Nikola Motors – uncertainty is waning

There are two sides to every story. And that’s very much the case with the planned cooperation with General Motors, GM, and the cancellation of 2,500 battery electric refuse trucks for Republic Services which turned out to be rather fortuitous in retrospect. In the GM scenario, Nikola would itself have had to spend over USD 700 million on tools, among other things. The participation of GM with USD 2 billion as a “valuable consideration” would have resulted in a dilution of the number of issued stocks.

Now Nikola has a new agreement under which GM will supply fuel cell systems, and as such gives the company another key supplier alongside Bosch, with the upshot being much more security and independence. The Badger pickup is, however, history. As for the refuse trucks for Republic Industries – 2,500 units – Nikola would have borne costs of over USD 200 million. Reportedly delivery dates were pushed back by 12 to 24 months and in the end the decision to terminate the contract was mutual. Otherwise everything is ticking along nicely. This was evident at the fourth-quarter press conference where it was clear that Nikola [Nasdaq: NKLA] is once again fully focused on its business plan and driving forward its implementation.

Losses for the fourth quarter amounted to USD 147.1 million which also comprises over USD 67.5 million in expenditure on research and development. The company now employs 450 members of staff and this figure is due to reach the 1,000 mark as the year closes out. The automaker expects to ship 50 to 100 Nikola Tre semitrucks this year, a figure that is targeted for the fourth quarter.

The prospect of Nikola producing its own hydrogen is cause for excitement. The company has managed to get a really competitive electricity deal with supplier APS which puts the price of green hydrogen on a par with diesel. As part of the tariff agreement, surplus renewable power will be converted at times when the electricity demand is low, with hydrogen providing an ideal means of storage. The company is looking to produce 8 tons of hydrogen a day. Nikola will build hydrogen production facilities which it hopes to use to supply its hydrogen fueling stations going forward. What’s important to realize is that Nikola is not just exploring the fuel cell truck market; it also has its eye on the consumables sector and sees that as a way to monetize the hydrogen it produces.

In terms of shipments – production is being developed gradually and then ramped up – which means that over 1,200 trucks are due to roll off the assembly line in 2022, increasing to over 3,500 in 2023. The long-haul version Nikola Two, with a range of over 900 miles (1,450 km), will launch on the market by 2024.

On a separate point, the legal dispute with the short-seller Hindenburg Research ended up costing the company the princely sum of USD 19.5 million in lawyers and legal fees. There was certainly a degree of truth in some of the criticisms. An early customer, brewery group Anheuser-Busch, however, remained committed to seeing through its truck purchase obligation.

My conclusion: As the company has itself admitted, further corporate action is inevitable in order to be in a position to deliver on its business plan. There is still about USD 841 million in the bank. My bet’s on either another at-the-money, or ATM, program, in which shares are drip-fed directly onto the stock market, or possibly that the company will be approached with a bought deal, which could bring home up to USD 1 billion. Likewise another logical option, in my view, would be for a strategic partner specialized in truck construction to step in. An increase in the shareholding of CNH should also not be ruled out.

If and when additional corporate partners are revealed, and by that I mean oil and gas groups in a tie-up with hydrogen filling stations for example, this will have a very positive effect on the stock price. If I were Plug Power, I would join Nikola as a “strategic investor,” but then that’s just a thought from me. Whoever invests in Nikola will be calmly relying on the follow-through of the business plan and that requires patience. One thing for certain is that the first really big fuel cell and hydrogen market for commercial vehicles is starting to get underway.

Risk warning

Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.

Author: Sven Jösting, written March 20th, 2021

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