third quarter of 2022, the most recent data available. It says its order book is 2,408 buses and trucks worth US$575-million.

If the company can’t boost output and ship out the vehicles in a reasonable time frame, its customers could look to rival manufacturers. That means Lion will lose those sales and potential future ones too, making this year a crucial one.

On paper, Lion has everything it needs: a vision, demand, big-name backing, government support and willing lenders. Some analysts are bullish on the company, saying things are evolving in the right direction. Others, such as those at Veritas Investment Research, say Lion has consistently overpromised and under-delivered, and warn the company will struggle to capture market share.

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Mr. Bedard’s task of turning orders into greater revenue – and actual profits – will require more capital at a time when the patience of many investors is running thin. Like many other EV makers, Lion is still losing money, with no forecast break-even date. The company’s stock has been in nearly constant decline since it went public in 2021, trading Friday around $3.33 on the Toronto Stock Exchange from a peak of about $25 some 20 months ago.

The Desmarais family’s Power Corp. is Lion’s biggest shareholder and has been involved with the company for six years, helping it adopt governance and reporting standards and providing a sounding board on strategy. Power’s Sustainable Capital unit upped its stake in December and now has control of about 39 per cent of Lion’s issued and outstanding shares, taking into account warrants and options.

Lion has devoted most of its early attention to school buses, specifically to tap public funding. It’s the market segment in which EV adoption is growing fastest because governments subsidize purchases by school boards and private transporters.

The company recently received orders for more than 200 buses as part of the first $1-billion tranche of U.S. President Joe Biden’s Clean School Bus Program, which pledged US$5-billion to school boards in all 50 states to make their fleets zero-emission. It expects to win more business under the program in the years ahead.

“Who doesn’t love a yellow school bus?” U.S. Vice-President Kamala Harris said last fall in announcing the funding. “This bus symbolizes so much about our collective investment in our future.”

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Long a vehicle for equality of access to education, school buses became a symbol of integration in some places following the U.S. Supreme Court’s 1954 ruling in Brown v. Board of Education, which declared segregated public schools unconstitutional, Lyz Lenz writes in a recent Smithsonian Magazine article on school-bus history.

Now, the yellow school bus has gone green. And it could be one small catalyst among many for wider EV adoption.

“Kids five, six years old right now, they’re getting into a Lion bus and they’re basically coming back at night asking their parents ‘Why are we not driving an electric car?’” Mr. Bedard said. “This is a role model.”

In Canada, the federal government has a $2.75-billion fund to support the electrification of buses for public transit and schools. That’s on top of $1.5-billion in financing available for the same purpose under the Canada Infrastructure Bank’s debt funding plan. There’s also a new federal incentive package worth $547.5-million over four years for medium- and heavy-duty zero-emission vehicles.

U.S. electric school bus rebates

Washington hands out up to US$375,000 per vehicle through the EPA

Round one awards (number of vehicles)

No manufacturer identified

1,449

All other manufacturers (including dealers)

812

Lion Electric

207

Bus vouchers filed through Lion Electric

Oklahoma

47

Illinois

35

Louisiana

33

California

22

Michigan

16

Other states

54

the globe and mail, Source: lion electric

U.S. electric school bus rebates

Washington hands out up to US$375,000 per vehicle through the EPA

Round one awards (number of vehicles)

No manufacturer identified

1,449

All other manufacturers (including dealers)

812

Lion Electric

207

Bus vouchers filed through Lion Electric

Oklahoma

47

Illinois

35

Louisiana

33

California

22

Michigan

16

Other states

54

the globe and mail, Source: lion electric

U.S. electric school bus rebates

Washington hands out up to US$375,000 per vehicle through the EPA

Round one awards (number of vehicles)

No manufacturer identified

1,449

All other manufacturers (including dealers)

812

Lion Electric

207

Bus vouchers filed through Lion Electric

Oklahoma

47

Illinois

35

Louisiana

33

California

22

Michigan

16

Other states

54

the globe and mail, Source: lion electric

There’s money available at the state and provincial level as well. California earmarked US$196-million for its Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project. British Columbia has $31-million available for school buses and trucks. Quebec is likely the biggest spender, with $250-million available for school-bus electrification and another $246-million for EV trucks.

While not yet ubiquitous on Quebec streets, Lion’s signature blue-bumpered buses are increasingly common. The province expects to have 2,600 new electric school buses on the road within three years. Any purchaser that wants a school-bus subsidy now in Quebec has to buy an electric model. Lion has a group of about 15 employees dedicated solely to tapping public funding opportunities.

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In a market dominated by three major competitors, Lion has carved out a small but important niche for itself, says Mr. Shlisky, the D.A. Davidson analyst. “They’re very much a maturing EV company,” he said, noting Lion just rolled out its first autonomous vehicles on the factory floor to help move things around.

Lion can’t match the customer relationships and retail locations U.S. giant Blue Bird Corp. has forged over 90-plus years in business. And it doesn’t appear to have the financial firepower of Daimler Co. Ltd. subsidiary Thomas Built Buses or Navistar Inc.’s IC Bus.

But Mr. Bedard says Lion’s sales team always finds a willing audience for its product pitch: that the company designs and builds its EV buses from the ground up, while rivals are largely modifying their old diesel-powered vehicles. In a way, Lion wants to be the Tesla of the bus world – minus the drama enveloping that company’s CEO.

Nowhere is Lion’s ambition as obvious as in the United States.

