Q3 2022 Nikola Corp Earnings Call
[music].
Good morning, and welcome to the Nikola Corporation third quarter 2022 earnings call. Currently all participants are in a listen only mode will begin today's call with a short video presentation, followed by managements prepared remarks, a brief question and answer session will follow the formal prepared remarks.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder.
This conference is being recorded it is now my pleasure to introduce Nicolas director of Investor Relations on Recon. Thank you Henry you may begin.
Thank you operator, and good morning, everyone. Welcome to <unk> Corporation's third quarter 2022 earnings call with me today are Mark Russell, Chief Executive Officer, Michael Low Schiller, President of Nicola and Kim Brady Chief Financial Officer.
The press release detailing our financial results was distributed shortly after six am Pacific time. This morning. The release can be found on the Investor Relations section of the Companys website, along with presentation slides accompanying today's call.
Today's discussions 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 Q3 earnings press release, we issued today.
Today's discussion also include forward looking statements about our future expectations and plans.
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.
On page two of our earnings presentation 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.
We will now begin a brief video presentation, followed by prepared remarks from Mark Russell, Michael low Sheller and Kim Brady.
[music].
USA truck is next year.
Doing things, we are delivering trucks we.
We are selling trucks to end customers.
So we are not talking about things we are doing thanks.
Our actions are now being manifested in the products that are here I can tell you all the specs I can tell you how great. It is anyone can say that when you experience. It you will understand what the differences.
Okay.
Do you have all of our competitors in this show you if all of our suppliers and to show you have customers coming to you in the middle of all of this do you have the Nikola Bruce very clean White Blue stamps com all of what we want to do and achieve what we want to make a cleaner transportation sector and in the middle of all of these.
Players, it's been around forever. Some column dinosaurs here, we are creating the biggest excitement up to show that.
Wonderful.
Our partnership with Nikola continues to be the role model.
That's good color.
Thank you.
We opened Morgan please recall.
Great to have you here, we are focused on creating an end to end ecosystem that is both.
So our planning and better forecast.
The bad news in operation are currently the only class a fully length. Thanks, Tim is working today, we have hedged 94% operational timing range of up to 530 kilometer, but today, we want also to talk about our hydrogen trucks.
Fantastic every day in real world environments with customer.
Bosch and Tcs.
Los Angeles since January we believe in this truck will change too.
As we know it today so already.
Today, It is my pleasure and honor to share with you and the rest of that was for the first time.
Final production design of the European Nicola hydrogen.
Which will be launched next year.
Yes.
Okay.
Yes.
Okay.
Yes.
Yes.
It was such.
Such a wonderful moment seeing this truck being unveiled to the world product.
First time versus Fabulous moment for all of us.
I mean, everyone was excited to see those strikes everyone knows gathering around construction needed re after the press conference.
Pretty amazing and Theres lots of energy people were excited about what we're making overdoing and this is the largest commercial show on Earth and the questions were about which is exciting for those pizza. Michael also that was also I'm sorry, I already gave a lot of energy into those words and then maybe just kind of brought the crowd also with them.
At the moment most of it was really great.
I think it was a spectacular show of Nikola today, and the credit goes to everybody is being part of it.
[music].
Coming in here. This morning to cover page of the IAA crucial magazine is a picture of all Andrea if that doesn't speak to what we're doing here and what we're creating here I don't know why.
Okay.
Our battery electric truck was only the beginning we brought out an awesome product that hits the needs of this market, but if you truly want to decarbonize the sector, it's not going to be enough, we need the fuel cell electric technology to address all of these long haul missions.
So now we have this great on wheel of the truck.
Very happy and then immediate questions, we always get.
Is it hydrogen.
The trick is a hydrogen or electric and the answer is very easy it's both and we want to stand on two feet. That's our strategy and that's how we want to move on what is important is that.
These are trucks are disappearing off the highways of the Altamont that is what matters and then I think we need this technology and surely we can only win in the combination of battery electric and fuel cell electric but everyone else will follow suit and we will need both of these technologies to successfully address the whole mark.
And to make a greener future for all of us.
Fuel cell or is it mostly well integrated well executed feel self here by far.
We'll look at any of the other products and that's the feedback again, we're getting it from the other Oems even directly.
That's pretty cool.
It was fantastic and renovated powerful.
Amazing track the future.
Really really impressive.
If you Wanna climbed Mount Everest Youre, not going to do it by yourself or do you have a team that goes out there everyone and that team has a task to do and only if you work together well you will reach the top and that's what we're trying to do internally with our teams, but also externally with all of our partners and everyone is very critical in a successful achievement.
Of our dogs.
Sure.
[music].
Good morning.
Thanks for joining the call.
What an incredible journey, we're on most of you know that we announced my retirement earlier this year.
We have been involved with nuclear either as an investor or as an executive from the beginning.
I've been reflecting on the extraordinary challenges we've experienced in a truly amazing things we've accomplished over the years.
I'm, so grateful that ive been part of it all and so thankful for the privilege of.
Being part of this team Nikola is an awesome team of truly incredible individuals'.
