Nikola Corporation (NASDAQ:NKLA) Q3 2023 Earnings Call Transcript

Nikola Corporation (NASDAQ:NKLA) Q3 2023 Earnings Call Transcript November 2, 2023

Nikola Corporation misses on earnings expectations. Reported EPS is $-0.3 EPS, expectations were $-0.15.

Operator: Good morning and welcome to the Nikola Corporation Third Quarter 2023 Earnings and Business Update Call. Currently, all participants are in listen-only mode. We begin today’s call with a short video presentation, followed by management’s prepared remarks. A brief question-and-answer session will follow the prepared remarks. [Operator Instructions] As a reminder, this conference is being recorded. It is my pleasure to introduce Dhillon Sandhu from Investor Relations.

Dhillon Sandhu: Thank you, operator and good morning, everyone. Welcome to Nikola Corporation’s third quarter 2023 earnings and business update call. Joining me today are Steve Girsky, CEO; Stasy Pasterick, CFO and Christian Appel, Head of Vehicle Platform. A press release detailing our financial and business results was distributed earlier this morning. The release can be found on the Investor Relations section of our website, along with presentation slides accompanying today’s call. Today’s discussion includes references to non-GAAP measures. These measures are reconciled to the most comparable U.S. GAAP measures and can be found at the end of the Q3 earnings press release we issued today. Today’s discussion also includes forward-looking statement about our future results, expectations and plans.

A pristine electric vehicle parked in front of a modern Gothenburg skyline.

Actual results may differ materially from those stated and some factors that could cause actual results to differ are also explained at the end of today’s earnings press release and on Page 2 of our earnings call deck and also in our filings with the SEC. Forward-looking statement speak only as of the date on which they’re made. You are cautioned not to put undue reliance on forward-looking statement. After the video presentation, Steve, Christian and Stasy will provide their prepared remarks, followed by analysts Q&A, then we will conclude with questions from our shareholders. Please begin the video presentation. Thank you. [Audio-Video Presentation]

Steve Girsky: Thanks, Dhillon, and good morning, everyone. Welcome to our third quarter earnings and business update call. I’m excited to be here with the team from my first call as CEO. I want to be crystal clear about who we are, where we are, where we’re going, and how we’re going to get there. Who is Nikola? One truck platform, two powertrain options, working towards developing a network of zero emission fueling and charging solutions for Class A trucking. The trucks complement each other, offering differing range, weight and infrastructure solutions, allowing us to better serve customers. Building both products on the same platform allowed us to engineer them faster, be first to market and hydrogen fuel cell electric trucks and helps us drive down costs with scale.

Where are we going? California, California is a state on the cutting edge of technology and has big tailwinds for the transition to zero emissions trucking with both carriage and sticks from government incentives and regulations. To make the Nikola business model work initially, we need to be highly geographically focused and build network density. For example, there are more than 30,000 trucks servicing the ports in California. Beginning of January 2024, all new trucks registered with the California Air Resources Board for port and drainage operations must be zero emissions. With the customer’s duty cycle calls for a battery electric or hydrogen fuel cell electric truck, we will be there to provide it for them. That regulation is one of the sticks.

On the carriage side. California’s offering numerous incentives, including HVIP for up to $288,000 and ISEF for up to $408,000 for hydrogen fuel cell electric truck purchases. We think in the California ports alone, there’s a tremendous opportunity for us to sell trucks and hydrogen at scale. So what’s our plan to focus on California? One, first mover. We believe we are the first OEM in the market with a hydrogen fuel cell electric truck. We believe the competition is well behind us and anticipate there is whitespace for us to capitalize on our first mover advantage. Two, boots on the ground. We have Nikola sales team members supplementing dealer sales teams to find every opportunity there is to sell our trucks. Selling new technology to a long established industry is not easy.

And we are educating customers so they understand and experience how great our technology is, the value it brings, and how we can support their operations, with the fueling and charging required to keep their trucks running. Three chicken and the egg. Providing a fully integrated mobility solution. As transportation and logistics companies adopt this new technology, they want assurance, they will have the energy required to keep their trucks operating. We are in the process of establishing fueling solutions for our customers in Northern and Southern California. In a tough macro environment, working with partners is critical to ensure there is adequate capital to complete these projects. How are we doing on our execution of these initiatives?

It is difficult to analyze a nascent market. However, prior to the voluntary battery electric recall, we were second in market share for zero emissions vehicles with 21% share of registrations outperforming some of the larger OEMs. That was based on our battery electric truck alone. If you go on the HVIP website and look at voucher data for vouchers requested in 2023 as of October 27, you’d see Nikola has approximately 96% of the created vouchers for the hydrogen fuel cell electric truck tractors and about 50% of the created vouchers for the battery electric truck tractors. We’re also seeing considerable momentum in the northeastern states like New York for up to $185,000 and New Jersey for up to $175,000. In addition, there are a solid movement in Canada, where there are incentives across all provinces, territories, and municipalities for up to CAD200,000 for the hydrogen fuel cell, and CAD150,000 for the battery electric truck.

