Nikola Corporation (NASDAQ:NKLA) Q2 2023 Earnings Call Transcript

Nikola Corporation (NASDAQ:NKLA) Q2 2023 Earnings Call Transcript August 4, 2023

Nikola Corporation misses on earnings expectations. Reported EPS is $-0.00031 EPS, expectations were $0.24.

Operator: Thank you, Dylan and good morning, everyone. Again, welcome to our Second Quarter Earnings Call. Before we get into earnings, I would like to first address the leadership transition plan announced earlier this morning. Steven Girsky, Chairman of Nikola’s Board of Directors, will succeed me as CEO effective immediately. I have decided to step down due to a family health matter and will be returning to Europe. To ensure a seamless transition, I will remain at Nikola in an advisory capacity through the end of September to support Steve and the team. The board and I are confident in appointing Steve as my successor. Steve was an early believer and investor in Nikola and has been pivotal to the company’s success. Over the years, Steve has worked closely with the management team on advancing Nikola corporate initiatives.

His intimate knowledge of Nikola business and products will enable him to hit the ground running with the speed required to capitalize on the exciting opportunities in front of us. Steve is a true champion of Nikola’s mission, and I look forward to seeing the impact he will have in his new role as CEO. Going into our quarterly results, I began last quarter’s call sharing with you that Nikola is the real deal, and we think that we are the best position company to lead the commercial zero emission transition and accelerate the hydrogen economy. I also laid out what Nikola’s path forward was. Focus on North America. Deliver the first heavy-duty hydrogen fuel cell truck in the market, provide hydrogen refuelling solutions to enable fuel cell truck operations, continue to build sales momentum and optimize spending to align with our focus.

Today I share that we are solidly on the path we laid out and delivering on our commitments. You have seen us in the news doing business with companies such as global energy leader Fortescue Future Industries, Bosch, the largest automotive supplier in the world, J.B. Hunt, one of the largest U.S. trucking firms, Volterra for stations, and Bayotech for hydrogen supply and fueling solutions. We continue driving forward in our mission to decarbonize heavy-duty commercial transportation. This is only possible with a great team that we have assembled at Nikola, and I am proud of each and every employee who is along with us on this journey. When you are a pioneer, the road is never smooth. Bumps are to be expected, but we believe we have the people, the partners, the technology, and the plan to make Nikola and HYLA, a true world-changing company.

So let’s get started. Beginning with the truck programs, we started serial production of the hydrogen fuel cell truck on July 31. The initial trucks take more time to build as these are the first ones built on the newly upgraded mix model assembly line. As we build more trucks, they will come off the line faster and throughput will increase. We expect the first customer deliveries to happen in September. Helping drive sales of the hydrogen fuel cell truck are pilot tests with current and potential customers. During Q2, we completed 10 Gamma trucks. Eight of the trucks will be used in pilot testing, and two will be used in final validation testing. Interest in the hydrogen fuel cell electric truck is encouraging. To date, we and our dealers have received 18 customer orders for more than 200 trucks.

On the battery electric truck during the second quarter, we continued building sales momentum, completing 66 retail sales, double that of Q1, and completing 45 wholesale deliveries. The market for battery electric trucks is growing daily as customers discover the total cost of ownership benefits of the vehicles and additional government incentives and regulations are introduced. The willingness of fleets to participate in the transition to zero emissions trucks is increasing as the technology is de-risked and the product is proven. The 45 wholesales to dealers last quarter reduced our inventory. We ended Q2 with 139 battery electric trucks in inventory on our site and 92 trucks at dealers. We expect a significant reduction of inventory in Q3 and plan to start producing battery electric trucks again in early 2024 on a build-to-order basis.

Moving on to HYLA, our energy business; we made substantial progress in seeking to ensure that we have the required supply and fueling solutions for customers in late 2023 and 2024. The energy business is working ahead of truck sales to enable zero emissions trucking operations with our fuel cell truck. We believe what needs to be offered to customers is a fully integrated mobility solution and we believe Nikola is the only company providing that for customers today. Hydrogen infrastructure takes a long time to permit, build and requires lead time to procure production and dispensing equipment. We believe we are well ahead of the curve and will continue to work with partners to build out the ecosystem. Our energy team continues to progress with well-established and capitalized partners.

