Nikola Corporation (NASDAQ:NKLA) Q4 2022 Earnings Call Transcript

Nikola Corporation (NASDAQ:NKLA) Q4 2022 Earnings Call Transcript February 23, 2023

Operator: Good morning. Welcome to the Nikola Corporation’s Fourth Quarter and Full-Year 2022 Earnings and Business Update Call. Currently, all participants are in a 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 formal prepared remarks. As a reminder, this conference is being recorded. It is now my pleasure to introduce Dhillon Sandhu from Investor relations.

Dhillon Sandhu: Thank you, operator, and good morning everyone. Welcome to Nikola Corporation’s fourth quarter and full-year 2022 earnings and business update call. With me today are Michael Lohscheller, Chief Executive Officer; and Kim Brady, Chief Financial Officer. The press release detailing our financial and business results was distributed shortly after 9:00 A.M. Eastern Time this morning. The release can be found on the Investor Relations section of our Web site, along with presentation slides accompanying today’s call. Today’s discussions include 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 Q4 earnings press release we issued today.

Today’s discussions also include forward-looking statements about our future expectations and plans. Actual results may differ materially from those stated, and factors that could cause actual results to differ are also explained at the end of today’s earnings press release and on page two of our earnings call deck. Forward-looking statements speak only as of the date on which they are made. You are cautioned not to put undue reliance on forward-looking statements. After the video presentation, Michael and Kim Brady will give their prepared remarks, followed by analysts’ Q&A, then we will conclude with questions from our shareholders. We will now begin the video presentation.

Michael Lohscheller: Thank you, Dhillon, and good morning, everyone. Nikola is much more than just a truck company. Yes, we have successfully launched the Nikola Tre BEV in March of ’22, and now on track to launch the first FCEV Class 8 in the second-half of this year. But we offer much more than just zero-emission trucks to our customers. We believe we are the only commercial EV company offering integrated mobility solution consisting of trucks and energy. With that goal in mind, we made a lot of positive changes in the fourth quarter of 2022, and are laying the building blocks for the commercialization of both truck deliveries and our hydrogen business. We made a lot of progress on the energy side, securing hydrogen supply for our FCEVs. We plan to produce, distribute, and dispense hydrogen with our partners.

This is expected to be an important revenue and profit stream in the future of our company. With the FCEV launch in the second-half of 2023, we believe we will be the first in the Class 8 segment, and the Nikola Tre FCEV is the perfect offtake for our hydrogen. On the BEV side, we improved our truck substantially. This resulted in a lower number of deliveries in Q4 of 2022. We think this sets up well for a stronger 2023. Additionally, we made several changes on the commercial side of the business. Kim will comment on this further, but I wanted to briefly touch on our liquidity and capital position. Nikola has demonstrated the strong ability to access the capital markets. And we believe we maintain sufficient capital to continue and execute our business plan in 2023.

Building an integrated hydrogen ecosystem to support our truck deployment and creating a scalable energy business is a top priority for us. We have accelerated the execution of our goals in building this business, and have reached several key milestones in the last few months. We recently announced the launch of our new hydrogen energy brand, HYLA, which will provide an integrated solution for our customers covering solutions for hydrogen energy supply, distribution, and dispensing, and infrastructure solutions. Over 300 fleet, government, supplier, energy and media representatives attended the HYLA launch event. We believe this new brand will provide a dynamic platform for growing the energy business. The scale of this business is expected to be significant.

During the fourth quarter, we announced our intent to develop access to up to 300 metric-tons per day of hydrogen, and 60 dispensing stations by 2026 in North America. Hydrogen supply and infrastructure will be supported by several supply projects with partners and third-party offtake agreements. We announced the potential benefits of regulatory initiatives, like the Federal Inflation Reduction Act, IRA, which includes hydrogen production tax credits of up to $3.00 per kilogram. These incentives when combined with existing programs such as the low-carbon fuel standard, LCFS, in certain states, and truck incentive programs, like in California, create positive tailwinds for supporting our customers and creating values in Nikola’s HYLA energy brand.

We have also progressed the development of our European truck and energy business with the announcement of our collaboration with E.ON for hydrogen supply and infrastructure. We have made several announcements recently which provide tangible proof points of delivery for building a hydrogen energy business. Phoenix Hydrogen Hub, in the City of Buckeye, the initial production of 30 metric-tons per day, and expect it to expand up to 150 metric-tons per days. This production will support the fueling of up to 750 Nikola FCEVs in Phase 1, and up to 3,750 when fully completed. Since purchasing the land, in 2022, the project continues to make solid progress and has been fully engaged in the permitting process as well as ordering long lead-time equipment.

Additionally, on December 1, we announced the project was invited to participate in Phase 2 of the Department of Energy Loan Program Office application process. We also announced our intent to purchase 30 metric-tons per day of liquefaction equipment from Plug Power, which will support production activities at the Phoenix Hydrogen Hub. Overall, these actions underpin the solid progress made by this important project. In addition to the progress on the Phoenix Hydrogen Hub, we also announced a strategic supply partnership for up to 125 metric-tons per day of hydrogen supply with Plug Power where we will have access to Plug’s green hydrogen production network across the country. We believe Plug Power will be a strong partner to help underpin the supply requirements of our hydrogen business.

Plug will also buy up to 75 FCEVs from us over the next three years, and will also be a supplier of a hydrogen liquefier, a key piece of equipment at the Phoenix Production Hub. We announced another strategic collaboration for hydrogen supply with Fortescue Future Industries, FFI, a global green energy company and a division of Fortescue Metals Group. FFI is building a global portfolio of green energy projects, and their collaboration with Nikola will cover hydrogen supply and infrastructure across North America, including a potential investment in the Phoenix Production Hub. We believe FFI will provide our Energy business with another important partner in bringing hydrogen supply to our customers. Our previously announced investment in Terre Haute, Indiana-based Wabash Valley Resources is expected to provide us with up to 53 metric-tons per day, supporting our truck deployment in the Midwest.