And in British Columbia, the BC Go Electric Rebate provides another stackable $150,000 incentive, bringing that total to CAD300,000 dollars for a battery electric truck and CAD350,000 for a hydrogen fuel cell electric truck. We are continuing to build sales momentum for both trucks recently receiving wholesale purchase orders for 47 battery electric trucks from one dealer, despite the product and recall status. There are 277 non-binding fuel cell electric truck orders that have been placed from 35 customers with Nikola and our dealers more than we can produce and deliver this year. In fact, if a fleet orders a hydrogen fuel cell electric truck today, they will likely not receive the truck until late Q2 2024, executing on our business plan requires top flight talent.

During the third quarter we announced the hiring of Mary Chan as Chief Operating Officer and Joe Cappello as President of Energy. I previously worked with Mary at General Motors, where she served as President of the Global Connected Services Group. Mary is a recognized automotive leader who also serves on the Board of Magna International. Joe joins us from Iwatani, where he served as Chairman and CEO of Iwatani Corporation of America. Joe and his team bring years of real on the ground knowledge of the hydrogen industry to Nikola. These two hard charging folks have built and scaled businesses in infrastructure, connectivity and technology and their expertise will push Nikola towards even greater success. These are people who don’t need to be here.

They’ve had lots of success throughout their careers. Mary and Joe are here because they want to help make a difference and believe in Nikola’s mission. Let’s move into the business updates. First, the hydrogen fuel cell electric truck. We are incredibly proud of the entire team and all stakeholders playing a part in the development of the hydrogen fuel cell electric truck. We started serial production on July 31 and began delivering the first production vehicles to capture test fleets for commercial operations and customer validation late last month. In parallel, we started running customer demos in Southern California, supported by refueling with mobile fuelers and that existing hydrogen fueling infrastructure. To date, trucks and customer demos have accumulated more than 6000 miles, while achieving 98% uptime, receiving outstanding driver feedback.

On the battery electric front, Nikola is committed to providing customers with a premium trucking experience and safety is always at the top of mind. We issued a voluntary recall for the battery electric truck in August, asking customers and dealers to send their trucks back to Nikola for monitoring and repairs, which also allowed us to investigate the cause of the battery issues. Extensive investigations have been commissioned and are currently ongoing, including assessments from three independent groups alongside their Nikola team. During these investigations, it was discovered that additional process and design changes may be necessary, and that cell level issues may need to be addressed beyond the initially identified coolant manifold replacement.

While we continue to identify the root causes of battery malfunctions, to minimize vehicle downtime, and maximize customer safety and satisfaction, we will retrofit existing customer trucks containing [Indiscernible] designed battery packs with ones from an alternative supplier. Stasy will provide updates regarding how that affects the numbers. Despite the recall, we continue to see increased demand for the battery electric truck. This is happening while the truck is not currently available for sale. A testament to our position in the market is one of the few companies able to provide hardworking zero emissions trucks to fleet customers at scale. We expect to have the first trucks back in customer hands in Q1 2024 and have taken a call it 2.0 because not only will it have improved battery packs, but new features including scheduled departure charging, improved HMI, and Bluetooth functionality at all at a lower material costs.

On the energy side we continue working with industry-leading partners to ensure we have the hydrogen supply, transport logistics, storage solutions and dispensing locations to support the operations of our hydrogen fuel cell electric trucks in customer fleets this year and beyond. We’re pleased to say we have secured enough energy offtake to support customer operations in 2023 and the beginning of 2024. The team is diligently working with partners to secure additional hydrogen offtake to support future sales, alongside securing fueling assets and locations to fuel the trucks. We also continue to see positive momentum on the federal incentive front, with $50 billion allocated from the investing in America agenda and another $7 billion in support from a DOE grants.

This is a massive amount of funding and will accelerate the development of hydrogen infrastructure required to scale and lower the cost of hydrogen. We are excited to demonstrate the fully integrated mobility solution provided to customers with the fuel cell truck and hydrogen fuel and look forward to sharing more progress with you on the Hydrogen Highway as we continue developing the refueling ecosystem. Now I will hand it off to Christian Appel, our Head of Vehicle Platform to provide you a details on a hydrogen fuel cell truck, and then Stasy will share our financials. Christian?

Christian Appel: Thank you, Steve. We’re incredibly excited to show the world the model year 2024 hydrogen fuel cell electric truck. We believe this is the first zero tailpipe emissions truck available in North America that is truly capable of servicing the majority of regional and medium haul freight operations. The trucks up to 500-mile range give fleets the flexibility and operations capable of servicing longer range medium and regional deliveries and providing fleets who run slip seed operations, a similar refueling time to diesel caps without disrupting logistic operations. Furthermore, the payload capacity of the hydrogen fuel cell electric truck can be much better than other long range zero emission trucks. And as we continue making enhancements to the product, we expect to continue closing the gap to diesel payload parity.

