Q2 2023 Nikola Corporation Earnings Call

Good morning, and welcome to Nikola Corporation second quarter, 2023 earnings and business update call.

Currently all participants are in a listen only mode. We will begin today's call with a short video presentations followed by managements prepared remarks, a brief question and answer session will follow the prepared remarks, 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 Stellan <unk> from Investor Relations.

Thank you operator, and good morning, everyone. Welcome to <unk> Corporation's second quarter 2023 earnings and business update call. Joining me today are Michael low Sheller, Steve Gursky Stacey hysteric.

Mendes a press release detailing our financial and business results was distributed earlier. 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.

It can be found at the end of the Q2 earnings press release, we issued today.

Today's discussion also includes forward looking statements about our future expectations and plans actual results may differ materially from those stated in some 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 and also in our filings with the SEC.

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 Stacey will give their prepared remarks, followed by analyst Q&A. Then we will conclude with questions from our shareholders. Please begin the video presentation. Thank you.

Okay.

Tallo logistic zinc is the asset base division of Talon group.

We're a trucking logistics company, we focus on a lot of ocean freight drayage intermodal.

We want to be trend setter.

And I felt Nicola was the transmitters for zero Mercer for commercial vehicles.

You have competitors in the market, but you don't see those type of trucks out there right now you see net workshops.

The difference between us partnering with nickel and another company is that they offer an all inclusive charging infrastructure.

Okay.

And it's literally just plug and play which is perfect.

What I love about this drug is safe when the driver you you'd like to have a lot of visibility with the human errors.

As you're driving and you see everything Chris just as they have over it.

The biggest thing when you Chuck here is theres not theres not going forward with backwards reversing with were discharged it is fairly easy to see everything.

Once you drives as being a sound you youre not going to want to go back to driving that.

I think theres pioneers.

Yes.

Yes.

Obviously, we want to be firing yourself, what a great way to partner up with someone that's already ahead of everyone else.

Okay.

Yes.

Okay.

Thank you Dylan and good morning, everyone again, welcome to our second quarter earnings call.

Before we get into earnings I would like to first address the leadership transition plan announced earlier. This morning, Steven Jetski Chairman of Nicolas Board of Directors will succeed me as CEO .

<unk> immediately.

I have decided to step down due to a family health matter and will be returning to Europe .

To ensure a seamless transition.

We'll remain at Nicola in an advisory capacity through the end of September to support Steve and the team.

The board and I are confident and appointing Steve as my successor, Steve.

Steve was an early believer and investor Nicola and has been pivotal to the company's success.

Over the years, Steve has worked closely with our management team on advancing Nikolas corporate initiatives.

Intimate knowledge of Nikolas business and products will enable him to hit the ground running with the speeds require to capitalize on the exciting opportunities in front of us.

Steve is a true champion of Nikolas mission and I look forward to seeing the impact he will have in his new role as CEO .

Going into our quarterly results I began last quarters call and sharing with you that Nicola is the real deal and.

And we think that we are the best positioned company to lead the commercial zero emission transition and accelerate the hydrogen economy.

I also laid out what Nicolas path forward was.

Focus on North America.

Deliver the first heavy duty hydrogen fuel cell truck in the market.

Provide hydrogen refueling solutions to enable fuel cell truck operations.

Continue to build sales momentum.

And optimize spending to align with our focus.

Today I share that we are solidly on the path we laid out.

Delivering on our commitments.

You have seen us in the news doing business with companies such as global energy leader for task your future industries.

Bosch the largest automotive supplier in the world JB Hunt one of the largest U S trucking firms or.

Or a tariff of stations in biotech for hydrogen supply in fueling solutions.

We continue driving forward in our mission to Decarbonize heavy duty commercial transportation.

This is only possible with a great team that we have assembled at Nicola and I am proud of each and every employee who has along with us on this journey.

When you are a pioneer the road is never smooth bar.

Bombs are to be expected.

But we believe we have the people.

Partners, the technology and the plan to make Nicola and highlight.

A true we're changing company.

So let's get started.

Beginning with a truck programs, we started serial production of the hydrogen fuel cell truck on July 31st.

The initial trucks take more time to bill it as these are the first ones Bill is on the newly upgraded mixed model Assembly line.

We build more trucks, they will come off the line foster and throughput will increase.