World Class people, who are dedicated.
And their careers to pioneering sustainable zero emission commercial transportation.
These are the people that give me the confidence to be stepping back in fact, since we announced this transition things have gone so well.
That we are handing the reigns over early and micro lotion will become CEO effective today.
That said.
It won't be going very far I'm still one of <unk> largest shareholders and I'll remain on <unk> Board.
I will continue to do my best to support this team and our strategy in every way I can.
But it is with deep confidence that I now hand, the balance of this call.
And the Ceos Baton.
Over to Michael low sugar.
Who has been prepared over the course of his extraordinary and diverse career to now lead Nicola to the next level.
Michael.
Thank you Mark and good morning, everyone. Thanks for joining us on this call.
I'm honored to succeed Mark Russell, CEO , and Nicola and to drive forward the company's mission.
Under Mark's leadership Nikola has achieved many significant milestones and we look forward to his continued guidance as a member of our board.
As I assume my new role as CEO with Nicola I would like to share some thoughts on both immediate and long term strategic goals and objectives.
First.
I will discuss my views on our immediate objectives and how we are tracking them.
Then I will discuss how meeting our immediate objectives, we've set us up for our long term aspirations.
Tim will also address in greater detail additional current challenges in the commercial space.
In production and manufacturing, we have made tremendous progress in increasing our daily production.
Supply chain management has seen lots of improvements in the past quarter.
We shifted from air freight to ocean freight on imported components.
Localized purchases of many critical components during the quarter.
We also started to diversify our supplier base.
The results are beginning to show on our P&L, which Tim will discuss later in detail.
In R&D, we are making good progress in our fuel cell truck development. This quarter, we started to produce a paid up is about fuel cell trucks.
The betas contain a number of improvements over the past based on customer input.
From winter testing of the <unk>, we have improved water management, and a fuel cell and exhaust systems.
We also improved the range efficiency and talk of debate us.
So I believe we are in a good path and R&D supply chain management and production systems.
Where we can improve it on the commercial side of the business.
It's clear that there are macro headwinds right now that at some point will turn into macro tailwind.
We must take proactive steps to make sure that we have a commercial program in place that will allow us to fully benefit when the market dynamics become more favorable.
I believe we can achieve this by increasing.
Our dedicated sales effort to better understand our customers and then.
We need to become less dependent on dealer and instead leave them in our commercial management.
To improve our distribution, we hired eight additional staff in Q3.
We will continue to intensify our dedicated sales coverage in the coming quarter and believe this will strengthen us for the fuel cell truck market.
Where we anticipate greater growth opportunities will be in the future.
These short and medium term execution will lead us to our long term aspirations.
Our long term strategic focus will be on growing our global presence and the hydrogen supply and infrastructure business.
Our fuel cell trucks will enable us to accelerate the transition to clean energy.
And we have made some important decisions on this front.
It's one of my first actions since becoming equal as president I appointed Carrie Mendes as president of Nikolas entity business.
Gary has more than 20 years of operational experience in the energy industry. He spent 12 years at BP, where he played a key role in growing b piece renewable energy business.
Since his appointment carriers began to oversee all aspects of our energy business and Nicola.
I'm also very excited to share with you that in the beginning of October we announced the appointment of Andrew VC to our board of directors.
This signals another step towards executing our long term goals.
Andrew joins us with over 40 years of experience in the energy industry.
He has been focused on the acceleration of a decarbonize energy future and.
And we are confident that his knowledge and insight will help us to execute on our strategy as we move forward.
We closed on the Arizona production hub land purchase on September 30th and now we are making progress on the permitting and zoning requirements.
We have also made good progress on ordering electrolyze and liquefaction equipment, our hydrogen infrastructure will support our truck customer.
After we launch our fuel cell trucks in the second half of 2023.
And this infrastructure will also help support third party demand.
The Arizona hydrogen production hubs planned initial capacity will be 30 tons per day and expand to 150 tons per day once completed.
By 2026, we are targeting to achieve at least 300 tons of hydrogen supply with 50 to 60 fueling stations nationwide.
We are making progress on hydrogen refueling stations and building on our announcement last quarter of three locations.
We also announced our collaboration with E on to form a joint venture the.
The joint venture will provide heightened supply and refueling infrastructure for our fuel cell trucks in Europe .
As you May know, Iran is one of Europes largest operator of energy networks and energy infrastructure, and we look forward to bringing an integrated mobility solution to our customers.
We signed attempt sheet with E on to solidify the collaboration and we're currently working to finalize the terms.
Our European strategy will build on the asset light partnership approach that we began in the U S with our U S strategic as.
As you saw in the video our fuel cell trucks generated strong interest from potential customers at the IAA in Hanover, Germany in September .
<unk> is the largest and the most important transportation logistics show in the world.
And together with our European partner <unk>, we presented the European trade Bath and SCV beta on the Nikola Iveco stand.
The incredible level of interest for our fuel cell trucks. Once again later dated our conviction on.
The critical role that Nikola plays in the global transition to a hydrogen economy.