One of the most critical things to building the best product is that we are vertically integrated with our vehicle controls and software development. This allows us to optimize the operation of the truck across incredibly complex systems, and includes functions such as mountain mode, and in the future predictive energy management. The software under truck can optimize the dry strain to power the vehicle with both the fuel cell power module and the battery or by one system independently of the other. Mountain mode optimizes the battery energy usage on the vehicle, allowing for maximum regenerative braking power downhill and consistent performance uphill. The truck provides drivers with an advanced HMI, a mobile app and comfortable drive while being optimized for performance, efficiency and durability supporting the fleet customers most critical KPIs such as uptime, and cost of operation.

This is merely a bit of what the truck can do. I could speak all day about the truck and I invite you to look at our website, social media channels, and send us questions to learn more. Passing it to Stasy to cover the numbers.

Stasy Pasterick: Good morning, everyone. Huge thank you and congratulations to Christian and the entire Nikola team for officially launching the fuel cell truck. We’ve been developing this truck for many years. And this is a huge milestone for the team turning a new page for the company. Now onto the Q3 results. Despite tackling numerous headwinds during the quarter, I am pleased with the team’s commitment to operate with financial discipline by continuing to reduce cash burn, and focusing our spend on things that matter to our future. We were successful this quarter in accessing capital markets, raising approximately $250 million from early still convertible notes and the ATM thus increasing our unrestricted cash position by $136.2 million from Q2 and nearly tripling unrestricted cash since the first quarter of this year.

We’re making good progress towards their goal of having 12 months of liquidity on hand. Quarterly cash used came in at $111.9 million well below our target of $120 million, reflecting a 25% improvement from Q2 cash used of $148.3 million. The improvement came from $50 million benefits realized from cost cutting initiatives were executed upon in Q2, offset by $20 million use of working capital to scale up hydrogen fuel cell inventory and the impact of slower than expected AR collections, due to the battery electric truck recall, we have a lot more work to do. And we’re always looking to make improvements to our cost structure and cash use. There is a lot to digest this quarter beginning with revenue. Due to the battery electric truck recall withholding delivered in early Q3.

Prior to the recall, we delivered three battery electric trucks to dealers. However, this was offset by the repurchase of seven battery electric trucks due to the cancellation of dealer agreements as we refocus our sales efforts from California as well as dealer rebates and financing charges, resulting in net truck revenue of negative $2.4 million. We generated $636,000 in service and other revenue primarily driven by service revenue, the sale of charging assets and third party hydrogen sales. Cost of revenue in the third quarter was $123.8 million. Cost the revenue includes a $45.7 million write down of access and obsolete inventory, of which $32.7 million is attributable to the write down of battery packs on the 140 battery electric trucks, hauled in Nikola inventory and $13 million for other battery electric truck components including battery cells.

It also includes a $61.8 million warranty reserve to remedy the battery electric truck recalled. This includes the estimated cost to reengineer validate and retrofit the battery electric trucks that were previously sold to customers and dealers with an alternative battery pack solution. To be clear, the warranty deserve an accrued liability. Actual cash disbursements will take place over the next nine to 12 months as we validate the new components and work through the retrofits. We anticipate seeing the majority of that cash spent in the first half of 2024. Our goal is to offset the estimated $61.8 million cash impact with the collection of approximately $10.7 million in accounts receivable and an expected positive cash contribution margin of another $16 million from the sale of existing less trucks in our inventory once those trucks are updated with the new battery packs, resulting in a net cash spent of $38.1 million.

Total operating expenses came in at $100.7 million, including $18.7 million of stock-based compensation expense, and $9.8 million have accelerated battery electric and demo truck depreciation. Absent of the demo truck depreciation, operating expenses fell within the previously communicated guidance range. Q3 operating expenses have improved by more than 27% versus the prior four quarters average, driven by the impact of cost reductions we would have executed in Q2. Other non-operating expenses for the quarter were driven by the loss on the recreation of the conversion features embedded into April 2023 and June 2023 convertible toggled notes partially offset by a gain, due to the changes in the fair value of our common stock receivable as a part of the JV sale to Iveco.

These are non-cash P&L items and have no impact on their cash burn. At the end of the quarter, we maintain total cash and access to capital of $705.8 million subject or stock price and market conditions. And given our current cash burn rate, we believe we have adequate cash on the balance sheet to sustain us into 2024 and maintain enough access to capital to continue funding operations and execution of our business plan, including costs associated with the remediation of the battery electric recall. We also have success in strengthening our balance sheet, by reducing total debt by $87.3 million and total liabilities by $67.1 million during the quarter. We have previously indicated we will need to raise approximately $600 million to fund their business to EBITDA positive by the end of 2025.