We expect the first customer deliveries to happen in September .

Helping drive stays off the hydrogen fuel cell truck a pilot tests with current and potential customers.

During Q2, we completed 10 Gamat trucks.

Eight of the trucks will be used in pilot testing and two will be used in final validation testing.

Interest in the hydrogen fuel cell electric truck is encouraging to date, we and our dealers have received 18 customer orders for more than 200 trucks.

On the battery electric truck during the second quarter. We continued building sales momentum completing 66 retail sales.

Double that of Q1, and completing 45 wholesale deliveries.

The market for battery electric trucks is growing daily.

As customers discover the total cost of ownership benefits of the vehicles.

And Additionally, government incentives and regulations are introduced.

The willingness of fleets to participate in the transition to zero emission trucks is increasing as the technology is derisked and the product is approved.

The 45 wholesalers to dealers last quarter reduced our inventory we.

We ended Q2 with 139 battery electric trucks in inventory on our site.

And 92 trucks at dealers.

We expect a significant reduction of inventory in Q3 and plan to start producing battery electric trucks again in early 2024 on a build to order basis.

Moving on to highlight our energy business, we made substantial progress and seeking to ensure that we have the required supply and fueling solutions for customer in late 2023 and 'twenty 'twenty four.

The energy business is working ahead of truck sales to enable zero emissions trucking operations with our fuel so truck.

We believe what needs to be offered to customers is a fully integrated mobility solution and we believe Nicola is the only company providing that for customers to date.

Hydrogen infrastructure takes a long time to permit bids and require lead time to procure production and dispensing equipment.

We believe we are well ahead of the curve and we'll continue to work with partners to build out the ecosystem.

Our energy team continues to progress with well established and capitalized partners.

The joint station development partnership with with Terra is progressing well and.

And we have determined the first aid station locations to be developed under the partnership.

The station development plan received another boost with the announcement of grants for over $50 million from various California agencies supporting the construction of eight California stations.

These grants will lower the capital cost for hydrogen refueling stations and I expect it to meaningfully reduce dispensing cost.

We are very appreciative of the partnership with California State and regulatory agencies, who are working alongside us to support the energy transition.

On the hydrogen production and supply side, we announced that a definite agreement was reached with four test SKU future industry to acquire 100% of the Phoenix hydrogen hub project.

The agreement with F F I alliance with our strategy of controlling the hydrogen molecule through.

Through the ecosystem.

The hub of partners.

The project has made good progress we expect it to reach final investment decisions by the end of Q3, 2023, and anticipate face wanted to be operational in 2025 with a production capacity of up to 30 metric tons per day, which could support.

Up to 750, Nikola hydrogen fuel cell trucks.

We are negotiating a heightened offtake agreement with F F I to support our needs.

The F F I Envos HERA partnerships are significant milestones to support our capital light hydrogen infrastructure strategy.

We continue working closely with partners such as plug power.

Our tech and Linda to underpin, our North American supply and infrastructure strategy.

It's off to date, we have received six mobile a few less and are on track to receive 10 more over the next year.

We plan to have nine mobile fuel us at several California locations.

<unk> for customers by the end of 2023.

We believe we have secured our first mover advantage on hydrogen infrastructure and we'll continue to provide updates as we execute our business plan.

Before I turn the call over to Stacy to go over financials I want to say a few things about safety.

Let's talk about the fire of our battery electric truck at our headquarters in late June .

First of all we are thankful that no one was hurt.

Secondly, it has been determined that only one truck stop at the fire and spread to the other four.

We have two investigations ongoing one with our technical and safety stuff and one being conducted by a third party and we will share more when we know more.

We want everyone to know Nicola trucks are designed with safety.

First priority and our rigorously tested prior to release these.

These tests include front sight, and Ria crash testing battery coolant leakage monitoring and battery thermal runaway detection.

Our trucks meet and exceed federal motor vehicle safety standards, and United Nations Global Technical regulations 20 standards.

As well as meet the industry best practices, including.

The society of automobile engineers, the international organization for standardization and the underwriters laboratories.

The testing. We just described was also conducted on the fuel cell electric truck.

Additionally, the hydrogen systems on the truck underwent further rigorous validation testing, including.

More than 11000 hydraulic cycles, which simulates more than 15 years of driving and fueling.