In this transition we believe that our fuel cell trucks will stimulate demand for hydrogen and help accelerate the rate of hydrogen adoption in the greater economy.
I'll now share a few opportunities that we are well positioned to capitalize on that.
The recently passed inflation reduction act in the U S provides a number of benefits to Nicola.
This will be additive as our business plans were created without assuming them.
In Europe , the European Parliament Transport and Tourism Committee has recently agreed to target one hydrogen fueling station for 100 kilometer.
Along the Trans European Transport network core and comprehensive network by 2028.
This new target is more ambitious than the original proposal, which had called for one refueling station every 150 kilometer.
The European Union regulatory developments will play an important role in speeding up hydrogen deployment, there and provide nikola with significant opportunities to replicate our U S strategy in Europe .
Onto some details of what we have done on the vehicle front in Q3 now.
On fuel cell vehicles, our tsi pilot testing, which began in June has locked over 9700 miles to date we've.
We began pilot testing with Walmart in August and it is locked over 5500 miles to date.
In Q3, we produced six beta trucks and expect to produce 17 beta trucks for the full year by the end of Q4.
On our trade baths, we produced a total of 75 trucks in Coolidge during Q3 and delivered 63 to our dealers.
We began pilot testing the tray packs with Shire in August and to date, the trucks have locked over 1600 miles.
We also began pilot testing the tray pack with Walnut in September and the trucks have also locked over 2700 miles today.
We are also very excited to share that we received a purchase order of 100 trade best from Zoom solutions, a leading provider of zero emission EV fleet as a service provider yesterday, the trucks will be delivered in 2023.
We are still on track to complete phase two of our Coolidge, Arizona manufacturing facility by the end of Q1 2023.
The nameplate capacity of our coolest client when phase two is completed will be approximately 20000 units a year.
The facility will be capable of assembling both best in fuel cells on the same line.
We also plan to establish a line for the assembly of our fuel cell power modules.
Regarding phase III of our Coolidge expansion front after assessing the macro uncertainties in the market. We have taken another look at our previous assumption on scaling in Q4, 2022 and fiscal year 2023.
As we discussed during our second quarter earnings call. We cannot confirm that we are deferring our phase III Coolidge expansion plan to 'twenty 'twenty four.
Kim will provide details on the numbers and with that I will hand, it over to Kim.
Thanks, Michael and good morning, everyone. Let me begin with the financial overview for the third quarter.
Our Q3 revenues were in line with our expectations and our gross loss was less than expected.
In Q3, we reported revenues of $24 2 million.
On delivery of 63 trade paths.
And one MCT.
Baird to delivery of 48 trade beds and for MCT in Q2.
Cost of revenues came in at $54 4 million.
Resulting in a gross loss of $30 2 million with a negative a grew 24% gross margin in Q3.
From negative 161% in Q2.
Gross margin came in significantly better than our guidance of negative 240% to negative 250%.
The gross loss improvement of <unk>.
37% from Q2 is driven by lower material overhead expenses.
And improved overhead cost absorption on higher revenues during the quarter.
Our material overhead expenses.
Which consists mainly of inbound inventory freight and duty came in favorable as our dependence on air freight as a percentage of total freight came down to 33% in Q3.
From 84% in Q2.
We should also mention the one item regarding our cost of sales in Q3.
As we shared in our Q2 earnings call.
The acquisition of Romeo power involved providing up to $20 million in a temporary price increase for each battery pack delivered through a transaction close.
This amount came to $11 9 million in Q3.
This pack price increase was not recognized as a part of our cost of revenues for the quarter, but was capitalized in prepaid expenses and other current assets on the balance sheet as a part of future purchase price consideration.
Had this amount being recognized on the P&L. Our Q3 gross margin would have been about negative 174%.
We will share more on romeo's impact on our cost structure.
Later in the call when we discuss Q4 guidance.
At the SG&A level, the most significant cost driver due in Q3 was the change in our management compensation structure on.
On August 15th our board of Directors approved an amendment.
The executive employment agreements with our C suite executives.
Under the new scheme each of the affected executives had existing market based stock awards with stock price milestones of $40 and $55 cancelled.
And the performance period applicable to the shares with a $25 stock price milestone was extended by 12 months from June 3rd 23 to June 3rd 24 under U S. GAAP. It's a market based stock award is cancelled with that the concurrent.
Glen or offer of a replacement award the cancellation is treated as a stock repurchase for no consideration, we recognized $55 8 million market base or is your words with the cancellation of the $40 and $55.
Trenches for all executives rep.
Representing the remaining unamortized expanse of these awards as of the cancellation date.
Q3, EBITDA came to negative $221 7 million and adjusted EBITDA came to negative $105 9 million equity and net loss of affiliate K.
Came to 2.0 million in Q3 from $1 3 million in Q2.
The loss was driven by net losses at the Nikola Iveco Europe JV due to the expanded scope of the Jv's product development and vehicle engineering activities that we referred to in our Q2 earnings call. Our net loss for Q3 was $236 2 million.
<unk>.