This long-term thinking to fund the truck business remains the same. During the third quarter we raised approximately $250 million of that. However, we anticipate However, we anticipate increased costs over the next nine to 12 months associated with the battery electric truck recall, which would take the new capital requirement to approximately $400 million. This number also assumes the majority of hydrogen infrastructure will be financed by partners. As we explore opportunities in the hydrogen production and dispensing ecosystem and continue to develop our energy strategy, we may require additional capital in order to participate in hydrogen production and dispensing economics. We may elect to invest into projects where we see a compelling return on investment.

Participating in this project would allow us the opportunity to achieve economies of scale and drive down hydrogen costs. We see a growing opportunity in both hydrogen production and dispensing as we scale truck production and deliveries and other OEMs come to market. Moving to guidance, in Q4. We anticipate delivering between 30 to 50 hydrogen fuel cell electric trucks, for revenues between $11.3 million and $18.8 million. Fuel cell production is currently constrained due to supply chain ramp up. Due to lower production and delivery numbers for the fuel cell, and the path on the battery electric production and deliveries until the recall is remitted, we expect gross loss margin will be outsized between negative 115% to negative 135%. We expect total operating expenses to be between $82.5 million and $92.5 million, including approximately $15.4 million of stock-based compensation expense, and CapEx to be approximately $35 million.

Despite the challenges faced in the market and the business headwinds, we remain focused on achieving profitability, and which are further optimized cost structures and put in place a strong team focused on execution. We are working diligently to find additional cost reduction opportunities without jeopardizing our first mover advantage and monitoring capital markets to raise additional cash. During the third quarter, we beat our cash burn target of $120 million and strengthened our balance sheet raising to $150 million increasing our liquidity runway despite the new expenses for the battery electric truck and hydrogen infrastructure. We maintain strong liquidity in our stock and have continued to demonstrate our ability to raise capital. As new regulations begin to take effect in California, we believe there is demand to scale production on both the battery electric and hydrogen fuel cell electric truck in 2024 and achieve the production and delivery volume scale that is necessary to reach positive gross margins and eventually reach profitability.

I will now pass it back to Steve for closing remarks.

Steve Girsky: Thanks, Stasy. To close the call, I’d like to talk about green shoots a typical sign of a recovering plant and positive momentum for health and life. We told you we would begin hydrogen fuel cell electric truck production in Q3 and we did. We told you we would continue reducing our cash burn and improve our liquidity and we have. We have strengthened our leadership and operational expertise, including adding our COO Mary and President of Energy, Joe and we continue to work diligently to assist our customers with the recall of our battery electric truck and the introduction of our hydrogen fuel cell electric truck. These are all strong signs or green shoots. And if we’re continuing the green chute analogy, we’re getting fed by the momentum of the marketplace in government regulation, especially in California.

There are two sayings that I use repeatedly here at Nikola, which are applicable to our growth. First, our [Indiscernible], it means find a way or make one. The resilience of the Nikola team is unmatched. We have endured plenty and will continue driving forward in our mission to decarbonize heavy duty commercial transportation. We have government regulation, and incentive tailwinds at our back, the first commercially available hydrogen fuel cell electric truck in North America and the team to execute. Second, we say don’t chew on yesterday’s breakfast, and effective way to make sure we can learn and benefit from the past and move forward. Yes, we’ve had setbacks, but we are moving forward. And today we are in an incredibly strong position to capitalize on our first mover advantage with our fuel cell truck and lay the foundation for the Hydrogen Highway beginning in California.

And we will continue to keep bar commitments and remain transparent. This concludes our prepared remarks. Operator, please open the line for analysts questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Jeff Osborne, with TD Cowen. Please proceed.

Steve Girsky : Hi, Jeff.

Jeff Osborne: Hello?

Steve Girsky : Hi, Jeff.

Jeff Osborne: Curious on your observations in the first quarter on the job as it relates to the interfacing with customers around both the fuel cell and the best, putting aside the recall issues. Great to see the policy moving in the right direction. But what’s the readiness level of some of the fleets that you’re having dialogues with?

Steve Girsky : So good question. The customers are super interested in this. You saw the order bank increased to 277. And I would argue the CRM what’s at the top of the funnel is growing every day. So and I would say it’s two to one hydrogen fuel cell over BEV right now. And maybe even a little more.

Jeff Osborne: Outside of the customers, any other observations first quarter on the job in terms of shipping from an investor role — board member role.

Steve Girsky : So, people laugh at me around here, but you learned pretty quickly in this place that every day is an amazing day at Nikola. And some are good, and some are less so. But the goal when I got here was to not screw up the momentum that was continuing. And I think if you saw one of the slides, the cash is up, the burn is down and the orders are up. Certainly, there’s challenges here like there are being first in anything. But the interesting thing about this place is there’s nobody running away from these challenges. And I would tell you this, Jeff the one of the highlights of the quarter was the events in Coolidge, on the 28th. There were 900 people at that event launching celebrating the launch of the fuel cell truck 900 people.