This project is on track and is expected to receive a final investment decision later in 2023. Our Crossfield, Alberta, Canada project with TC Energy, up to 60 metric-tons per day, which is intended to support our Canada truck market entry strategy. Canada represents an important market for Nikola, with supportive incentives for trucks and energy. And we see good potential for truck sales in Canada. In the Clinton County, Pennsylvania, KeyState offtake term sheet, announced in 2022, will supply up to 100 metric-tons per day to support our deployment of trucks in the Mid-Atlantic and Eastern states which are important markets for Nikola. These projects, offtake agreements, and others under negotiation will underpin our goal of achieving 300 metric-tons per day of hydrogen supply by 2026, which will help fuel up to approximately 7,500 trucks per day.

This is an important baseline for our truck deliveries, and could be a significant revenue generation opportunity for Nikola. We have also continued progress on our dispensing station network, announcing an additional station located in West Sacramento, California, on February 21. This announcement in addition to the previously announced stations in Colton, Ontario, and a location servicing the port of Long Beach, brings the total to four in California. Augmenting our fixed dispensing station network, on January 18 this year, we announced a major step forward in our hydrogen refueling capabilities with the completion of our heavy-duty 10,000 pounds per square inch Hydrogen Mobile Fueler. It is the first of its kind, and is capable of fueling our FCEVs in flexible locations with efficient fill time.

Coupled with our Hydrogen Tube Trailer with a 960 kilogram capacity, this will allow customers to refuel trucks back-to-back. The first three mobile fuelers have completed commissioning and are released for operation by Nikola’s Truck Validation Team. The fourth mobile fueler is currently going through commissioning and will be deployed for use in March. Mobile fueling solutions will allow us the flexibility to deploy hydrogen fueling infrastructure strategically at customer depots and Nikola refueling stations complementing permanent fueling infrastructure. For customers, this provides them with great flexibility and a refueling experience that is similar to what they experience today with diesel or natural gas, either behind the fence or as a refueling service that comes to their depot.

For Nikola, it provides us the flexibility to refuel customer trucks in geographic areas with limited truck density, and could be scaled to match the capacity introduced into that area as more FCEVs are sold. Mobile fueling solutions also potentially reduced CapEx by upwards of two-thirds the cost of a permanent station. The steady execution of our energy goals gives us a growing portfolio of valuable supply and infrastructure assets. We believe this gives Nikola a head start and competitive advantage in the zero-emission transportation sector and will help create sustainable shareholder value. In the fourth quarter, we successfully completed FCEV alpha pilot testing with Walmart and TTSI accumulating over 7,800 and 9,500 miles respectively.

As of today, we have completed the build and commissioning of 17 Tre beta FCEVs. The beta trucks are undergoing development, testing, and validation. Beta trucks incorporate a number of improvements from the alphas based on testing and customer input. From winter testing of the alphas, we have improved water management and our fuel cell and exhaust systems. We also improved the performance, range, and efficiency of the beta vehicles. We are now building 10 gamma trucks which include further engineering enhancements and refinement. Once the gammas are commissioned, we will begin validation testing as well as additional pilot captured fleet testing. We remain on track to deliver the first series production FCEVs in the second-half of this year.

Ahead of customer deliveries in Q4 2023, our commercial team is in active talks with customers and is looking to secure deposits for the first FCEVs. The first of the FCEV commitment from Plug Power on December 15, Plug will purchase up to 75 FCEVs with the first being delivered in Q4 2023. And on January 25, we announced that Biagi Bros will purchase 15 FCEVs in the fourth quarter of 2023. On February 3rd, we announced that the Tre FCEV received California Air Resources Board Approval to be eligible for the hybrid and zero-emission truck and bus voucher incentive project initiatives. This means FCEV customer can receive an intensive of up to $288,000 for a Class 8 FCEV in California in addition to a potential $40,000 federal tax credit from the IRA.

We have made immense progress in our FCEV program. And believe the future for medium and long haul applications will be served by fuel cell electric vehicles. We believe our FCEV program in conjunction with our energy business will serve to set Nikola apart from the competition. We believe we have a best-in-class fuel cell heavy duty truck and are excited to begin delivering trucks to customers later this year. Moving on to our Tre BEV program; we utilized the fourth quarter to improve our product and address customer feedback. This resulted in lower delivery numbers as we worked to make the changes to trucks in Nikola dealer inventory before delivery to end customers. We chose to do this as soon as possible before delivering additional vehicles while we have access to trucks at dealer service centers and our Coolidge manufacturing facility.

Some of the changes we implemented include our second major post production software update and eAxle bearing enhancement and improvements to our battery management software. Our second software update was a significant improvement for us and provided the following improvements. Increasing the useable battery capacity giving the truck up to 40 miles of increased range, enable 350 kilowatt charging capability allowing 80% of charge in 90 minutes. Introduction of front and rear cameras, improved low-voltage power management resulting in reduced low-voltage power consumption, Bluetooths and mobile app enhancement. We have also worked diligently with customers, dealers, and charging infrastructure partners to accelerate the deployment of BEV charging at customer depots.

We are innovating creative interim solutions for fleets as they work with utilities to install expanded permanent power capacity at their depots. We currently have three charging options; one, Nikola Mobile Charging Trailer requiring 300 amps of power; two, ChargePoint dual E-skid requiring 200 amps; and three, a single ChargePoint skid requiring 100 amps. Another step we have taken is to strengthen our sales and commercial team. One of the first actions was to hire Bruce Kurtt. He has over 30 years of executive experience in the commercial and medium and heavy duty transport space; previously holding roles at Volvo, Navistar, Kenworth, and Mack. And brings extensive relationships with fleets and additional dealers to Nikola. Since joining the company, we have further expanded the team, hiring nine additional sales reps with deep trucking experience.

