Q4 2022 Nikola Corp Earnings Call
If 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 my pleasure to introduce bill in sand you from Investor Relations.
Thank you operator, and good morning, everyone welcome to <unk> corporations fourth quarter and full year 2022 earnings and business update call with me today are Michael low Sheller, Chief Executive Officer, and Kevin Brady Chief Financial Officer, The press release detailing our financial and business results was distributed shortly after.
Nine am eastern time. This morning, the release can be found on the Investor Relations section of our 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 can be found at the end of the Q4 earnings press release, we issued today. Today's discussions also include 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 two 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 the video presentation.
[music].
Okay.
It's an important day for us because we are finally coming out with a brand that houses a hydrogen energy business. Our hydrogen powered trucks are not going to work without hydrogen hydrogen is new.
<unk> zero emission, it's really going to change the planet and it's going to change the future of the transportation industry.
While others are talking we're actually doing that's why I'm. So excited to be standing here today I'm confident about the direction, we're headed and could not be more proud of this team today, we celebrate hydrogen.
This year, we are better prepared than we've ever been understanding before youre right now telling you that we are doing it.
But it's time to show you.
You are not looking at the future you are looking at the present.
Dave.
Nikola hydrogen truck has an expected range of up to 500 miles with refueling times estimated under 20 minutes.
I'm really excited to share the launch of our new pilot brand with all of you highlight is a new brand of Niklas portfolio that focuses solely on a hydrogen energy business. Our goal our ambition to build 60 heavy duty hydrogen stations by 2026.
Highlight can deliver hydrogen to its customers anytime anywhere.
We believe this is the first of its time 700 car flexible mobile sealer and Thats important because it allows us to fuel our customers incredibly fast anytime they want.
Yeah.
We are pioneering new things and from a customer point of view you need to do both you need to have the trucks and the energy.
Doing which matters and I think today, we could show that's what Nikola is all about that's what gives me confidence if you have a good product. The rest will come we can wait and follow where you could leave and this will remain in place believe this is not where we stop the highest peak in the world. It's not enough for US, let's take the second let's take K too as well.
The truck we enter.
Both together.
Got it.
Okay.
Okay.
Yes.
Great. Thank you.
One Oh man.
From all acquired.
I think if I can do though.
Right.
Today, It goes beyond being a proud day for Nicola it's an exciting day for everybody. We are finally solving both ends of the equation. The first step in the direction of a cleaner and smarter way to energize our.
[music].
Yes.
[music].
Thank you Dylan and good morning, everyone.
Nicole is much more than just a truck company. Yes, we have successfully launched the Nikola Tre back in March of 'twenty, two and are on track to launch the first FCB class eight in the second half of this year, but we offer a much more than just zero emission trucks to our customers.
We believe we are the only commercial EV company offering 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.
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 <unk>, 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.
With the FCB launch in the second half of 2023, we believe we will be the first in the class eight segment and the Nikola Tre FCB.
Perfect offtake for our hydrogen.
The best 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.
Actually we made several changes on the commercial side of the business Tim 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 and 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 highly.
<unk>, 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 hydro launch event. We believe this new brand will provide a dynamic plan.
Form for growing the energy business.
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.
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.
<unk> incentives when combined with existing programs such as the low carbon fuel standard.
<unk> in certain states and truck incentive programs like a trip in California create positive tailwind for supporting our customers and creating values and Nicola Hyla Energy brand. We are also progress the development of our European truck and energy business with the announcement of our collaborations 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 hop in the city of Buckeye initial production of 30 metric tons per day and expect it to expand up to 150 metric tons per day.
This production will support the fueling of up to 750, Nicola Fcb's in phase, one and up to 3750 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 one we announced the project was invited to participate in phase two 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.
All 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 excess to plax 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 Clarke will also by up to 75 Fcb's from us over the next three years and will also be a supplier of our hydrogen.
With fire a key piece of equipment at the Phoenix production hub.
Announced another strategic collaborations for hydrogen supply was for task you future industries.
Hi.
<unk> Green Energy company, and a division of <unk> metals group.
