Q3 2023 Nikola Corp Earnings Call
Good morning, and welcome to the Nikola Corporation third quarter, 2023 earnings and business update call.
All participants are in a listen only mode. We begin today's call with a short video presentation, 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 Bill N sand you from Investor Relations.
Thank you operator, and good morning, everyone welcome to <unk> Corporation's third quarter, 2023 earnings and business update call joining.
Joining me today are Steve Gursky, CEO, Stacy first Eric CFO, and Christian upheld head of vehicle platform.
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 the presentation slides accompanying today's call.
Today's discussion includes references to non-GAAP measures.
These measures are reconciled to the most comparable U S. GAAP measures and can be found at the end of the Q3 earnings press release, we issued today.
Today's discussion also includes forward looking statements about our future results 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're made you are cautioned not to put undue reliance on forward looking statements.
After the video presentation, Steve Christian and Stacey will provide their prepared remarks, followed by analyst Q&A. Then we will conclude with questions from our shareholders. Please begin the video presentation. Thank you today is the day that we officially celebrate the production and commercial release of the 'twenty 'twenty four Nicola hydrogen fuel.
Sell electric truck.
Yeah.
[music] this year.
Years from now.
You'll remember this day.
This is a day that kick started the new age of trucking in North America.
Every day is an amazing day at an equal what never waivers is the spirit of the team the drive of the whole organization and the support of our partners our investors and the public.
And we're here.
We're solving a problem that absolutely needs to be resolved, we have a chance to be the first in this field and paved the way for others to join us.
This is history in the making here as we speak this is what defines us resiliency bearing pragmatism ingenuity and passion to transform the trucking industry.
Yes.
Nicola has pushed the boundaries of what's possible.
With today's launch the company has further positioned itself as a leader for hydrogen powered vehicle manufacturing.
This game changing technology has the potential to revolutionize the freight industry, while reducing carbon emissions and leaving the world a better place.
Please join me in welcoming to the marketplace. The 2020 for Nicola hydrogen fuel cell electric semi truck.
Yes.
Yes.
Okay.
Sure.
Thanks.
[music].
Thank you everyone for being here your passion and your faith and Nicola.
We're just getting started.
[music].
Thanks, Dylan and good morning, everyone welcome to our third quarter earnings and business update call.
I'm excited to be here with the team for my first call as CEO.
I want to be Crystal clear about who we are where we are where we're going and how we're going to get there.
Who is Nicola.
One truck platform to powertrain options working towards developing a network of zero emission fueling and charging solutions for class eight trucking.
The trucks complement each other offering differing range weight and infrastructure solutions, allowing us to better serve customers.
Building both products on the same platform allowed us to engineer them faster be first to market and hydrogen fuel cell electric trucks and helps us drive down costs with scale.
Where are we going.
California, California is a state on the cutting edge of technology and has big tailwind for the transition to zero emission is trucking with both carrots and sticks from government incentives and regulations.
To make the Nikola business model work initially we need to be highly geographically focused and build network density.
For example, there are more than 30000 trucks servicing the ports in California.
Beginning in January 2020 for all new trucks registered with the California Air Resources Board for Port and Drayage operations must be zero emissions.
The customers duty cycle calls for a battery electric or hydrogen fuel cell electric trucks, we will be there to provide it for them that regulation is one of the sticks.
On the carrot side, California's offering numerous incentives, including hbf for up to $288000 and ICF for up to $408000 for hydrogen fuel cell electric truck purchases.
We think in the California ports alone there is a tremendous opportunity for us to sell trucks and hydrogen at scale.
So what's our plan to focus on California, one first mover.
We believe we are the first OEM in the market with a hydrogen fuel cell electric truck we.
We believe the competition is well behind us and anticipate there is white space for us to capitalize on our first mover advantage.
To boot.
Boots on the ground.
We have niklas sales team members supplementing dealer sales teams to find every opportunity there is to sell our trucks.