Extreme temperature testing.

Fear testing.

And the tanks undergo gunfire penetration testing to simulate high rate puncture similar to a vehicle collision.

Not only is Nicola is a pioneer of the truck itself, but also the safety system standards for heavy duty hydrogen fuel cell electric vehicles.

We have team members on staff, who have been a part of establishing the standards for hydrogen and how it's going to be used in the United States.

So we previously shared we are going to do to ensure Nicola is around for the long haul.

Today, we communicated that we have accomplished some of those things already and believe we are well on our way to execute all of our milestones and lead Nicola to profitability.

What Nicola is looking to accomplish is incredibly important.

This is the hottest summer ever on record and.

And innovative companies and partners must work together to transition and heavy duty transportation to zero emissions.

Class eight trucks make up about 5% of registered vehicles on the road in the United States.

Yet produced 23% of emissions in the transportation sector.

That is more than 380 million metric tons of C O two a year.

Replacing just one internal combustion engine semi truck with Nikola truck can avoid hundreds and six metric tons of C O two per year.

There is a massive opportunity for Nicola and we expect to play a critical role in the transition to zero emissions.

Thank you all once again for being a part of this journey as we strive to accomplish our mission together now.

Now I'd like to pass it off to Stacy She would share with you how we are reducing our cash burn as we refocus our business Stacey the floor is yours.

Thank you Michael and good morning, everyone.

As we look at our Q2 results, we're really turning the corner on the next phase of our business and improving our financial health.

We've talked for a cash burn substantially while also improving our balance sheet and increasing our unrestricted cash position by $107 million.

Main focused on our strategic priorities and delivering value to our shareholders.

By focusing on the North American market.

Achieving our first mover advantage in hydrogen economy, and continuing to build sales momentum.

This quarter, we executed many actions to reduce our spending and aligned Nicholas cost structure with our new strategic priorities, we closed down battery production operations of Romeo reduced head count in Phoenix in Coolidge and by more than 20% completed the sale of European JV to tobacco.

And went through our company wide cost rationalization efforts to ensure that every dollar spent is in line with the company's priority.

This isn't well at times difficult to make help Nicola accomplish cash burn below our 150 million target. Our team continues to work diligently finding opportunities to optimize our cost structure and driving financially disciplined decision, making as a result, we believe we have high visibility to reduce <unk>.

Aspirin below 100 million per quarter by the end of this year. So a combination of lowering ongoing opex and capex run rate and managing our working capital usage by continuing to build sales momentum and reducing inventory on the balance sheet. In Q2, we sold 45 battery electric trucks.

For gross struck dropping you a $14 9 million and that truck revenue almost 12 million after $2 9 million of dealer rebates and incentives.

Rebates are related to 2022 wholesale which were executed at that higher asp's than there've been retailed for in 2023 as most of our 2022 wholesale had been retailed by now and pricing levels are stabilizing we expect rebate activity to come down.

Excluding dealer rebates the average sales price for the battery electric truck was approximately 324000 per unit unchanged from Q1. Despite the revenue rebate impact in Q2, we continue to see improvements in gross margin came in at negative 180 per.

This quarter from negative 213% in Q1.

Gross margin improvements are attributable to higher revenue.

Lower manufacturing labor and overhead as we have optimized resources and operations in college.

And improved inbound freight and inventory costs as we have transitioned to a built to order model. We expect to continue seeing gross margin improvements on a battery electric truck and we started utilizing battery packs manufactured in Coolidge and optimize bill of material cost specifically on the battery pack and closure.

And battery cells.

In the longer term, we anticipate the fuel cell truck to be superior on the gross margin.

Due to higher average sales price as the benefits from the first mover advantage and high incentives in states like California, and labor freight and overhead savings once we begin assembling the fuel cell power modules and Coolidge later this year on both trucks, we have ample opportunities for bill of material.

Cost reduction as we scale volume and localize our supply chain. This is something our team will be laser focused on heading into 2024 and it will be critical to achieving gross margin breakeven.

Operating expenses in Q2 came in at $141 million, one doesn't the provided guidance range.

During the quarter cash burn was $148 2 million better than our 150 million pardon me.

Most of the improvement in Q2 came from slowing down Capex investment and working capital usage.