<unk> is building a global portfolio of Green energy projects and their collaboration with Nikola will cover our hydrogen supply and infrastructure across North America.
Including a potential investment in the Phoenix production hub.
We believe <unk> will provide our energy business with another important partner and bringing hydrogen supply to our customers.
Our previously announced investment in Terre Haute, Indiana biased 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 a final investment decision later in 2023 hour 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 Nicola with supportive incentives for trucks and energy and we see good potential for truck sales in Canada.
And the Clinton County, Pennsylvania key stayed off take term sheet announced in 2010 to two will 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 Nicola.
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 was had fueled up to approximately 7500 trucks per day.
This is an important baseline for our truck deliveries and could be a significant revenue generation opportunity for Nicola.
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 and cotton, Ontario, and their location servicing the port of long Beach brings the total to four in California.
Maintain our fixed dispensing station network on January 18th of this year, we announced a major step forward in our hydrogen refueling capabilities with the completion of our heavy duty 10000 pounds per square inch hydrogen mobile filler.
It is a first of its kind and is capable of fueling our fcb's and flexible location with efficient fill time.
Coupled with our hydrogen cube trailer with a 960 kilogram capacity this will allow customers to refuse trucks back to back.
The first three mobile fuel us have completed commissioning and now released for operation by Nicolas track validation team.
First mobile fuel 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 demos and Nicola refueling stations complementing permanent fueling infrastructure.
For customers. This provides them with great flexibility and the refueling experience that is similar to what they experienced today with diesel or natural gas either behind the fence always a refueling service that comes to their depot for.
For Nicola it provides us the flexibility to refuel customer trucks in geographic areas with limited truck density and could be scared to match the capacity introduced into that area. It's more Suvs 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 goes gives us a growing portfolio of valuable supply and infrastructure assets. We believe this gives nicola headstart and competitive advantage in the zero emission transportation sector and will help create.
Datable shareholder value.
In the fourth quarter, we successfully completed FCB Alpha pilot testing with Walnut and Tsi accumulating over 7000 809500 miles respectively.
As of today, we have completed the build and commissioning of 17 trade beta fcb's. The beta trucks are undergoing development testing and validation beta trucks incorporate a number of improvements from the other fast based on testing and customer input.
From winter testing of the analysis, we have improved water management, and a 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 gamma is a commission we will begin validation testing as well as additional pilot captured fleet testing, we remain on track to deliver the first serial production fcb's in the second half of this year the head of customer deliveries in Q4 2023, our commercial team is in active talks with customers and.
He is looking to secure deposits for the first fcb's.
First off the SUV commitments came from plug power on December 15th Blackwill purchase up to 75 Ftes with the first being delivered in Q4 2023.
And on January 25, we announced that Biagi brothers with purchased 15 Ftes in the fourth quarter of 2023.
On February 3rd we announced at the trade FCB received California Air Resources Board approval to be eligible for the hybrid in zero emission truck and bus voucher incentive project initiatives.
This means FCB customers can receive an incentive of up to $288000 for a class eight FCB in California. In addition to a potential $40000 federal tax credit from the IRA We have made immense progress in our <unk> program and believe the.
Future for medium and long haul applications will be served by fuel cell electric vehicles, we believe our FCB program in conjunction with our energy business, which served 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 too.
Customers later this year moved.
Moving onto our trade back program will utilize 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 inventories before delivery to end customers. We chose to do this as soon as possibly before delivering additional.
Because while we have access to trucks that dealer service centers and our Coolidge manufacturing facility.
Some of the changes we implemented include our second major post production software updates and EXL 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.
Proof 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 demos, we are innovating.
<unk> interim solutions for fleets as they work with utilities to install expanded permanent power capacity.
We currently have three charging options, one Nikola mobile charging trailer requiring 300 amps of power.
<unk> charge point dual eastgate, requiring 200 amps and three single charge points get requiring hundred amps.
Another step we have taken is to strengthen our sales and commercial team one of the first actions was to hire Bruce could he has over 30 years of executive experience in the commercial in medium and heavy duty transport space.
