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Nikola to launch fuel cell/ electric trucks in US in 2022 and Europe in 2023

June 20, 2020

These shares are going crazy. Part of the reason is that they are effectively a new listing. A private company, Nikola Corporation, has been bought by a quoted company, VectoIQ, whose only asset is some $235m in cash provided by another company, Iveco, which makes trucks. On completion of the transaction, on 3 June, VectoIQ changed its name to Nikola Corporation, which has become a quoted company in which Iveco, part of CNH Industrial, has a stake.
Including some earlier fund raisings Nikola now has maybe $1bn in cash and a quote, which will no doubt be useful when it comes to the market to raise more cash as is surely going to happen.
There are various reasons why the shares are performing so strongly and the business is valued at $26.3bn. Nikola is in the same industry as Tesla, aiming to provide zero-emission vehicles for an increasingly environmentally conscious world. Tesla was named after an electrical engineer, who was a great inventor and whose full name was Nikola Tesla; that makes Nikola a brave name to take unless you really expect to go head to head with Tesla, which the company’s founder, Trevor Milton, a serial entrepreneur, with a mixture of successes and failures in his past, clearly intends to do.
He is more of a frenemy since he drives a Tesla car and greatly admires Elon Musk’s achievements.
This is how a recent commentator explained the extraordinary rise in the Nikola share price.
“The company is looking to develop hydrogen powered and electric battery trucks. It could stand to transform the way that road haulage works. With this deal in place, Nikola Motor Company can focus on truck production and potentially position itself as a leader in this market. Investors will not have missed the fact that Nikola is the first name of Nikola Tesla, the 19th century Croatian inventor who emigrated to the United States to pursue his vision of electricity and a revolutionary new power source that could change the world. Nikola Motor Company is understood to be planning a manufacturing facility in Arizona and has already received orders for its projected range of trucks. These will have a range of between 500 and 750 miles and produce up to 1000 horsepower. According to Trevor Milton, its chairman, this range could be the most advanced commercial trucks the world has ever seen. There is already considerable interest in the vehicles from across the road haulage industry, including from manufacturers like IVECO and FPT Industrial. These companies are looking into the development of a smaller truck that would be suitable for European roads. CNH Industrial, which owns both IVECO and FPT Industrial, has taken a $250m stake in Nikola Motor Company as a Series D investor. These are zero emission, hydrogen fuel cell trucks that only produce water as a by-product. Shares in VectorIQ, now re-branded Nikola Corp, are already on a spectacular run as investors pile into the company. The stock was trading at $35 on Friday but has hit $54 since the NASDAQ opening this morning. Nikola Motor Company is already well down the road towards having a production line with actual vehicles being delivered to buyers. The company has said that it expects to be generating revenue by next year when it rolls out its Nikola Tre Class 8 truck. Anheuser-Busch has already placed an order  for 800 trucks and US Express is also understood to have submitted a massive order. Such is the enthusiasm from the haulage sector, the projected factory would be working overtime as soon as it comes online.”
I have been watching some videos about Nikola and its electric vehicles, which can be powered either by hydrogen fuel cells or batteries. The trucks look amazing and, if they can do what they say on the tin and operate with total operating costs, including purchase costs, that are competitive with diesel trucks, they should sell like hot cakes though there is plenty to be done to create the infrastructure of charging/ refuelling points, which will be needed.
The company is aware of the need to sell to truckers as well as truck companies so the early emphasis is on things like fuel efficiency and driver comfort with autonomous vehicles down the road and maybe using technology provided by third parties.
According to the videos I looked at the plan is to produce a Nikola 2 truck for the US market in 2022 and a somewhat smaller Nikola Tre truck able to navigate narrow streets for the European market in 2023. This is slightly different from the assumptions in the quote above.
Either way it is easy to see why the shares are capturing the imagination of investors. Like Tesla there is other stuff going on with an off-road sports vehicle being trialled and even a military jeep-style vehicle to help armies saving the planet by using zero emission vehicles as well as doing their main job of keeping population numbers under control.
Trying to put any sort of value on the shares is a finger in the air exercise at this stage. The price is going to be driven by news flow and there will no doubt be hordes of sceptics, just as there are with Tesla, which has often been the most shorted share on Wall Street.
My idea is that the shares have a fabulous story, the plan is clearly to become much bigger, with factories being rolled out in appropriate locations. The first one is being built in Arizona to use solar power as far as possible. The chart is clearly strong and there is plenty of magic in the back story of the business and Trevor Milton himself, who is evidently both determined and ambitious.
