Now that it can buy cheap electricity to make hydrogen in Arizona, Nikola Corp. (NASDAQ: NKLA) no longer needs fueling station partners who balked after the startup’s months of distractions and ongoing federal probes into fraudulent claims.
“Things are changing,” Nikola CEO Mark Russell told FreightWaves in a recent interview. “We were working with various potential station partners for some time last year. And that’s why we thought there was a good chance that we would have one of those announced by the end of the year or early this year.”
But after getting a long-term deal to buy electricity at about 2.5 cents a kilowatt from Arizona Public Service (APS), the need for help has diminished.
Competing favorably with diesel fuel
“The rate schedule that has been put in place with APS is huge,” Russell said. “Eighty-five percent of the cost of providing hydrogen in the way we’re talking about is electricity. We’ll be able to compete very favorably to diesel fuel using that rate structure over the next 20 years.”
Hydrogen fuel used in fuel cell Class 8 trucks like Nikola plans for 2023 emit no emissions, critical in places like California. Regulations there take an increasing number of diesel-powered trucks off the road over the next 20 years in favor of zero-emission trucks. Nikola plans to publicly distribute Arizona-produced hydrogen fuel in the Golden State.
“As the potential partners have hesitated [or] aren’t ready to move as fast as we are, we have not slowed down our work at all,” Russell said. “We have all the building blocks in place.”
Nel ASA, which sold Nikola $30 million worth of electrolyzers to make the hydrogen, helped with station design. Building the stations themselves is mostly about acquiring real estate — “the smallest cost and the easiest one to solve,” according to Russell.
Nikola could pursue areas where solar, wind, hydro and nuclear energy are available in abundance.
“There is now a template we can take into other jurisdictions,” he said. “We can produce in large amounts where we have the lowest costs. And then we can move the hydrogen by truck either in two trailers compressed or in cryogenic trailers as liquid.”
The Trevor factor
Nikola continues to distance itself from founder Trevor Milton, who resigned as executive chairman last September. A 67-page report by short seller Hindenburg Research alleged Nikola was an “intricate fraud built on dozens of lies.”
From Nikola’s founding in 2014, Milton was the face of the company. But the company, not Milton personally, could bear the brunt of any civil penalties resulting from Securities and Exchange Commission and Department of Justice probes. Nikola already has spent more than $27 million on legal fees for Milton and other expenses related to the Hindenburg report.
On page 103 of its recent 10-K filing with the SEC, Nikola listed nine statements that “were inaccurate in whole or in part, when made,” including the price and quantity of hydrogen Nikola could make at the company’s demo stations. Revealing the findings of the investigation by the Kirkland & Ellis law firm was an attempt to refocus on the future.
“I hope because we’re being so transparent that people are able to process it. And then we can move beyond it,” Russell said. “Making the disclosure, we hope, is a good, important step toward moving forward.”
Clearing distractions
Russell and a board of directors led by former General Motors Co. (NYSE: GM) and Wall Street analyst Steve Girsky added three experienced, crisis-tested directors in recent months.
Known for overheated social media hype under Milton, Nikola behaves differently without him. Press releases include timetables of milestones, daring media and investors to hold the company accountable. Russell and the board canceled the Badger electric pickup truck and took a $14 million write-off to shut down a Powersports division.
“Trevor definitely did like those things,” Russell said. “He was passionate about powersports, passionate about off-road vehicles, passionate about watercraft. Those are all things that were personally important to him. My view always has been much more disciplined.”
All that remains from the circus-like atmosphere at Nikola World in 2019 is some intellectual property and prototypes for a fully electric four-seat off-road vehicle. Russell would be happy to dispose of those assets.
“We have an open mind about what happens there,” he said. “What we have decided is that those things are no longer taking resources or focus away from our core deliverables.”
Russell means battery-electric trucks, hydrogen-powered fuel cell trucks and hydrogen fueling stations.
“We’re trying to do one of the toughest things out there, which is make long-haul commercial transportation zero emissions. And if we succeed in doing that, that will be a positive change for the world that will go on far, far into the future.”
No reservations for the Tre
The first five battery-electric Tre models have been built. Four are in the U.S. for validation testing; one is still in Europe. Nine more are on their way. Nikola wants to arrange rides for U.S. customers who said they would buy the cabover Tre. Until a year ago, it was slated only for Europe.
Nikola originally planned to assemble 600 Tre models in the fourth quarter from kits of parts at a still-under-construction plant in Coolidge, Arizona. Supply chain issues and the pandemic cut that to 50 to 100 trucks. Compared to 14,000 reservations for the Two fuel cell tractor, Nikola has no reservations or orders for the Tre. That is more or less by design.
“We’re looking to do the start of production later this year, so we’re not going to take reservations,” Russell said. “We’ll take contracts or we’ll take deposits.”
Is Nikola’s future Chinese?
The Tre, based on the Iveco S-Way, is built in a joint venture with the CNH Industrial (NYSE: CNHI) subsidiary in Ulm, Germany. CNHI is in talks to sell Iveco to China’s FAW Jiefang, Reuters reported in January.
The Chinese are aggressively pursuing fuel cells for long-haul transportation. If Iveco goes to FAW, does Nikola follow? CNHI did not respond to a FreightWaves request for comment. And Russell?
“As unsurprised as I am that you would ask that question,” he said, “I’m equally sure that you’re unsurprised that I’m going to say I cannot comment.”
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