The joint station development partnership with Volterra is progressing well and we have determined the first eight station locations to be developed under the partnership. The station development plan received another boost with the announcement of grants for over $50 million from various California agencies, supporting the construction of eight California stations. These grants will lower the capital costs for hydrogen refueling stations and I expect it to meaningfully reduce dispensing costs. We are very appreciative of the partnership with California state and regulatory agencies who are working alongside us to support the energy transition. On the hydrogen production and supply side, we announced that a definitive agreement was reached with Fortescue Future Industries to acquire 100% of the Phoenix hydrogen hub project.

The agreement with FFI aligns with our strategy of controlling the hydrogen molecule through the ecosystem with the help of partners. The project has made good progress. We expect it to reach final investment decisions by the end of Q3 2023 and anticipate Phase 1 to be operational in 2025 with a production capacity of up to 30 metric tons per day, which could support up to 750 Nikola hydrogen fuel cell trucks. We are negotiating a hydrogen off-take agreement with FFI to support our needs. The FFI and Volterra partnerships are significant milestones to support our capital light hydrogen infrastructure strategy. We continue working closely with partners such as Plug Power, Biotech and Linde to underpin our North American supply and infrastructure strategy.

As of today, we have received strategy — as of today, we have received six mobile fuelers and are on track to receive 10 more over the next year. We plan to have nine mobile fuelers at several California locations available for customers by the end of 2023. We believe we have secured a first mover advantage on hydrogen infrastructure and will continue to provide updates as we execute our business plan. Before I turn the call over to Stacy to go over financials, I want to say a few things about safety. Let’s talk about the fire of our battery electric truck at our headquarters in late June. First of all, we are thankful that no one was hurt. Secondly, it has been determined that only one truck started the fire and spread to the other four. We have two investigations ongoing, one with our technical and safety staff and one being conducted by a third party and we will share more when we know more.

We want everyone to know Nikola’s trucks are designed with safety as the first priority and are rigorously tested prior to release. These tests include front, side and rear crash testing, battery coolant leakage monitoring and battery thermal runaway detection. Our trucks meet and exceed federal motor vehicle safety standards and United Nations Global Technical Regulations 20 standards as well as meet the industry best practices including the Society of Automobile Engineers, the International Organization for Standardization and the Underwriters Laboratories. The testing we just described was also conducted on the fuel cell electric truck. Additionally, the hydrogen systems on the truck underwent further rigorous validation testing including more than 11,000 hydraulic cycles, which simulates more than 15 years of driving and fueling.

Extreme temperature testing, fire testing and the tanks undergo gunfire penetration testing to simulate high rate puncture similar to a vehicle collision. Not only is Nikola the pioneer of the truck itself, but of the safety system standards for heavy duty hydrogen fuel cell electric vehicles. We have team members on staff who have been a part of establishing the standards for hydrogen and how it’s going to be used in the United States. So we previously shared what we are going to do to ensure Nikola is around for the long haul. Today we communicated that we have accomplished some of those things already and believe we are well on our way to execute all of our milestones and lead Nikola to profitability. What Nikola is looking to accomplish is incredibly important.

This is the hottest summer ever on record and innovative companies and partners must work together to transition heavy duty transportation to zero emissions. Class A trucks make up about 5% of registered vehicles on the road in the United States, yet produce 23% of emissions in the transportation sector. That is more than 380 million metric tons of CO2 a year. Replacing just one internal combustion engine semi-truck with a Nikola truck can avoid 106 metric tons of CO2 per year. There is a massive opportunity for Nikola and we expect to play a critical role in the transition to zero emissions. Thank you all once again for being a part of this journey as we strive to accomplish our mission together. Now I’d like to pass it off to Stacy. She will share with you how we are reducing our cash burn as we refocus our business.

Stacy, the floor is yours.

