Electric heavy truck maker Nikola (NKLA 7.23%) made some big announcements with its first-quarter earnings report released today. The company has been struggling financially as it works to ramp up sales of its battery electric semitrucks.
Nikola most recently raised about $100 million in new capital by selling its stock at $1.12 per share. That's after shares had dropped about 85% over the past year. Now it says it is shifting its focus and reprioritizing the business. Investors likely want to know if that all means now is a good time to bet on Nikola.
Change of plans
Nikola's only source of meaningful revenue has been its Tre battery electric truck. The company delivered 31 in the first quarter, generating revenue of over $11 million. It produced 63 trucks in the quarterly period, though, and now says it will take advantage of the excess inventory to pause production and upgrade its assembly line at its Arizona plant.
When it restarts production, the line will be able to produce both the battery electric truck as well as the hydrogen-powered fuel cell electric truck. But the battery trucks will only be produced "as a build-to-order product."
That's not the only big change. Nikola has been working with its joint venture (JV) partner Iveco Group in Europe where its initial hydrogen fuel cell trucks are being built for testing and commissioning. The company now says it is "reprioritizing and refocusing the company." It has sold its share of the joint venture to Iveco and will instead focus its efforts on its hydrogen trucks and related fueling infrastructure in North America.
Image source: Nikola.
Reading into the shift
The deal does bring more needed capital into the company. Iveco will pay Nikola $35 million in cash to buy out its share of the JV. It will also return about 20 million common stock shares to Nikola as another part of the payment.
It also shows that Nikola may be betting that hydrogen fuel cell trucks will be in higher demand in the future than battery electric vehicles (BEVs). But there's another, less appealing, possibility for investors. Tesla began delivering its competing battery-powered Semi last December. Tesla hasn't revealed statistics on production or sales of that vehicle in its first full quarterly period of production. Nikola may already be feeling the heat from the well-financed competitor.
Nikola is still seeing orders for its Tre BEV. It received 33 retail orders for that model in the first quarter. But it has 140 orders for the hydrogen fuel cell electric vehicle (FCEV) from 12 different customers.
Hydrogen future
That's encouraging for the company -- and shareholders. But there still needs to be a buildout of hydrogen infrastructure to support FCEV adoption. That's what Nikola will now focus on. Its HYLA brand was created to support green hydrogen production as well as fueling infrastructure including mobile fueling units.
Earlier this month Nikola announced a partnership with EV charging company Voltera to create a network of up to 50 HYLA-branded commercial hydrogen refueling stations. Those will be in addition to the 60 stations Nikola had previously announced plans for building.
Hydrogen will need to be Nikola's answer for long-haul trucking. Its FCEV has a range of 500 miles compared to just 330 miles for the Tre BEV. It is also now facing a formidable competitor for battery-electric trucks in Tesla. It hopes to begin shipping its FCEV to customers in the second half of this year.
Investors can now decide if they agree there is demand in the trucking industry to move to hydrogen fuel cell vehicles. It makes sense for Nikola to focus its limited resources in just one area. At the same time, it is not abandoning the BEV in North America completely as it will have the ability to manufacture both versions on the same assembly line.
If hydrogen is the future, and if Nikola has access to the capital it will need, the company's new strategy makes sense. Those are big "ifs," though, and Nikola remains as a highly speculative bet for investors.