Nikola is not a share for widows and orphans but a pilot stake for a portfolio looks justifiable if perhaps not exactly sensible or prudent. As we are seeing time and time again in corporate America, miracles can happen.In relation to the factory this is what Nikola said in January 2018.“Hydrogen-electric semi-truck startup Nikola Motor Co. plans to build a $1bn factory in a Phoenix suburb. The company detailed its plans in a joint announcement with Arizona Governor Doug Ducey. The fuel cell truck developer said it will build a 500-acre, 1m square foot facility west of Phoenix in Buckeye. Trevor Milton, Nikola’s chief executive, and Ducey said the plant will create 2,000 jobs and bring more than $1bn in capital investment to the region by 2024. Arizona will provide up to $46.5m in various job training and tax abatement incentives. But the package is performance-based and Nikola benefits only if it makes investments in plant and employees, said Susan E. Marie, senior vice president of the Arizona Commerce Authority. “Arizona has the workforce to support our growth and a governor that was an entrepreneur himself. They understood what 2,000 jobs would mean to their cities and state,” Milton said. Nikola will relocate its headquarters and research and development team from Salt Lake City to Arizona by October. Nikola says it has 8,000 pre-orders for its fuel cell truck. Caterpillar dealer and early Nikola investor Thompson Machinery will supplement Ryder’s sales and services in Tennessee and Mississippi. Nikola said its Nikola One sleeper and Nikola Two day cab trucks will be able to run up to 1,200 miles between refuelling stops.  The company plans to lease the trucks to users. It will supply fuel as part of the lease cost through a nationwide network of 376 hydrogen fuelling stations. It still has to build the network. The powertrain is rated by the company at 1,000 horsepower and 2,000 pound-feet of torque, which analysts said fits the need for long haul trucking. “This incredible new technology will revolutionise transportation, and we’re very proud it will be engineered right here in Arizona,” Ducey said. Nikola’s “selection of Arizona demonstrates that we are leading the charge when it comes to attracting innovative, industry-disrupting companies.” While the factory is under construction truck components company Fitzgerald Gliders will build the first 5,000 production models. Nikola did not provide any details on how it would fund building the factory.  But in December, truck components company Wabco Holdings acquired a one percent stake in Nikola for  $10m. That deal valued the startup at $1bn. The company also raised $110m in a funding round last year. “A key challenge for Nikola is to demonstrate that they can raise the significant capital necessary to be a true competitor in this space,” said John Boesel, chief executive of Pasadena-based clean transportation incubator Calstart. However, Boesel said there is room for Nikola. “Zero emission truck technology is rapidly evolving,” he said. “There is the opportunity for disruptive companies like Nikola to come into this space.” Nikola has partnered with well-regarded truck components manufacturers, a smart move that builds confidence in potential customers, said Antti Lindstrom, an analyst with IHS Markit. It has tapped parts supplier Bosch for joint development of powertrain systems for the Nikola One and the Nikola Two. Bosch also has worked with Nikola to develop the truck’s “eAxle,” which houses the electric motor, transmission and power electronics. Swedish fuel cell developer PowerCell ABwill provide the fuel cell stacks that produce electricity from hydrogen, and Nikola will build the completed fuel cell system. Nikola plans field tests of truck prototypes this fall using the Nikola Two truck and Nikola test divers. Real-world testing with potential fleet customers will come after that. Testing of the Nikola One sleeper truck will begin later. “I believe the fuel cell solution is better than battery electric trucks for long haul deliveries,” Lindstrom said. “You don’t have the same weight issue that you have with heavy batteries.” That allows trucks to have a longer range between fuelling and enables heavier freight loads, he said. “This is a technology that is here and now,” Lindstrom said. “It doesn’t require advancement in technology that battery electric long-haul trucks will require.” Nikola, however, faces potential competition from well capitalised and mature rivals. Other players include Toyota, which is testing a Class 8 fuel cell electric drayage truck in Southern California. Kenworth, the Paccar brand, is developing a Class 8 fuel cell electric truck prototype. A host of companies including Tesla, Daimler Trucks, Volvo Trucks, Navistar and Cummins are working on electric trucks that could compete with fuel cell commercial vehicles. Milton said Nikola settled on Buckeye following a 12-month site selection process that considered nine states and 30 different locations. He said he liked the city’s economic environment, engineering schools, educated workforce and geographic location that provides direct access to major markets. “The Greater Phoenix region is elevating its brand as a hub for innovation, and companies such as Nikola have taken notice,” said Chris Camacho, chief executive of the Greater Phoenix Economic Council.”