We are refining our strategy, educating dealers and customers on the benefits of zero-emission vehicles, including reduced fuel and maintenance cost and solving infrastructure challenges. Two of the things already initiated to refine our strategy and improve products are related to lead generation and customer feedback. We have better defined target customers for the Tre BEV from both perspectives of duty cycle and available power capacity. These qualified leads should translate into better qualified customer conversation and speedier search conversions. About product improvement, we plan to make additional product enhancement to our trucks, including; one, updating the sliding fish wheel; two, changing the location of air tanks between the axels; three, new longer lasting traction tires; and fourth, adjustment the entry and egress to make it safer and easier for drivers to get in and out of the truck.

As part of our sales strategy, we think it is appropriate to address inventory. We think, in the early stages of our business, having roughly three months of delaer inventory is the right number. This will allow dealers to have deliverable inventory, as well as enough trucks to demonstrate to customers. Bringing potential customers to our trucks is a key element in this process. Sufficient inventory is necessarily for this. We ended Q4 with 115 trucks in dealer inventory, and 127 in Nikola inventory. Regarding Tre BEV customers and pilots, on November 2, we announced the purchase order of 100 Tre BEVs from Zeem’s Solutions. We are currently undergoing a pilot program with Zeem, and we will begin delivering trucks to them this year. During the fourth quarter, we also continued customer pilot demos with Walmart, , accumulating over 35,000 miles.

And to conclude our remarks on the Tre BEV, on February 22, we announced with selected PlusDrive from Plus for the Nikola Tre BEV and FCEV. PlusDrive Enhanced Safety System will augment existing Nikola-based features, including 100% electric steering, ZF electronic braking system, and internally develop vehicle controls and software. We expect the first Nikola trucks of the assembly line to begin incorporating PlusDrive by the end of 2024. Europe remains an important market for Nikola. We continue to work with our partners Iveco and E.ON as we look to build zero-emission trucks in energy business on the continent. In Q4, development of the EU spec Tre BEV 4/2 continued. Currently, we are testing our beta trucks, and building gamma trucks. We plan to start zero production beginning in Q3, with deliveries beginning shortly thereafter.

We are on track to deliver the EU spec Tre FCEV in Q3 of 2024. As we communicated last year when we unveiled the beta truck, Nikola and Iveco opened the order book to European reservations. On January 23, we jointly announced an LOI with GP Joule for 100 FCEVs. We are also pleased to announce further progress on our European truck sales and energy business. We had previously announced the collaboration with E.ON, one of Germany’s leading energy companies. We continue to make good progress on our previously-announced collaboration with E.ON, and are finalizing the joint venture agreement, which we expect to execute by the end of Q1. We are also pleased to announce that the letter of intent has been signed by Richter Group, a transport and logistics company, based in Germany for an initial order of 20 Tre FCEVs. Richter Group also work with Nikola and its partners to potentially expand the conversion of its fleets of 160 trucks over the next few years.

Along with previously-announced LOI for 100 trucks with GP Joule in January, we see real momentum progressing in the adoption of our vehicles in Europe. The partnerships with Iveco, E.ON, and others in Europe place us in a good position to continue making truck sales, and building a hydrogen energy system. Now, we will give an update on the integration of Romeo. On January 13, we announced battery pack manufacturing will transition from Cypress, California, to our manufacturing facility in Coolidge, Arizona. This move will bring FCEV power model assembly and battery model and pack production under one roof. The new battery line in Coolidge includes automation, which is expected to improve the quality of modules, increased module impact throughput, and enable significant cost reductions.

In Coolidge, we made additional progress on the build-out of the Phase 2 assembly expansion area. Upon completion of Phase 2, the facility will be capable of producing battery packs, assembling Bosch fuel cell power module in both the Tre BEV and FCEV on the same line. Assembly nameplate capacity will be up to 20,000 units per year. During the second quarter, we will slowdown the production rate in Coolidge as we prepare to accommodate the assembly of the FCEV on the same line, and install fuel cell power module assembly, and battery module, and pack production lines. In conclusion, 2022 was the year of learning, and growth for Nikola. We are now well-positioned to serve customers, providing the fully integrated mobility solution they need to transition their fleets to zero-emissions.

And we are excited to capitalize on opportunities in 2023. With that, I will now hand it over to Kim to cover the numbers.

Kim Brady: Thanks, Michael, and good morning. In 2022, we remained committed to managing cash and disbursements, coming in favorable to our expense guidance. We intend to continue being disciplined with our spending in 2023. Let’s jump into our 2022 results. For the full-year 2022, we produced 258 Tre BEVs, and delivered 131 to dealers for revenue of $50.8 million. The cost of revenue was $155.6 million, gross loss totaled $104.8 million, operating expense for the full-year came in favorable to our previously-provided guidance at $643.9 million, inclusive of $255.4 million of stock compensation expense. We have remained disciplined in our spending and managing cash. Net loss for the full-year 2022 was $784.2 million, and on a non-GAAP basis, adjusted EBITDA came in at negative $450.2 million, adjusted EBITDA excludes among other items, stock-based compensation of $255.4 million, regulatory and legal matters of $23.2 million, and Romeo acquisition cost of $14.6 million, CapEx for the full-year totaled $170.7 million, predominantly spend on our Coolidge management facility expansion, hydrogen infrastructure equipment, and land for Phoenix Hydrogen Hub, supplier tooling, and HQ expansion in Phoenix.

Moving on to our Q4 results; we began consolidating Romeo’s result of operations into Nikola’s after the merger closed in October. During the last three months of the year, we produced 133 Tre BEVs, and delivered 20 trucks and 21 chargers to dealers, generating revenues of $6.6 million. This includes an unfavorable revenue adjustment of $2.6 million relating to a dealer rebate program associated with third quarter deliveries. Excluding this adjustment, the average selling price for the Tre BEV was approximately $374,000 per truck. On a consolidated basis, the cost of revenue for the quarter was $52.3 million, generating a gross loss of approximately $45.8 million, as compared to Q3. As a percentage of revenue, gross loss increased significantly due to a lower volume of Tre BEV deliveries, higher fixed cost, including overhead expenses and freights spread over a smaller number of delivered trucks and inclusion of Romeo overhead and inventory costs, including one-time expenses associated with the merger.