And the loss per share came to negative 54 cents on a GAAP basis and negative 28 on a non-GAAP basis on the balance sheet.
We ended the third quarter with $403 8 million in cash and restricted cash from $529 2 million at the end of Q2.
Regarding available liquidity.
Existing <unk> facilities with two men remain at $312 5 million.
We also have entered into an equity distribution agreement or at the market facility, where Nicola may offer and sell up to $400 million of common stock.
We received approximately $105 million of gross proceeds under.
Under the ATM during the quarter, if we consider cash HELOC and ATM.
Our total access to liquidity stood at 1.01 billion as of the end of Q3 reps.
Representing an improvement from 800.
$41 8 million at the end of Q2.
We believe this liquidity access is more than sufficient to cover our spending and positions us well for the following 12 months.
Next we want to turn your attention to our working capital as we have now completed two quarters, so twice berth deliveries.
Our accounts receivable in Q3 came to $37 7 million from $16 7 million at the end of Q2.
Our inventory increased from $52 1 million in Q2 to 81 point.
$1 million at the end of Q3.
Driven by purchases of components and raw materials to support trade back production in Q4, 2022 and 2023.
Our typical vendor payment.
Terms to our vendors range from $30 to 45 days.
Together with our dealers.
We are working to reduce the number of days in our payment terms on future deliveries to minimize the working capital impact.
We aim to achieve a target of keeping 12 months of liquidity on hand.
At the end of each quarter, we will continue to seek the right opportunities to replenish liquidity on an ongoing basis, while trying to minimize dilution to our shareholders.
We are also considering.
How we can potentially reduce spending without compromising our critical programs for 2023.
Regarding the Romeo merge update.
We completed our exchange offer to purchase all outstanding common shares of Romeo and subsequent acquisition.
Action closed on October 14th and railway is now a sub assembly plant for Coolidge.
We are currently focused on post acquisition integration, including manufacturing line optimization and productivity improvements.
<unk> customer contracts and aggressively reducing bom and closure costs and non personnel cost.
We anticipate recording a noncash impairment charges on romeo's asset as of September 32022.
Currently estimated in the range of zero to $75 million.
These such potential charge would decrease the amount of Nicholas bargain purchase price gain on the acquisition, which was previously estimated at $83 million based on Q2 pro forma financials.
The actual amount of the impairment charge and its effect on any bargain purchase price gain is an estimate only at this point and not fully known at this time and will be based on financial purchase price accounting reflected in Q4 financial statements moving onto Q4.
And this school year 2022 full year guidance.
As an early disruptor in zero emission Bev trucks, we've learned many lessons this year.
In the second and third quarters, we delivered 111 trucks to dealers and.
And while we are pleased with our progress on truck production.
Interest from our end customers.
We will be unable to deliver 300 trucks to dealers by the end of 2022.
We would like to share some of our observations and the reasons why we are revising our fiscal year 2022 delivery guidance.
First as discussed on the Q2 earnings call, while our mobile charging trailers and east Keith can help customers get started on electrification.
Continuing to scale up to fleet level charging infrastructure remains a hurdle and often involves a lengthy process, which usually requires regulatory approval and support from the local power provider.
Municipality.
This is further impacted by uncertainties over macroeconomic conditions, resulting in end customer's lectern to make significant capital investments in the necessary charging infrastructure.
We anticipate these headwinds will continue to be a significant limiting factor and the customer uptake rate with the trade baths.
Especially for the remainder of this year and likely through 2023.
This dynamic appears to be more about customer investment in charging infrastructure timing and less about their willingness to transition to zero emission trucks.
In the.
Q4 gross margin will deteriorate from Q3.
Once we start consolidating romeo power into our financials.
When we announced the acquisition on August one we summarized the potential long term benefits from the merger to be approximately 30% cost reduction in.
In non cell related battery pack cost by the end of 2023.
However, our bom cost for the battery pack and closures will increase temporarily for the next five quarters as Romeo power was subsidizing Nicholas battery packs.
Approximately $110000 per truck.
We are converting from machine battery packing closures to casted enclosures, which we expect to lower DRAM costs significantly.
This requires validation and testing once the first articles produce.
This effectively means we will not see the benefits of significant battery pack cost savings until the end of 2023.
Budd, we have a clear line of sight and when our cost savings initiatives are complete we expect battery pack cost to drop by at least $110000 per truck.
Third at this point the trade back to a cost per unit is meaningfully higher than the average selling price per unit.
This is expected for a new technology product.
And then early stage of adoption.
As we continue to scale our business, we anticipate production cost to decrease however in light of current macroeconomic conditions. We are evaluating the latest scaling production in Q4 2022.
In 2023 to.
To minimize a situation where the more trade best trucks, we sell the greater the gross loss in the short term.
Ultimately, we need to scale at the right level to further decrease trade barrier to a cost per unit and achieve greater operating leverage and direct and indirect labor and manufacturing overhead with that backdrop. Our Q4 consolidated financials will include raw milk cost structure.
Throughout Q4 and 2023, we plan to include supplemental information in our earnings deck to provide visibility to the ongoing cost structure of romeo's operation. We plan to produce approximately 120 to 170 trucks in Q4.
