That happened fast: From 0.60 USD to over 3.70 USD in a few weeks and then the bounce back under 1.50 USD – triggered by the abrupt departure of Michael Lohscheller as CEO and president. The outlook, though, cannot be better, even if not everything is following a straight line – certainly the case at the stock exchange and in the share price. But Nikola Motors is a startup, and that contains some risk and some rough paths in the still young company history. In detail:

The news hit like a bomb: CEO Lohscheller is going back to Europe and is ending his career at Nikola – immediately operationally, but he will remain as a consultant during the transition until the end of September. Lohscheller gave as reason for his departure an illness in the family. He achieved great things for Nikola in a difficult environment and positioned the company well during its early days. His successor, Steve Girsky, is no stranger, though. For quite some time – since the beginning and IPO – he has had a management function at Nikola, most recently as chairman. Earlier, he brought Lohscheller in to join him at Opel and later likewise at Nikola. At GM, he was on the board and was in charge of the company turnaround at the time. In answer to an analyst’s question whether he was only taking a transitional role as Nikola CEO, Girsky said, in essence: He’s here to stay.

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Another personnel issue is weighing on the company: The president of energy responsible for the Hyla brand has left the company – reasons unknown. Here too, however, a solution should quickly be found.

Prior to this was the vote on increasing the authorized share capital from 800 million to 1.6 billion shares, which was decided in favor at the annual shareholders meeting on August 4, 2023. A simple majority was finally enough after the change in legislation (before, a majority of all outstanding shares was required). Once again, Nikola has the power to generate new company capital via issuance of shares – through ATM (at-the-market) transactions but also placement with institutional or even strategic investors or through convertible bonds.

An existing ATM program with Citicorp worth 600 million USD was extended on August 4, 2023. Nikola still needs, according to its own predictions, a good 600 million USD in order for the company to be positioned in the next two years to enter the profit zone. Which is forecasted for year 2025 (cashflow positive).

Cost-cutting programs take effect

Very positive was the notice from the company that they are on track to reduce their capital requirement per quarter to 100 million USD by the end of 2023. Currently, the liquidity outflow (cash burn) lies at about 150 million USD in a quarter. In 2022, it was even over 240 million USD per quarter. All this shows that Nikola has correctly done its homework and is well positioned until it is in full swing. Goal: Sustainable breakeven with high sales growth.

Sales of 1,000 to 2,000 hydrogen-powered trucks are necessary to move into the black, was a take from the press conference on financial results (transcript). So far, they already have 200 Tre FCEV units across 18 customers in the books. That many such orders are coming can be safely assumed; after all, Nikola is the first to offer these trucks in large number. Remember: California is giving a subsidy in the amount of 288,000 USD per FC truck on top of the 40,000 USD via the Inflation Reduction Act from the US federal government. Additionally, the hydrogen is subsidized if it is green (regeneratively produced): 3 USD per kg, with an additional 2 USD per kg in California.

As a hydrogen-powered truck from Nikola costs 400,000 USD (the Tre BEV costs 324,000 USD before subsidies), this should get many shippers to buy, since it is heavy transport of long hauls that really needs to be decarbonized and there are many restrictions (emissions laws, restrictions up to and including the ban on diesel vehicle sales by 2035 in many places) creating pressure to convert truck fleets – to battery-electric and/or hydrogen-powered via fuel cell or hydrogen engine (the last exists but not yet in series production).

On top of this, remember that through the scaling of Tre FCEV production, the production costs per unit will drop significantly or, in other words, the profit margin will be increased. Currently, the cost of materials alone per vehicle is 275,000 USD. This will, however, come out to be more favorable with increased scaling. Now, there are ten gamma trucks that have been produced (for test trials with customers). The first Tre FCEVs will find delivery in September. Until the year’s end, 100 Tre FCEV units are targeted and additionally, of the already produced Tre BEV units, 100 to 150 could find buyers by the end of the year.

In the third quarter, the number of units should be 60 to 90 and bring a net turnover of 18 to 28 million USD (after deduction of the dealer discount). Currently, there are 139 on company premises and 92 at dealerships. Nikola will not continue producing these until the start of 2024, and even then only after each order placement – produce to order.

Anheuser-Busch as trump card?

With the beer giant Anheuser-Busch, Nikola has had a long cooperation – since 2018. Anheuser has prepared itself via LoI (letter of intent) to buy 800 Tre FCEVs. So far, a few Tre FCEVs have already been driving with Biagi Brothers, a company that transports goods on behalf of Anheuser, and have clocked over 12,000 miles (19,000 km) without a hitch. Will a solid order come out of this? The probability is very high, as so far Anheuser has shown no signs of turning its back on Nikola. With such an order, 1,000 FC trucks would then immediately be in the books. Battery-electric trucks for Anheuser will come from BYD (50 units) and sometime also 40 Semis from Tesla.

What’s certain: The focus is clearly on hydrogen-powered trucks, as money is earned with this – especially with hydrogen – 60,000 to 80,000 USD has been calculated as the average amount of hydrogen per vehicle per year in terms of dollars. And here Nikola is a first mover, where there is already a line of competitors with battery-electric models on the market.

