Nikola Motors: A Look Under The Hood

Nikola Corporation (NASDAQ: NKLA) has aggressively staked out a spot in the zero emissions shipping and services space of our collective imaginations with a planned series of hydrogen-fueled, battery-electric and hydrogen-battery-electric hybrid trucks, and a pickup truck and some off road side-by-sides thrown in for consumer appeal.

The company has more recently come to be characterized by an embarrassment at the hands of a Hindenburg Research-led short attack that led to the “voluntary” resignation of CEO Trevor Milton. The series of events came at an embarrassing time for General Motors (NYSE: GM), who had just backed the young company in an apparent interest in its concept-stage Badger electric truck.

Legend and title-free map from the hydrogen section of

Prior to the rug being pulled out from under this issue, it was successfully working an angle that its in-development fleet would use the longer range and shorter re-fueling time of hydrogen to compete with Tesla’s (planned) semi truck offering. For it to work, Nikola had a clever plan to offer incentives that facilitated the build-out of a network of hydrogen-fueling stations stocked by the on-site generation of fuel-grade hydrogen through renewable power. The network was to be built and tested in the Southwestern US before being rolled out nation-wide. A gutsy plan that worked on paper in a way that makes curious venture investor types want to know more.

Diagram of the company’s planned hydrogen production and distribution process snipped from Simple!

It’s going to be an uphill climb for Nikola working against the stigma of the Hindenburg report, and that’s a tall order for a company most accustomed to a downhill coast. On the downside of Milton’s fall from grace, it’s easy to forget about his talent as a front-man. Only a true showman could stage those demos and pay them off, and anyone who doesn’t believe that should take a listen to Milton’s guest appearance on the TC Chartcast.

In unquestionably hostile territory, Milton turns on the aw-shucks Midwestern charm, and has the hosts – who were dead set on embarrassing him – eating out of his hand. The hydrogen fuel infrastructure roll out that NKLA has proposed for its truck fleet lends itself to a narrative told as an unfolding puzzle of commerce, and Milton executes it flawlessly. In his absence, Nikola is going to have to replace both its motor and its rudder.

NKLA had a decent war chest in June 2020 ($696 million in cash). Nikola had burned $45 million in operating cash in the six months prior, but that rate is liable to ramp up quickly if it plans to do any serious manufacturing, which it does. A joint venture with Iveco to develop and manufacture battery-electric trucks in Europe for the American market is to have started in Q3. Ambitious plans are for a factory in Arizona to follow.

Nikola’s $17.75 share price is nearly twice the $10/share the SPAC investors paid for their stock, and undoubtedly represents a significant premium over the early pre-public rounds, but it’s hard to imagine that that stock didn’t get blown off through NKLA’s June $80 peak, or subsequent downward drift, the lock up agreements having mostly been taken out by price covenants. GM bought itself 47.6 million shares (an 11% stake) at $41.93/share, and that stock is locked up for a total of up to five years. The first third of it unlocks on September 8th, 2021.

Trevor Milton was registered as the owner of 91.64 million of the 378.9 million total NKLA shares when he left his post and, as a holder of greater than 10% of the company’s outstanding shares, is still subject to insider filing requirements.

UPDATE: NKLA released earnings yesterday for the quarter and nine months ending September 30, 2020. As expected, the company had no significant revenue. Its operating cash burn for the 9 month, pre-production period was $(84 million), and the company showed a $907 million cash balance.

Expense items of note include $1 million reimbursing former Exec Chairman Milton for this private jet-based commuting costs, $5.9 million in regulatory and legal expenses related to the short selling report, and stock based compensation expenses of $46.6 million.

*CORRECTION* A previous version of this post characterized GM’s investment in Nikola as a cash investment. It is in fact an in-kind contribution of GM’s manufacturing and engineering.

Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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