Business Overview
Nikola Corporation, a pioneering force in the electric vehicle (EV) industry, has been steadfast in its mission to revolutionize the heavy-duty truck market through the development and commercialization of both fuel cell electric vehicles (FCEVs) and battery electric vehicles (BEVs). With a relentless focus on innovation and sustainability, Nikola has carved out a unique position in the evolving transportation landscape.
Nikola's journey began in 2015 when the company was founded with the ambitious goal of designing and manufacturing advanced alternative-fuel commercial vehicles. Since its inception, the company has made significant strides in the development and deployment of its FCEV and BEV platforms, positioning itself as a formidable player in the zero-emission truck market.
A major milestone for Nikola came in the first quarter of 2022 when it commenced commercial production of its Tre BEV trucks at its manufacturing facility in Coolidge, Arizona. This marked a crucial transition for the company from a development-stage entity to a commercial producer of zero-emission trucks. The company further expanded its product lineup by commencing commercial production of the Tre FCEV in the third quarter of 2023 at the same facility.
In 2023, Nikola faced a significant challenge when it announced a voluntary recall of its BEV trucks due to a battery pack thermal event. This led to a temporary hold on new BEV truck shipments while the company worked to retrofit the recalled trucks with battery packs from an alternative supplier. Nikola accrued $56.7 million in recall campaign costs, of which $34.9 million had been incurred through September 30, 2024. The battery replacement commenced in late 2023, and retrofit trucks were returned to dealers or end users starting in the first quarter of 2024. Despite this setback, Nikola has made significant progress in addressing the issue, having returned 78 BEV trucks to the market so far and expecting to complete the recall work in the first half of 2025.
Alongside its vehicle production, Nikola has been developing its hydrogen fueling infrastructure, known as HYLA, to support its FCEV trucks. The company has made substantial progress in this area, recording over 5,900 fueling events and dispensing more than 210 metric tons of hydrogen across its network since inception. Nikola expects to leverage multiple ownership structures where it either fully or partially owns, or does not own, hydrogen production assets. In cases where Nikola is able to source hydrogen supply without ownership of hydrogen production assets, it has and expects to continue to enter into long-term supply contracts where its costs and surety of supply are well-defined.
Financial Performance
Nikola's financial performance has been marked by significant investments in research and development, as well as the scaling of its manufacturing and infrastructure capabilities. As the company continues to navigate the early stages of commercialization, its financial statements reflect the challenges inherent in building a new industry.
For the fiscal year ended December 31, 2023, Nikola reported total revenues of $35.84 million, a substantial increase from the previous year. However, the company's net loss for the year stood at $966.28 million, reflecting the significant investments required to bring its products to market. This figure includes a loss of $101.66 million from discontinued operations, primarily related to the company's acquisition and subsequent divestiture of Romeo Power, Inc. in 2023.
In the third quarter of 2024, Nikola's financial performance showed notable improvement. The company reported revenue of $25.18 million, representing a substantial 1,554% increase year-over-year. This growth was primarily driven by higher wholesale deliveries of Tre FCEV trucks. During this quarter, Nikola derived revenue from 88 Tre FCEV shipments and 2 Tre BEV shipments, compared to 3 Tre BEV trucks shipped during the same period in 2023. Truck sales increased by $27.2 million, or 1149%, from negative $2.4 million during the three months ended September 30, 2023 to $24.8 million during the three months ended September 30, 2024.
Despite the significant revenue growth, Nikola reported a net loss of $199.95 million for Q3 2024. The company's operating cash flow (OCF) was -$149.38 million, and free cash flow (FCF) stood at -$162.94 million. It's worth noting that these figures were negatively impacted by $8 million associated with the repurchase of 20 BEV trucks, which is viewed as a timing event as Nikola has a purchase order in hand to deliver these units to another dealer.
Service and other revenue, which includes sales from delivered charging products, regulatory credit sales, hydrogen sales, and service parts and labor, decreased by $0.3 million, or 47%, from $0.6 million during the three months ended September 30, 2023 to $0.3 million during the three months ended September 30, 2024. This decline was primarily driven by a reduction in charging product sales due to the return of charging units during the quarter, which was partially offset by hydrogen sales.
Financials
Nikola's balance sheet as of December 31, 2023, showed total assets of $1.27 billion, with $572.41 million in current assets and $702.45 million in non-current assets. The company's total liabilities stood at $555.68 million, with $260.11 million in current liabilities and $295.58 million in non-current liabilities. Nikola's stockholders' equity was $719.17 million, indicating a strong capital structure.
Liquidity
Nikola's liquidity position is a critical factor in its ability to continue operations and fund its growth initiatives. As of December 31, 2023, the company reported a cash balance of $464.71 million. The company's debt-to-equity ratio stood at 0.40, while its current ratio was 2.20 and quick ratio was 1.96, indicating a relatively healthy short-term liquidity position.
To support its ongoing capital needs, Nikola has a $400 million equity distribution agreement with Citigroup Global Markets Inc., of which $237.90 million remained available as of September 30, 2024. However, the company's management has acknowledged that existing financial resources are only adequate to fund forecasted operating costs and meet obligations into, but not beyond, the first quarter of 2025. This highlights the importance of securing additional capital to ensure long-term sustainability.