Let’s break down the cost of revenue. Of the $52.3 million total, $8.6 million is related to the bill of materials for the Tre BEVs, and charging products sold during the quarter. Fixed costs at our manufacturing facility in Coolidge came in at $11.1 million for the quarter, which includes overhead, labor, and depreciation, $5.2 million is related to inventory freighting and duties. Freight and duty costs as a percentage of inventory receipts have improved dramatically from 30% of receipts in July, to 9% of receipts in December. The remaining $7.4 million was related to inventory adjustments and non-cash inventory-related expenses. Also, included in our Q4 cost of revenues are $19.3 million related to Romeo’s operations. Of this, $4.3 million is for excess and absolute inventory write-downs from products which will no longer be sold to third-parties since Romeo will no longer operate as a merchant pack supplier.

The remaining costs are related to Cypress plant, labor, overhead, inventory freighting, and adjustments, which we expect to decline significantly as we integrate battery pack manufacturing into our Coolidge operations. R&D expenses totaled $69.4 million in Q4, including $7 million in stock-based compensation. SG&A expenses totaled $80.2 million, including $34.4 million of stock-based compensation. Net loss for the fourth quarter totaled $222.1 million; on a non-GAAP basis, totaled $180.6 million. GAAP net loss per share basic and diluted, was negative $0.46, and on a non-GAAP basis was negative $0.37 basic and diluted. Turning to the balance sheet, we ended the quarter with approximately $323 million in cash, including restricted cash. Access to additional capital, available to Nikola comes in the form of ATM, of which, $232.2 million remaining.

Assuming equity line of credit $312.5 million remaining, and $75 million of convertible notes we have the right to sell, providing us with approximately $942.7 million of total excess liquidity. As Michael mentioned earlier, in 2022, we have successfully executed several agreements in the capital markets, including the sale of $200 million of convertible notes in May, putting in place a $400 million ATM in August, and an agreement for an additional $125 million in convertible notes, of which, we received $50 million in December. Accessing our existing E-Lock, ATM, and convertible notes, sources of capital will provide us with sufficient funds to sustain our operations, and execute our business objectives into 2024. Accounts receivable were approximately $31.9 million.

We are working with financing institutions to provide flow plant facilities to our dealers, thus, reducing working capital in the form of accounts receivable with dealers. At the end of the year, we held approximately $123.2 million in inventory. This includes $57.3 million in raw materials inventory, $63.8 million in finished goods and work-in-process, and $2.1 million in service parts. As our commercial functions kick in to gear, we expect our inventory turns to accelerate. CapEx for the fourth quarter totaled approximately $52.3 million, and was predominantly spend on Coolidge manufacturing facility expansion, hydrogen production equipment, hydrogen mobile fuelers, and supplier part tooling. As you know, we laid up approximately 7% of our workforce or 100 FTEs in November, as we adjusted to the difficult macro headwinds related to inflation, rising interest rates, and slower-than-expected debt adoption rate.

We are working hard to improve our productivity and reduce bam costs with greater focus and discipline. Our headcount as of December 31 was 1,583 employees, including 299 employees of Romeo. Moving on to the 2023 outlook; in our Q3 earnings call, we acknowledged that the adoption rate of battery electric semi-trucks is still very much nascent, and slower than we anticipated due to a variety of issues, including significant charging infrastructure challenges faced by our potential end customers. We don’t believe these challenges will be abated anytime soon. And all the stakeholders will need to work together to address them. This will take some time. We also pointed out that we would be better off delivering fewer Tre BEVs, preserving cash, and minimizing our losses until the plan bam cost savings are achieved in 2023.

Consistent with what we previously stated, we have reduced volume expectations for our Tre BEVs in 2023. We plan to produce 250 to 250 Tre BEVs, and 175 to 225 Tre fuel cell electric vehicles this year, and deliver 250 to 350 Tre BEVs, and beginning in late-Q3, 125 to 250 Tre fuel cell electric vehicles. Our revenue guidance is $140 million to $200 million. We anticipate gross margins for the full-year 2023 will be negative 75% to 95%. We expect gross margins to improve substantially towards the end of the year as we realize our cost saving benefits from the Romeo transaction. We anticipated we can lower battery modules and pack costs, excluding cells on the Tre BEVs by approximately 100,000 per truck by December, 2023. We have already realized 31,000 in material savings per truck post close as the temporary pack price increase, associated with delivery incentives before the Romeo transaction close, no longer is in effect.

We expect to achieve an additional 41,000 in material savings by switching to battery packing closure, and junction boxes manufacturing process from machined billet to casting. Additionally, by transitioning battery modules and pack production to Coolidge, and implementing battery line automation. We expect to reduce labor and overhead cost by roughly $33,000 per vehicle. We believe bringing battery module and pack manufacturing in-house provides us with long-term strategic value. Estimated R&D expenses in 2023 are $245 million to $255 million, which include $34 million in stock-based compensation. Estimated SG&A for the full-year is $185 million to $195 million, which includes $61 million in stock-based compensation. Our planned OpEx spending for 2023 is approximately 12% below the 2022 level, excluding stock-based compensation.

We anticipate capital expenditures to be in the range of $140 million to $160 million, mainly focused on the completion of the Phase 2 assembly expansion area in Coolidge, fuel cell power module assembly line, battery module, and pack assembly line, tooling for fuel cell electric vehicles, and hydrogen infrastructure. 2023 planned CapEx is approximately $21 million below the 2022 level. We are running at full speed to meet the Tre fuel cell EV, started production in Q3, 2023. Our goal is to pre-sell the production volume of Tre fuel cell electric vehicle, including requiring a modest down payment. We expect weighted average shares outstanding for the full-year to approximate 558.3 million, and total shares outstanding to approximate 567.9 million.