Previously holding roads at Volvo, Navistar, Kenworth, and Mac and brings extensive relationships with fleets and additional dealers to Nicola 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.
Mission vehicles, including reduced fuel and maintenance cost and solving infrastructure challenges two of the things already initiated to refine our strategy and improve products are related to lead generation and customer feedback we have better defined target customers for the trade back from both perspectives 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 enhancement to our trucks, including one updating the sliding fifth wheel to changing the location of air tanks between the access.
Three new longer lasting traction tires, and fourth adjustment 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, and Nicola inventory regarding trade with customers and pilots on November 2nd we announced a purchase order of 100 trade bass from Zoom solutions we.
We are currently undergoing a pilot program with <unk> and will begin delivering trucks to them. This year during the fourth quarter. We also continued customer pilots demos with Walmart sire, and what EV accumulating over 35000 miles and to conclude our remarks on the trade back on February 22nd we.
Danced with selected plus drive from plus four the Nikola Tre Bath and FCB plus drives enhanced safety system will augment existing Nikola base features including 100% electric steering.
<unk> electronic braking system and internally developed vehicle controls and software we expect the first Nikola trucks off the assembly line to begin incorporating plus drive by the end of 'twenty 'twenty four.
Europe remains an important market for Nicola 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 trade Beth full by two continued currently we are testing a beta trucks and building.
Gamma trucks, we plan to start zero production beginning in Q3 with deliveries beginning shortly thereafter.
We are on track to deliver the EU spec tray FCB in Q3 of 2024 as we communicated last year when we unveil the beta truck Nikola Iveco opened the order book to European reservations on January 23rd we jointly announced an LOI with GP Joule for 100 F series, We also put.
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 <unk> 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 reached a group of transport and logistics company based in Germany for an initial order of 20 trait Fcb's reached a group will also work with Nikola and its partners to potentially expand the conversion of its fleet of 160 trucks over there.
Next few years, along with previously announced LOI 400 trucks with GP Jewel in January we see real momentum progressing in the adoption of our vehicles in Europe .
Our ships with Iveco E on and other thing 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 will transition from Cyprus, California, two Oh man.
Factoring facility in Coolidge, Arizona. This move will bring FCB power module Assembly and battery module and pack production under one roof.
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 II Assembly expansion area upon completion of phase II.
The facility will be capable of producing battery packs assembling Bosch fuel cell power module and both the trade Bath and FCB on the same line.
Assembly Hall, its nameplate capacity will be up to 20000 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 FCB 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 Nicola 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're excited to capitalize on opportunities in 2020.
Three with that I will now hand, it over to Kim to cover the numbers.
Thanks, Michael and good morning in 2022, we remain 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 produce 258 trade Bes and delivered 131 to dealers for revenue of $58 million.
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.
<unk> 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.
That negative $450 2 million adjusted EBITDA excludes among other items stock based compensation of $255 4 million regulatory and legal matters.
$23 2 million and Romeo acquisition cost of $14 6 million Capex for the full year totaled $170 7 million predominantly spent on our cooler manufacturing facility expansion hydrogen infrastructure equipment.
<unk> land for Phoenix hydrogen hub supplier tooling and HQ expansion in Phoenix moving onto our Q4 results. We began consolidating romeos or result of operations into Nicholas after the merger close in October .
During the last three months of the year, we produce 133 trade tariffs 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 leading to a dealer.
Rebate program associated with third quarter deliveries, excluding this adjustment the average selling price for the trade path was approximately 374000 per truck.
On a consolidated basis.
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 gross loss increased significantly due to a lower volume of trade path deliveries higher fixed costs, including overhead expenses and freight spread over a smaller number of delivery trucks and inclusion of Romeo over.
And inventory costs, including onetime expenses associated with the merger.
Let's break down the cost of revenue of the $52 3 million in total $8 6 million is related to the bill of materials for the trade Bev and charging products sold during the quarter fixed costs at our manufacturing facility in Coolidge came in at <unk> 1 million for the quarter.
