Nikola Faces a Daunting Future With Far Fewer Friends Than Before

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Clean-energy startupNikola Corp. had a tough year even by 2020 standards. The once high-flying alternative-fuel vehicle maker started life as a public company with a short seller levying fraud allegations against founder Trevor Milton, who denied the claims but thenresigned after the Securities and Exchange Commission took interest. Thatcollapsed a deal to build trucks withGeneral Motors Co. and resulted in the indefinite postponement of Nikola’smuch-ballyhooed Badger electric pickup truck.

Believe it or not, the truly hard stuff is still ahead: building a real business selling large fuel cell trucks that turn hydrogen into electricity. Milton may be gone, but the SEC’s attention has had a chilling effect on Nikola’s efforts to forge partnerships that would help develop its business faster. GM in late November said it wouldn’t take a $2 billion equity stake and open its vast purchasing and manufacturing resources to speed the upstart’s trucks to market, deciding instead to just sell Nikola its hydrogen fuel cell system. The government probe also played a role inscaring offBP Plc, which would have helped the startup build a network of hydrogen filling stations.

That network is a big piece in Nikola’s future ambitions. The company plans to boost its profits selling hydrogen to the fleet customers who’d also buy its hydrogen-powered semis. Without the cash and resources of BP or another major energy company—and with its own share price falling more than 75% off its high last June—Nikola faces the daunting task of building that network on its own. The company declined to comment on the status of its relationship with BP, or of the SEC investigation’s impact on its ability to attract partners.

Without a partner, Nikola will need to dig deep to fund its hydrogen fueling station expansion. It has $900 million in cash, but a lot of that will be needed for continued development of the electric and hydrogen semitrucks it plans to sell and to finish building factories in Ulm, Germany, and in Phoenix, where the company is based. “A lot of potential partners seem to be getting gun-shy,” says Sam Abuelsamid, principal research analyst at tech researcher Guidehouse Insights. “The drop in stock price will make it a challenge to raise capital, which they will need to do.”

Delays have already cost the company business. Nikola and sanitation heavyweightRepublic Services Inc. had announced last August what they described as a binding contract under which Republic would buy as many as 5,000 battery-electric garbage trucks—worth $3 billion in revenue, Milton said at the time. But the order for an initial 2,500 vehicles wasterminated in December because of longer-than-expected development time and unforeseen costs.

Failing to secure a partner for the fueling network isn’t the end of Nikola, but it could push back the timeline for Chief Executive Officer Mark Russell, who said in November he wanted a hydrogen fueling station deal signed by the end of 2020. BP was put off by the SEC probe into possible exaggeration of Nikola’s claims about its technology, including a video that purported to show one of its trucks driving along a road when the vehicle was actually just rolling down a hill without any help from its own power plant. (The company said in September that while the truck shown did have a gearbox and batteries, Nikola “ultimately decided not to invest additional resources into completing the process to make the Nikola One drive on its own propulsion.”) But the energy company also wanted a deal heavily weighted in its favor, with a big cut of the profits, say people familiar with the matter. BP declined to comment.

A partnership could still come with another energy company, and Nikola is getting calls, according to people familiar with the company, but Nikola worries that the SEC’s interest will drag on—especially with a change in administration slowing things down—and it can’t afford to wait, the people say. “We continue to explore options with partners and will publicly announce when appropriate,” says spokeswoman Nicole Rose.

Russell has started building Nikola’s in-house expertise in hydrogen and energy distribution. He’s hired Erik Mason from BP, where he was managing director for structured products, according to people familiar with the matter. Mason has brought along several other executives from BP’s hydrogen power operations, the people say. And in December, Nikola promoted Pablo Koziner to president of its energy and commercial business. He and Mason will start laying the foundation to build their own hydrogen network.

Nikola’s goal is to build 700 fueling stations across North America by 2028. The hydrogen would be produced on site at each location. That fuel will then be bundled with sales of the trucks as part of a seven-year or 700,000-mile lease. That would give Nikola recurring revenue and much better margins than it could get just from building trucks. The company also plans to provide its fleet customers with service and maintenance for the trucks, which promise a zero-emission way to ship heavy freight and go farther than EVs currently can.

Nikola says its trucks would have a range of up to 750 miles. But even with that, its sales will be limited by the routes where it can build hydrogen stations. The plan is to build them in places where fleet customers plan to drive and then add locations as it sells more trucks. Since there are only about 120 hydrogen filling stations in the U.S., Nikola may have to build its truck business the same way Tesla grew its charging network—over many years and after raising billions to develop cars and infrastructure.

As the truck business unfolds, Nikola’s plan is to raise more equity or borrow money once it hits certain benchmarks in development of the trucks. But it’s already missed its late-2020 timetable to announce a hydrogen fueling station deal, and it may have to pick up the pace to get back on track on plans to break ground on its first commercial hydrogen station in the second quarter of 2021 and start producing its battery-electric Tre semi in Germany by yearend. It also plans to build its fuel cell semis at its Arizona plant by 2023. Management knows it has to prove that Nikola has momentum to get more cash, the people familiar with the matter said.

That’s where a bigger partnership with GM would have come in handy. Nikola still has deals in place with GM and Germany’sRobert Bosch to buy fuel cells, which create energy by stripping electricity from hydrogen. And the company is working with Iveco, a truck brand owned by Case New Holland NV, to build the big rigs. But its original deal with GM gave the Detroit auto giant an 11% stake and provided for more collaboration both on the fuel cell truck and on the Badger electric pickup, while giving Nikola access to GM’s engineering expertise and global supply chain. Now that deal is gone, and the Badger has been put off indefinitely, with the company refunding customers’ deposits. How soon Nikola can jump-start its business—and justify its $6.5 billion valuation—is an open question.
 
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