Nikola Corp. maintains it has enough liquidity to fund the next year of building electric trucks and developing a hydrogen fueling business. But its auditor disagrees, leading to the company’s notice of going concern with the Securities and Exchange Commission.
“If capital is not available to the company when, and in the amounts needed, the company could be required to delay, scale back, or abandon some or all of its development programs and operations, which could materially harm the company’s business, financial condition and results of operations,” Nikola said in its 10-K annual filing for 2022.
“Due to uncertainties discussed above, there is substantial doubt about the company’s ability to continue as a going concern through the next twelve months from the date of issuance of these consolidated financial statements.”
Nikola dismisses auditor’s opinion as ‘accounting language’
Nikola CFO Kim Brady, in a FreightWaves’ interview, dismissed the going concern notice as “accounting language” unreflective of reality.
With $323 million in cash, three sources through which it can sell shares to raise capital and plans to spend $200 million less than last year, Nikola is in “better shape” than it was at the end of 2021, Brady said on Saturday.
Nikola had $958 million in total liquidity — $522 million in cash and $436 million in an equity line of credit (ELOC) with Tumim Stone Capital — at the end of 2021.
It spent $805 million in 2022, ending the year with $943 million of total liquidity — $323 million in cash, $232 million in the ELOC plus access to an additional $312 million through an at-the-market share sale registration with Citigroup Global Markets and $75 million of convertible debt.
Auditors Ernst & Young told Nikola the future was too uncertain for Nikola to count on anything but its cash. A year earlier, when Nikola had $200 million more in cash, it allowed the ELOC to count as liquidity.
“They are suggesting that future events cannot be absolutely certain or cannot be controlled,” Brady said. “What they told us was that we cannot control the future. I don’t know anyone who can control the stock price of any company.
“The access to capital markets is not any worse than in 2022. And (it) likely could get better in the second half of 2023,” he said. “Nothing has really changed in Nikola’s liquidity situation from 2021 to the end of 2022.”
Slowing production to conserve cash
Nikola has slowed production of its first product — the Class 8 daycab Tre battery-electric vehicle (BEV) because charging infrastructure lags. It also costs Nikola much more to sell the truck — more than seven times revenue generated in the fourth quarter.
The acquisition of battery pack supplier Romeo Power Inc. in August brought additional expense because the startup had been discounting each battery module it sold to Nikola by $110,000. Nikola is relocating battery production from a Romeo facility in Cypress, California, to its plant in Coolidge, Arizona. It is also making material changes to bring down the battery cost.
The company also is reportedly selling its Coolidge plant and lease it back from the buyer to raise cash. Nikola sold its Phoenix headquarters for $36.5 million in 2022 and is leasing it back. Such arrangements are common in business.
The fuel cell electric vehicle (FCEV) version of the Tre goes on sale in the fourth quarter. The cost per unit to make the fuel cell truck will be lower than the BEV. But Nikola will charge more than the average $374,000 price of the BEV. A California incentive of up to $288,000 per truck and the federal Inflation Reduction Act of $40,000 reduces the Tre FCEV acquisition cost.
Nikola hunting for more hydrogen partners
The company is seeking additional partners for its hydrogen production and distribution business. It is not in talks to spin off or get a financial partner for the energy business to raise money for the FCEV program.
“Right now, there is no hydrogen business or fuel cell truck business,” Brady said. “The demand for hydrogen comes from the demand for fuel cell trucks. That combination is needed to advance the fuel cell truck.”
Hydrogen, Earth’s most abundant element, has lots of other industrial uses, from steel manufacturing to making ammonia. Nikola’s energy unit president, Carey Mendes, comes from British Petroleum, now known as BP. The oil giant earlier this month said it would purchase TravelCenters of America (TA). The Westlake, Ohio-based TA was an early Nikola partner in hydrogen fueling stations.
“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 the future, and now,” Brady told Vertical Research Partners analyst Jeff Kauffmann on Nikola’s Q4 earnings call on Thursday.
“When you think about our relationship with TA, nothing has changed. And the fact that the 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.”
BP and Nikola discussed an energy partnership in 2020. But a devastating report from short seller Hindenburg Research raised questions about Nikola’s technology accomplishments and prowess, sending Nikola shares tumbling. Potential partners, including General Motors, walked away.
“We are in better shape because we are going to be spending less and we’ll also have a fuel cell truck to sell,” Brady said. “As a company, there’s less risk now than a year ago.”
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