Which includes overhead labor and depreciation and $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 <unk>.
Remaining $7 4 million was related to inventory adjustments and non cash inventory related expenses.
Also included in our Q4 cost of revenues are $19 3 million related to romeos operations.
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 <unk> supplier.
The remaining costs are related to Cyprus plant labor.
Overhead inventory fading and adjustments, which we expect to decline significantly as we integrate battery tech manufacturing into our Coolidge operations R&D expenses totaled $69 4 million in Q4, including $7 million in stock based comp.
Sensation 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 186, GAAP net loss per share.
Basic and diluted was negative 46 cents.
And on a non-GAAP basis was negative 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 Nicola comes in the form of ATM of which $232 2 million remaining.
<unk> 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 August .
And an agreement for an additional $125 million in convertible notes of which we received $50 million in December .
Accessing our existing E lock.
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 floor plan 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 six to $3 8 million and 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 <unk> manufacturing facility expansion hydrogen production equipment hydrogen mobile <unk> and supplier part two.
<unk> as you know, we laid up 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 adoption rate, we are working hard to improve our productivity.
And reduce bom cost with greater focus and discipline, our head count as of December 31 was 1583 employees, including 299 employees of Romeo moving onto the 2023 outlook in our Q3 earnings call we acknowledged.
That the adoption rate of battery electric semi trucks is still very much Nathan and slower than we anticipated due to a variety of issues, including significant charging infrastructure challenges faced by our potential and customers. We don't believe this challenges will be abated anytime 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 trade paths preserving cash and minimizing our losses until the plan Bom cost savings achieved in 2023 consistent with what.
We previously stated we have reduced volume expectations for our trade tariffs in 2023, we plan to produce 250 to 350, Troy beds and 175 to 225, Trey fuel cell electric vehicles, this year and deliver to.
<unk> hundred 50 to 353 baths and beginning in late Q3 hundred 25 to 253 fuel cell electric vehicles. Our revenue guidance is 140 to 200 million, we anticipate gross margins for the full year 2023 will be negative.
75% to 95%, we expect gross margins to improve substantially worse end of the year as we realize the cost saving benefits from the Roma transaction, we anticipate we can lower battery module and pack cost excluding cells on the trade path.
Approximately 100000 per truck by December 2023, we have already realized 31000 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 41000 and material savings by switching the battery pack enclosure and junction boxes manufacturing process from machined billet to casting Additionally, by transitioning battery modules and <unk>.
<unk> production to Coolidge and implementing battery light automation, we expect to reduce labor and overhead costs by roughly $33000 per vehicle, we believe bringing battery module and pack manufacturing in house provides us with long term strategic value estimated RF.
<unk> expenses in 2023 or $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.
And 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 to 160 million.
In dollars, mainly focused on the completion of the phase two assembly expansion area in Coolidge fuel cell power module Assembly line battery module and pack Assembly line tooling for fuel cell electric vehicles and hydrogen infrastructure 2020.
Three plan Capex is approximately $21 million below the 2022 level.
We are running at full speed to meet the tray fuel cell EV startup production in Q3 2023, our goal is to pre sell the production volume of Trey 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 head count to slightly declined to approximately 500 employees in Q1, we expect to deliver $30 million.
50 trade beth's for revenues of $10 five to $17 5 million and generate gross margins of negative 215% to 140%. We expect gross margins to improve substantially as we scale volume production and realized cost savings from Romeo in Q.
For 2023, our estimated R&D for Q1 is in the range of 75 to 80 million, including $8 5 million and stock compensation R&D expenses are somewhat heavier in Q1 due to the completion of the beta fuel cell electric vehicle built the commencement.
<unk> of the gamma FCB build and FCB validation activities SG&A will be in the range of 50 to 55 million, including $16 5 million in stock based compensation expenses, we anticipate that capex will be approximately $55 million in the first.
<unk> principally related to fuels for EV supplier tooling and assembly line equipment to support the fuel cell EBIT 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 approach 2025.