We currently hold enough inventory and cooley's to meet their production target.
Due to a heightened level of uncertainty surrounding the timing of our Q4 delivery, we've decided not to provide volume where revenue guidance.
However.
What ever we produced in Q4, we believe we will be able to recognize as revenue in Q4 and 2023.
We anticipate our gross margin being between negative 240% and negative 280%.
R&D expenses should be in the range of $82 five to $87 5 million.
Including approximately $5 million for Romeo.
And SG&A expenses will likely be in the range of $85 million to $90 million.
Including approximately $25 5 million for Romeo.
The stock based compensation will be roughly $58 million, including approximately $16 million for Romeo due to the acceleration of our issues and psus as part of the merger agreement for a former executive officers.
Capex for Q4 should be in the range of $30 million to $40 million.
Michael mentioned that the nameplate building capacity for Coolidge is about 20000 units per year.
Including Bev and fuel cell electric vehicle.
Upon completion of phase III in the first quarter of 2023.
This capacity should be sufficient to achieve our internal production targets for 2023, 2024, and 2025, which we have yet to disclose.
Accordingly.
We can confirm that phase III build out will be deferred reducing our anticipated cash burn by $345 million in 2023.
Furthermore, as we adjust to the current macro environment of inflation rising interest rates and increased commodity prices.
We made the difficult decision to reduce head count by 7% this month or approximately 100 employees.
I along with the full management team.
Our gratitude to the impacted individuals and are working hard to support them through this transition.
Though it was not easy.
Decision allows us to better align our head count with strategic priorities.
That will improve productivity and reduce bom with greater focus and.
<unk> discipline regarding 2023 expectations.
As previously alluded to.
Operating in a highly unusual and challenging environment.
Especially for early EV, Oems and <unk> to infrastructure providers.
After carefully considering and weighing the above factors.
We have determined.
That we are better off delivering pure bev trucks and preserving cash.
Until the visibility becomes more apparent and the plan Bom cost savings achieved in 2023.
Accordingly, we are proactively reducing volume expectations for trade Bev trucks in Q4, 2022 and 2023.
We will provide you with more details on our 2023 projected Bev truck deliveries when we announce our fourth quarter results.
During this time, we will be prudent stewards of capital, while improving efficiency and negative gross margins.
Furthermore, we are also looking to significantly reduce our opex and capex spending in 2023 by 20% to 30% from the 2022 level.
To be clear, we are running at full speed to ensure the tray FCB trucks schedule is not compromised and we can achieve the startup production in the second half of 2023. This concludes our prepared remarks, we will use the remainder of the time to address your questions.
But before we open the line to analyst questions, we would like to take this opportunity to answer some questions from our retail shareholders Henry.
Thank you Kim the first question was combined from two separate questions asked by two investors that address what we feel are identical issues when will Nicholas products be in production and when will Nicholas start delivering the vehicles.
We began commercial deliveries of our trade back to dealers in Q2.
And customer deliveries of these electric trucks are currently being made by our dealers.
And have mainly gone to end customers in southern California to.
To be clear these are not demo deliveries, but trucks used by our customers in their day to day business in their fleets. These deliveries have been made for two quarters now.
On our fuel cell trucks, we are currently producing the beta version of our demo trucks and are on schedule to make commercial deliveries to customers in the second half of 2023 in the U S. In the first half of 2024 in Europe .
The next question is.
Is there any chance of salvaging the GM deal or striking a new deal with an existing auto manufacturer to start production of the badger.
Understandably there is much confusion around the badger since we never formally announced that we will be dropping it.
To make it clear here we are.
No longer developing the badger, because our commercial truck and energy infrastructure business is our strategic focus.
As an early stage growth company, we cannot divert capital to the Badger light truck that aligns more with passenger.
Because.
The next question is what is the plan for the company to get out of the Red and instill confidence back and investors.
As discussed.
Current macroeconomic headwinds create some uncertainty.
Which opex, both our topline growth and cost.
We are working hard to increase sales to our end customers by strengthening our sales capabilities.
We are also taking steps.
To reduce our power costs and cost burden at the cost of goods sold level by improving operating leverage as we scale.
However, this will be challenging in an environment of high inflation and higher commodity prices since the end customers are reluctant to increase their costs.
Accordingly, we cannot provide guidance on when we expect to reach profitability.
But we will share our thoughts with you as things stabilize in the coming quarters.
The next question is investor.
Investors need complete transparency after recent events involving the company what is your plan to bring investors back on your side.
We are committed to open.
And transparent communications with all of our investors this platform to ask questions being an example of that commitment.
We aim to always communicate clearly about our progress and milestones and.
And are receiving positive feedback from investors, we have seen a significant increase in institutional investment Warner spin our stock.
Versus six quarters ago.
So we see that as a positive trend.
Market conditions.
Outside of our control but.
But we will continue to take steps to ensure that you are well informed about our progress on a timely basis.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad the.
The confirmation tone will indicate your line is in the question queue.