Suppliers were showing their stuff many of you people with their suppliers were showing their stuff. It was the customers were there the dealers were there was a who’s who of the hydrogen industry was there. And if anything turns the page on the past that Nikola is that event. There is no way a year ago, two years ago, Nikola Tesla hosted an event like that. And it was really just spectacular.

Jeff Osborne: Perfect. Maybe one quick follow up on the on the BEV side, I was surprised to see the orders, what what’s the readiness on the charging side that’s been an obstacle for beyond one or two at a location? So are these the one you’re with the 40 odd units? I think you said 47 is that multiple customers just sort of or are people truly planning for 10, 15 trucks at one depot.

Steve Girsky : So that dealer has experienced around this. So in general, the charging is better than it was but it’s still an issue that customers are going to have to understand and deal with. We can help them with e-stays [ph] and things like that. But that dealer in particular has experience around this and has customers that are up to date on this. And their customers are taking chunks of trucks.

Jeff Osborne: Got it. That’s all I had. Thank you.

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

Jeff Kauffman: Hi, thank you very much. Hey, how you doing, Steve? Congratulations.

Steve Girsky : Good.

Jeff Kauffman: And welcome. That you’ve been away from this story? So a question for you. And a question for Stasy. For you, I want to talk a little more about the Hydrogen Highway because you’re not the only one using that phrase. And I think it means different things to different people. But can you talk about the opportunity here not just in California, but as we expand across the country and how you see that developing and how Nikola is going to participate in that not just through the truck sales, but also on the energy side of that opportunity?

Steve Girsky: Sure. So to make this model work, Jeff, we need focus and we density. Okay, this can’t be just blow out a bunch of trucks to wholesale and the dealers and have them jam into the market, we didn’t know where the hydrogen is, where the routes are where the customer who were the customers that were on those routes, and that’s our target market. So California is the most incentive friendly as we said in the video, it’s got carriage and sticks. We are deploying lots of people in California. And it’s not just dealers were deploying our people as well, to educate people, to educate customers how it works. And, this incentive maze is not that easy to navigate. So having people on the ground is super helpful here. So start in California, there’s seven hydrogen hubs that have been funded around the country, those are logical places for us to go.

And it’s about connecting these hubs. In California, it’s South North, and then connect in between, and then we can move all the way up. But right now, the focus is California, we need to be very, super-efficient, super capital efficient, we need to prove the IRR, these first sort of hub, so to speak, and then we could develop more.

Jeff Kauffman: Okay, and then the energy side of the business.

Steve Girsky : Well, the energy, the energy side, in what sense?

Jeff Kauffman: Well, just help us understand how the company participates. I mean selling trucks that’s pretty easy to visualize. But what is the energy business look like as we build out along this highway?

Steve Girsky : So start and then Stasy will chime in. But if there’s, there’s three you can be participate in the in the hydrogen economics, you can transport and you can dispense and you purchase. So those are called four buckets of hydrogen. We are, we’d like to be in the purchase in the hydrogen economic side, we don’t have the capital to be there. As we develop our business, we’d like to work our way back into that. Right now, it’s about acquiring large quantities of hydrogen for our customers, and getting them to where they need to be in dispensing them in an efficient manner. Do you want to add anything to that?

Stasy Pasterick : Of course. Just quickly to add to that, so as far as the financial aspect of the energy business, how we look at it right now. So there is a near term, or Steve had mentioned that there’s a longer term. In the near term we’re lot focused on profit. And we’re more focused on making sure we have this customer experience, and we’re enabling the early fuel cell truck operations, right. I mean, we are first to market and want to make sure our customers have hydrogen where and when they need it. And it will take time to ramp up with hydrogen revenue. Things I’ve shared in [Indiscernible] with you guys, it’s about 60 to 80k annually, revenue per truck in hydrogen right for truck from operation. So you’ll only start seeing meaningful revenue stream as we start scaling out the truck fleets in the next, say 12 months.

And in the short term hydrogen will likely have negative margins. However, we are doing several things to make sure that we can manage that right and eventually get to the positive margins. One, what Steve had mentioned is we need to find customers that are willing or have to pay a premium right for that integrative energy and truck solution because of regulations. Because of the incentives, we need to build out density. So make sure we’re utilizing the assets that we have. Utilization of assets is number one right factors that will help us drive down the hydrogen cost in the short term. And in the longer term as the more supply comes online and as we are able to finance our ability to come in and participate in producer economics, dispensing economics, that obviously will also help us drive the hydrogen costs down.

Jeff Kauffman: Okay, and then Stasy, if I can just one final follow up. Thank you for the detailed 4Q guidance. The story has evolved from where it was just a quarter ago or two quarters ago. And I remember we were talking about trying to get down to a cash burn of about a $400 million run rate by the end of the year. I want to look through the recall, because that’s going to play itself out in the next few quarters. But if I look at the underlying business, where do you think the cash burn target should be in terms of a run rate at the end of this year? And where are you targeting as a run rate at the end of next year?