In 2026, and expect the insulation reduction act to start providing a significant boost to Nicholas integrated fuel cell EV and fueling business model. We are in a nascent industry. So there's a lot of uncertainty, but assuming zero emission trucks.
Adoption increases in greater numbers, our energy business execute on hydrogen production and fueling solutions and we are able to capture only one 7% of act Research's 2026 U S class eight truck unit sales volume of approximately 360000 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 1000 to 1250 trade Bev and 5000 to 6000 trades.
<unk> fuel cell EV for total truck deliveries of 6000 to 7250 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 Nicola.
<unk> and third party customers again lots of is 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 breakeven to positive EBITDA.
In 2025, we believe our outlook is achievable if our business develops as planned our business milestones are achieved and will continue to have access to necessary capital. We are laser focused on executing our glide path profitability I will now hand it.
Back to Michael for closing remarks.
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 positive impact on our business and <unk>.
Set us up for success in 2023, our 2023 milestones.
Follows complete the build of 10 gamma scv's by Q2.
Realize approximately 100000 dollar in cost savings and battery modules and packs for each trade back by Q4 2023.
Achieved final investment decision for the Phoenix Hydrant hub by early Q3.
And now it's at least two refueling station partners by June .
Deliver 250 to 350 trip apps to dealers for 2023.
<unk> 125 to 150, Trey F Cvs in the second half of 2023.
This wraps up our prepared remarks, we will use the remainder of the time to address our covering analysts questions after which we will take some questions from our retail shareholders. Operator. Please open the line.
Thank you if you would like to ask a question. Please press star one on your telephone keypad.
Permission tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, and they may be necessary to pick up the handset before pressing the star T is.
Our first question is from Douglas.
With Evercore ISI. Please proceed.
Yeah, Good morning, Michael Kim until and nice update here. So two questions for you first can you detail what the next steps look like with Anheuser Busch is a continued actually the proof of concept for other customers and maybe talk about how you see demand progressing over time for some of these bigger pilot customers.
It sounds like several of the first saleable FC Evs are spoken for but for a larger customer a bug or a Walmart now what does the trajectory look like into 2025 and 2030.
Okay. 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.
Truck is in good shape. The development is achieving good milestones now we have as you know big agreements with certain customers and I know, it's bush's one of them those trucks in demos, which do really well and know that we will see the first delivery starting in this year. The budget process is another example, where we see the first 15 and then we will.
See that also going into 'twenty four 'twenty five and obviously 26 I think importantly, the outlook. We gave in terms of how important fuel cell is for Nicola when Kim mentioned about the numbers for 26, obviously very obvious that fuel cell is very important for Nicola.
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 a 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.
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 'twenty four 'twenty five.
Okay I appreciate that answer that's helpful final one just.
Just on FCB production and actually the goal is 10 Gamma FC Evs by the end of Q2 can you tell US who are the preliminary partners that these 10 game of builds are committed to.
Thanks.
Yes, so what we do is I mean first of all the gamma we use a lot for validation and 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 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.
This is our second truck we know.
Hello, and bring to the market. This is very helpful. Because we have learned so many things from from the best and overall the fuel cell truck is in much better shape, because the back with our first trial with it and we have lots of learnings out of that I mean, the fact that we have finalized the beta trucks in 2017 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.
Thanks, Michael.
Our next question is from Jeff Kauffman with vertical research partners. Please proceed.
Thank you very much and thank you for all that clarity.
Happen in <unk> and what the plan is for 2023.
Going to go a different direction.
Week, or so ago, it was announced that British petroleum.
Acquired about 270.
Fueling stations from travel centers of America and <unk>.
BP has been focused on this hydrogen concept in the Midwest as well.
Just kind of curious what your read is on that acquisition and you had started.
Graham.
To start bringing fuel into a couple of Ta centers.
To do fueling.
In California, I think two centers, if I got that right.
Does this affect any of your thoughts in that area as an opportunity.
Just kind of curious your view on BP, taking such a large stake in commercial vehicle fueling locations.
Jeff Great question.
So first the fact that they have actually acquired Ta.