Start to if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
So time, we ask that participants limit themselves to one question and one follow up.
One moment please poll for questions.
Thank you. Our first question is from Douglas <unk> with Evercore ISI. Please proceed with your question.
Hi, Jane just curious if you have any more insight now that romeos acquired what is the exit rate for one half run rate in 'twenty three we could look at for deliveries.
Doug Thanks for the question.
We're making very good progress with Romeo we're very much focused on.
Post acquisition integration and we have been able to actually meet target and what will be a committed private acquisition they have delivered.
And so right now.
We have the ability to manufacture approximately two trucks and have the capacity to increase that to five trucks. So we feel pleased in terms of targets and we expect additional manufacturing improvements including.
Great.
Greater efficiency.
So we anticipate that we can improve on what <unk> has achieved.
Date.
And we will be able to share that with you more in Q4.
Earnings call.
Yes.
Okay, Great and then do you think the TK truck run rate. It's still sees are the two K truck total deliveries in 'twenty. Three is still feasible you mentioned you'd previously that you had the cell and pack capacity for that.
It sounds like it's not a production issue and it might be more of a cost issue now on the tax side, so what needs to happen on the cost side for us to reach that 2000 total delivery number for the trade desk.
In 2003.
And.
We talked a fair amount about our cost challenges, especially with temporary price increase for battery packing closures.
That increase our cost.
Cost of goods sold per unit.
<unk> hundred $10000.
So we have a significant gap between average ASP.
And cost per unit. So we are losing money as you know and so as we think about 2023 very challenging environment.
And we are more concerned about especially with respect to our bev trucks, reducing debt loss, we think thats prudent we think thats was a wise steward of capital we would do and so we have debated about this internally and we think it's important.
That at least for the next five quarters that we're very thoughtful about this.
And so we're not prepared to provide any guidance at this point, we will provide greater visibility in.
Our Q4 earnings call, but we want to make sure that we have we are well prepared as we think through that.
2023.
Still.
It's unclear, we know what that market could get worst and so we're trying to be prudent.
Okay. Thanks, Dave.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Okay.
Our next question is from Bill Peterson with Jpmorgan. Please proceed with your question.
Yes, Hi, good morning, guys Mark Good luck in your.
Transition to retirement and Michael and welcome on Board. Good luck navigating these challenging times. My question is for you Michael on strategy.
In the video you discussed the importance of both having beds added fuel cells as part of the portfolio. However, given the cash position I mean, taking into consideration the margins that Kim outlined I mean, this can be challenging beyond 'twenty three so.
And then not only that the learnings from that that would have likely already been designed with the fuel cells.
And then you talked about all the challenges around infrastructure and lead times.
I mean, theres impaction or Greg It does.
And then there's competition competition from other newcomers as well as you can establish players.
Ultimately I'm not really sure if there was going to happen.
Your product I guess the question is kind of twofold.
Yes.
Why at this stage or does even important in the portfolio and if things don't improve.
What would the company consider in terms of just I guess.
Part of the metaphor, but pulling the plug as it were on the bed program.
I mean, you already said youre going to be losing more money because we ship a product I mean, why why why should this be considered to be one of the two important legs of the company.
I guess you did in the press release, you kind of highlighted more and more about hydrogen I think a lot of people that.
All the stocks at a long term believe thats kind of the right thing to think about so why why why hasn't that program at this stage looking forward.
Great. Thank you. Thanks, Thanks for the question.
Very straightforward.
First of all I mean zero emission mobility as our strategy and we feel good that we have two legs to stand on as I said in the video because at the end of the day customer where the site right.
What we see is in terms of customer feedback some customers really like the best in particular once they have the infrastructure set up they like the range. They look at the total cost of ownership at the same time, there are customers they prefer a longer range with a future.
In terms of learnings from <unk> I think it's obvious I mean do you need to have.
Really an integrated mobility solution for customers, so, meaning you need to provide the truck and the infrastructure for the best and for the fuel cell, obviously, including the hydrogen that's why I also want to put a lot of emphasis on the hydrogen piece of our business because I feel it's very much an entry into our business. So for example.
When I was in Europe .
A lot of energy customers came to us and talk to US and also asked for the truck.
No.
In summary, I think we feel very good about these two our first customer.
Customers will decide I mean, if you look at our data in terms of bass and fuel cell also in terms of NOI and will use.
<unk> cell is higher right. So I think there is a lot of opportunity for the future, but I feel very good that we have.
These both alternatives because let the customer at the energy side.
Okay, certainly followed the progress on that thanks, so thanks for the color there.
Shifting to hydrogen.
Again, you kind of really high it looks like you highlighted a lot of this in the press release and it's understandable.
For the initial tranche of the 30 tons per day, when would you expect to achieve that.
I guess, how should we is the.
The Investor community, how should we think about the ramp to 300 tons per day, and maybe more importantly, as it relates to Niccolo what is Nicholas contribution in terms of the capital expenditures.
And maybe you can give some color on what kind of capex is required for given sort of output.
I guess, what what kind of cost structure should we assume.
