How Nikola Makes Money: Hydrogen-Electric Trucks

Nikola Corp. (NKLA), a company that designs and plans to manufacture hydrogen-electric trucks, first became publicly traded in early 2020. Its shares more than doubled within days of completing a reverse merger in early March with VectoIQ Acquisition Corp., which was listed as VTIQ on the Nasdaq before the deal. Its stock price has had some incredible rises and falls since then.

Unlike electric carmaker Tesla Inc. (TSLA), which uses electric cars that are recharged by plugging them in, Nikola plans to build vehicles that use hydrogen fuel cell technology. Hydrogen fuel cells produce electricity by combining hydrogen stored in a tank with oxygen from the air. Hydrogen fuel cell vehicles have similar benefits to pure electric vehicles but take less time to recharge and have a longer range.

Nikola History

Nikola was founded by Trevor Milton in 2015. He named the startup after Nikola Tesla, taking the famous inventor’s first name—the last name was already taken. Before founding Nikola, Milton was CEO of dHybrid Systems, which developed compressed natural gas fuel systems. Milton served as CEO until the merger with VectoIQ when he moved to the executive chair position. He was replaced as CEO by Mark Russell. Russell joined Nikola as president in 2019 and has over 20 years of experience in the manufacturing industry. Before he came to Nikola, he had most recently worked as COO and president of Worthington Industries, a steel products manufacturer specializing in pressurized gas cylinders.

Nikola first announced it had agreed to a deal with VectoIQ, a publicly-traded special purpose acquisition company (SPAC), in early March 2020. VectoIQ was founded in 2016 as a SPAC to carry out a merger, asset acquisition, or other similar business combination with one or more businesses. SPACs, also known as blank check companies, typically raise funds through an initial public offering (IPO) without having any established business plan in place. VectoIQ raised $200 million through an IPO in May 2018 and more than $700 million from investors.

Nikola’s Business Vision

One of Nikola’s major initiatives, and one of the reasons it raised cash to start out, is so that it could begin the rollout of its hydrogen station infrastructure to support the energy needs of the battery and hydrogen fuel cell-powered trucks it plans to manufacture and sell. Producing hydrogen-electric trucks with zero emissions is just one aspect of the business.

Those trucks will need hydrogen refueling stations, and Nikola plans to build such stations throughout North America. Nikola plans to use solar power at its fueling stations which will be supplemented with grid power. The electricity will then be used to perform “hydrogen electrolysis”—running electricity through water to split it into oxygen and hydrogen, which can then be used as fuel. In addition to trucks, the company plans to manufacture hydrogen-electric sports vehicles, such as jet skis and off-road 4x4s.

Nikola Controversy and Leadership Change

On Sep. 10, 2020, short-selling firm Hindenburg Research released a report alleging that Nikola and its founder, Trevor Milton, had lied extensively about the kind of technology Nikola had. Nikola has called the accusations “false and defamatory.” By Sep. 15, the SEC and Justice Department announced they’d be investigating Nikola over the allegations. On Sep. 20, 2020, Trevor Milton announced he was resigning as chair and was replaced by Stephen Girsky, a board member and former GM vice chair. Nikola’s stock dropped from $42 a share on September 9 to below $20 by the end of the month.

Further Blows to Its Reputation

On November 30, 2020, it was reported that GM was severely scaling back a prior agreement with Nikola. GM planned to provide Nikola with fuel-cell technology, but the auto giant no longer wanted an 11% stake in the startup, nor would it help build the Badger pickup truck. Once again, more bad news caused Nikola’s stock to plummet. The company’s shares dropped 27% from the close of trading on Nov. 27, 2020, to the close of trading on Nov. 30, 2020.

On Feb. 26, 2021, Nikola said that in a review of Hindenburg Research’s allegations, it found nine statements made by the company or Mr. Milton were either wholly or partially inaccurate. However, the review, which was commissioned by Nikola’s board and conducted by outside law firm Kirkland & Ellis LLP, did not make any conclusions concerning whether or not the inaccurate statements violated any statute.

The Final Outcome

On July 29, 2021, Nikola’s founder, Trevor Milton, was indicted by a grand jury and charged with securities and wire fraud. Milton was accused of lying about most aspects of the company to pump up the stock price and defraud investors.

On Dec. 21, 2021, Nikola agreed to pay $125 million to the SEC to settle the investigation into Trevor Milton. Under the terms of repayment, the company would make five installments over two years. The first payment was to be made at the end of 2021. Nikola, however, did not admit or deny wrongdoing in agreeing to pay the settlement.

Nikola’s Financials

Like many young companies, Nikola is not yet profitable and likely won’t be for several years. The company delivered its first two Tre battery electric vehicle (BEV) trucks in December 2021 as part of a pilot testing program and has since manufactured and delivered many more. It also said it estimated delivery of between 255 and 305 semi-trucks in 2022. It does not expect to begin producing its hydrogen fuel cell electric vehicles (FCEVs) until the second half of 2023.

The little revenue Nikola has generated over the past two years has been from the sale of its BEV trucks. However, costs and expenses are still far more than its revenues—Nikola generated a net loss of $29.3 million in the second quarter of 2022 and $30.2 million in the third quarter.

The company’s net losses attributable to common stockholders in 2021 and 2020 were $690.4 million and $384.3 million, respectively.

The Bottom Line

Nikola is a budding electric vehicle manufacturer with an eye on logistics. It is building electric and hydrogen-powered trucks to meet the logistical needs of businesses that depend on transportation to move goods.

The company had a rocky start due to some unscrupulous behavior, but it appears to have righted itself and begun moving toward profitability. However, it remains to be seen if it can power through the rough and competitive road ahead of it.