Stasy Pasterick: Thank you, Michael and good morning, everyone. As we look at our Q2 results, we are really turning the corner on the next phase of our business and improving our financial health. We got our cash burn substantially while also improving our balance sheet and increasing our unrestricted cash position by $107 million. We remain focused on our strategic priorities and delivering value to our shareholders by focusing on the North American market — by focusing on the North American market, achieving a first mover advantage in hydrogen economy and continuing to build sales momentum. This quarter we executed many actions to reduce our spending and align Nikola’s cost structure with our new strategic priorities. We closed down battery production operations of Romeo, reduced head count in Phoenix and Coolidge by more than 20%, completed the sale of European JV to Iveco and went through a company-wide cost rationalization effort to ensure that every dollar spent is in line with the company’s priorities.

Those decisions while at times difficult to make helped Nikola accomplish cash burn below our $150 million target. Our team continues to work diligently finding opportunities to optimize our cost structure and driving financially disciplined decision making. As a result we believe we have high visibility to reduce cash burn below $100 million per quarter by the end of this year through a combination of lowering ongoing OpEx and CapEx run rates and managing our working capital usage by continuing to build sales momentum and reducing inventory on a balance sheet. In Q2, we sold 45 battery electric trucks for gross truck revenue of $14.9 million and net truck revenue of $12 million after $2.9 million of dealer rebates and incentives. Dealer rebates are related to 2022 wholesales, which were executed at higher ASPs than they’re being retailed for in 2023.

As most of our 2022 wholesales have been retailed by now and pricing levels are stabilizing, we expect rebate activity to come down. Excluding dealer rebates, the average sales price for the battery electric truck was approximately $324,000 per unit unchanged from Q1. Despite the revenue rebate impact in Q2 we continue to see improvements in gross margin coming in as negative 180% this quarter from negative 213% in Q1. Gross margin improvements are attributable to higher revenue, lower manufacturing labor and overhead as we have optimized resources and operations and coolage and improved inbound freight and inventory costs as we have transitioned to a built-to-order model. We expect to continue seeing gross margin improvements on a battery electric truck as we start utilizing battery packs manufactured in Coolidge and optimize bill of materials costs, specifically on the battery pack enclosure and battery cells.

In the longer term, we anticipate the fuel cell truck to be superior on a gross margin due to higher average sales price as we benefit from the first mover advantage and high incentives in states like California and labor freight and overhead savings once we begin assembling the fuel cell power modules in Coolidge later this year. On both trucks we have ample opportunities for bill of material cost reductions as we scale volumes and localize our supply chain. This is something our team will be laser focused on heading into 2024 and it will be critical to achieving gross margin break-even. Operating expenses in Q2 came in at $141 million within the provided guidance range. During the quarter, cash burn was $148.3 million better than our $150 million target.

Most of the improvement in Q2 came from slowing down CapEx investment and working capital usage. With a built-to-order production model, stronger sales momentum, and floor plan financing solutions, we anticipate further improvements in working capital utilization. Our goal for the second half of 2023 is for the working capital impact to be neutral as the proceeds from existing BEV inventory sales offset working capital needed to scale up fuel cell volumes. Despite volatile market conditions, we raised additional capital and improved our cash position to $295.4 million in Q2. This is an increase of approximately $92 million from Q1. The increase in cash came from net proceeds of $96 million from the follow-on offering completed in April, $49 million Coolidge land sale leaseback proceeds, $58 million from the ATM and convertible note, and $26.5 million net proceeds from the JV divestiture.

The cash balance at the end of Q2 does not include $20.7 million we received in July from the first phase of the Phoenix Hydrogen Hub acquisition by FFI. As of the beginning of July, we maintained total access to capital of approximately $743 million and believe we have adequate cash on the balance sheet to sustain us into 2024. As we announced yesterday, our stockholders approved Proposal 2 at our Annual Meeting, increasing the number of authorized shares of our common stock. This will allow us to continue accessing the capital markets strategically and efficiently and maintain liquidity to fund and execute our business plan, subject to market conditions, availability of capital, stock price, and other variables of course. As we have redefined our business plan and reduced our cash burn we currently anticipate being EBITDA neutral by the end of 2025 and estimate that we will need approximately $600 million of additional capital to fully fund the business model and achieve profitability.