With a built to order production model stronger sales momentum and Floorplan financing solution. We anticipate further improvements in working capital utilization our goal for the second half of 2023 is further working capital impact to be neutral as the proceeds from existing bother inventory sales offset.

Working capital needed to scale up fuel cell volume.

Despite volatile market conditions, we raised additional capital and improved our cash position to $295 4 million in Q2.

This is an increase of approximately 92 million from Q1 the increase in cash came from net proceeds of $96 million from the follow on offering completed in April 49 million Coolidge land sale lease back proceeds 50.

58 million from the a T M and convertible notes and 26 and a half million net proceeds from the JV divestiture the cash balance at the end of Q2 does not include 27 million received in July from the first phase of the Phoenix hydrogen hop acquisition by Apple Pie as of the beginning of July .

We maintained total access to capital of approximately 747 million and believe we have adequate cash on the balance sheet to sustain us into 2024.

As we announced yesterday, our stockholders approved the proposal to what their annual meeting increasing the number of authorized shares of our common stock.

This will allow us to continue accessing the capital markets strategically and efficiently and maintain liquidity to fund and execute our business plan subject to market conditions availability of capital stock price and other variables of course.

We have redefined our business plan and reduced our cash burn we currently anticipate being EBITDA neutral by the end of 2025 and estimate that we will need approximately 600 million of additional capital to fully fund the business model and achieved profitability. This is substantially lower.

Then what was previously estimated.

Moving on to the guidance.

For the third quarter, we expect total truck deliveries to be between 60, and 90 trucks for them that truck revenue of $18 million to $28 million generating a gross margin of negative 165 to negative 110%.

Total operating expenses for the quarter I expect it to be in the range of 90 to 100 million, including 16, and a half million of stock based compensation. This is more than a 30% reduction versus the first half of 2023 levels.

Q3, Capex is expected to be 25 to 30 million.

We have a line of sight to further reduce cash burn to roughly 120 million in Q3 with July Kasper already coming in below 40 million. We are updating the full year 2023 guidance as we now have better visibility on the commercial side Isabella into the savings from our <unk>.

Realigned cost structure.

For the full year, we expect to deliver 300 to 400 trucks.

Total revenue of 100 230 million generating gross margin of negative 110 to negative <unk> 85 per cent, we expect to realize a 30% reduction in operating expenses moving forward operating expenses for the full year are now expected in the range of 309.

Two five to 415 million, including $85 1 million of stock based compensation.

Wrap up we had a strong quarter and have improved our financial results strengthening our balance sheet.

Have substantially reduced cash burn, while almost doubling our unrestricted cash position and executed on our cost savings initiative.

To begin closing bid price compliance with NASDAQ.

Developed a clear understanding of the capital requirements to fund the business to positive EBITDA and continued demonstration of our ability to access capital.

Want to sincerely, thank the entire nickel a team for executing being efficient creative and demonstrating an ability to do more with less well. We're pleased with the results. So far there is still much to accomplish.

We weren't sure you were working diligently to achieve our goals and turn Nicola into profitable business.

I'll pass it back to Michael for closing remarks.

Thank you Stacey.

So as you have heard during the call we are doing the right things at Nicola.

<unk> increased our cash position, while also substantially reducing our cash burn.

We are building momentum and advancing the transition to zero emission commercial transportation.

And we're making progress and the hydrogen refueling business with partners.

As we look forward to Q3 in the second half of this year, we expect investors would see the falling from the Nikola team.

First building sales momentum.

Second ensuring we have the fueling solutions to support customer fuel cell truck operations third continue to reduce cash burn fourth and rate adequate capital to execute on our business plan.

Before we close I just want to say that it has been a privilege and honor to have served as Nikolas C E O.

As I step away to be with my family My belief and Nicolas purpose to pave the way for a zero emissions future has never been stronger.

Steve is a seasoned automotive executive with a proven track record and he's exactly what Nicola needs right now entering this next phase of the company's history.

Steve over to you if you'd like to say a few words.

Thanks, Michael I know, Michael and his family for over a decade, we've worked together in many capacities and I cannot overstate what Michael has contributed to this company.

Forward to staying in touch with you and I speak on behalf of the entire Nikola team and wishing you and your families well I want to thank Michael for his hard work and dedication to advancing Nicole its mission to pioneer solutions for zero emissions World and we'd also like to thank the board for placing their trust in me as we work toward continuing the company's momentum I feel any.