This information is two and a half years out of date but it establishes that Nikola are serious contenders playing for high stakes and that justifies taking a stake. Now they are public there will be a flood of news coming out of the business and they will want a strong share price to help with fund raising.

Milton says “He wants to go after diesel in the trucking world and also in the marine world in the future. Electric and fuel cells outperform diesel because “on the hydrogen side you have weight advantage and on the electric side you have cost advantage”. When you combine those 2 together Mr. Milton is sure that diesel will be a history.” He also says. “I am going to partner with everyone. I am not going to do anything myself.”

Interest in the company has been rising in recent months, and not just from investors ahead of the Nasdaq listing, Milton says. “We’re now talking with almost every major OEM in the world.” In part, that’s due to the addition of Steve Girsky, a former vice chairman of General Motors GM, to Nikola’s board.

There is plenty to do but also plenty happening.

“Nikola has secured truck orders worth $10bn from companies led by Anheuser-Busch, which wants 800 of the company’s non-polluting behemoths. So far, Nikola hasn’t generated much revenue but estimates sales will jump from $150m in 2021 to $3.2bn by 2024 as it ramps up productions. In 2024, it expects to sell or lease 7,000 battery-powered units and 5,000 hydrogen fuel cell trucks, according to its filing. While the company has yet to deliver trucks to commercial customers, there’s been a steady uptick in interest in hydrogen for heavy-duty trucks, particularly long-haul vehicles, as fuel cell power systems are much lighter than batteries and can be refueled about as fast as diesel and gasoline models. Along with Iveco, Bosch and Meritor, Nikola also counts South Korean solar panel maker Hanwha and Norway’s Nel as key industrial partners that help get its sci-fi-styled semis on the road and fuelled up. Like Elon Musk’s Tesla, Nikola plans to build and operate fuel stations to support its vehicles. This week it announced plans to buy $30m of equipment from Nel to help it produce 40,000 kilograms of hydrogen a day from water and renewable electricity. “These electrolysers will support five heavy duty hydrogen stations which will cover multiple states and trucking routes,” Milton said in a statement. He declined to tell Forbes where those first stations will be built, though undoubtedly some will be in California, which has incentives for non-polluting trucks to help curb carbon emissions.

Fuel cell technology, which makes electricity in a chemical reaction involving hydrogen and oxygen with only water vapor as a byproduct, has been around since the 1960s, but earlier iterations were far too costly and not durable enough for heavy daily use. That’s changed dramatically in the past decade, with costs for the materials and fuel tanks dropping steadily as the technology matured. While industrial hydrogen is typically sourced from natural gas, new methods for generating “green” hydrogen from water and electricity from solar or wind farms have made the fuel much more compelling to environmental regulators in California, Europe, Japan, South Korea and China.

And while Nikola’s hydrogen truck and fuel plans are the most ambitious, it faces competition in the space from big players including Hyundai Motor and Toyota Motor Corp. Toyota has been testing hydrogen fuel cell trucks at the Port of Los Angeles for years and Hyundai this week opened South Korea’s first hydrogen fuel station for commercial vehicles.”

 

Subscribers will have heard me talk in the past about crowd theory. The idea is that successful companies attract a growing crowd of investors whose buying drives their shares higher. Nikola is right at the beginning of this process so the scope is huge. Equally it only works if the business is successful and on this front Nikola has everything to prove. The good news is that it now has cash, a great story, some exciting achievements already under its belt and a quote with which to turn investor enthusiasm into further funding. Tesla has spent over $19bn in its journey to its present point and is still at best marginally profitable but it has been an exciting ride for investors. Nikola will be hoping for something similar.
The total description of the company incidentally is “Nikola Corp is a designer and manufacturer of battery-electric and hydrogen-electric vehicles, electric vehicle drivetrains, vehicle components, energy storage systems, and hydrogen fuelling station infrastructure.” It does sound exciting.

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