This is substantially lower than what was previously estimated. Moving on to the guidance; for the third quarter, we expect total truck deliveries to be between 60 trucks and 90 trucks for the net truck revenue of $18 million to $28 million, generating a gross margin of negative 165% to negative 110%. Total operating expenses for the quarter are expected to be in the range of $90 million to $100 million, including $16.5 million of stock-based compensation. This is more than a 30% reduction versus first half of 2023 levels. Q3 CapEx is expected to be $25 million to $30 million. We have a line of sight to further reduce cash burn to roughly $120 million in Q3 with July cash burn already coming in below $40 million. We are updating the full year 2023 guidance as we now have better visibility on the commercial side as well as into the savings from our realigned cost structure.

For the full year, we expect to deliver 300 trucks to 400 trucks for total revenue of $100 million to $130 million, generating gross margin of negative 110% to negative 85%. We expect to realize a 30% reduction in operating expenses moving forward. Operating expenses for the full year are now expected in the range of $395 million to $415 million including $85.1 million of stock-based compensation. To wrap up we had a strong quarter and have improved our financial results, strengthening our balance sheet. We have substantially reduced cash burn while almost doubling our unrestricted cash position, executed on our cost savings initiative, regained closing bid price compliance with NASDAQ, developed a clear understanding of the capital requirements to fund the business to positive EBITDA, and continued demonstration of our ability to access capital.

I want to sincerely thank the entire Nikola team for executing, being efficient, creative, and demonstrating an ability to do more with less. While we’re pleased with the results so far, there is still much to accomplish and we assure you we’re working diligently to achieve our goals and turn Nikola into a profitable business. I will now pass it back to Michael for closing remarks.

Michael Lohscheller: Thank you, Stacy. So as you have heard during the call, we are doing the right things at Nikola. We have increased our cash position, while also substantially reducing our cash burn. We are building sales momentum and advancing the transition to zero emissions commercial transportation. And we are making progress in the hydrogen refueling business with partners. As we look forward to Q3 and the second half of this year, we expect investors will see the following from the Nikola team. First, building sales momentum; second, ensuring we have the fueling solutions to support customer fuel cell truck operations. Third, continue to reduce cash burn. Fourth, and raise adequate capital to execute on our business plan.

Before we close, I just want to say that it has been a privilege and honor to have served as Nikola’s CEO. As I step away to be with my family, my belief in Nikola’s purpose to pave the way for a zero emissions future has never been stronger. Steve is a seasoned automotive executive with a proven track record and he is exactly what Nikola needs right now, entering this next phase of the company’s history. Steve, over to you of the company’s history. Steve, over to you if you would like to say a few words.

Steven Girsky: Thanks Michael. I’ve known Michael and his family for over a decade. We’ve worked together in many capacities and I cannot overstate what Michael has contributed to this company. I look forward to staying in touch with you and I speak on behalf of the entire Nikola team in wishing you and your family well. I want to thank Michael for his hard work and dedication to advancing Nikola’s mission to pioneer solutions for a zero emissions world and would also like to thank the board for placing their trust in me as we work toward continuing the company’s momentum. I feel energized and ready to take on this role and I’m excited about the many opportunities ahead of us. That concludes our remarks. Operator, please open the line for analyst questions.

Q&A Session

Operator: [Operator instructions] Our first question is from Mike Shlisky with DA Davidson. Please proceed.

Mike Shlisky: Yes, hi, good morning and thanks for taking my question. And Michael, also I do wish you and your family as well. I just want to talk about that transition to my first question. Steve, sometimes when folks come into the CEO role when they were chairperson, it’s sometimes only a temporary thing. I’m looking to kind of stay at Nikola for the long term and can you maybe tell us again was this a very sudden thing? Did they just call you last night Steve or was there a large external board search done here?

Michael Lohscheller: So, thanks Mike. So, I’m in it to win it here. I’m closing on a place and tomorrow. We’re going to be spending time, a lot of time in Phoenix. I plan to be on the road a lot though visiting customers and partners. I’m here for the long haul, as long as it takes to win. A well-functioning board had succession plans for all scenarios and we had a succession plan for this one and I was happy to step up and move into this role. Does that help?

Mike Shlisky: Sure. No, I certainly appreciate that. I want to turn to what’s coming here in the second half off the production line. Let’s confirm it looks like it’s going to be entirely fuel cell vehicles if I’m reading everything correctly here. And then will all those vehicles have the bundled lease program attached to them? I know you have at least one fuel technician queued up for this year, but what’s the plan to make sure that all those trucks coming off the line in the back half of the year here have the hydrogen that they need?