<unk> and ready to take on this role and I'm excited about the many opportunities ahead of us.

That concludes our remarks operator, please open the line for analysts questions.

Thank you.

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. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star T is.

Our first question is from Mike Suski with D. A Davidson. Please proceed.

Yes, hi, good morning, and thanks for taking my question.

Hey, Michael also I do wish you and your family as well as.

Well I mean I just wanted to talk about that transition. That's my first question.

Steve sometimes when costs come into the CEO role when they were chairperson at sometimes only a temporary thing.

Are you looking to hire stay and Nicola or long term and can you maybe tell us Hum again.

Again, it was just a very sudden thing.

They just call you last night's, Steve or was there a large.

Board searched out here.

So thanks, Mike.

So I'm in it to win it here.

Closing on a place and tomorrow, we're going to be spending time, a lot of time in Phoenix I plan to be on the road a lot, though visiting customers and partners.

I'm here for the long haul.

As long as it takes to win.

A well functioning board had succession plans for all scenarios.

And we had a succession plan for this one and I would say and I was happy to step up and move into this role.

Does that help.

Sure.

Okay I appreciate that.

I want to turn to what's coming here in the second half off the production line.

Same as the state's gonna be entirely fuel cell vehicles, if I'm reading everything correctly here.

And then we'll all those vehicles have the bundled lease program attached to them.

Do you have at least one filtration queued up for this this year, but what's the plan to make sure that all of those trough coming off the line in the back half of the year here has the hydrogen and that they need.

Yeah. Thanks, Mike. This is Michael here, let me take the so first of all in terms of the production as we said so we have started the production of the fuel surcharge, obviously, a very important milestone. This week for the company we have the flexibility to produce both trucks on one Assembly line, which is also a very interesting thing in terms of efficiency, but.

You are correct for this year, we plan to produce fuel cell truck.

However, obviously then with a built to order concept. We will also produce battery electric trucks going forward, but now the next couple of months to the end of the year is all about the fuel cell truck and.

As we said we think we will produce more than 100 trucks, which I think is a very good first step in terms of the launch of the product in terms of the go to market strategy I mean, obviously various elements play.

We play a key factor just to finish that.

So first of all the hydrogen availability is very important in terms of the mobile fuel, but several customers, obviously want a bundled leases and case by case, we will offer this as well, but there's not one go to market approach for everybody it depends by customer, but yes. It plays a role too.

And I guess just to clarify your answer that explain maybe why there might be a lower asps and better than the third quarter guidance.

Thousands rollover versus like 340 for the last quarter, if something had to be honest for the F. C V. That's all of it okay.

Good morning <unk>.

ASP.

Okay.

In terms of the ISP, it's very similar but obviously, we have no down some inventory liquidation and that had also an impact on the ASP, but in general please think about that the ASP for the fuel surcharge is higher because the price is higher the incentives.

So there is a significant difference between <unk> and the fuel cell trucks.

In addition to that hopefully where we have competition on the battery electric truck on the fuel cell truck, we have clearly a first mover advantage and are uniquely positioned.

Hope that clarifies. It then that this is Dave if I may just jump in as far as how we think about the guidance going forward for the bathroom as Michael alluded to as well.

We're selling to the existing inventory.

When normalizing being about $300 to 122 range and for the fuel cell, we're kind of seeing yourself settling in 400 425 range.

Oh, Okay that makes sense I appreciate it guys I'll pass it along thank you.

Our next question is from Jeff Kauffman with vertical research partners. Please proceed.

Thank you very much.

First of all Michael Fox or with your family and best of luck on your endeavors.

And Steve I'm very much looking forward to working with you going forward. So congratulations.

I'm sure, we'll talk a whole lot more.

I wanted to go back to stasis combat.

About seeking to be EBITDA neutral by the end of 2025.

And I was just thinking this is going to be more of a fuel cell mix and there's also going to be a fair amount of high low fuel.

That is moving around the country at that point in time. So can you give us an idea of.

That breakeven that you're looking at what kind of fuel cell truck population are we looking at around breakeven not annual sales with kind of how many fuel cell trucks and how much fuel do we need to be moving around the country to be thinking about an operating breakeven given kind of the cost reductions kind of what we're looking at.

For the next two years.

