Nikola (NKLA) Q4 2022 Earnings Call Transcript

Nikola (NKLA -2.44%)
Q4 2022 Earnings Call
Feb 23, 2023, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. Welcome to Nikola Corporation fourth-quarter and full-year 2022 earnings and business update call. Currently, all participants are in a listen-only mode. We'll 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. [Operator instructions] As a reminder, this conference is being recorded. It is my pleasure to introduce Dhillon Sandhu from investor relations.

Dhillon Sandhu -- Investor Relations Lead

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 a.m. Eastern Time this morning.

The release can be found in the investor relations section of our website, along with presentation slides accompanying today's call. Today's discussion 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 release we issued today.

Today's discussion also includes 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 2 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 will give their prepared remarks followed by analyst Q&A, then we will conclude with questions from our shareholders. We will now begin our video presentation.[Commercial break]

Michael Lohscheller -- President

Thank you, Dhillon, and good morning, everyone. Nikola is much more than just a truck company. Yes, we have successfully launched the Nikola trailer back in March of '22 and are 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 an 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 left side, we improved our trucks 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 a 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, governments, 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 project 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 per kilogram.

These incentives, when combined with existing programs such as a low carbon fuel standard, LCFS, in certain states and truck incentive programs, like HVIP 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, initial production of 30 metric tons per day and expected to expand up to 150 metric tons per day, 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 final investment decisions 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 key state offtake term sheet announced in 2022, we'll 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 21st. 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 18th 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 first 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 reduce 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 in 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 will 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 serial production of 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 FCEV commitments came from Plug Power on December 15th. Plug will purchased 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 customers can receive an incentive 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 I'm 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 work 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 ESF 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 usable battery capacity, giving the truck up to 40 miles of increased range; enabled 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; Bluetooth 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, the single ChargePoint E-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 MAC, 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 costs and solving infrastructure challenges. Two of the things already initiated to refine our strategy and improve product are related to lead generation and customer feedback. We have better defined target customers for the Tre BEV from both perspective of duty cycle and available power capacity.

These qualified leads should translate into better qualified customer conversations and speedier sales conversions. About product Improvement, we plan to make additional product enhancements to our trucks, including, one, updating the sliding fifth wheel; two, changing the location of air tanks between the axles; three, new, longer-lasting traction tires; and fourth, adjustment of 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 dealer 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 necessary for this. We ended Q4 with 115 trucks in dealer inventory and 127 in Nikola inventory.

Regarding Tre BEV customers and pilots, on November 2nd, we announced a purchase order of 100 Tre BEVs from Zeem Solutions. We are currently undergoing a pilot program with Zeem and will begin delivering trucks to them this year. During the fourth quarter, we also continued customer pilot demos with Walmart, Saia, and [Inaudible] accumulating over 35,000 miles. And to conclude our remarks on the Tre BEV, on February 22nd, we announced we selected PlusDrive from Plus for the Nikola Tre BEV, and FCEV.

PlusDrive's enhanced safety system will augment existing Nikola base features, including 100% electric steering, ZF electronic braking system, and internally developed vehicle controls and software. We expect the first Nikola trucks off 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 and energy business on the continent.

In Q4, development of the EU-spec Tre BEV 4x2 continued. Currently, we are testing our beta trucks and building gamma trucks. We plan to start serial 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 23rd, we jointly announced an LOI with GP Joule for 100 FCEVs. We're also pleased to announce further progress on our European truck sales and energy business. We had previously announced a 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 a 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 will also work with Nikola and its partners to potentially expand the conversion of its fleet 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 13th, we announced battery pack manufacturing work transition from Cypress, California to our manufacturing facility in Coolidge, Arizona. This move will bring FCEV power module 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, increase module and pack 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 modules and both the Tre BEV and FCEV on the same line. The assembly hall's nameplate capacity will be up to 20,000 units per year.