Michael Lohscheller: Yeah, thanks Mike. And this is Michael here. Let me take this. So, first of all, in terms of the production, as we said, so we have started the production of the fuel cell truck, obviously a very important milestone this week for the company. We have the flexibility to produce both trucks on one assembly line, which is also a very interesting thing in terms of efficiency. But you are correct. For this year, we plan to produce fuel cell truck. However, obviously then with the build to order concept, we will also produce BEV electric trucks going forward. But now the next couple of months to the end of the year, it’s all about the fuel cell truck. And as we said, we think we will produce more than 100 trucks, which I think is a very good first step in terms of the launch of the product.

In terms of the go-to-market strategy, obviously various elements play a key factor. Just to finish that. So, first of all, the hydrogen availability is very important in terms of the mobile fueler, but several customers obviously want the bundled lease as well. And case by case, we will offer this as well. But there’s not one go-to-market approach for everybody. It depends by customers. But yes, that plays a role too.

Mike Shlisky: And I guess just to clarify your answer, that will explain maybe why there might be a lower ASP embedded in the third quarter guidance of $300,000 or lower versus $340,000 for the last quarter. It’s simply a different ASP for the FCEV. That’s all it is. Okay.

Michael Lohscheller: In terms of the ASP, it’s very similar, but obviously, we have now done some inventory liquidation and that had also an impact on the ASP. But in general, please think about that the ASP for the fuel cell truck is higher because the price is higher, the incentives are higher. So, there is a significant difference between BEV and the fuel cell truck. In addition to that, obviously, where we have competition on the battery electric truck, on the fuel cell truck, we have clearly a first mover advantage and are uniquely positioned. So, I hope that clarifies it.

Stasy Pasterick: And this is Stasy. Let me just jump in. First, how we think about the ASP guidance going forward, for the BEV, as Michael alluded to, as we’re selling through the existing inventory, ASP will normalize and be about $300,000 to $320,000 range. And for the fuel cell, we’re kind of seeing ourselves settling in $400,000 to $425,000 range.

Mike Shlisky: Okay. That makes sense. I appreciate that. I’ll pass it along. Thank you.

Operator: Our next question is from Jeff Kauffman with Vertical Research Partners. Please proceed.

Jeff Kauffman: Thank you very much. First of all, Michael, thoughts are with your family and best of luck on your endeavors. And Steve, I’m very much looking forward to working with you going forward. So, congratulations and I’m sure we’ll talk a whole lot more. I want to go back to Stasy’s comment about seeking to be EBITDA neutral by the end of 2025. And I was just thinking this is going to be more of a fuel cell mix and there’s also going to be a fair amount of HILO fuel that is moving around the country at that point in time. So, can you give us an idea of that breakeven that you’re looking at? What kind of fuel cell truck population are we looking at around breakeven? Not annual sales, but kind of how many fuel cell trucks and how much fuel do we need to be moving around the country to be thinking about an operating break-even given the cost reductions and kind of what we’re looking at over the next two years?

Stasy Pasterick: Yeah, great question. And so, really, last time we talked about what we need is to be able to produce and sell about 1,000 trucks. Most of those trucks that would expect to be on the fuel cell site, obviously, the mix will be determined by the customer. But given kind of the momentum that we’re seeing and the early order activity, we’re seeing most of the truck volume will come from the fuel cell. So, with that, I think if you think about the fuel revenue; that will take a little bit of time to ramp up, right? If you think about each fuel cell truck you sell, you’re going to be bringing in somewhere between 80,000 to 63,000 [ph] of revenue for the hydrogen a year for each truck and operation. So, it’s going to take time to ramp up that revenue. And then, if we look at 2025, really, the target there is bringing in about 20% margin on the fuel cell truck and about 15% to 20% margin on that hydrogen.

Jeff Kauffman: Okay. And then, I think Michael may have asked this, but initially, the thought with the fuel cell model was these are all going to be leases with maintenance and fuel bundled in. How is our thinking on fuel cell moving forward? Is it going to be kind of a hybrid model with some being sales and no tie-in to the fueling? Or are we still thinking kind of this long-term lease model where we’ve got maintenance and fuel packaged in?