Oh, Yeah. Good question. So really last time, we talked about you know, what we need to be able to produce and sell about a thousand trucks.

And those trucks and would expect to be in the fuel cell side, obviously, the mix will be determined by the customer, but given kind of the momentum that we're seeing in the early order activity. We're seeing most of the truck Oems will come from the P&L.

With that I.

I think for if you think about the fuel revenue that they'll take a little bit of time to ramp up right. If you think about each feel for trucking so you're going to be bringing in you know somewhere between 80 to 62 <unk> of revenue for the hydrogen a year for each trucking operation. So it's going to take time to ramp up that revenue and then.

If we look into 2025.

Really the target there is being about 20% margins in the fuel cell truck.

15% to 20% margin on that hydrogen.

Okay, and then I think Michael they have asked us, but additionally, the thought with the fuel cell model was these are all going to be leases with maintenance and fuel bundled in.

Our thinking on fuel cell moving forward is it going to be kind of a hybrid model with some being sales and no tie in to the fueling or are we still thinking kind of this long term lease model, where we've got maintenance.

Fuel packaged it.

I mean, Jeff I would definitely say I mean first of all.

Whenever we now so a fuel cell truck and the good news is we have many orders in already considering the stage of the production. We are that we just launched the first key question from customers, it's hydrogen right and I think the combination of their truck hydrogen this.

His way obsolete Nikola is uniquely positioned maintenance is a key factor to so therefore, I think bundled lease will play a role but the key discussion with customers is like okay. Tcl of the truck and then obviously what about the hydrogen included this is where most of the debate signed again Nicola is very well positioned there and that's why as a whole.

Energy player, so important including mobile fueling stations et cetera.

Okay. Thank you very much that's all I have.

Uh huh.

As a reminder, this star one on your telephone keypad, if he would like to ask a question.

Our next question is from Bill Peterson with Martin J.

J P. Morgan. Please proceed.

Yeah, Hi, Thanks for taking the question following up on the EBITDA walk down in 2025 to neutral I believe last quarter. You mentioned you needed to deliver 1000 1500 next year and then doubling 2025 and my first question is is that number or are those those figures still still hold in my second.

Question is how should we think about the mix. In 2024 is this is this going to be the vast majority of fuel cell at this stage.

Or how should we think about the next into next year.

I know yeah I'll take that.

For the most part that thinking that we've shared last time on the breakeven is still in place.

With some of the reductions that we've talked to and we've been able to make as far as just being more efficient in bringing the overhang found in some of the labor cost down.

Probably a little bit lower than a thousand but not that far off from that and then in 2025, we would need somewhere between 200 to 2000 trucks too.

To get to EBITDA positive enough to cover the Capex, so with the start really generating the cash flow right to the positive cash flow.

As far as the mix again is it is it sudden.

Let the customer decide that right now with we anticipated. Furthermore, part the volume will be on the fuel cell side, and then put in the bathroom bill to water as the economics makes sense and sometimes it works.

Yeah, Thanks for that and nice nice job, reducing cost and cash burn.

Scenario targeting below $100 per quarter exiting this year I guess can you can you give us a kilowatt following on that prior question on your current cash burn expectations beyond this year.

And I guess, you plan to maintain sufficient liquidity to commercialization.

You mentioned, you know needs to kind of language is below prior expectations. So I guess, how urgent is a capital raise skills Joe for you I.

And then should we assume this is eminent or I mean, how is your thinking on this I mean can this be a step function or at least multiple raises or just any any color you can provide on how you're thinking about raising capital from here would be helpful.

Yeah. Thank you.

Listen this is a lot of work a lot of very difficult decisions on everybody's behalf again, I think we've been able to show very good progress and going from $240 million to $150 million.

That's where we are right now in Q2 and a lot of that is coming from working capital improvements were due to order.

Collecting on our sales reducing our inventory.

And now as we head into Q3 and Q4, how do we get to that 100, as we will start actually realizing the impact of all of those actions that we have carried out right.

In Q2, so getting out of typhoons getting out with Europe , reducing our head count. So all of those will start bringing some benefits on the Opex run rate also Capex will go down significantly the writers were pretty much down to school, which at this point it doesn't look that fuel cell assembly lines in Q3.

So that's really hard to get to that 100 million and then a second part of your question obviously.