Michael Lohscheller said regarding this: “Nikola is the real deal…. We think we are the best position company to lead the commercial zero emission transition and accelerate the hydrogen economy.” Nikola will offer various purchasing options for the Tre FCEV, since some customers prefer to acquire the truck based on a lease deal and would like to see the hydrogen directly included via a flat rate. Anything is possible.

News in the past weeks

Two programs at once to promote H₂ infrastructure in California can be made use of by Nikola. For eight H₂ refueling stations, there are subsidies of over 58 million USD. This should be valuated very positively, as Nikola has already concluded an agreement with Voltera (subsidiary of investment fund group EQT) for the construction of 60 stations over the coming years and will get further support through their subsidization.

An order for 13 e-trucks (10 battery-electric and 3 hydrogen-powered) from J.B. Hunt was able to be gained. This company operates its own extensive fleet, but also provides freight shipment and logistics services for over 1 million trucks in the USA. That looks like a springboard for much more.

Battery supplier Proterra under bankruptcy protection

A credit due of over 170 million USD has prompted battery supplier Proterra to seek Chapter 11 bankruptcy protection. The aim was to gain enough time to make use of the still available liquidity of over 60 million USD, as the said credit could be frozen via Chapter 11 if the court decides that. Battery production is continuing, however, so Nikola (but also Daimler Truck) can expect to be further supplied, although Nikola could very well also use LG as another supplier. With Proterra, however, shareholders will now be left empty-handed should a recapitalization take place. The holders of the bonds could become shareholders if equity (shares) come out of the liabilities.

Problems with battery-electric trucks

Weeks ago, two battery-electric vehicles on the company premises caught on fire, the cause of which was confirmed as a defect with the coolant. Nikola has addressed this and announced a recall of the about 209 Tre BEVs. In addition, the recommendation was made to have a way to remotely monitor the trucks at all times and to not park them in halls. The problem has been recognized and will be fixed, is the impression from the investigations. On top of this was the report that Nikola will not reach the sales target of 350 to 500 Tre BEVs in 2023. More important, though, are the Tre FCEVs, whose sales have just started.

Liquidity situation eases noticeably

If you add up all the possible forms of financing and liquidity procurement, Nikola has, as per the start of July, 743 million USD in potential. Included in this is, among other things, the funding commitment from Tummin that still amounts to over 200 million USD and can be used by Nikola at its own discretion (issuance of shares as countervalue). The liquidity base amounted to 295.4 million USD at the end of the second quarter (see above). Contained in this is the gain from the deal with Iveco of 26.5 million USD and the sale of land (sale & lease back) from the company grounds in Coolidge, Arizona for 49 million USD.

The revenue from sale of the planned hydrogen production facility in Buckeye to Fortescue Future Industries in the amount of 20.7 million USD is included in the total liquidity in July, but not in the figure as per June 30, 2023, so Nikola then has 316.1 million USD in cash available. This should be sufficient for the time being, although further shares can be issued at any time ATM (at the market), as Nikola now theoretically has up to 800 million shares for issue.

From the press conference, it can be gathered that this option will now be used with less less pressure and fewer conditions. Essentially, new shares will not be placed at just any price – but it will really be up to the bank to decide how this ATM program is implemented. In any case, it will be a very important event if Nikola receives inflows of 100 to 300 million USD through the ATM program and is thus fully financed. The stock exchange will value this – if it occurs – very positively.

Convertible bond of 325 million USD

Nikola is issuing a convertible bond with a nominal value of 325 million USD and a coupon in the amount of five percent. Large investors in particular like to invest in such securities, especially when as in this case with Nikola they’re also green bonds. Since the bonds can be converted into shares, the holder receives in addition to the return, the added potential of gains in the share price, while the holder receives the original capital back at the end of the period if conversion does not take place. For Nikola, this will yield the possibility of being able to settle such debts through shares (own capital), if the share price develops favorably.

Summary

The shares of Nikola will remain very volatile, especially since short-sellers have a great interest in depressing the share price and using any further negative-seeming news for their own advantage. As per the end of July, 138.5 million shares have been sold short – over 23 percent of the free float. At the same time, the company will become more and more attractive the more the two truck variants find buyers and the infrastructure (charging stations and H₂ refueling stations – mobile or with fixed location) is developed as well as the required hydrogen generated (from outside or in-house production).

Nikola is a frontrunner in its market and in my opinion has the potential to become a kind of Tesla for trucks. The continuous increase of this stock in portfolios through institutional investors demonstrates the confidence in the company. Time is needed, as real growth will only really take off in the next two to three years. Equal to consider is that the stock exchange is an anticipation mechanism that allows future developments (expectations) to flow in long before their concrete appearance in the price development.

In the further course of year 2023, I expect a price range between 1.50 and 4 USD, but already 5 to 10 in 2024, and 15 to 20 in 2025. Particularly the order influx for the Tre FCEV will drive the share price already in the short term, as the sales and earnings potential can be derived on this basis.

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: Sven Jösting