During the second quarter, we will slow down 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 a 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 -- Chief Financial Officer

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 -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 spent on our Coolidge manufacturing 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 as a result of operations into Nikola after the merger closed in October. During the last three months of the year, we produce 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 growth, gross loss increased significantly due to a lower volume of Tre BEV deliveries; higher fixed costs, including overhead expenses and freight spread over a smaller number of delivery trucks, and inclusion of Romeo overhead and inventory cost, including onetime 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 Bev 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 freight-in 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 noncash 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 obsolete 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 freight-in, 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. GAAP net loss per share basic and diluted was -$0.46. And on a non-GAAP basis was -$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; Tumim 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 access to 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 ELOC, 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 floorplan 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 into gear, we expect our inventory turns to accelerate. Capex for the fourth quarter totaled approximately 52.3 million and was predominantly spent on Coolidge manufacturing facility expansion, hydrogen production equipment, hydrogen mobile fuelers, and supplier part tooling. As you know, we laid off 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 BEV adoption rate. We are working hard to improve our productivity and reduce BOM costs with greater focus and discipline.

Our headcount as of December 31st 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 any time 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 planned BOM 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 350 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 150 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 -75% to 95%. We expect gross margins to improve substantially toward the end of the year as we realize a cost-saving benefit from the Romeo transaction. We anticipate we can lower battery modules and pack costs, excluding cells on the Tre BEV, 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 the battery pack enclosure 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 costs 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, toolings for fuel cell electric vehicle, 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 start of 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 -215% to 140%. 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 supplier 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 we approach 2025 and 2026 and expects 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's 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 unit 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 break-even to positive EBITDA in 2025. We believe our outlook is achievable if our business develops as planned, our business milestones are achieved, and we will 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 -- President

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 all milestones. In 2022, we have taken steps forward that will make a positive impact on our business and set us up for success in 2023.

Our 2023 milestones are as 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 Jun; 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 analyst questions, after which, we will take some questions from our retail shareholders. Operator, please open the line.

Questions & Answers:

Operator

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

Douglas Dutton -- Evercore ISI -- Analyst

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 Anheuser-Busch as they 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.

You know, it sounds like several of the first salable FCEVs are spoken for, but for a larger customer, probably at Walmart, now, what does the trajectory look like into 2025 and 2030?

Michael Lohscheller -- President

OK. 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 agreement with certain customers.

Anheuser-Busch is one of them. Those trucks are in demos, which do really well, and now that we will see the first delivery starting in this year. The Biagi Bros 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, and 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 in a good part of first deliveries this year and then improving into '24 and '25.

Douglas Dutton -- Evercore ISI -- Analyst

OK. Appreciate that answer. It's helpful. Finally, just on FCEV production, I see the goal of 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 -- President

Yeah. 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 that 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 is the first truck we did, and we have lots of learnings out of that. I mean, the fact that we have finalized the beta trucks, 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 -- Evercore ISI -- Analyst

Thanks, Michael.

Operator

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

Jeff Kauffman -- Vertical Research Partners -- Analyst

Thank you very much. And thank you for all that clarity on what happened in 4Q and what the plan is for 2023. I'm going to go on 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 hydrogen concept in the Midwest as well. I'm just kind of 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 of TA centers to do fueling and, 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? Just kind of curious onyour view on BP taking such a large stake in commercial vehicle fueling locations.

Michael Lohscheller -- President

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, it's 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 -- Vertical Research Partners -- Analyst

OK. Just kind of 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 fuel cell vehicles being on the road as we kind of build this plan toward 2026?

Michael Lohscheller -- President

So, for 2023, as you know, based on our modest view in terms of number of trucks that will sell, the needs that we have is only about 7.3 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 from our launch market where we will access that 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 -- Vertical Research Partners -- Analyst

Shouldn't -- you will 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?

Michael Lohscheller -- President

For 2024 --

Jeff Kauffman -- Vertical Research Partners -- Analyst

Yeah.

Michael Lohscheller -- President

We anticipate based on what we are looking to sell, Now, Jeff, in your question, why 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 -- Vertical Research Partners -- Analyst

OK, wonderful. Well, thank you. Those are my questions.

Operator

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

Bill Peterson -- JPMorgan Chase and Company -- Analyst

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, initially, you know, you're shipping these trucks to dealers, I guess, how many of these trucks are really in the hands of end customers [Inaudible] maybe exiting 2022? And how should we think about the number of trucks that are in [Inaudible] hands by the end of this year? And do you have any R&Ds -- I guess [Inaudible] more or less thinking what is the strategy in customer targeting, you know, identifying those geographies. Just trying to get a feel for, you know, how to understand the equation over next year in [Inaudible] charging and given the constraints on charging and, you know, other areas you mentioned.

