Iveco is exiting the joint venture it set up with Nikola in Europe. Prior to this was a partnership since 2019 that led to the development of the battery-electric Tre BEV and the hydrogen-powered Tre FCEV. Iveco is taking over 100 percent of the European business of Nikola, and is paying for it with 35 million USD, on the one hand, and giving back 20 million shares in Nikola, in addition. After the transaction, Iveco will still have a participation of 5 million shares, which considering the over 600 million shares, is rather symbolic in character.
What consequences does the separation have?
Both companies want to continue working together. IP is to further be jointly used, and Iveco will also continue to supply vehicle parts to Nikola. That otherwise the two companies are now parting ways and concentrating on their respective originating markets – Iveco on Europe and Nikola on the USA – is actually sensible, since the main thing for Nikola now is the ramp-up of the hydrogen-powered truck Tre FCEV, which is scheduled to hit the US market in the second half of 2023. This also involves the ramp-up of the entire hydrogen complex, starting with the company’s own hydrogen production and ending with the distribution network, where comprehensive subsidy programs (up to 320,000 USD per truck in the USA as well as 3 USD per kg green hydrogen) are waving.
For Nikola, this step by Iveco is not to be valued negatively. On the contrary: Iveco is concentrating on battery-electric trucks for the time being and can use Nikola’s development in hydrogen and fuel technology for itself, is my analysis. Think about the exit of Daimler and Toyota from Tesla = after the sale of their share packages, the real price explosion in Tesla stock occurred.
Regardless of the planning, Iveco, in my opinion, will however in the future be a potential distribution partner, including in Europe, for Nikola, if Nikola produces the FCEV in large series and the topic of hydrogen in the commercial vehicle sector really gains speed in Europe. But that will still be a few years away, as Nikola has sufficient potential in the USA if you consider that no more diesel trucks can drive in California after 2035 and, much earlier in certain fields of application such as port facilities, only emissions-free commercial vehicles may be allowed. California represents an economic potential that matches that of Germany. For Nikola, this is an advantageous setup.
Great growth potential Nikola sees in neighboring Canada. To the Canadian commercial vehicle association Alberta Motor Transport Association (AMTA), one battery-electric and one hydrogen-power truck each will be supplied, along with the electric charging station and hydrogen via mobile H2 refueling stations. Nikola can approach potential customers in Canada this way, as brand awareness will increase with these pilot units.
In many respects, this will be a very exciting, future-indicating fiscal year for Nikola. Today will lay the basis for tomorrow, and, for me, in a positive sense. Nikola CEO Michael Lohscheller said: “I want to let you know one thing: Nikola is a real deal. We have real trucks that are being ordered, delivered and operating and customer fleets now. We have world class software and technology and elegant zero emissions products, decarbonizing the high polluting commercial transportation market.”
Construction of the Hydrogen Hub in Phoenix, Buckeye has now received approval – the decision was received a few days ago. In this is the expectation that Fortescue Future Industries will participate. In parallel, Nikola has closed an agreement with infrastructure investor Voltera Power (subsidiary of venture financier EQT), which wants to invest over 1 billion USD in infrastructure for electric power and hydrogen, according to which Voltera Power will finance 50 jointly operated service stations (hydrogen and electric charging stations) until 2026 and Nikola will take care of the hydrogen supply.
The brand HYLA under Nikola, which is responsible for the production and sale of hydrogen, is thus receiving a very important boost, especially since Nikola sees its main source of revenue and profit margin in hydrogen. Along with Chart Industries, Nikola is additionally working on mobile hydrogen refueling stations of the latest generation that enable highly versatile delivery and storage of hydrogen for truck fleets.
By the end of June, six out of a planned ten gamma Tre FCEV units will be in use with test customers. AJR Trucking, who primarily makes hauls for the United States Postal Service, has already placed an order for 50 Tre FCEVs. Think like a visionary: What happens if Nikola attains its sales targets of 1,000 to 1,600 trucks in 2024 and a doubling by 2025 and achieves the transition to the profit zone by the end of 2024?
Unmeaningful quarterly figures
In the first quarter of this year, Nikola attained a turnover of 11.1 million USD. The loss for the quarter amounted to 169.1 million USD, or minus 0.31 USD per share. However, this figure also includes stock compensation costs, whereas the non-GAAP loss was 143.6 million USD. The loss is ascribed high spending on research and development and of course on building production capacities for the truck.
The cash burn (capital spending rate) will reach 150 million USD per quarter (in 2022, this was still over 220 million USD/quarter) and should sink in the course of the year to 125 million USD. In equity, Nikola still has available 796 million USD in total, taking into account also the potential sale of further shares on the stock exchange via the ATM program.
For the full year, the company is targeting a turnover of around 150 million USD. The fourth quarter will be the basis for this, as in this one, the first large numbers of the Tre FCEV will be delivered.
At the right time with the right product in the right market
You should always ask yourself: Is the business model of Nikola maintainable in the future? It’s a clear yes. Do the expectations and forecasts match the plans, and are they realistic and feasible? Clear yes. Nikola is a first mover in its market, and that is the most difficult phase for any company. Needed for the coming months, however, is a certain perseverance. That Nikola is not building more of the battery-electric truck Tre BEV at this time is only logical, as they will sell the first lot out and then adjust production to the specific order situation.
It is the liquidity that must be maintained until the hydrogen-powered trucks go into series production and become a real sales driver. That will, in my view, not really be visible until the fourth quarter of this year. Until then, Nikola must reduce costs and focus financially on the most important things.
The annual stockholder meeting was moved from the 6th of July to the 7th, to obtain a sufficient number of votes to, via authorized capital, raise the number of shares to 1.6 billion. If this does is not achieved on July 7, then a simple majority vote by shareholders in August will suffice. This approval is majorly in the interest of the shareholders, as it would enable an additional avenue for capital to flow in. What could always happen – in the positive sense – independently of this is the approval of the 1.3 billion USD heavy credit from the US Department of Energy under the Inflation Reduction Act. In my view, this would clear up – in the case of approval – the whole financial situation at Nikola, as then they would probably – no guarantees – no longer have to place shares at knockdown prices and in the interest of short sellers.
Nikola has received a notice from Nasdaq that it needs to take measures to maintain its stock exchange listing, as share prices of under 1 USD could lead to a delisting. Nikola has time to do this until November. CEO Lohscheller asserted in the fireside chat that Nikola will soon be fully “in compliance” again. There were rumors that Nikola needs to do a reverse stock split, so a share consolidation, in order to force the share price back over 1 USD. This is, however, not very likely, especially since a lot is possible until November that could move the share price back up.
Partners of Nikola such as the Australian Fortescue Future Industries, as well as other players in the commercial vehicle market, could use the opportunity to themselves buy cheaply in Nikola and promote its hydrogen business model this way. And some (large) orders for the trucks at any time is also conceivable and would have psychological significance, especially since comprehensive subsidies have only been possible since April (up to 320,000 USD for FC trucks). Every day, any of this can happen.
Summary: You need strong nerves, but the risk-reward ratio is correspondingly very high. Stay tuned and don’t be shaken. Short sellers should gradually think about their stockpiles – so far, they’ve been dominating the daily stock occurrences, but that too will come to an end when Nikola delivers what it predicts.
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.
Written by Author Sven Jösting, June 9th, 2023
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