Just a year ago, Nikola Motors raised its then-largest funding round of $230 million, adding important strategic investors to help bring its hydrogen fuel cell truck to market. The company, led by founder Trevor Milton, appeared to be on a promising trajectory; since its founding in 2014, momentum had continued to build around fuel cell technology and the broader hydrogen economy, and as Lux noted, heavy-duty trucking was a promising application fit. The company was one of the first to go public via the current financial fad of the special-purpose acquisition company (SPAC) and even briefly surpassed the market capitalization of Ford. In early September of this year, a partnership with GM appeared to be a vote of confidence in the aspiring vehicle manufacturer.
Despite this growth, Lux remained skeptical of the pace of Nikola's new product launches and apparent lack of progress. As we took a deeper dive into the terms of the GM partnership to find that it heavily favored GM, a damning report from Hindenburg Research – a Nikola short-seller – was published, detailing allegations of mismanagement, deceptive marketing practices, and outright lies from the company. Nikola's weak response essentially admitted to most of the major accusations. Following these reports and our own analysis of the company, we've distilled what we've learned into three key points:
1. Nikola has no valuable technology
Nikola has made various claims related to the development of its battery, fuel cell, overall powertrain, and infrastructure over the years. We were heavily skeptical of its battery claims last year, noting that no existing batteries could meet its claims. The report revealed that the battery developer in question was ZapGo (Lux Take: Caution), which was concerning not only due to the company's inability to demonstrate any performance claims but also in that Nikola would even consider making an announcement prior to signing the letter of intent and testing the claimed devices itself. Analyzing its patent applications and grants shows that most are related to vehicle-level technologies such as windows, windshields, and vehicle designs. The only three patents related to its core technology were co-filed with partners who actually designed and built the systems, including Nel and Nikola. Nikola, similar to Tesla in its early days, is a system integrator, but unlike Tesla, Nikola was only masquerading as an energy technology company. In Lux's opinion, Nikola currently has no valuable technology.
2. Nikola has no infrastructure advantage
One key aspect of the company's early pitches was that it would build and operate the infrastructure to support its trucks. By focusing on commercial operations along mostly fixed routes, it could support travel with a limited number of expensive refueling stations. Furthermore, in the event that Nikola's trucks failed to win many customers, the infrastructure could be used by other trucks. Lux had assumed that claims of producing hydrogen at $3/kg were unfounded and stretching the truth under the guise of "forward-looking statements," but as noted in the Hindenburg report, these were outright lies, and the company had not even produced any hydrogen; its only notable infrastructure announcement was simply purchasing electrolyzers from Nel. Furthermore, the report details a clear lack of experience in its hydrogen infrastructure management team
3. Nikola has squandered its early-mover advantage
While early discussions around hydrogen fuel cells led by companies like Toyota and Honda were focused on passenger vehicles, more recently, significant efforts have been underway to refocus efforts on larger commercial vehicles, including the trucking, marine, and aviation spaces. Nikola held a key advantage over many incumbent truck manufacturers in that it started looking at this challenge early (it was founded in 2015) and was able to secure partnerships with potential future customers for pilots. However, the company then focused on expanding its product lineup into recreation vehicles and pickup trucks instead of executing on its most promising market – a distraction that allowed competitors to quickly surpass Nikola.
The story of Nikola thus far is one of poor execution. But what lies ahead? The likelihood that Nikola is able to right the ship is very slim; with so few tangible assets and an eroding stock price, Nikola will struggle to raise the necessary funds to bring its vehicles to market.Recall that Nikola will need to pay $700 million to GM before the Badger even makes it to market, where it won't even be able to sell its ZEV credits to automakers, as it already promised those to GM as well. Previous financial filings stated an estimated burn rate between $32 million and $45 million per month over the next 18 months, with an estimated release date of late 2022 that would suggest the company needs roughly $1.5 billion to $1.75 billion to bring this vehicle – just one of its products – to market. Securing funding with few assets and diminishing credibility will be a challenge. That slim chance of success would require Nikola to drop all vehicles other than its three heavy-duty truck offerings and bring in experienced leadership. Trevor Milton was replaced by Stephen Girsky, an experienced former GM board member. We previously encouraged companies to monitor Nikola, as the company's promising partnerships were weighed down by what we believed was a poor strategy; at this point, the only thing to monitor is how quickly Nikola will fail.
Looking ahead, those interested should not expect Nikola to meaningfully impact the outlook for hydrogen in the context of mobility. The growing momentum behind hydrogen as part of the energy transition is too large for Nikola to have a meaningful impact, and there remain incumbent manufacturers – such as recent efforts from Toyota, Hyundai, and Daimler/Volvo – that continue to have stronger development programs than Nikola currently has. This saga does underscore the challenge for startups in the hydrogen economy; unlike Tesla's disruptive electric vehicle, whose infrastructure (the electrical grid) and technology (Li-ion battery cells developed for personal electronics) already existed, both aspects remain lacking for hydrogen fuel cell vehicles. Future startups will need significant investment from strategic investors – primarily oil and gas companies, existing fuel cell and hydrogen storage developers, and automakers.