And we feel good about where we are right. We have increased our cash position, we have no more cash burn and so it was those two variables.

Have a little bit less urgency as far as you know if you compare it to where we were in Q1 as far as the capital raise.

So yes, we have the availability.

If you go out there and raise capital to help the shares now but.

But we can have one being a little bit more selective on that and really.

Really looking at auctions that are aligned with our long term capital need them and the timing on that thread.

Would have to be something that was a long time and we'll balance.

As far as the 600 million, it's really just a function of our forecasted cash burn going forward and we are.

Through the time, when we get to profitability, which will be in 2025.

And most of that capital will be needed in the second half of this year flushed first half of next year.

As the scale of the fuel cell.

Truck. So again, we feel pretty good of where we are we will make sure we're being efficient on the capital raise and 50, Jack and also disciplined with our spending.

Thanks, Stacy and best wishes, Michael and good luck as people are looking at.

Okay.

Thanks, Don.

Our next question is from Winnie Dong with Deutsche Bank. Please proceed.

How do you think that just have one quick question a couple.

Couple of played it in the low income or expectations for the year. I think you mentioned 100 units to finish those site.

In retail deliveries seems to be there was the uptake on quota over coffee.

For the best site. So I guess, what's driving that and then also can you also go into the drivers of the gross margin change expected for the year.

Yes.

I can think that's where I think the question listen I think the reasons for interesting guidance with some of the background and a different guidance full year guidance.

Going from where we were two 300 to 400, we don't really talk about about mix, we don't break out the bad versus he also anymore again, because we're building to order level.

We will have to see how.

How that shakes out with the customer demand for the most part again for this year I would have 140000 in hand that are available to sell and then once those are sold through whether it is in production next year.

And on the fuel cell as Michael has alluded to we plan to build about come to 'twenty feel so attractive so really the guidance for the rest of the year is just based on what we're able to build them.

Based on the lead times based on the build to order strategy that will take a little bit younger and based on some of the terms with our suppliers.

So on the gross margin really that the gross margin.

If you look at the Liberal improvements in gross margin from where we were to where we had a lot of that will be driven off of the volume our overhead is fixed rate and as long as we are manufacturing.

To the levels that we've talked about for the next two years, we don't need to scale the overhead significantly so really those margins will be just a function of the revenue and so in the guidance or do you see real over delivery guidance, obviously, you'll see the margins coming down.

Thank you.

Our next question is from Tyler T Matteo with B T. I G. Please proceed.

Yes, Thank you and good morning, everyone. Thank you for your time.

I wanted to phrase it.

Current way on the cash bridge can you provide a little more color on the working capital portion realized you said inventory is going to step down, but I mean really how are you thinking about that beyond this year into next.

And the second part of the question is there anything else that can be done on the optimizing the recent comments that you alluded to in terms of the manufacturing and labor as we think about.

The manufacturing of the fuel cell coming off the line or what other efficiencies could we squeeze out on that that could really benefit the cash position.

Yeah, So I'll start and maybe then Michael consuming on the protection side and thank you for the question. So as far as just where we are and we got to our Casper and targets on the spend on the Capex side, we feel very good substantially all the reductions has an accident in Q2.

And you know our spend is something as you know that we can control enough that is needed and of course, we'll look for incremental reduction that pertains in opex and capex side.

And when we find them, but right now what was planned in the 30% reduction second half versus the first half. So that's what's been auctions already.

The working capital as you alluded to is you know probably one of the biggest areas, where we could have variance. The plans is because this is something not.

What are the key is really our ability to sell trucks to dealer retail those trucks and collect payments in a timely manner right. If we're not able to do that then we'll have cash tied up in inventory and they are and this is similar to what happens in above launch until we switched to the built to order. So some of the things that we're doing obviously for the fuel cell launch where pricing is and a little bit more of a pause.

Radically.

The ordering material based on indication of customer demand so high.

We're not although we're drawing up over investing in inventory and then on the Bob is with a switch to built water for the rest of this year. The proceeds from selling the bar right will be a working capital benefit for those 140 trucks as we already have them. There. So that's really where we get a lot of favor ability for the rest of this year from working cap.

Up at all from those five units.

And of course, we're still working on floor plan financing right, making sure that we have floor plan financing in place with our dealers still able to increase that and really able to accelerate our collections.