Michael Lohscheller -- President

Yeah. 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 in 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, the 250 to 350, we will see a higher number to retail customers, right? During 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 salespeople now. We have much more truck experience. The dealer management is much better.

And again, we need to bring our customers into the truck experiences so we will see a gradual improvement there in terms of bringing those trucks into customer hands, operation, and then, hopefully, 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 this is how we see that going forward the next couple of quarters.

Bill Peterson -- JPMorgan Chase and Company -- Analyst

OK. Thanks for that color. I guess, the second question more on hydrogen infrastructure. It's a little bit different than the prior ones.

You talked about 60 stations by 2026. In the meantime, you have mobile refuelers. How do you think about the rollout of additional stations in 2023? And then, kind of the -- we have [Inaudible] spend from Nikola. And then, sort of a multipart question.

We look into the Phoenix, Arizona hub, you're looking at [Inaudible] by 3Q. [Inaudible] out here, and then, again, what's Nikola's expected contribution? [Inaudible] of the partnership move on the energy efforts? I know, but I think in prior discussions, you talked about potentially BP or other partners. You're doing the lion's share of the deal, and then, now, you talk about the potential deal [Inaudible]. And so, trying to understand more about the hub, as well as the stations for the infrastructure that you're kind of thinking about, you know, this year and over the next few years.

Michael Lohscheller -- President

So, Bill, there are lots of components to your questions, but let me separate. 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 of 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.

You know, what that means is that when we think about for California and for hydrogen, by 2026, what we have said is around 300 tons per day. These are coming from our hub in Arizona, as well as offtake agreements that we have with Plug and with others that we'll be able to announce here. And what you are going to see is that when you add direct production tax credit of up to $3, as well as the potential LCFS credit in California at $3 -- let's say $2, then, all of sudden, you're talking about 4$to $5 of incentives. So, based on our production cost, 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 will 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 a 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 principle offtaker. Fom 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 a 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 in BEV because this is something we can orchestrate and we can control much better than permanent charging infrastructure for BEVs.

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Thanks for the comprehensive answer there. I think, just, you know, [Inaudible]? Thank you.

Michael Lohscheller -- President

Hey, Bill, you're breaking up, and I really did not understand your question. Are you able to repeat it?

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Yeah. Sorry about that. My question was -- is -- it's just a very comprehensive answer. But my question was, how does a potential deal, you know, can play into that [Inaudible]?

Michael Lohscheller -- President

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 2. Ultimately, once phase two is passed, then we will have some of the indication of the loan approval 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, you know, once again, it gives greater confidence for project financing.

What's really exciting is that once you get to actual production. Before you can sell, as long as you can produce hydrogen, you have hydrogen incentive for 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 make it even more attractive.

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Thanks for the color.

Operator

[Operator instructions] Our next question is from Jeff Osborne with Cowen and Company. Please proceed.

Jeff Osborne -- Cowen and Company -- Analyst

Thank you. Just two quick ones. Kim, I was wondering -- on the gross margin commentary for '24 about being positive, great to see. And the 105,000 reduction on the battery side makes a lot of sense.

I just want to understand, on the pricing side, should we assume, you know, 374,000, you know, give or take, for the next year or two? Or are you seeing or anticipating pricing to come down as other folks enter the market?

Kim Brady -- Chief Financial Officer

Well, yes, great question. As you know, I would say the market still is in early stage, especially when it comes to BEV. I think we have shown that, for 2022, our ASP is closer to 365, 370. We suspect, while we are a bit more conservative when it comes to our budget, but in terms of what we'll actually realize, could be higher.

Jeff Osborne -- Cowen and Company -- Analyst

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

Kim Brady -- Chief Financial Officer

You know, 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 it 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'll be able to have more confidence as we go into the second and third quarters. But because we can better control having fueling available for our fuels for truck, likely, we think we may be able to accelerate adoption faster on the fuel cell electric vehicle side.

So, when we think about getting to EBITDA breakeven, as well as EBITDA positive, the first step, we need to get gross margin positive. And then, the second step is to 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 look to more like, you know, 75% FCEV and 25% BEV.