Selling new technology to our long established industry is not easy and we are educating customers. So they understand and experience how great. Our technology is the value it brings and how we can support their operations with the fueling and charging required to keep their trucks running.
Three <unk>.
<unk> and the agg.
Providing a fully integrated mobility solution as transportation and logistics companies adopt this new technology. They want assurance. They will have the energy required to keep their trucks are operating.
We are in the process of establishing fueling solutions for our customers in northern and Southern California.
In a tough macro environment working with partners is critical to ensure there is adequate capital to complete these projects how.
How are we doing on our execution of these initiatives.
It is difficult to analyze a nascent market.
However, prior to the voluntary battery electric recall, we were second in market share for zero emissions vehicles with 21% share of registrations outperforming some of the larger Oems.
That was based on our battery electric truck alone.
If you go on the <unk> website and look at voucher data for vouchers requested in 2023 as of October 27, you'd see Nico has approximately 96% of the created vouchers for the hydrogen fuel cell electric truck tractors and about 50% of the created vouchers for the battery electric truck tractors.
We are also seeing considerable momentum.
In the northeastern States like New York for up to $185000 and New Jersey for up to $175000.
In addition, there is solid movement in Canada, where there are incentives across all provinces territories and municipalities for up to 200000 Canadian dollars, but the hydrogen fuel cell and 150000 Canadian dollars for the battery electric truck.
And in British Columbia, The BC go electric rebate provides another stackable $150000 incentive bringing that total to 300000 Canadian dollars for a battery electric truck and 350000 Canadian dollars for hydrogen fuel cell electric truck.
We are continuing to build sales momentum for both trucks recently, receiving wholesale purchase orders for 47 battery electric trucks from one dealer, despite the product and recall status.
There are 277 non binding fuel cell electric truck orders that had been placed from 35 customers with Nikola and our dealers.
More than we can produce and deliver this year.
In fact, if a fleet orders of hydrogen fuel cell electric truck today, they will likely not receive the truck until late Q2 2020 for executing on our business plan requires top flight talent during.
During the third quarter, we announced the hiring of Mary Chan as Chief operating Officer, and Joe Capella as President of energy.
I previously worked with Mary at General Motors, where she served as president of the global connected services group.
Mary is a recognized automotive leader, who also serves on the board of Magna International.
Joe joins us from <unk>, where he served as chairman and CEO of <unk> Corporation of America.
Joe and his team bring years of real on the ground knowledge of the hydrogen industry Nicola.
These two hard charging folks at built and scaled businesses and infrastructure connectivity and technology and their expertise will push nicolette towards even greater success.
These are people, who don't need to be here they've had lots of success throughout their careers Marion Joe are here because they want to help make a difference and believe in Niklas mission.
Let's move into the business updates.
First the hydrogen fuel cell electric truck.
We are incredibly proud of the entire team and all stakeholders, playing a part in the development of the hydrogen and fuel cell electric truck.
We started zero production on July 31, and began delivering the first production vehicles to capture test fleets for commercial operations and customer validation late last month.
In parallel we started running customer demos and southern California supported by refueling with mobile <unk> and that existing hydrogen fueling infrastructure.
To date trucks and customer demos have accumulated more than 6000 miles, while achieving 98% uptime receiving outstanding driver feedback.
On the battery electric front Nikola has committed to providing customers with a premium trucking experience and safety is always at the top of mind.
We issued a voluntary recall for battery electric truck in August asking customers and dealers to send their trucks back to Nico for monitoring and repairs, which also allowed us to investigate the cause of the battery issues.
Extensive investigations have been commissioned and are currently ongoing including assessments from three independent groups alongside an equal it team.
During these investigations it was discovered that additional process and design changes may be necessary in that cell level issues may need to be addressed beyond the initially identified coolant manifolds replacement.
While we continue to identify the root causes of battery malfunctions to minimize vehicle downtime and maximize customer safety and satisfaction, we will retrofit existing customer trucks containing Romeo design battery packs with ones from an alternative supplier.