By around the 26 timeframe.
Bill Great question.
So let's think about this we have been very clear to the market.
That's our focus and our strategy when it comes to hydrogen infrastructure.
Is.
Capital efficient and asset like that.
That means we are going to seek partners, both strategic and financial partners for hydrogen production hub.
As well as dispensing locations that means we may have small piece of worship. What we are focused on is making sure that we control hydrogen molecules, that's really important for us so coming back to our Arizona hub 30 tonnes per day for phase one.
Likely this will be available sometime towards the end of 2024, possibly early 2025, we understand in late 2023, as we actually have our fuel from truck.
Being delivered to customers as you know, California will be our first market.
And we have worked with potential.
Hydrogen providers as well as we will have mobile trailers to meet the needs of our customers in early in late 2023.
Yeah.
Okay. Thanks.
As a reminder, if you would like US a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question chip.
Our next question is from Chris Mcnally with Evercore. Please proceed with your question.
Thanks, so much team and just jumping on midway through the call. So just wondering if you have a follow up on that.
The comments around Romeo and some of the subsidies that you know learning on learning about post post acquisition can you just remind us.
For your original 2023, how much of the Pac capacity was coming from Romeo as opposed to.
The more recent deal with pro Terra or internal pack.
Okay.
Yeah.
In terms of the way we are thinking about this is that especially for U S. Best truck, we anticipate all of our battery.
Michael <unk> will be coming from mobile.
What we have discussed.
Yes.
Tara is that that will focus on providing modules and packs.
Sure that trucks as well as fuel cell trucks in Europe , and so we have a very clear delineation.
We're very much focused on improving manufacturing operations.
<unk> deals.
And making sure that we improve execution.
Ultimately, we are able to significantly improve output and delivery of modulus impacts from mobile.
Yeah.
And then and then is there not an ability to sort of increase the scope of the pro Tara relationship because it just.
Quick math on a 110000 would essentially it sounds like.
Romeo was on a cost basis sort of well out of the bounds of.
Industry numbers on a dollar per kilowatt basis for pack.
Is it just not something thats feasible in the short term to increase.
For North American deliveries as he used to coat Tara.
Yes.
It takes time for validation and testing and so when it comes to Tara is through design of packs.
Modules and so it's really the timing that we're concerned about and as you know Romeo.
Really this was a small company it did not scale.
Scale to be able to reduce their cost in terms of manufacturing efficiency.
Why do we as we suspected when you that most of the real meal contracts, where existing contracts where it.
Essentially loss leaders, we have been able to.
Like a lot of those contracts.
So that we are very much focused on simply supplying battery packs Nicola.
And then I guess the final positive I mean now.
Internal could you talk about the steps because I mean, some of the cost figures.
It could be almost $300 per kilowatt.
<unk> that.
That number to something Thats more market standard to get you back to two point, maybe it's at some point in 2023 or 'twenty four until gross margin positive physician, what specifically would need to be doing to the to the Romeo process.
Great question when.
When you think about my recent patch the biggest cost component here is what we call pack and closures currently that's been machined.
We are converting that to casting we believe we can drop approximately 90% of our cost and they are about 15 other components.
We know that we'll be able to drop so we have a very detailed plan component by component.
But the biggest contributor in terms of drop the cost will be packing closures. So I've alluded that right now tacking closure costs increase in the short term for the next five quarters will likely be around 106000, we believe we can drop about 85% of that just in terms of.
Addressing junction box as well as the enclosure.
And timeframe for that to the 80% is that sort of a target by the end of the year 'twenty three.
2023, obviously, we're going to push hard we're going to be aggressive, but once again it requires validation testing. So it's really the validation and testing that takes a law now we're going to try to optimize that as much as possible and we will keep you posted but right now our anticipation is that by Q4 2023, we'll be able to reach.
Two of those costs and we will provide the transparency.
And just to add Jim just said.
The <unk> acquisition is such a big benefit because you think about this we do supply chain now together, we do engineering together, we do manufacturing together. So we have line of sight of several cost reductions and the most prominent one Westwood one Kim was highlighting but strategically is such a big benefit having such an important component as a battery in housing.
We integrate every function right and therefore, we see good good line of sight for cost reduction.
We're trying to do as fast as we can here.
Okay. Thank you.
Thank you. Our next question comes from Jeff Osborne with Cowen and company. Please proceed with your question.
Hey, good morning, most of my questions have been asked already I wanted to dig a bit into the European factory as well as what's your battery strategy. There will you be making those same battery packs that you just described earlier or buying those from a third party.
Yeah. Thanks, Thanks for the question Jeff in Europe is obviously, an important business for us I mean everything going on in Europe indicates like probably the pressure on <unk> is even higher than they have been here. So for us it's a very important business and the setup together with the recall is really strong because we have a joint venture with them.
<unk>.
Where we have a factory together, we have all the learnings from the Banff and also the future, which we transfer now from here to Europe , we have a dealer network with the equity loss. So I think this is good and in Europe , We will use a pro camera battery going forward right.