This is a 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 this fuel.
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 are very familiar with the folks at BP who have acquired.
Ta we believe that this will actually strengthen our relationship with Ti going forward and it will accelerate our partnership.
Okay.
Okay, just kind of curious based on the current plans on the board as you start to bring these fuel cell trucks to market in 2003, and 2020 for I guess, how much fueling capacity that youre going to need to meet the needs and say your first 12 to 18 months fuel cell vehicles being on the road.
As we kind of build this plan towards 2026.
So for 2023 as you know based on our modest view in terms of number of trucks that we will sell the needs that we have it's only about seven three 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 why 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 thats something that we feel very comfortable that we have already covered.
Yes.
Sure.
We'll have the capability by 'twenty six to support about 7500 fuel cell trucks.
Gave me seven 3 million tons per day for 23, what do you believe those needs will be for 'twenty four.
As you start to ramp and sell more fuel cells.
Or 2024, we anticipate yes.
Based on what we are looking to sell now Jeff in your question, while we have not disclosed what we anticipate in terms of truck sales.
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.
Okay wonderful well. Thank you those are my questions.
Okay.
Our next question is from Bill Peterson with Jpmorgan. Please proceed.
Yes, hi, good morning.
Taking my questions.
As always for all the great disclosure.
Presentation and prepared remarks.
The first question.
Hello English.
Yes.
Hey, guys.
Customers.
2022.
And hopefully.
A lot of trucks.
And by this year.
Higher Bruce this is Kurt.
Elisa.
Strategy and customer targets.
Michael It's John .
No question that over the next year.
Charging them.
Yes.
Alright.
Yes. Thanks Bill. Thanks for the question. So let me provide a little bit of Hello. So in terms of the overall development I mean first of all if I look back at 2022, I think well let nicolai.
Development of the truck the production, we went 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 will also bring this down going forward, which is helpful to have inventory in these states because obviously people also need to experience our truck I mean, it's a new brand. It's a new trucks. So the more people we have in our trucks the better in terms of the.
Guidance, we gave in terms of.
Deliveries to dealers that the 250 to 350, we will see a higher number two to retail customers right.
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 experience that so we will see a gradual improvement there in terms of bringing those trucks into two customer hence 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.
Okay. Thanks for that color.
The second question more on hydrogen infrastructure, a little bit different than the prior ones.
For completion by 2020.
We've got a global insurers.
Thinking about the rollout of additional stations.
'twenty two.
Spend for Nicola.
Alright.
Most of my questions.
Okay.
Phoenix, Arizona hub.
Youre looking at.
My pleasure.
Welcome to work out here.
Michael with respect to its constitution.
I guess like one of the hardest and move on.
Nope I think in prior discussions we've talked about.
Other cargoes.
The lion's share of the Bill.
And then now you're talking about.
So trying to understand more about the mix as well as the patients for the world.
I would be thinking about.
Sure.
Yes.
So bill there are lots of components for your questions.
Let me reiterate when it comes to our hydrogen ecosystem our strategy is.
As to be asset light and capital efficient that means we will have partners for our 100 hubs as well as refueling stations.
What you have started to see in 2022.
Yes.
For us to kind of lay out.
In terms of how we will build out hub network as well as refueling network.
2023, especially in the next couple of months.
<unk> I think what we have stated is that you are going to see additional announcements 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 we will provide a complete coverage for California network and what that means.
Is that when we think about for California and for hydrogen.
By 2026, what we have said is around 300 com per day. These are coming from our hub in Arizona as well as off take agreements that we have with plug and with others that we'll be able to announce here and what youre going to see is that when you add.
Direct production tax credit of up to $3 as well as potential Lcs's credit in California.
Let's say $1 to $2 then all of sudden you were talking about four to $5 of incentives.
So based on our production costs, we believe we can actually meet parity with diesel or even actually improve.
Still make very very attractive margin and thats, what we are excited about and so when we think about.
Sure.
Arizona hub, we said will go <unk> by.
By early.
Yes.
Third quarter.
What that means is that we have already announced.
