Nikola has lowered its targets for year 2022: Instead of 300 to 500 battery-electric trucks in 2022, it will now be 120 to 170 units in the fourth quarter, so the total number will be well under 300. The reason: Nikola wants to slow down production in order to get a better grasp on the cost structure of the company. The reduction of staff in the battery-electric area by up to seven percent was not expected this way, but will also see a turnaround again when capacities reach 20,000 units on an annual basis in 2023/24 and many a new order is in place.
The takeover that took place of Romeo Power will cost money in the integration phase until the cost reduction potentials really take effect. I expected nothing else, as this new subsidiary and its production lines must first be integrated before very positive effects – we’re talking about cost reduction potentials of up to 90 percent – can be observed.
The future lies in FCEV-Tre
Unchanged are the plans for the production of the hydrogen-powered FCEV-Tre, which will go into production starting the second half of 2023. Test series are already underway with the battery- as well as hydrogen-powered models with companies like Anheuser-Busch and Walmart. Regarding the last named, Nikola has purchased land nearby for 16.5 million USD in order to install a hydrogen infrastructure. Vision: Orders are coming here, or why else this proximity?
Impressive was the presentation by Nikola Motors together with the European Group Iveco at IAA Transportation. The North American company is far ahead of the competition. After all, deliveries will take place in the second half of 2023, while many competitors still need a few years in this.
Liquidity is available but needs to increase
So far, Nikola Motors has been financing the construction of the production facility in Arizona and the invest in hydrogen (production plants, H2 fueling stations) primarily with its own capital – through the issuance of shares. The equity on September 30, 2022 amounted to 403.8 million USD plus a financing commitment of 312.5 million USD from the venture financier Tumin that can be redeemed via the issuance of further shares. At the currently very low share prices, however, the latter makes little sense.
The current ATM program (sale/placement via the stock exchange) of 400 million USD is being made use of, with about 100 million USD in offerings sold. Here, however, it is problematic that nowhere is there a mention of a minimum price per share and therefore Citicorp, as the commissioned bank, can place shares on the market at “any” price. For the short sellers – it’s been already over 100 million shares sold short (status 2022/10/31) – this is of course an easy score, as the impression has been given that Nikola would want to sell shares at any price, without taking into account the dilution effects.
The establishment of the necessary infrastructure for hydrogen is underway. By the end of 2026, the company is to be operating 50 to 60 H2 fueling stations. Nikola has placed special emphasis on this, especially since it can be assumed that not only its own FC trucks will drive there for refueling, but in the future also the hydrogen-powered trucks of competitors. Nikola only has to ensure that it keeps the hydrogen available in the right quantity and at the right price, and produces it itself as far as possible.
Primarily with the consumable hydrogen Nikola wants to make money. There’s even talk of a target amount of 300 tonnes H2 per day by 2026, which alone could correspond to a turnover of over 300 million USD. In 2022, the production volume of hydrogen should be at 30 tonnes per day, which should rise to 150 tonnes per day by 2024. With KeyState Natural Gas, a deal was recently closed for the delivery of 100 tonnes per day starting 2026. With this, 2,500 Nikola Tre-FCEVs could be refueled daily.
Nikola putting itself in Walmart’s radius
For 16.5 million USD, Nikola recently acquired an area of land in Buckeye, Arizona. They named the spot Phoenix Hydrogen Hub LLC, which makes it plain that hydrogen will be produced there or made available via fueling stations and possibly even a service center for FCEV trucks will appear. The attraction is that Walmart has a very large shipping center right there (Walmart alone has 12,000 truck drivers and owns over 80,000 trailers). The proximity to Walmart allows the assumption that it could become a major buyer of hydrogen-powered trucks. The distance from Nikola’s acquired ground to Walmart is no more than 20 miles (32 kilometers), or about a 20-minute drive. Guess why?
Andrew Vesey becomes a member of the board of directors
Andrew Vesey was until now president and CEO of Fortescue Future Industries North America, the company of Australian billionaire Andrew Forrest. Fortescue is also very closely tied to Plug Power through joint electrolysis activities. Before that, Vesey was president and CEO of Pacific Gas & Electric and CEO of the AES Corporation in addition to his role with various other clients as a consultant.
New head of sales: Bruce Kurtt
A heavyweight in the North American truck industry, Bruce Kurtt, has newly joined the management of Nikola and is responsible for sales and service. He has held various top positions in the industry over the past 30 years, at Volvo, Mack, Kenworth and Navistar for example. In addition, he was a truck dealer with his own company and therefore knows the industry like the back of his hand. He said, “I joined Nikola for one important reason: they are ready now. Nikola can deliver BEV trucks right away and FCEV trucks next year. I believe we are ahead of every other OEM with sustainable products that are critical for our future.”
Outlook
The company figures were in the realm of expectations: In the third quarter, turnover amounted to 24.2 million USD, which is linked to the delivery of 63 battery-electric Tre-BEVs and a charging station (MCT). In the second quarter, Nikola delivered 48 e-trucks and 4 MCTs. The loss was 263.2 million USD, or minus 0.54 USD per share by GAAP accounting and minus 0.28 USD per share non-GAAP – in the area of expectations. Since the construction of the charging infrastructure for the trucks has been delayed (approval process, installation, electricity procurement, etc.), Nikola will for now lose speed in the production set-up, especially since losses per vehicle are currently still high and will remain so until this changes in the course of 2023, when the production lines for the batteries (Proterra and Romeo Power – post-acquisition integration) and the FC stacks (Bosch) are running and costs can dramatically decrease. This is, however, normal in early-stage adoption of a technology, it was said.