Also try to localize as many elements as possible. So that we have a real competitive set up in Europe , but I feel very good about Europe and also opportunities going forward.
That's great.
I got the the Opex and Capex commentary for 'twenty three I wanted to better appreciate is there an ability to potentially also defer the fuel cell facility from Bosch and just import those from Germany themselves as opposed to making them like what would be the cost ramifications. If you were to do something like that.
Hey, Jeff, we don't actually make our fuel cell power module.
As you know we assemble them so we buy components from Bosch.
So the investment that we make at Coolidge.
Really the assembly line with respect to fuel cell power module.
Got it alright I appreciate it thank you.
Thank you. Our next question is from Bill Peterson with Jpmorgan. Please proceed with your question.
Yes, thanks for taking the follow up I actually wanted to come back to you for commentary earlier about trying to it seems like you're pivoting more towards direct sale versus dealers.
I guess I'm wondering of the Volvo products, you've delivered so far are they still all dealers at the moment waiting for delivery to end customers what percentage of let's call it kind of gone to end customers.
Can you tie it back to the focus on I guess the end.
Customers as opposed to <unk> can you just expand on this strategy.
Yeah. Thanks, Bill for the question so a few remarks.
On the dealer network I mean first of all I think it's a very big benefit that we have a good dealer network in particular in terms of the service element right because if the truck business. It's all about uptime. If you have an issue with the truck you want to have service immediately so I think it's a very.
Potent element that Nikola was able to set up this dealer network right now of course now we want to speed up and make sure like this is going as fast as possible, but I'm also pushing hard unlike or direct context to two customers in particular big fleet customers right and we were very pleased that we announced yesterday.
The order we seem I mean 100 trucks I think is a very important proof point for US is we own the right posture and to deliver them in 2023.
I think the dealer network is important we will continue like this but I want to push harder on direct sales.
Contact to the customer and then manage that in the best possible way.
Okay.
And then maybe Kevin in terms of dance.
Yeah sure in terms of dealer inventory and also deliveries to customer. So we made good progress as indicated in terms of production.
Supply chain all of that is fine and now obviously most of our trucks with dealers, but we also have.
Our dealers have delivered also trucks to to end customers Oh boy, we have around 97 trucks in dealer inventory in 14 have gone to end customers and Thats hopefully a process right.
So I think we ramp up very well on production side inventory now with dealers and now the next step is to to end customers and we delivered already 14 to end customers in the third quarter.
So bill just to add some additional insights.
This is progression first we've got to build trucks second we're going to deliver to our dealers and they've got to make sure that they have inventory and then ultimately pillar delivers to customers and customers.
With some of the challenges that we've talked about is that end customers, especially for.
Certain customers de lapp charging infrastructure. So we are working with them clearly that takes time and so that's one of the biggest challenge that we are coordinating and working directly with our customers and dealers to make sure that we're providing solutions.
<unk> to that there's also HD reimbursement process.
It is somewhat complex and it also is fairly lengthy and so we just want you to recognize the timing aspect, which is really important and that's the reason why.
When we think about our Q4 and why don't we have not provided guidance because there were significant timing here thats really not sure.
And then obviously with cost we are thinking about how many beds should we really sell that's a big question. So working both size and are addressing that.
Clearly as Michael talked about we have added additional sales staff.
So that we can.
Provide for simplification.
Our dealers as well as interacting with.
Customers, especially for what we call strategic corporate accounts. In addition to that dealers are now getting up they are adding sales staff on their side. So this all has taken time in terms of process.
Okay.
No I think that's well understood I think ultimately I guess related to the cost lack of infrastructure lack of readiness.
I mean is it crude across the seamless pretty low shipments to the orders given they probably have the channels build right.
I don't know what kind of orders you need to fulfill what the backlog is at this stage, but can you just assume a low run rate for the reason all of what you said cost and so forth.
I would say I would say is.
It's too premature as you know.
Typically in automotive industry.
The wholesale inventory at dealers.
Typically around 30% of wholesale revenue or even 35%.
Right now we have so few units that's still out there and we're building out our dealership and so 90 units, it's not pretty low inventory 97 units in Q3, and so we just want you to recognize that it's just right now.
Thats, a very low unit and as we've talked about we'll move those units in Q4 and in 2023.
Okay. Thanks again for the additional color.
Okay.
Thank you there are no further questions at this time I would like to turn the floor back over to Michael <unk> for any closing comments.
Thank you everyone for joining us today I'm excited to begin the next phase of Nikolas journey.
While there are macro uncertainties and headwinds facing us in the short term, we remain disciplined and are committed to focusing on the following.
Continuously improving our production systems and supply chain management.
As I indicated before we are making good progress here.
R&D on our trucks, we are also making good advancements and developing our fuel cell trucks and improving our electric trucks.
Commercial engagement on vehicle sales, we plan to intensify our focus here to take more control of our distribution strategy.
Our hirings will begin this intensification process.
These short and medium term execution will lead us to achieve our long term objectives in the energy business, which is also making good progress.
Thanks again for joining us today, we look forward to seeing you next quarter.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.