Michael Lohscheller: Jeff, I would definitely say, I mean, first of all, whenever we now sell fuel cell truck, and the good news is we have many orders in already considering the stage of the production we are that we just launched. Obviously, the first key question from customers is the hydrogen, right? And I think the combination there, truck, hydrogen, this is where, obviously, Nikola is uniquely positioned. Maintenance is a key factor, too. So, therefore, I think bundled lease will play a role, but the key discussion with customers is like, okay, TCO of the truck, and then, obviously, what about the hydrogen included? This is where most of the debates are, and again, Nikola is very well positioned there, and that’s why the whole energy play is so important including mobile fuel stations, etcetera.

Jeff Kauffman: Okay. Thank you very much. That’s all I have.

Operator: [Operator instructions] Our next question is from Bill Peterson with JPMorgan. Please proceed.

Bill Peterson: Yeah. Hi. Thanks for taking the question. Following up on the EBITDA walk in 2025 to neutral, I believe last quarter you mentioned we needed to deliver around 1,000 to 1,500 next year and then double in 2025. My first question is, is that number or those figures still hold and my second question is, is how should we think about the mix in 2024? Is this going to be vast majority fuel cell at this stage, or how should we think about the mix into next year?

Stasy Pasterick: Hi, Bill. Yeah. I’ll take that. For the most part, that thinking that we’ve shared last time on the breakeven is still in place. With some of the reductions that we’ve talked to and we’ve been able to make as far as just being more efficient and bringing the overhead down and some of the labor cost down, it’s probably a little bit lower than 1,000, but not that far off from that. And then in 2025, we would need somewhere between 1,500 trucks to 2,000 trucks to get to EBITDA positive from 1,500 trucks to 2,000 trucks to get to EBITDA positive enough to cover the CapEx. So we start really generating the cash flow, right, the positive cash flow. As far as the mix, again, as I said, we’ll let the customer decide, but right now, what we anticipate is, for the most part, the volume will be on the fuel cell side and then for the bath, we’ll just build to order as the economics make sense of those orders.

Bill Peterson: Yeah. Thanks for that and nice job on reducing costs and cash burn. So you’re now targeting below $100 million per quarter exiting this year. I guess, can you give us a feel, following on that prior question, on your current cash burn expectations beyond this year? And I guess your plan to maintain sufficient liquidity through commercialization. I think you mentioned you now need $600 million, which is below prior expectations. So I guess, how urgent does the capital raise feel to you? Should we assume this is imminent? Or, how are you thinking on this? Can this be a step function or at least multiple raises or just any color you can provide on how to think about raising capital from here would be helpful.

Stasy Pasterick: Yeah. Thank you. Obviously, this is a lot of work, a lot of very difficult decisions on everybody’s behalf. Again, I think we’ve been able to show very good progress, right, going from $240 million to $150 million. That’s where we are right now in Q2. And a lot of that is coming from working capital improvements, right, build to order, collecting on our sales, reducing our inventory. And now, as we head into Q3 and Q4, how we get to that $100 is we will start actually realizing the impact of all of those actions that we have carried out, right, in Q2. So getting out of Cyprus, getting out of Europe, reducing our hat count. So all of those will start bringing some benefits in the OpEx run rate. Also, CapEx will go down significantly, right, because we’re pretty much done with Coolidge at this point and with the fuel cell assembly line in Q3.

So that’s really how we get to that $100 million. And then second part of your question, obviously, we feel good about where we are, right? We’ve increased our cash position. We have lower cash burn and so with those two variables. We have a little bit less urgency as far as, if you compare it to where we were in Q1 as far as the capital rate. So yes, we have the availability, to go out there and raise capital. We have the shares now, but we can afford being a little bit more selective on that and really looking at options that are aligned with our long-term capital needs and the timing on that, right, would have to be something that we will look at and we’ll balance. As far as the $600 million, it’s really just a function of our forecasted cash burn going forward and through the time when we get to profitability, which will be in 2025 and most of that capital will be needed in the second half of this year, slash first half of next year as we scale the fuel cell truck.

So again, we feel pretty good at where we are. We’ll make sure we’re being efficient on the capital rates and strategic and also disciplined with our spending.