A letter of intent with Ssi and we have talked about that FFI will take at least 51% ownership Nikola has 49% ownership we have already contributed to.
To that 49% in the form of land purchase as well as electrical lasers that we have already paid for that had been delivered that will be contributed to our portion of Arizona hub. So that commitment has already been substantially paid and Nicola ultimately will have an opportunity to sell down.
<unk> of our equity.
Two 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 the nicola.
To control the molecules, meaning will be the principal off taker from Arizona hub, we will move those molecules and dispensary 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 ambev because this is something we can orchestrate and we can control much better than permanent charging infrastructure for Beth.
Okay. Thanks for that color.
The answer there.
Okay.
Thank you.
So.
Thank you.
Hey, Bill you're breaking up and it really did not understand your question are you able to repeat it.
Yes, sorry about that my question was.
It's a very comprehensive answer but my question was how does it potentially.
Loan placements.
Yes.
Okay.
Great question as you know doughy loan is.
<unk> from loan guarantee.
Where that we have already applied with Doa loan program, we have already past phase one we are in the process in terms of.
Going through phase II ultimately once phase two is past then we will have preliminary indication of the.
The loan approval and the size of the loan at the size is.
Pretty significant I think we've talked about up to one 3 billion and this is important for us simply because once again it gives us 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.
Production up to $3 four kilogram, so that makes the project viability really exciting and interesting and attractive for investors and by having Doe loan guarantee will only make that make it even more attractive.
Thanks for the color.
As a reminder, this star one on your telephone keypad, if he would like to ask a question and the interest of time, we ask that you. Please ask one question and one follow up question.
Our next question is from Jeff Osborne with Cowen and company. Please proceed.
Thank you just two quick ones came.
Tim I was wondering on the gross margin commentary for 24 about being positive.
To see the 105000 reduction on the battery side makes a lot of sense I just wanted to understand.
On the pricing side should we assume 374000 give or take.
For the next year or two are you seeing or anticipating pricing to come down as other folks into the market.
Well, yes, great question as you know I would say that market still is an early stage, especially when it comes to Beth 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.
Got it and then what.
What are sort of the broad strokes parameters around.
Reaching EBITDA breakeven in 2025, I think you said.
Is that sort of a few thousand <unk>.
Deliveries and then gross margins in the mid teens like is there any broad strokes you can give on how.
How you would get to that number.
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.
From 2000.
<unk> 25 to 2026.
I would say the increase in terms of FCC volume is modest not significant.
I think the big jump that you see is more from 2000 2004 to 2025.
And as you can see in terms of our guidance for <unk> for this year versus <unk>.
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.
More confidence as we go into second and third quarter, but because we can better control.
Having fueling available for our fuels a truck like.
<unk>, we think we may be able to accelerate adoption faster.
On fuel cell electric vehicles side.
So when we think about.
Getting to EBITDA breakeven as well as EBITDA positive.
First step when it get gross margin positive.
And then the second step is that generate.
More gross profit margin to cover our R&D and SG&A.
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 vehicles.
<unk>.
By 2025, I guess, we'll look to more like 75% FCB and 25% there.
And with a very profitable energy business to complement that and I said and Thats been very drivable business that's correct.
Perfect. Thank you.
Our next question is from Mike <unk> with D. A Davidson. Please proceed.
Yes, hi, good morning, and thanks for taking my questions.
The run rate you've got for Bev.
<unk> in the first quarter.
Is that an appropriate.
Kind of run rate for Q2, and <unk> with with the kind of rest of the guidance happening in the fourth when you got the battery.
Cost situation under control.
Thanks, Mike for your question, there's been a very good point, so be very clear I mean, obviously, we will do better in Q2 and Q3 going forward right.
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 few et cetera. So you will see improvements on the best run.
Right in the second and third quarter, because all the measures we have taken in place.
Obviously, working and there are many of those right. So just to highlight a few again, we've experienced truck people know 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 Wednesday.
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 improvements in the second and third quarter as well.
Okay, Great and then for my follow up.
I didn't hear it in the comments could you update us on the.