We anticipate our ending headcount to slightly decline to approximately 1,500 employees. In Q1, we expect to deliver 30 to 50 Tre BEVs for revenues of $10.5 million to $17.5 million, and generate gross margins of negative 215% to 240%. We expect gross margins to improve substantially as we scale volume production, and realize cost savings from Romeo in Q4, 2023. Our estimated R&D for Q1 is in the range of $75 million to $80 million, including $8.5 million in stock compensation. R&D expenses are somewhat heavier in Q1, due to the completion of the beta fuel cell electric vehicle build, the commencement of the gamma FCEV build, and FCEV validation activities. SG&A will be in the range of $50 million to $55 million, including $16.5 million in stock-based compensation expenses.

We anticipate that CapEx will be approximately $55 million in the first quarter principally related to fuel cell EV supply tooling and assembly line equipment to support the fuel cell EV launch. In Q1, we expect the weighted average shares outstanding for the quarter to approximate 543.4 million and the total shares outstanding to be approximately 558.4 million. Regarding our longer-term outlook, we are still in the early adoption period of zero-emission vehicles, and we can see the momentum building, albeit slowly. However, we anticipate the pace of adoption to pick up as approach 2025 and 2026, and expect the Inflation Reduction Act to start providing a significant boost to Nikola’s integrated fuel cell EV and fueling business model. We are in a nascent industry, so there is a lot of uncertainty.

But assuming zero-emissions truck adoption increases in greater numbers, our Energy business executes on hydrogen production and fueling solutions and we are able to capture only 1.7% of ACT Research’s 2026 U.S. Class 8 truck new units sale volume of approximately 360,000 units. Then we have a line of sight to achieving our targets. To share some preliminary thoughts on our long-term thinking, in 2026, we would anticipate sales of approximately 1,000 to 1,250 Tre BEV and 5,000 to 6,000 Tre fuel cell EV, for total truck deliveries of 6,000 to 7,250 units. In addition, if our Energy business is able to successfully develop access to approximately 300 metric-tons per day of lower carbon hydrogen supply and there is adequate demand, we estimate that we could potentially generate roughly $450 million to $500 million in hydrogen revenue selling to Nikola FCEV and third-party customers.

Again, lots of this, and a lot of work to be done, and we cannot provide any assurance that we’ll get there. But this is what we’re striving for. Our current plan is to achieve a positive gross profit margin in 2024 and breakeven to positive EBITDA in 2025. We believe our outlook is achievable if our business develops as planned, our business milestones are achieved, and where we continue to have access to necessary capital. We are laser-focused on executing our glide path to profitability. I will now hand it back to Michael for closing remarks.

Michael Lohscheller: Thank you, Kim. As we have done in the past, we have provided milestones for investors to track our progress and hold us accountable. We suggest you pay attention to and closely monitor our milestones. In 2022, we have taken steps forward that will make positive impacts on our business and set us up for success in 2023. Our 2023 milestones are a follows. Complete the build of 10 gamma FCEVs by Q2; realize approximately $100,000 in cost savings in battery modules and packs for each Tre BEV by Q4, 2023; achieve final investment decision for the Phoenix Hydrogen Hub by early Q3; announce at least two refueling station partners by June; deliver 250 to 350 Tre BEVs to dealers for 2023; deliver 125 to 150 Tre FCEVs in the second-half of 2023.

This wraps up our prepared remarks. We will use the remainder of the time to address our covering analysts’ questions, after which we will take some questions from our retail shareholders. Operator, please open the line.

Q&A Session

Operator: Thank you. Our first question is from Douglas Dutton with Evercore ISI. Please proceed.

Douglas Dutton: Yes, good morning, Michael, Kim, and Dhillon. Nice update here. So, two questions for you, first, can you detail what the next steps look like with AnheuserBusch as a continued FCEV proof of concept for other customers? And maybe talk about how you see demand progressing over time for some of these bigger pilot customers. It sounds like several of the first salable FCEVs are spoken for, but for a larger customer, or a Walmart, what does the trajectory look like into 2025 and 2030?

Michael Lohscheller: Okay. Thank you. Good morning, Douglas; Michael here. So, let’s talk about the development of the fuel cell truck. I mean, first of all, as I mentioned on the call, the truck is in good shape, the development is achieving good milestones. Now we have, as you know, big agreements with certain customers, and Anheuser Busch is one of them. Those trucks are in demos which do really well. And now, we will see the first deliveries starting in this year. The Biagi Brothers is another example where we see the first 15. And then we will see that also going into ’24, ’25. And obviously, ’26, I think importantly, the outlook we gave in terms of how important fuel cell is for Nikola. When Kim mentioned about the numbers for ’26, obviously, very obvious that fuel cell is very important for Nikola.

I mean in terms of potential percentages, it could be up to 80%. But to your point, so we see the first deliveries in the fourth quarter when we will launch the fuel cell truck. And then, obviously, this will improve step by step in the coming years. The good thing, I think, is that we received good feedback from the demos. And of course, customers have a new brand, a new truck. And I think this feedback is critically important. So, I think we are on a good path of first deliveries this year, and then improving into ’24 and ’25.

Douglas Dutton: Okay, appreciate that answer, it’s helpful. Finally, just on FCEV production, I see the goal is 10 gamma FCEVs by the end of Q2. Can you tell us who are the preliminary partners that these 10 gamma builds are committed to? Thanks, team.

Michael Lohscheller: Yes, so what we do is, I mean, first of all, the gamma we use a lot for validation. We also have certain marketing trucks which we bring to certain shows, like we are in Orlando in the next couple of weeks where we present the truck. But the gamma trucks, really the main purpose is the validation, so to make sure that we are in great shape, and that we then can start deliveries in the third quarter. Also another point I’d like to add is, I mean, obviously, this is our second truck we now develop and bring to the market. This is very helpful because we have learned so many things from the BEV. And overall, the fuel cell truck is in much better shape because the BEV was our first truck we did. And we have lots of learnings out of that.

