Shell stuffing: How Nikola became VectoIQ’s public preference

Whereas an initial public offering (IPO), is subject to market sentiment, valuation debates and timing, those issues are handled privately by a SPAC, which assumes its acquisition’s identity once the U.S. Securities and Exchange Commission approves.

“The setup for the SPAC is you basically create a company [and] you take it public,” Girsky told FreightWaves in an interview. “The only asset is cash and you have about two years to merge your public company and your private company as an alternative way for that company to go public and tap the public markets.”

For Nikola, that could come as soon as May. When the deal closes, shares in VectoIQ (NASDAQ: VTIQ) will trade under the new ticker symbol NKLA. Investors who want to own Nikola shares could buy VectoIQ stock today in anticipation of the name change.

Nikola will get more than $700 million including $230 million in VectoIQ cash and $525 million Girsky raised under another trader’s acronym called a PIPE, which stands for Public Investment in Private Equity. A PIPE allows certain investors to buy shares in a SPAC below market value. VectoIQ’s shareholders will own less than 20% of Nikola, which is valued at $3.3 billion.

“Nikola was so large, we needed to raise more money to execute the transaction,” Girsky said.

Lots to like

After learning about Nikola in November 2019, Girsky, who is managing director at VectoIQ, recruited hydrogen and fuel cell experts, many of whom worked at GM, where Girsky led several business units and later was vice chairman. He helped lead GM out of its 2009 bankruptcy reorganization.

“We had an army of these people and then we used an extended network to learn as much as we could,” he said. “We dug into the financials, but more importantly, we needed to dig into the technology” to determine whether Nikola needed to invent new technology or needed money to pay for engineering. 

“At the end of the day, we thought the issues that needed to be resolved were engineering issues, not technical issues.”

Initial concerns about Nikola being “pre-revenue” — not selling anything yet — evaporated during the digging process.

“The more we saw, the more we liked,” Girsky said.

Gutsy play

Nikola’s business model — producing zero-emission Class 8 trucks and providing all-inclusive service and maintenance as well as access to a network of hydrogen fueling stations for a specific number of miles — rides on partners with specific expertise.

For example, Robert Bosch has more than 50 engineers co-located with the Nikola team near Phoenix, where Nikola is building a manufacturing plant. Norway’s Nel ASA leads development of the fueling network. Ryder System (NYSE: R) is Nikola’s maintenance partner.

“It’s ambitious and it takes a lot of guts to try and put something like that together,” Girsky said. “We think [founder Trevor Milton] is far enough along and we think we bring something to the party.“

It is very different from what Girsky experienced when he was creating economic models on Wall Street or later running a variety of GM business units.

“When we sold a car, we’d get $35,000 or $40,000. That car will generate another $200,000 in revenue over its life cycle in parts and service, insurance, financing, what have you. That downstream revenue was more profitable and less cyclical than our revenue yet we didn’t capture hardly any of it.”

By offering one upfront price for everything, Nikola will get a financial taste at each link of the value chain.

Repurposed truck

Nikola’s desire to use partners differentiates it from other transportation startups trying to do everything on their own, Girsky said.

London-based CNH Industrial invested $250 million in Nikola in September. The most important contribution, Girsky said, is IVECO S-Way heavy-duty truck, which will be the basis for the Nikola Tre battery-electric truck that will be assembled in Ulm, Germany, beginning in 2021 for initial sale in Europe. 

The first Tre battery-electric trucks to be tested in the U.S. market will be imported and assembled from kits of parts, reducing Nikola’s financial risk before full manufacturing of the Nikola Two day cab fuel cell models begins in Coolidge, Arizona, in 2023. Details of the Nikola One sleeper cab will be revealed at a future date.

The S-Way will provide the basic underpinnings of all three Nikola models.

“You could say the truck was worth nothing to [CNH] because it was already developed,” Girsky said. “On the other hand, if Nikola was going to develop their own truck from scratch, a fully validated truck with the bill of materials and everything, that would cost a fortune and take a lot longer.”

Where next?

Girsky will join the board of Nikola, but VectoIQ will stay out of day-to-day management unless asked for help by Milton’s team.

“If they want to tap any of our network, we’ve offered that to them, but they’re running the show from here,” he said.

As for VectoIQ, creating another SPAC is a possibility, especially as investors analyze stocks based on environment, society and governance (ESG), also called socially responsible investing. The next SPAC could be for an old economy company seeking to split off new technologies like autonomous vehicles.

“There’s a lot more money coming into that space,” Girsky said. “We think there’s an opportunity to do more of these because there’s a lot going on in the smart transportation world and there’s a lot of capital needed.”