Clear rejection of the SUV-excavator: Rumors were floating that Nikola wanted to build this now after all. However, they’re fully concentrating on emissions-free, so battery-electric and hydrogen-powered, trucks. The ambitious targets for the production build-up – about 20,000 units of each of the two models by 2023 – have now been postponed for year 2024 and with that will require about 345 million USD less in capital. At any rate, the capacity of 20,000 units and then 40,000 one year later are only numbers in the sidelines and are far removed from current sales expectations, so this shifting of targets has no current effect.
The test series with companies such as TTSI (for Anheuser-Busch) are running very well for both models – already 9,700 miles (15,610 km) in daily operation for Anheuser-Busch, and 5,500 miles with the battery-electric vehicles and 2,700 miles with the hydrogen-powered vehicles for Walmart. In this year, 17 beta versions in total of the FCEV-Tre will have been delivered – for test trials. The costs for getting the imported components – by ship again instead of as air freight – were able to be significantly reduced in the third quarter from 84 percent to 33 percent. The supply chains too were able to be improved. And then recently came in an order from Zeem Solutions for 100 BEV-Tre units – a good sign.
Very positive should be valued the partnership with Iveco, as they are also providing the dealership network in Europe for the JV, where every 100 km (before it was 150 km) an H2 fueling station is to appear by 2028. For this, Nikola is also working with E.ON. Additionally, Nikola recently signed a partnership agreement with ChargePoint Holdings (one of the world’s largest charging station providers, whose network is larger than that of Tesla) in order to ensure a supply of electricity for the BEV-Tre – a basic prerequisite for the sale of these trucks.
Plug Power and Nikola Motors announced shortly before the editorial deadline that Plug wants to buy up to 75 of the hydrogen-powered trucks of the brand Tre FCEV within the next three years. The two companies want to deal in hydrogen in parallel. Plug will supply the system for hydrogen liquefaction for Nikola’s project in Buckeye, which is to initially produce 30 and later up to 150 tonnes of hydrogen per day. In addition, the tanks for Nikola’s transport trailers are to be supplied by Plug. We will see several more such joint ventures in 2023.
Short sellers dominate stock market trading
The short sellers in Nikola are very actively involved in daily stock market trading. Nikola unfortunately has also – surely unintentionally – set up things to make these easy (guidance and at-the-market program). Last but not least, it was published that ex-CEO Mark Russell according to a tax-motivated selling plan is allowing options to be converted to shares in the equivalent value (we’re talking 75,000 shares per trading day) via their sale. The total value with Russell may be (relatively) small (currently probably 5 million USD), but it of course does not look good when a top manager – for whatever reason – sells shares. He meanwhile still holds, directly or indirectly, over 45 million shares, so all needs to be seen in relation.
1.3 billion USD in credit from the DOE?
An application has been submitted and is already in the second approval stage. Under the US Inflation Reduction Act, capital funds may be requested if they support the ramp-up of the hydrogen economy. Since Nikola itself is entering the hydrogen production and distribution field to strengthen the basis for H2 truck sales, this credit – if it can get it – would be useful. If granted, Nikola would have new and very important liquidity for the expansion of H2 activities. Unfortunately, nothing could be said on how long the approval and award process takes and what amount Nikola will get to fall back on. In any case, a very positive bit of news, especially since the US government is exerting a lot of positive pressure here and wants to see the funds in actual use.
Summary
For Nikola, time is needed, as the company has to restructure its liquidity situation. The truck manufacturer is a positive frontrunner in battery-electric as well as hydrogen-powered trucks. The real ramp-up will be seen in 2023, when I expect some (large) orders, as more and more shipping companies want to reestablish themselves in this area and also have to do so due to emissions restrictions. Nikola covers both areas, where in my opinion the much more exciting one – also because more money is earned with it – is hydrogen.
Short sellers still have a significant influence, but this will disappear in 2023 when Nikola delivers what is planned in the next year. That all this is taking longer than originally thought is in the nature of the business of a startup. Wonders could happen if Iveco increases its stake. Or if orders are received. Because the stock market is over 50 percent expectation (André Kostolany).
We’re seeing here the establishing of a first mover in hydrogen within the commercial vehicle sector who is clearly ahead of the big players in the industry in terms of time. With a stock market valuation of 1.2 billion USD, the stock market is massively exaggerating downwards, is my subjective view of things. Highly speculative, but with very high potential at the same time. Look at Nikola Motors as one possibility to invest in hydrogen in commercial vehicle transport at the stock exchange.
Disclaimer
Each investor must always be aware of their own risk when investing in shares and should consider a sensible risk diversification. The FC companies and shares mentioned here are small and mid cap, i.e. they are not standard stocks and their volatility is also much higher. This report is not meant to be viewed as purchase recommendations, and the author holds no liability for your actions. All information is based on publicly available sources and, as far as assessment is concerned, represents exclusively the personal opinion of the author, who focuses on medium- and long-term valuation and not on short-term profit. The author may be in possession of the shares presented here.
Author: written by Sven Jösting December 12th, 2022
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