I mean the fact that we have finalized the beta truck, the 17, is a very important milestone for us. Now the gamma, for validation, but we also have marketing trucks which we bring to certain customers, also to certain truck shows so that as many people as possible can get into the truck as early as possible.

Douglas Dutton: Thanks, Michael.

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

Jeff Kauffman: Thank you very much. And thank you for all that clarity on what happened in 4Q and then what the plan is for 2023. I’m going to go in a different direction. This week or so ago, it was announced that British Petroleum had acquired about 270 fueling stations from TravelCenters of America. And I know BP has been focused on this, this hydrogen concept in the Midwest as well. And just curious what your read is on that acquisition? And you had started a program where you were going to start bringing fuel into a couple TA centers to do fueling in California, I think two centers if I got that right. Does this affect any of your thoughts in that area? Is it an opportunity, and just curious, your view on BP taking such a large stake in commercial vehicle fueling locations?

Kim Brady: Jeff, great question. So, first, the fact that they have actually acquired TA; this is wonderful news from our perspective. It means you’ve got oil majors becoming more serious about hydrogen distribution, and they understand that hydrogen is really the fuel of future and now. When you think about in terms of our relationship with TA, nothing has changed. And the fact that majority of our energy team comes from BP and they’re very familiar with the folks at BP who have acquired TA, we believe that this will actually strengthen our relationship with TA going forward, and it will accelerate our partnership.

Jeff Kauffman: Okay. Just curious, based on the current plans on the board, as you start to bring these fuel cell trucks to market in ’23 and 2024, I guess how much fueling capacity are you going to need to meet the needs in, say, your first 12 to 18 months of fuel cell vehicles being on the road as we kind of build this plan toward 2026?

Kim Brady: So, for 2023, as you know, based on our modest view in terms of number of trucks that we’ll sell, the needs that we have is only about 7.2 tons per day. And so, we believe we can meet that demand based on what we have procured already from third party. And we know exactly for our launch market where we will access the hydrogen. And we have mobile trailers ready so that we can fuel them behind the fence, whatever makes sense for our existing customers. So, that’s something that we feel very comfortable that we have already covered.

Jeff Kauffman: So, you’ll have the capability, by ’26, to support about 7,500 fuel cell trucks; you gave me 7.3 million tons per day for ’23. What do you believe those needs will be for ’24 as you start to ramp and sell more fuel cells?

Kim Brady: For 2024, we anticipate based on what we are looking to sell. Now, Jeff, in your question, while we have not disclosed what we anticipate in terms of truck sales, at a high level, we do think we’ll need around 40 to 45 tons per day. And once again, based on what we have already contracted, we feel very comfortable meeting those numbers.

Jeff Kauffman: Okay, wonderful. Well, thank you. Those were my questions.

Operator: Our next question is from Bill Peterson with J.P. Morgan. Please proceed.

Bill Peterson: Yes, hi, good morning. And thanks for taking my questions, and, as always, for all the great disclosure you have in the presentation and prepared remarks. My first question is, how of these trucks are really in the hands of any customers exiting 2022, if any? And how should we think about the number of trucks that are in fleets’ hands by maybe the end of this year? And do you in customer targeting, things like , just trying to get a feel for how that is part of the equation over the next few years given the constraints on charging and other areas you mentioned?

Michael Lohscheller: Yes, thanks, Bill. Thanks for the question. So, let me provide a little bit of color also in terms of the overall development. I mean, first of all, if I look back at 2022, I think what worked well at Nikola is the development of the truck, the production; we worked through supply chain issues. And now, the first trucks come to end-customers, right? So, overall, we have close to 40 trucks in customer operation. We talked about the inventory number. I think it’s fair to say that we have sufficient inventory at the moment. We’ll also bring this down going forward, which is helpful to have inventory in these days because, obviously, people also need to experience our truck. I mean, it’s a new brand, it’s a new truck.

So, the more people we have in our trucks, the better. In terms of the guidance we gave in terms of deliveries to dealers there, the 250 to 350, we will see a higher number to retail customers, right, during the year. I think we will see progress in the first and second quarter then, and then ramping this up. And we have done a lot of measures also to improve this. I mean, as we highlighted, we have more sales people now; we have much more truck experience. The dealer management is much better. And again, we need to bring our customers into the truck, experience that. So, we will see a gradual improvement there in terms of bringing those trucks into customer hands’ operation. And then, obviously, also take their feedback. And that’s why we purposely made the decision to also improve some of the trucks now and not at a later stage, because for us as a new company the customer endorsement is so important.

So, I think that this is how we see that going forward the next couple of quarters.

Bill Peterson: Okay, thanks for that color. I guess, and the second question more on hydrogen infrastructure, a little bit different than the prior ones. You talked about 60 stations by 2026. In the meantime, you have mobile re-fuelers. I guess question is about the rollout of additional stations in 2023, and then what’s the associated expense for Nikola? And then sorry for the multipart question, but then when you look at the Phoenix — the Arizona hub, you’re looking at and then again, what’s Nikola’s expected contribution? Can you but I think you prior discussions, you talked about pricing BTE or other partners maybe in the lion’s share of the bill. But then, now you talk about the . And so, trying to understand more about the hub issues as well as the stations for the infrastructures if you think about this year, and in, overall, a few years?

Kim Brady: So, Bill, there are lots of components to your questions. But, well, let me iterate, when it comes to our hydrogen ecosystem, our strategy is to be asset-light and capital efficient. That means we will have partners for our hydrogen hubs as well as refueling stations. What you have started to see in 2022 is for us to kind of lay out in terms of how we will build out hub network as well as refueling network. In 2023, especially in the next couple months, three months, I think what we have stated is that you are going to see additional announcement with respect to refueling network. What we have stated as a company is that, by 2026, we are looking to have approximately 60 refueling stations. California is our launch market.