Stasy Pasterick : Sure. Great question. So just cash burn the story you’re right, the story has evolved and it will continue evolving, but our financial targets are not changing. So we are focused, we are having some right challenges like the battery we are managing through. As a result of that, our ultimate target for this year in Q4 was $100 million. There will be a temporary increase to that of about 40. So 140 for Q4 is what I’m expecting here. And that’s driven by two things. So BEV refill, obviously we can’t sell through the BEV inventory in Q4 and then the fuel cells delivery guidance effectively is being reduced due to supply chain challenges. So those two factors are working capital, right items that are driving those cash burn up to 140.

They are temporary and reverse in 2024, to work through those challenges and start selling the trucks. That’s for this year. For next year, the goal again, the goal remains the same $100 million a quarter average cash burn for 2024 so that has not changed. We will see a little bit heavier of a cash burn in the first half of the year and we execute and work through the BEV recall. And then we expect to see some of the benefits from that the offsetting benefits from collecting the BEV AR and selling through the remaining BEV inventory as well as the benefits of reaching our BOM [ph] reduction targets later in the year. So 2024 will average out to about $100 million a quarter.

Steve Girsky : And so let me just add something to that, Jeff. The early trucks this quarter and next quarter are going to be the least profitable trucks we produce. They’re going to have the highest BOM, because we’re doing whatever we can to get the trucks out the door. And the prices on these trucks were from commitments that we made some time ago to the early launch customers. As we move through. And Stacey mentioned it before. As we get more volume, the BOM comes down. And we’re primed the goal of the team is to find the customers that value being in the front end of zero emission. And they’re out there, and they’re willing to pay a premium for this.

Jeff Kauffman: Well, congratulations, and thank you for the clarity on this call.

Stasy Pasterick : Thank you.

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

Bill Peterson : Yeah. Hi, good morning. Thanks for providing all the details as usual. I want to pick up on this last, this last question. So I think in the prior call, maybe two calls ago, the team had provided guidance around 1000 total trucks in ’24, 15 to 2025 being kind of a tipping point to breakeven. I guess, how should we think about that one quarter on? Do you still feel confident in that guidance in terms of timing volumes? I guess could the fuel cell make up the majority of that I think you talked about, that’s where the majority of the interest. Basically trying to get a sense of where that breakeven points for BEVs and fuel cell trucks. And I think earlier in this call, you mentioned that the 2.0 as a cheaper pack. So maybe that changes some of the economics as well.

Stasy Pasterick : Sure, Yes, happy to expand on that. So again, the breakeven goal remains the same. We are seeing a little bit of a challenge with some of the things that was mentioned drive for 2024. So one of the things to highlight, like obviously, we reduced the volumes for Q4 of this year. And a lot of those FCV sales things that we already have an audible push into the first half of 2024, some of the early customers do have lower preferential pricing, right, because they’re early adopters. So that’s something that we need to work through. And we’ll have to offset that as Steve said, finding other customers that are willing to pay premium or have to pay premium. Supply chain challenges, right, we’re working through making sure that we can manage our BOM targets, which again, remained the same ultimate BOM target for fuel cell trucks to get to 275 by the end of 2025.

And for the BEV, obviously, was the new back and with the volumes, that’s the thing we can achieve. We can get to below 250. That’s two years from now. Obviously, it’s a step at a time. On the normal run rate, once we get to on targets, assuming we can maintain average selling price of about 400k for fuel cell. If we sell about 300 to 250 trucks a quarter we can break even on a gross margin basis. So that’s really the magic number we’re looking for. Again, as I mentioned, we have to make sure we maintain certain level of ASP and we hit our BOM targets.

Steve Girsky : Yeah, and the only thing — just to reiterate — just to reiterate, Bill. One of the things we’ve learned in this BEV recall is people actually like our trucks and are willing to pay for it. And we’re getting a lot of complaints. So why don’t I get my truck back and we’re finding out that our truck performs better than other trucks. And what we’re trying to do and because of that, we’re learning a lot from lots of things, the early hydrogen trucks as well. People are willing to pay up and we haven’t tested how much people value being on the front end of zero emission, but we know what they’re out there.

Bill Peterson : Okay. Yeah. No, thanks for that additional context. There’s, it looks like there’s just a lot less information in your release as well as presentation versus prior as it relates to the energy business. And I know you have a new head of this so maybe we’ll get more information as we move forward. But I wanted to kind of check in at some of the milestones. I mean, you had a, you talked about a partnership with Volterra with some aid stations, first station was supposed to be coming online here by the end of this year. FII, and of course, you acquired the Hydrogen Hub, kind of like to get an understanding of how what maybe that’s waiting for 45V tax credit clarity, but try to get an update there as well. And then I think you’re supposed to deploy nine mobile refuelers in California by the end of 23.

So like to try to get a sense of where these projects are, maybe what they’re waiting on, and then provide some context and color around investing where it makes sense. But just where do we stand?