Operational Highlights
During the third quarter of 2024, Nikola reported several noteworthy operational achievements. The company delivered a record 88 FCEV trucks to its dealer network, firmly within its guidance range of 80 to 100 trucks. This performance further solidified Nikola's position as the market leader in the heavy-duty FCEV segment, with over 90% share based on the most recent bulk registration data.
Nikola also continued to build momentum in its zero-emission ecosystem, with the number of in-service FCEV fleets growing 78% year-to-date to 16 distinct end users. Across both its FCEV and BEV platforms, Nikola now has 32 discrete end fleets deploying its trucks, demonstrating the growing demand for the company's zero-emission solutions. The company's FCEV trucks have accumulated over 1 million road miles, showcasing their reliability and performance.
On the BEV front, Nikola made significant progress in returning the recalled BEV 2.0 trucks to the market. As of the end of the third quarter, the company had successfully returned 78 BEV 2.0 trucks to end fleets and dealers, with overwhelmingly positive feedback. This achievement underscores the resilience and adaptability of Nikola's BEV platform.
Challenges and Risks
While Nikola has made substantial strides in its pursuit of zero-emission transportation, the company faces several challenges and risks that investors should be aware of.
One of the primary risks is the significant capital requirements and ongoing cash burn associated with Nikola's operations. As the company continues to invest heavily in research and development, manufacturing, and infrastructure deployment, it has relied on external funding to sustain its operations. Nikola's management has acknowledged that the company's existing financial resources are only adequate to fund its forecasted operating costs and meet its obligations into, but not beyond, the first quarter of 2025. The company's ability to secure additional capital will be crucial to its long-term success.
Another key risk is the rapidly evolving competitive landscape in the EV industry. Nikola faces competition from established automakers, as well as other start-ups, all of which are vying for a share of the growing heavy-duty truck market. The company's ability to maintain its technological edge, cost competitiveness, and market leadership will be essential in fending off these challenges.
Furthermore, Nikola has faced several setbacks, including the voluntary recall of its BEV trucks in 2023 due to a battery pack thermal event. While the company has made progress in addressing these issues, the potential for future quality or safety concerns could pose a risk to Nikola's reputation and customer confidence.
The company has also been subject to legal and regulatory scrutiny. In 2020, Nikola and its officers, directors, and employees received subpoenas from the SEC related to aspects of the company's business as well as certain matters described in a short-seller article published in September 2020. Multiple putative class action lawsuits were filed against Nikola and certain of its current and former officers and directors, alleging violations of federal securities laws. Several purported Nikola stockholder derivative actions were also filed against certain of Nikola's current and former directors, alleging breaches of fiduciary duties, violations of Section 14(a) of the Exchange Act, and gross mismanagement, among other claims. These legal challenges resulted in the departure of Nikola's founder and former executive chairman, Trevor Milton, in 2020.
Industry Trends
The heavy-duty commercial vehicle market, particularly for zero-emission trucks, is expected to see significant growth in the coming years driven by increasing customer demand, government incentives, and regulations. Industry analysts forecast the global battery electric and fuel cell electric truck market to have a compound annual growth rate (CAGR) of over 30% from 2023 to 2030. This positive outlook for the industry provides a favorable backdrop for Nikola's growth strategy.
Outlook and Guidance
Despite the challenges, Nikola remains optimistic about its future prospects. For the fiscal year 2024, the company has reiterated its guidance for FCEV wholesale deliveries of 300 to 350 trucks, underscoring the growing demand for its zero-emission solutions. This guidance is supported by the company's strong performance in Q3 2024, where it delivered 88 FCEV trucks, firmly within its previous guidance range of 80 to 100 trucks.
While Nikola did not provide specific guidance for its BEV deliveries, the company noted that it is managing allocations between fuel cell and BEV production to support customer needs. This flexible approach allows Nikola to adapt to market demands and optimize its production mix.
Nikola's management has emphasized the importance of its "flywheel-based business plan," which aims to build scale and enable the company and its supplier partners to improve and optimize the unit economics of its trucks. This strategy, combined with the company's focus on expanding its dealer network and strengthening its hydrogen fueling infrastructure, positions Nikola to capitalize on the increasing adoption of alternative-fuel commercial vehicles.
Conclusion
Nikola Corporation has emerged as a pioneering force in the heavy-duty EV market, leveraging its expertise in both FCEV and BEV technologies to offer comprehensive solutions to its customers. The company's record FCEV deliveries in Q3 2024 and its market-leading position in the heavy-duty fuel cell electric truck segment in North America demonstrate the growing traction of its products.
While Nikola faces significant challenges, including the need for substantial capital investments, intense competition, and ongoing legal and regulatory scrutiny, its commitment to innovation, sustainability, and a holistic ecosystem approach has positioned it as a key player in the evolving transportation landscape. The company's ability to navigate the recall of its BEV trucks and return them to market showcases its resilience and adaptability.
As Nikola continues to navigate the complexities of this dynamic industry, investors will closely monitor the company's ability to execute its strategic plan, address its financial and operational challenges, and maintain its technological leadership. The company's success in securing additional capital to extend its financial runway beyond Q1 2025 will be crucial in determining its long-term viability and growth prospects.
With the global market for zero-emission heavy-duty trucks expected to grow significantly in the coming years, Nikola is well-positioned to capitalize on this trend. However, the company's ability to scale production, improve unit economics, and strengthen its market position will be critical factors in its journey towards profitability and long-term success in the competitive electric vehicle industry.