The company has just finished building a new plant in Joliet, Ill., to supply the U.S. market, with capacity for up to 20,000 buses and trucks a year at full tilt – eight times the maximum output of Lion’s factory in Saint-Jérôme, Que. The slab-cake facility on the outskirts of Chicago is big and bright, with polished concrete floors and yellow-painted steel beams over 900,000 square feet. It takes 20 minutes to walk around its perimeter.

If Saint-Jérôme is the brain of Lion’s operation, Joliet is the muscle that will drive its future growth. The site will be the largest manufacturing plant in North America for medium- and heavy-duty electric vehicles, according to Brian Piern, Lion’s chief commercial officer. As he puts it in a promotional video: “Made in America, delivered in America. American trucks and buses.”

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Lion is thinking big in other ways. It opened its own battery-pack plant in nearby Mirabel, Que., with loans worth $100-million from the federal and provincial governments, in a bid to better control supply and integrate the battery packs into its vehicles.

Quebec’s promising launch into the big leagues of North American automaking in the 1960s ended with a whimper when General Motors closed its Camaro and Firebird plant in Boisbriand in 2002, the lone Canadian light-vehicle assembly plant outside Ontario.

Now, Lion’s plans, and other EV strategies in the works by local companies such as BRP Inc., Taiga Motors Corp. and Nova Bus, have reignited the province’s industrial base – spawning older suppliers to reinvent themselves and a new set of supporting manufacturers to show what they can do.

Still, questions linger about whether Lion isn’t aiming too high by laying out capital for factories and new models that will drain cash well before they contribute to the bottom line.

Toronto EV delivery startup GoBolt raises $75-million in second round of venture financing

In some ways, it’s the same problem Bombardier Inc. had trying to bring all-new commercial and business jets to market in the early 2000s without the financial means to follow through. The company eventually scrapped development of its Learjet 85 and sold its flagship CSeries airliner program to Airbus SE.

Mr. Bedard’s rationale? Lion needs to invest in more manufacturing capacity to build the business in order to put more distance between the company and its rivals. It already has a head start of several years over some competitors, he says, particularly on trucks. And it needs to widen the gap.

“When the market is going to take off on the truck side, we will be ready,” the CEO said. “The challenge for the incumbents is going to be that. I mean when the market is going to be there, most of them won’t have the manufacturing capacity to fulfill the orders.”

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Lion designs and builds a large percentage of its own systems, including vehicle chassis and cabins. But it’s not immune to cost inflation and supply chain issues. For every EV component that comes from the outside, it’s now trying to have three or four suppliers to ensure it has parts inventory on hand, Mr. Bedard says.

But other issues are potentially in play at the company, and they are more difficult to evaluate.

In a deep dive on Lion last summer, Veritas analyst Brent Levenstadt highlighted several things that point to a fundamental weakness in the business, including a chat with a former Lion engineer who said that its staff turnover is materially higher than the 5 per cent a year stated in its public disclosure. The analyst also said Lion’s pact with Amazon is “good marketing, but doesn’t yet appear to be a long-term profitable supply agreement.”

Mr. Bedard acknowledges there is turnover at the company but says it’s under control. Lion has the people it needs, he says. As for Amazon, he said: “When Amazon wants to do business with you, it’s almost like a no-brainer that you do business with them.”

Lion’s CEO, a black belt in karate who has a dojo in his home, comes off in person as equal parts peppy and measured. As a kid, he used to take apart motorcycles and rebuild them. He studied finance at university but says he’s naturally pulled toward everything engineering.

“I think we should be manufacturing our own goods and not send, you know, manufacturing to Asia,” he said.

It was while Mr. Bedard was on the board of manufacturer Les Entreprises Michel Corbeil Inc. two decades ago, later bought by U.S.-based Collins Industries, that he started thinking about how the bus industry would evolve. He started Lion in 2008 and made diesel school buses at first while beginning to test different propulsion technologies. He decided to go all-in on EVs about two years later.

“People were asking me, ‘So you’re totally confident that this business will be viable? And I was saying ‘No,’” he recalled. “It wasn’t so easy to convince people to invest in a business where we’re saying ‘I don’t know.’”

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Bedard received what he calls some early “love money” from friends and acquaintances to get Lion off the ground. He says the game-changing moment for the company really came in 2016, when it put its first EV bus on the road. “It was like an eye-opener for most people.”

Government support gelled around the same time. California put Lion’s bus on its Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project list, qualifying it for rebates. Quebec, meanwhile, launched its own incentive program, covering up to half an electric bus’s typical $300,000 price tag. Lion went public in 2021. It trades on the Toronto and New York stock exchanges.

Mr. Bedard has pitched political leaders on the importance of building out a regional EV logistics ecosystem. Eventually, he told them, the system will be robust enough that component costs will come down – cementing prospects for local players and creating a viable industry that won’t need public aid. He says government subsidies will be required for another four to five years maximum before a stable market takes hold.

Lion had about US$67-million in cash on hand at the end of the third quarter and numerous credit facilities to draw on. But as it scales up, analysts say the company will continue to need significant amounts of external capital at a time when it’s getting more costly for Lion to raise money because of its declining share price and rising interest rates. Analysts at Scotiabank estimate the company won’t generate positive free cash flow until after 2025.

Lion’s CEO rejects suggestions the company will falter irreversibly and fail. He says the share price will eventually reflect the company’s true value once its plants are pushing out a higher volume of vehicles.

“We never said it’s a switch on and off. We said it’s going to be a steady ramp up,” Mr. Bedard said. “You need this vision of where society is going, where the market is going. And we feel we’re doing the right thing.”