We anticipate, in California, likely there will be at least 20 stations or more by 2026, and will provide a complete coverage for California network. What that means is that when we think about, for California and for hydrogen, by 2026, what we have said is around 300 ton per day. These are coming from our hub in Arizona, as well our offtake agreements that we have with Plug, and with others that we’ll be able to announce here. And what you’re going to see is that when you add direct production tax credit of up to $3.00, as well as potential LCFS credit in California, at, let’s say, $1.00 to $2.00. Then, all of a sudden, you’re talk about $4.00 to $5.00 of incentives. So, based on our production costs, we believe we can actually meet parity with diesel, or even actually improve, and still make very, very attractive margins.

And that’s what we are excited about. And so, when we think about our Arizona hub, we said we’ll go to FID by early third quarter. What that means is that we have already announced a letter of intent with FFI, and we have talked about that FFI will take at least 51% ownership, Nikola has 49% ownership. We have already contributed to that 49% in the form of land purchase as well as electrolyzers that we have already paid for that have been delivered that will be contributed to our portion of Arizona hub. So, that commitment has already been substantially paid. And Nikola, ultimately, will have an opportunity to sell down portion of our equity to parties that are interested in jumping in, and we’re having some of those conversations. What we will do though is that we talked about, ultimately, what is important to Nikola is to control the molecules, meaning we’ll be the principal offtaker from Arizona hub, we will move those molecules and dispense it at locations that either we own outright or in partnership with other parties.

And so, we think we have a very compelling business model. As we go into start of production for our fuel cell truck, and ultimately delivering those fuel cell trucks, and by having fuel available, we believe there is an opportunity to potentially accelerate fast and best, because this is something we can orchestrate and we can control much better than permanent charging infrastructure for BEVs.

Bill Peterson: Yes, thanks for the comprehensive answer there

Kim Brady: Hey, Bill, you were breaking up, and I really did not understand your question. Are you able to repeat it?

Bill Peterson: Yes, sorry about that. My question was — it was a very comprehensive answer. But my question was how does the potential DOE loan play into this

Kim Brady: Great question. As you know, DOE loan is important from loan guarantee. As you’re aware that we have already applied with DOE loan program, we have already passed Phase 1. We are in the process in terms of going through phase two. Ultimately once phase 2 is passed, then we will preliminary indication of these loan approvals and the size of the loan, but the size is pretty significant. I think we talked about up to $1.3 billion. And this is important for us simply because once again it gives greater confidence for project financing. What’s really exciting is that once you get to actual production before you even sell. As long as you can produce hydrogen, you have hydrogen incentive for a production up to $3 per kilogram. So, that makes the project viability really exciting and interesting and attractive for investors. And by having DoE loan guarantee will only make it even more attractive.

Bill Peterson: Thanks for the comments.

Operator: Our next question is from Jeff Osborne with Cowen & Company. Please proceed.

Jeff Osborne: Thank you. Just two quick ones, Kim, I was wondering on the gross margin commentary for ’24 about being positive. Great to see the $505,000 reduction on the battery side makes a lot of sense. I just want to understand on the pricing side, should we assume $374,000 give or take for the next year or two? Or, are you seeing or you anticipating pricing to come down as other folks enter the market?

Kim Brady:

.:

Jeff Osborne: Got it. And then, what are sort of the broad stroke parameters around reaching EBITDA breakeven in 2025? I think you said is that sort of a few thousand deliveries? And then, gross margins in the mid teens? Like is there any broad strokes you can give on how you get to that number?

Kim Brady: We haven’t really given out numbers for 2025. Obviously, we have indicated what we believe could be possible by 2026. When we think about from 2025 to 2026, I would say the increase in terms of FCEV volume is modest, not significant. I think the big jump that you see is more from 2024 to 2025. And as you can see in terms of our guidance for BEV for this year versus outlook for 2026, once again that jump is not significant. So, we are being very realistic when it comes to adoption rate for BEV. And ultimately as of now and I think we will be able to have more confidence as we go into second and third quarter. But because we can better control having fueling available for our fuel cell truck, likely we think we may be able to accelerate adoption faster on fuel cell electric vehicle side.

So, when we think about getting to EBITDA breakeven as well as EBITDA positive, the first step when it gets gross margin positive. And then, the second step is that generate more gross profit margin to cover our R&D and SG&A. And in 2025, we think that’s going to be key. But most of the volume as Michael alluded will be coming from fuel cell electric vehicle. And by 2025, I guess we’ll look to more like 75% FCEV and 25% BEV.

Jeff Osborne: And with a very profitable energy business to complement that I think and that’s a key driver —

Kim Brady: It’s a very profitable business, that’s correct.

Jeff Osborne: Perfect. Thank you.

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

Mike Shlisky: Yes, hi, good morning, and thanks for taking my question. The run rate you have got for BEV deliveries in the first quarter, is that an appropriate kind of run rate for 2Q and 3Q with the kind of rest of the guidance happening in the fourth when you get the battery cost situation under control?

Michael Lohscheller: Thanks, Mike, for your question. Very good point, so, be very clear, I mean obviously we will do better in Q2 and Q3 going forward, right? I mean we have done a lot of measures now on the product side. But in particular also on the commercial side so that we will see better results in Q1. But you will see to continue this improvement also in Q2 and Q3. So, while we then focus a lot in the fourth quarter on the launch of the fuel cell truck, so you will see improvements on the BEV run rate in the second and third quarter because all the measures we have taken in place are obviously working. And there are many of those, right? So, just to highlight a few again, we have experienced truck people now. Dealer management is in place.

By the way, all our dealers now have a license, something which was not a case last year. Product improvements are coming through. I think we make a lot of progress on the infrastructure, while infrastructure will stay a topic for all of us going through this period of time. And also some other states are coming up with incentives. And the more people can drive our truck, the more successful we will be in terms of conversion to retail sales. So, you will see improvements in the second and third quarter as well.