Steve Girsky : Yeah, so just to be clear. When you think about this model, you got customers, you got energy, and you got a truck. And at any one point, somebody’s going to be ahead and somebody’s going to be behind. And to be very efficient, you need to keep those as close as you can. So we’re in a case where if the truck has got supply chain issues, we don’t want to get it over our skis on getting stations and fuelers and things like that in place. So given the assumptions we made, we don’t need nine mobile fuelers in California this year, we need something less. And frankly, we were using 300-mile assumption on truck driving every day and early drivers are doing about 170 is what we’re seeing. So that also enables us to use less here.

So I — and there’s opportunities if we want to be capital efficient to use other people’s sites. So again, this is about just satisfying the customer is number one here, being capital efficient is number two here. So that’s sort of where we’re going.

Bill Peterson : Okay, yeah, no, thanks for that. If I sneak in one more, it’s kind of related to the question on supply chain. So on the fuel cells issue, can you expand more on the supply chain issues? Is this on the battery side? I know you heard your supplier is going through bankruptcy. Are you able to get sufficient tax volumes at this point? And then you’ve talked about a third player for BEV, is that the same supplier for fuel cell or is that a different supplier? And if so can this can the fuel cell truck utilize that to given apparently as a better cost structure?

Steve Girsky : So we’re not talking about the BEV supplier yet, it’s premature to talk about that, I’m sure it’ll come out when it comes out. On the supply chain front, the battery supplier is going through normal launch issues. I wouldn’t describe their launch issues as any different than any other. But there are other suppliers out there that launching new technology that are creating hiccups, nothing insurmountable. It’s just about they’re going through their launches, we’re going through ours. You’ve got new technology launching in a number of different places. And that’s basically all it is. Nothing insurmountable things are moving ahead. They’re not moving at the pace we want them to be, but they are moving ahead.

Stasy Pasterick : If I can just add to that quickly, seeing kind of the supply chain challenges was a bad launch. While we do have challenges on the fuel cell side, it’s significantly better, I think, comparatively, because we’ve learned a lot, our supply chain base is a lot more stable. And also we’re learn to get ahead of issue. So a lot of the things right, we’re kind of running in parallel paths and looking at alternatives as we anticipate those issues coming up.

Bill Peterson : Okay, makes sense. Thanks. Thanks for the insights.

Stasy Pasterick : Thank you.

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

Tyler DiMatteo : Yeah. Good morning, everyone. Thanks for taking the questions up. Steve, I wanted to follow up on the comments related to some of your assumptions and the fuel cell in Southern California. What are some of that initial feedback been and the interplay with regards to the fuel cell truck, that third party mobile fuel or your mobile fuel? Can you add a little more color related to that, please?

Steve Girsky : So we’ve been running demos in California, I think we’ve done over 6,000 miles in demos who got 98% uptime. We’re fueling it our spots and other people’s spots to get fuel into these demos. Most of our demos right now are focused on Southern California. We will start demoing and the North CBD but probably in the next quarter or so. We’ll start demoing in the north, maybe first quarter, something like that. And that’s, I think that’s, I don’t know, anything else, anything else you — I think that’s covers it.

Tyler DiMatteo : Okay, great. And then I want to follow up on your comments related to the sales network with regards to your internal sales team as well as maybe the dealer’s sales team. Can you just provide a bit more color in terms of how you’re thinking about utilizing the both of those together to really go to market and source more orders?

Steve Girsky : Yeah, so this selling new technology to an old industry is complicated. And we need to educate the dealers and we need to educate the customers and having our own team on the ground, supplementing the dealers I think is super helpful here. California is a great state with a tremendous amount of opportunity for us. So it’s a pretty tricky to navigate these vouchers, the whole voucher system. And frankly, a lot of the voucher stuff is targeted towards smaller fleets, which is a prime target for us.

Tyler DiMatteo : Okay, great. Thank you for the time guys really appreciate it. I’ll turn it back to the queue.

Stasy Pasterick : Thank you.

Operator: Our next question is from Mike Shlisky with D.A. Davidson. Please proceed.

Mike Shlisky: Good morning, and thanks for taking my questions. Wanted to first touch on the non-binding orders had mentioned 277 as of as of today. Can you refresh my memory, what has to happen to make those into binding orders? Do you have to go through a test one or two first? Or is it infrastructure being built in the vicinity of those leases? Or is there something else?

Steve Girsky : Stasy?

Stasy Pasterick: Yeah, sure. I think that there’s a few things that have to happen. And those things haven’t really changed. But what has changed is, we’re making pretty good progress on them. So number one a lot of factors do require demos, which for some of them who have started already, some of them we’re about to start here. The demos can take anywhere from a couple of weeks to a couple of months, depending on the size of the customer, oftentimes, a larger customer, like a larger fleet will require more time, right because large companies take time to go through their processes. Incentive. Right. So having, we’ve disclosed, essentially all of their vouchers, HV vouchers in California for hydrogen fuel cell truck for Nikola about applications for Nikola trucks.