Yeah, and just to add in terms of obviously, the overall cost of the fuel cell truck and deficiency in Coolidge is limited at the beginning in the face of the launch rates. So we do the first trucks either with one hand.

<unk> plus trucks this year, but then going into next year, you will see significant bond reduction, but also significant efficiency improvements on the direct labor side. This is normal we have done the second loans, but also from experience with other companies also in terms of automotive experience you should see efficiency gains on the labor side in the amount of 30% to 35%.

In the first stable Richardson, obviously 2024.

Okay perfect. Thank you for the time guys Gil.

Gil.

Yes.

Thank you.

I will now hand, the call back over to Dylan for shareholder questions.

Thank you operator, there were a few recurring themes in the questions, which we have consolidated the first question is what is the future for Nicola and how will you create value for shareholders.

We believe the future looks bright for Nicola.

We are making the difficult, but right decisions to reduce cash burn and achieve profitability quicker.

In the second quarter, we made progress toward that goal.

We have a first mover advantage on the hydrogen fuel cell trucks and will begin delivering production vehicles to customers next months.

We are also advancing the energy ecosystem with partners and improving the sales strategy for the battery electric trucks. So when you look at Nicola you see we have a management team, making conscious decisions to eliminate unnecessary spend be wise with capital and drive forward.

The transition to zero emissions with our first to market World class products we.

We believe if we continue to execute and build on this momentum we will be able to deliver on our promises generating value for shareholders and simultaneously decarbonize heavy duty trucking. Thank you Michael the second question is how do you see government incentives and regulation.

Affecting Nicole I'm moving forward.

Question, the government incentives and new regulations are very positive for nickel.

We discussed on the call station ran through the use of hydrogen dispensing cost and help reduce the capex investment for station development.

This is in addition to existing hydrogen production and dispensing credits such as clean hydrogen production credit offering up to $3 per kilogram and up to $2 per kilogram I'll say, a fast Craig it's in California on the truck side vouchers in states like California, and New York make purchasing of zero emission trucks easier for Sui.

As it lowers the acquisition cost.

Making the total cost of ownership more comparative to a diesel truck and.

A great example is the California, each program, which can offer up to 280000 toward the purchase of a fuel cell electric truck. We also believe we will see increased demand and new regulations come into play for example, in California, only zero emission drayage trucks can register in the cargo and line system beginning.

Next year.

So there are significant incentives for fleets to transition to zero emission Benki Stacy. The third question is when will Nikola achieve profitability last quarter. We discussed we have a path to achieve positive EBITDA. In 2025, Q2 was a step in the right direction towards achieving that goal and we expect to continue finding ways to.

Optimize our costs.

While reducing operating and capital expenditures, that's critical to get the profitability, we need to generate meaningful gross margins from the sale of our products.

The three most impactful variables to that our volume average selling price and the bill of material cost for the truck we've already spoken to the continued build of sales momentum and we expect that to increase as the hydrogen fuel cell truck becomes available we still expect to have to sell at least thousand trucks to get to go up.

Margin breakeven and close to double that to reach positive EBITDA. We estimate the average selling price will be approximately 400000 per trucks driven by the combination of first mover advantage and incentives offering, especially in states like New York and California, now that the fuel cell truck is in production.

One of our most important priorities going into 2024 will be reducing the bill of material cost for both trucks.

As the scale the volume, we will have better visibility into piece price reductions based on our supply chain.

Ultimately, we need to see your bill of materials would you still approximately 275000 per truck.

Between that and the localization of key components, we expect that we can achieve our desired profitability targets by the end of 2025.

So let me just.

Go ahead, sorry, I'm, sorry, I was just going to close out the Q&A and hand, it back to Steve for closing remarks.

Got it and getting used to that.

Let me just close with this I want to thank everybody for participating I want to thank you for your support.

I just wanted to say I have been involved with this company for a little over three years since the IPO in 2020, I've seen a lot, but I'd also tell you that nobody thought they could engineer a truck and we are nobody thought we could build the truck and we are nobody thought we could sell a truck and we are and nobody thinks we can decarbonize this industry and we.

Well I am excited to be here I'm excited to be part of this team Michael we will stay in touch and I'm sure. So thank you all for listening in.

Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Okay.

Yeah.

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Yeah.

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Yeah.