The situation with the former Royal customer line.
How are the discussions going with.
And then it sounds like there.
So if they have all the contracts obtained rung of batteries.
Are you anticipating.
Dissipating and they're having to give them the batteries that they've asked for eventually over the next five six years.
Cash payments actually the contract and then and then secondly, it sounds like a second companies come forward.
They had their fourth quarter numbers kind of impacted by lack of Romeo batteries and based on that they also have a valid contract I'm curious if you've opened any kind of discussions with that party as well. Thank you.
So Mike Whats that going all the details because we are in arbitration with respect to Romeo.
And we understand.
Yes.
And in terms of their filing that they believe that.
Certain provisions with respect to purchase agreement has been breached.
Disagree so.
We are working through that but as you know.
Even before our purchase of Romeo.
Ryan as always communicated to Romeo that they intend to purchase.
To actually filter or the battery pack and modules.
<unk>.
On December 21 2022.
We actually announced that they have actually produced their first modules and packs in Canada.
They tend to go into production starting in Q1 late Q1 of 2023 and continue to expand their production volume.
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 that we have.
I always made it clear at the time of Romeo acquisition, when we announced that we do not.
And to be in merchant battery pack business.
With respect to the other party.
That you have alluded there are.
There are substantial disagreements in terms of our view and what they're entitled to.
<unk>.
You should note that many of or some of these claims were related to the production impact.
And right now there a disagreement.
And with respect to what's your understanding of those production tax, but once again, we're not concerned we believe we will be able to address all of those issues.
I appreciate that color Ken. Thank you so much I'll.
Pass it along.
Our final question is from Winnie Dong with Deutsche Bank. Please proceed.
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.
105, K cost savings or battery modules and packs.
And then 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.
Great question I think what we have stated is that we believe we can actually take $100000 approximately in terms of costs from modules and packs. We have already achieved about third of that and then additional labor savings will come through once we <unk>.
Great.
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 towards late 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 costs that we'll be able to save as we transition from.
Myshkin billet to casting.
Got it. Thanks, that's very helpful and then I apologize if I missed it earlier.
The outlook for the 300 units.
Quick one trade that.
What percentage of that do you anticipate ultimately ending up in customer hands.
And it is sort of more than doubled and we've always been delivered to dealers.
Dealers in 2022, so maybe can you give us a sense of what visibility you have to to end customer demand now and then maybe some examples of how what your commercial teams to better engage customers. Thanks.
Yes, 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 are very experienced people. We also have many more salespeople in place we hired more than 90 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 of us 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 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.
Very good level of inventory actually it will have to come down and what we are now invoicing to the dealers will go to two two retail customer actually.
Daily 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.
Thank you I would now like to hand, the call back over to Dylan for shareholder questions.
Thank you operator, our first question comes from Ali Ali asked does Nikola have adequate cash to sustain operations and continued development into 2023 Kim Ali. Thank you for your question. We believe we maintained 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 in <unk>.
Sales R&D SG&A net of stock compensation and capital expenditures, we have demonstrated that we can access the capital markets and believe we can continue to do so in 2023.
Thank you Kim the second question comes from Bernard Bernard as whereas an equal out and the $1 $3 billion of department of energy loan process has the government given Nicola any indications regarding acceptance or not since you were invited to phase II of the process Michael.
Michael would you like to take this one.
Sure Bernard.
Thanks for your question, we have been fully engaged with the department of energy on completing the requirements for phase two.
Anticipate completing the submission for phase III in the coming months.
Loan program office process has multiple steps and we cannot predict when the decision will be made we will continue working closely with the department of energy loan program office and responding to their feedback and of course, we'll update you and all shareholders. When we are able to share progress.
Yeah.
Thank you everybody for joining our earnings call. Today, we are excited about 2023, and what we will accomplish during this important here.
I want to reiterate again, we will make improvements on the beds. This year is very much the year of the launch of the future truck, which will we 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 the truck company with that thank you for joining and have a wonderful day everybody bye bye.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
[music].
Okay.
Okay.