Mike Shlisky: Great. And then for my follow-up, I didn’t hear in the comments, can you update us on the situation with the former Romeo customer, Lion and how the discussions are going with them? It sounds like they seem to have a valid contract obtaining Romeo batteries. Are you anticipating either having to give them the batteries they have asked for eventually over next five, six years, or a cash payment exit contract? And then secondly, it sounds like a second company has come forward. They have their fourth quarter numbers kind of impacted by lack of Romeo batteries and they think that they also a valid contract. I am curious if you are hoping any kind of discussions with that party as well? Thank you.

Kim Brady: So, Mike, without going over the details because we are in arbitration with respect to Romeo. And we understand in terms of their filing that they believe that certain provisions with respect to purchase agreement has been breached. We disagree. So, we are working through that. But as you know even before our purchase of Romeo, Lion has always communicated to Romeo that they intend to purchase — to actually build their own battery pack and modules. In fact, on December 21, 2022, they actually announced that they have actually produced their first modules and packs in Canada. And that they intend to go into production starting in Q1 — late Q1 of 2023 and continue to expand their production volume. So, that was always the understanding.

And so, we believe we will be able to work through this. We don’t believe there will be any long-term consequences there. And we have always made it clear at the time of Romeo acquisition when we announced that we do not intend to be in merchant battery pack business. With respect to the other party that you have alluded, there are substantial disagreement in terms of our view and they are entitled to. As you should know that many of or some of this claims were related to product packs. And right now there are disagreements with respect to what’s the understanding of those product packs. But once again, we are not concerned. We believe we will be able to address all of those issues.

Mike Shlisky: I appreciate that color, Kim. Thank you so much. I will now pass along.

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

Winnie Dong: Hi, thanks so much for squeezing me in. I was wondering you can give us a sense of where you are tracking with the $505k in cost saving for battery not just in packs? And is the reduction is more or less steady throughout the year? Is that something primarily to benefit Q4? And I have a quick follow-up as well.

Michael Lohscheller: Winnie, great question, I think what we have stated is that we believe we can actually take $100,000 approximately in terms of cost for modules and packs. We have already achieved about a third of that, and then, additional labor savings will come through once we integrate into our Coolidge facility at some time in late Q2 or early Q3. So, those savings will be through second-half of this year, and then ultimately the bill of material savings with enclosures will likely happen towards late third quarter and Q4. We have already what we call, kind of sample packs in terms of what we have received in casting. Obviously there will be validation that will be required, but we know the numbers based on the quotes we have, and the volume that we are expecting, the cost that we will be able to save as we transition from machined billet to casting.

Winnie Dong: Got it. Thank you. That’s very helpful. And then, apologies if I missed it earlier, on the outlook for the 300 units, the midpoint for Tre BEVs, what percentage of that do you anticipate ultimately ending up in customer hands? And it is sort of more than double than what was been delivered to dealers in 2022? So, maybe can you give us a sense of what visibility you have to — and customer demand now, and then maybe some examples of how — you know, what your commercial team is doing to better engage customers? Thanks.

Michael Lohscheller: Yes, great point. I mean, first of all, what are we doing differently, also now on the commercial side, I mean, first of all, we have very experienced truck people, we also have many more sales people in place. We hired more than nine people. Additionally we have very good regional steering now. We also did a lot of training with our dealers and customers, because selling zero-emission mobility is the new thing. It’s also sometimes more time-consuming for everybody. We have many more offers on the infrastructure in place. We have many financial products in place. And we have more customers experiencing our truck, and that’s the key, because our customers need to see the truck, need to experience the truck, the drivers are very enthusiastic about this.

So, that’s a flavor of what we are doing. In terms of what percentage will go to end customers, basically we think now that we have a very good level of inventory, actually it will have to come down. And what we are now invoicing to the dealers will go to retail customer, actually I believe more, because we need to reduce the level of inventory, and we have given the guidance for the first quarter. I also said, just to repeat it, that we will see more progress in the second and third quarter of the year, because the fourth quarter is all about the launch of the fuel cell truck. And I want to make sure that we are laser-focused on this. So, expect to see some improvements in the second and third quarter of the year.

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

Dhillon Sandhu: Thank you, Operator. Our first question comes from Ali. Ali asks, does Nikola have adequate cash to sustain operations and continue development into 2023? Kim?

Kim Brady: Ali, thanks for your question. We believe we maintain adequate access to capital to fund our business operations in 2023. As of December 31, 2022, our total access to capital was approximately $942.8 million. The midpoint of our guidance implies approximately $635 million in cash spend in 2023, including gross loss from truck sales, R&D, SG&A, net of stock compensation, and capital expenditures. We have demonstrated that we can access to capital markets, and believe we can continue to do so in 2023.

Dhillon Sandhu: Thank you, Kim. The second question comes from Bernard. Bernard asks, where is Nikola at in the 1.3 billion Department of Energy loan process? Has the government given Nikola any indication regarding acceptance or not, since you invited the Phase 2 of the process? Michael, would you like to take this one?

Michael Lohscheller: Sure. Bernard, thanks for your question. We have been fully engaged with the Department of Energy on completing the requirements for Phase 2. We anticipate completing the submission for Phase 2 in the coming months. The loan program office process has multiple steps, and we cannot predict when a decision will be made. We will continue working closely with the Department of Energy Loan Program Office, and responding to their feedback, and of course we’ll update you and all shareholders when we are able to share our progress.

Michael Lohscheller: Thank you, everybody for joining our earnings call today. We are excited about 2023, and what we will accomplish during this important year. I want to reiterate again, we will make improvements on the path. This year is very much the year of the launch of the fuel cell truck, which will happen in the second-half of this year, and we are excited about the opportunities on the energy side of the business. As I said in my first comment, Nikola is much more than the truck company. With that, thank you for joining, and have a wonderful day, everybody. Bye-bye.

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