Jeff Osborne -- Cowen and Company -- Analyst

And with a very profitable energy business to complement that, I say, and that's a driver?

Kim Brady -- Chief Financial Officer

And that's a very profitable business. That's correct.

Jeff Osborne -- Cowen and Company -- Analyst

Perfect. Thank you.

Operator

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

Mike Shlisky -- D.A. Davidson -- Analyst

Yes. Hi. Good morning and thanks for taking my questions. The runway you've got for BEV deliveries in the first quarter, is that an appropriate kind of runway for 2Q and 3Q with kind of rest of the guidance happening in the fourth when you get the battery cost situation under control?

Michael Lohscheller -- President

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 improvement 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 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 in case last year. Product improvements are coming through.

I think we make a lot of progress on the infrastructure, while infrastructure will stay the topic for all of us going through this period of time. And also, some other states are coming now 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 improvement in the second and third quarters as well.

Mike Shlisky -- D.A. Davidson -- Analyst

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? Sounds like they're -- they said they have a valid contract to obtain Romeo batteries. Are you anticipating either having to give them the batteries that they've asked for eventually over the next five, six years, or a cash payment to exit the contract? And then, secondly, it sounds like a second company has come forward. And they had their fourth quarter numbers kind of impacted by the lack of Romeo batteries, and they say they also have a valid contract.

I'm curious if you've opened any kind of discussions with that party as well. Thank you.

Kim Brady -- Chief Financial Officer

So, Mike, with that going all the details, because we are in arbitration with respect to Romeo, and we understand via -- in terms of their filing that they believe that certain provisions with respect to the 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 21st, 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 volumes. So, that was always the understanding. And so, we believe we'll be able to work through this. We don't believe there will be any long-term consequences here.

And we have always made it clear at the time of Romeo acquisition and when we announced that we do not intend to be in merge and battery tech business. With respect to the other party that you have alluded, [Inaudible], there are substantial disagreements in terms of our view and what they're entitled to. As you -- you should know that many of or some of these claims were related to production packs. And right now, there are disagreements with respect to what the understanding of those production packs.

But once again, we're not concerned. We believe we'll be able to address all of those issues.

Mike Shlisky -- D.A. Davidson -- Analyst

I appreciate that color, Kim. Thank you so much. I'll pass it along.

Operator

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

Winnie Dong -- Deutsche Bank -- Analyst

Hi. Thanks so much for squeezing me in. I was wondering if you can give us a sense of where you're tracking with the 105K in cost saving for battery modules and packs. And if 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.

Kim Brady -- Chief Financial Officer

Winnie, great question. I think what we have stated is that we believe we can actually take $100,000 approximately in terms of cost from 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, 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 toward, like, 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're expecting, the cost that we'll be able to save as we transition from machined billet to casting.

Winnie Dong -- Deutsche Bank -- Analyst

Got it. Thank you. That's very helpful. And then, apologies if I missed it earlier on.

On the outlook for the 300 units, the midpoint for Tre BEV, you know, what percentage of that do you anticipate ultimately ending up in customer hands? And it is sort of more than double than what was going to deliver to dealers in 2022. So, maybe can you give us a sense of what visibility you have to end 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 -- President

Yeah. Great -- great -- 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 salespeople 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 a 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, ideally 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 improvement 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 -- Investor Relations Lead

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 -- Chief Financial Officer

Ali, thank you 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 on 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 -- Investor Relations Lead

Think 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 were invited to phase 2 of the process?" Michael, would you like to take this one?

Michael Lohscheller -- President

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 Programs 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 Programs office and responding to their feedback, and of course, we'll update you and all shareholders when we are able to share progress. 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 BEV. 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 a truck company.

With that, thank you for joining and have a wonderful day, everybody. Bye bye.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Dhillon Sandhu -- Investor Relations Lead

Michael Lohscheller -- President

Kim Brady -- Chief Financial Officer

Douglas Dutton -- Evercore ISI -- Analyst

Jeff Kauffman -- Vertical Research Partners -- Analyst

Bill Peterson -- JPMorgan Chase and Company -- Analyst

Jeff Osborne -- Cowen and Company -- Analyst

Mike Shlisky -- D.A. Davidson -- Analyst

Winnie Dong -- Deutsche Bank -- Analyst

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