Bill Peterson: Thanks, Stasy. And best wishes, Michael, and good luck, Steve, looking ahead.

Operator: Our next question is from Winnie Dong with Deutsche Bank. Please proceed.

Winnie Dong: Just one quick question, what is contemplated in the lower delivery expectations for the year? I think you mentioned 100 units for the fuel cell side and retail delivery seems to be, there was an uptake on a quota over code basis for the bed size. So I guess what’s driving that? And then also, going to the drivers of the gross margin change expected for the year.

Stasy Pasterick: Yes, so I can take that. So I think the question wasn’t just the reasons for reducing guidance or some of the backgrounds and reducing guidance, full year guidance, going from where we were to 300 to 400. We don’t really talk about the mix. We don’t break out the bed versus fuel cell anymore, again, because we’re building to order. We will have to see how that shakes out with the customer demand for the most part. Again, for this year, we have 140 beds [ph] on hand that are available to sell and then once those are sold through, we will resume production next year. And on the fuel cell, as Michael has alluded to, we plan to build about 120 fuel cell trucks. So really the guidance for the rest of the year is just based on what we’re able to build, based on the lead times, based on the build to order strategy that will take a little bit longer, and based on some of the lead times of our suppliers.

So on the gross margin, really the gross margin, if you look at the overall improvements of the gross margin from where we were to where we had it, a lot of that will be driven off of the volume. Our overhead is fixed rate and as long as we are manufacturing to the levels that we’ve talked about through the next few years, we don’t need to scale the overhead significantly. So really, the margin will be just a function of the revenue. And so in the guidance, as you see, we lower delivery guidance. Obviously, you will see the margin coming down.

Operator: Our next question is from Tyler DiMatteo with BTIG. Please proceed.

Tyler DiMatteo: Yeah, thank you, and good morning, everyone. Thank you for your time. Stasy, I wanted to phrase it a different way on the cash bridge. Can you provide a little more color on the working capital portion? I realize you said inventory is going to step down. But, really, how are you thinking about that beyond this year into next? And the second part of the question, is there anything else that can be done on the optimizing the resource comments that you alluded to in terms of the manufacturing and labor? As we think about the manufacturing of the fuel cell coming off the line, what other efficiencies could we squeeze out on that, that could really benefit the cash position?

Stasy Pasterick: Yeah. So I’ll start and maybe then Michael can chime in on the production side. Thank you for the question. So as far as just where we are as we get to our cash burn targets, on that spend and the CapEx side, we feel very good. Substantially, all the reductions have been actioned in Q2. And our spend is something, as you know, that we can control enough that is needed. And of course, we’ll look for incremental reduction opportunities in the OpEx and CapEx side. And we may find them, but right now, what was planned on the 30% reduction second half versus the first half. So that’s what we’ve actioned already. The working capital, as you alluded to, is probably one of the biggest areas where we could have variance to plan just because this is something that what will be key is really our ability to sell trucks to dealers, to retail those trucks and collect payments in a timely manner, right.

If we’re not able to do that, then we’ll have cash tied up in inventory and AR and that’s similar to what had happened in the BAV launch until we switched to the built to order. So some of the things that we’re doing, obviously, for the fuel cell launch, we’re approaching it in a little bit more of a pragmatic way. We’re ordering material based on indication of customer demand. So we’re not over-ordering, we’re not over-investing in inventory. And then on the BAV, as we’ve switched to bill to order for the rest of this year, the proceeds from selling the BAV right, will be a working capital benefit for those 140 trucks as we already have them there. So that’s really where we’ll get a lot of favorability for the rest of this year from working capital from those BAV units.

And of course, we’re still working on floor plan financing, making sure that we have floor plan financing in place with our dealers. So we’re able to increase that and we’re able to accelerate our collection.

Michael Lohscheller: Yeah. And just to add in terms of, obviously, the overall cost of the fuel cell truck and the efficiency and coolage is limited at the beginning in the face of the launch, right? So we do the first trucks. We do the 100 plus trucks this year. But then going into next year, you will see significant bond [ph] reduction, but also significant efficiency improvements on the direct labor side. This is normal. We have done now the second launch, but also from experience with other companies, also in terms of automotive experience, you should see efficiency gains on the labor side in the amount of 30%, 35% in the first stable year, which is obviously 2024.