But for a lot of people, this is a new process. And we’re helping and working, very closely with them and with dealers to get those incentives in and go through the process. Once the demo is done, incentive application is in the next big thing, obviously is making sure we have customer comfortable with the hydrogen infrastructure, which we’re working right with third parties, we have our own mobile fueling locations we plan to have to by early next year operating in California for customer purposes. So those are kind of the main things that need to happen to turn them into binding orders. Obviously, there’s a lot of pricing negotiations and things like that. I will say we’re already out of the 237 we’ve turned 20 already into the dealer orders that have been received by Nikola so that essentially covers, given our guidance half year production for Q4.

Mike Shlisky: Great.

Steve Girsky : And we mentioned on the call that we if you order a truck today, you’re probably not going to get until the end of the second quarter. So sorry part of the challenges is prioritizing these customers to the ones that value and zero emission most or highly.

Mike Shlisky: Got it and I appreciate those details. I want to turn secondly, to the dealer network. If I understood correctly, Stasy, you implied that perhaps a dealer dropped out during the quarter and some inventory had to be bought back. I wasn’t sure what that was all about. Can you share an insight that was an outside California dealership? Can you share the status of just kind of the broader outside California dealership as it stands today and your plan to develop that? Thank you.

Stasy Pasterick : Yes, I think that the current the buyback the two dealers from which we bought back trucks were contractually required to and we choose to terminate the dealership relationship to buy back those trucks. Those decisions are made by Nikola a lot of times they are made in combination with the dealer depending on demand depending on how much time and resources the dealer has to dedicate to Nikola business. So it’s not necessarily just because his dealers happened to be outside of California. We are focusing primarily on California so expecting if we do sign up future dealers, they’re most likely going to be more likely than not they will be in California and going forward. But we don’t necessarily have any active plans to cancel any other dealership relationships at this point.

Mike Shlisky: Great, I appreciate those details. I’ll pass the line.

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

Dhillon Sandhu : Thank you, operator. We received a series of questions from retail investors through the safe platform, the majority of which can be summed up into three topics. One hydrogen fuel cell, electric truck production, deliveries and orders. Two, battery electric truck repair and strategy, and three liquidity. So Steve, let’s start off with the first question. How do we think about hydrogen fuel cell electric truck production deliveries and how many orders have been received to date?

Steve Girsky : Thank you, Dhillon. We began serial production of the hydrogen fuel cell electric truck on July 31, and had our formal launch event on September 28. We delivered the first trucks in late October for commercial operation in captured fleets and will soon begin delivering wholesale trucks to dealers. They will then start delivering the trucks to end customer fleets. In Coolidge, we have a production capacity of up to 2,400 trucks per year, so we have more than enough production capacity to meet our targets this year and next. And we are working with our suppliers to ensure we have the materials and components to meet our targets and customer demand. As I stated earlier, to date Nikola and our dealers have received 277 non-binding orders for the hydrogen fuel cell electric truck from 35 different customers.

That is more than our production and delivery guide for Q4, so customers ordering trucks now will likely not receive a truck into late Q2 of next year. We believe there will be a large appetite for our trucks in the California market beginning in 2024 when the advanced Clean Fleets rule goes into effect, and drayage customers much begin replacing ICE trucks with zero emission vehicles.

Dhillon Sandhu : Thank you, Steve. Many of the questions on se had to do with the recall remedy and how we plan to move forward with the battery electric truck. Can you provide some color on our strategy there?

Steve Girsky : Sure, as I discussed earlier, we’re replacing the packs and the existing customer battery electric trucks with new packs from an alternative supplier. The battery electric truck 2.0 will also come with upgraded features. I want to reiterate that we are seeing strong demand for the truck receiving POs for 47 trucks from one dealer and deals in California continue to submit HVIP voucher applications. As of October, Nikola had approximately 50% of the issued vouchers that were requested in 2023 for battery electric truck tractors. We have one truck platform with two power trains, which provides customers optionality depending on their duty cycle. And we believe having two products is the right option moving forward. As I stated before, we anticipate having the first battery electric trucks back in customer hands in Q1 2024.

Dhillon Sandhu : Great onto the next topic. Stasy, the investors asked how well capitalized are you to take new orders and ramp production?

Stasy Pasterick : So on the liquidity front, which have done a good job strengthening our balance sheet. We raised $250 million during the third quarter, nearly tripling or unrestricted cash since Q1 and maintain cash and access to capital of approximately $705.8 million. We have completed the Phase 2 assembly haul expansion and mixed model line and Coolidge allowing us to produce both battery electric truck and hydrogen fuel cell truck on the same line. So we anticipate we will not need to spend much on CapEx to scale the truck business for the next few years. We have demonstrated a strong ability to access the capital markets and we’re making good progress on increasing our liquidity runway.

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