Tyler DiMatteo: Okay, perfect. Thank you for the time, guys.

Operator: Thank you. I will now hand the call back over to Dhillon for shareholder questions.

Dhillon Sandhu: Thank you, operator. There are a few recurring themes in the questions, which we have consolidated. The first question is, what is the future for Nikola and how will you create value for shareholders?

Michael Lohscheller: We believe the future looks bright for Nikola. We are making the difficult, but right decisions to reduce cash burn and achieve profitability quicker. In the second quarter, we made progress toward that goal. We have a first mover advantage on the hydrogen fuel cell truck and will begin delivering production vehicles to customers next month. We are also advancing the energy ecosystem with partners and improving the sales strategy for the battery electric trucks. So when you look at Nikola, you see we have a management team making conscious decisions to eliminate unnecessary spend, be wise with capital, and drive forward the transition to zero emissions with our first-to-market world-class products. We believe if we continue to execute and build on this momentum, we will be able to deliver on our promises, generating value for shareholders, and simultaneously decarbonize heavy-duty trucking.

Dhillon Sandhu: Thank you, Michael. The second question is, how do you see government incentives and regulation affecting Nikola moving forward?

Stasy Pasterick: Great question. Government incentives and new regulations are very positive for Nikola. As we discussed on the call, station grants will reduce our hydrogen dispensing costs and help reduce the CapEx investment for station development. This is in addition to existing hydrogen production and dispensing credits, such as clean hydrogen production credits, offering up to $3 per kilogram and up to $2 per kilogram LCSS credits in California. On the truck side, vouchers in states like California and New York make purchasing a zero emission truck easier for fleets as it lowers the acquisition cost, making the total cost of ownership more competitive to a diesel truck. A great example is the California HVIP program, which can offer up to $288,000 towards the purchase of a fuel-cell electric truck.

We also believe we will see increased demand as new regulations come into play. For example, in California, only zero emission dredge trucks can register in the carbon line system beginning next year. So, there are significant incentives for fleets to transition to zero emission.

Dhillon Sandhu: Thank you, Stasy. The third question is, when will Nikola achieve profitability?

Stasy Pasterick: Last quarter, we discussed we have a path to achieve positive EBITDA in 2025. Q2 was a step in the right direction towards achieving that goal, and we expect to continue finding ways to optimize our costs. While reducing operating and capital expenditures is critical, to get to profitability, we need to generate meaningful gross margins from the sale of our products. The three most impactful variables to that are volume, average selling price, and the bill of material costs for the truck. We’ve already spoken to the continued build of sales momentum, and we expect that to increase as the hydrogen fuel-cell truck becomes available. We still expect to have to sell at least 1,000 trucks to get to gross margin breakeven, and close to double that to reach positive EBITDA.

We estimate the average selling price will be approximately $400,000 per truck, driven by the combination of first mover advantage and incentives offerings, especially in states like New York and California. Now that the fuel-cell truck is in production, one of our most important priorities going into 2024 will be reducing the bill of material costs for both trucks. As we scale the volume, we will have better visibility into piece price reductions based on our supply chain. Ultimately, we need to see our bill of materials reduced to approximately $275,000 per truck. Between that and the localization of key components, we expect that we can achieve our desired profitability targets by the end of 2025.

Steven Girsky: So, let me just — oh, go ahead. Sorry.

Operator: I’m sorry. I was just going to close out the Q&A and hand it back to Steve for closing remarks.

Steven Girsky: Great. I’m getting used to this. So, let me just close with this. I want to thank everybody for participating. I want to thank you for your support. I just want to say I’ve been involved with this company for a little over three years since the IPO in 2020. I’ve seen a lot, but I’d also tell you that nobody thought they could engineer a truck, and we are. Nobody thought we could build a truck, and we are. Nobody thought we could sell a truck, and we are. And nobody thinks we can decarbonize this industry, and we will. I am excited to be here. I’m excited to be part of this team. Michael, we will stay in touch, I’m sure. So, thank you all for listening in.

Operator: Thank you. This will conclude today’s conference. You may disconnect your lines at this time and thank you for your participation.