Stacy will provide updates regarding how that affects the numbers.
Despite the recall, we continue to see increased demand for the battery electric truck.
This is happening while the truck is not currently available for sale a testament to our position in the market is one of the few companies able to provide hardworking zero emission trucks to fleet customers at scale.
We expect to have the first trucks back in customer hands in Q1, 2024, and I've taken the call. It two point up because not only will it have improved battery packs, but new features including scheduled departure charging improved HMA and Bluetooth functionality all at a lower material cost on the energy side we.
Continue working with industry, leading partners to ensure we have the hydrogen supply transport logistics storage solutions and dispensing locations to support the operations of our hydrogen fuel cell electric trucks and customer fleets this year and beyond.
We're pleased to say, we have secured enough energy offtake to support customer operations in 2023, and the beginning of 2024.
The team is diligently working with partners to secure additional hydrogen offtake to support future sales alongside securing fueling assets and locations to fuel the trucks.
We also continue to see positive momentum on the federal incentive front with $50 billion allocated from the investing in America agenda, and another $7 billion and support from the Doe Grant.
This is a massive amount of funding and we will accelerate the development of hydrogen infrastructure required to scale and lower the cost of hydrogen.
We are excited to demonstrate the fully integrated mobility solution provided to customers with the fuel cell truck and hydrogen fuel and look forward to sharing more progress with you on the hydrogen highway as we continued developing the refueling ecosystem.
Now I will hand, it off to Krishna <unk>, our head of vehicle platform to provide you with details on the hydrogen and fuel cell truck and then Stacy will share our financials kristian.
Thank you Steve.
We're incredibly excited to show the world the model year, 'twenty 'twenty four hydrogen fuel cell electric truck.
Belief. This is the first zero tailpipe emissions truck available in North America that is truly capable of servicing the majority of day cab regional and medium haul freight operations.
The trucks up to 500 mile range Youre fleets, the flexibility and the operations capable of servicing longer range medium and regional deliveries and providing fleets who run slip seat operations, a similar refueling time to diesel cap without disrupting logistic operations.
More the payload capacity of the hydrogen fuel cell electric truck can be much better than other long range zero emission trucks and as we continue making enhancements to the product. We expect to continue closing the gap to diesel payload parity.
One of the most critical things to building the best product is that we are vertically integrated with our vehicle controls and software development.
This allows us to optimize the operation of the truck across incredibly complex systems and includes functions such as mountain mode and in the future predictive energy management.
The software on the truck can optimize the drivetrain to powered vehicles with both the fuel cell power module and batteries all by one system independently of theater.
Mountain mode Optimizes, the battery energy usage on the vehicle, allowing for maximum regenerate of breaking powered downhill and consistent performance up to.
The truck provides drivers with an advanced H M I, a mobile app and comfortable drive.
<unk> optimized for performance efficiency and durability supporting the fleet customers, most critical kpis, such as uptime and cost of operation.
This is merely a bit of what the truck can do I could speak all day about the truck and I invite you to look at our website social media channels and send us questions to learn more passenger.
Passing it to Stacy to cover the numbers.
Good morning, everyone huge thank you and congratulations to Christian and the entire Nikola team for officially launching the fuel cell truck.
<unk> been developing this drug for many years and this is a huge milestone for the team turning a new page for the company.
Now onto the Q3 results.
Despite tackling numerous headwinds during the quarter I am pleased with the team's commitment to operate with financial discipline by continuing to reduce cash burn and focusing our spend on things that matter to our future.
We were successful this quarter in accessing capital markets.
<unk> approximately $250 million, primarily through convertible notes and the ATM.
Does increasing our unrestricted cash position by $136 2 million from Q2, and nearly tripling unrestricted cash since the first quarter of this year.
We're making good progress towards our goal of having 12 months of liquidity on hand.
Quarterly cash use came in at $111 9 million well below our target of $120 million.
Reflecting a 25% improvement from Q2 cash used of $148 3 million.
The improvement came from 50 million benefits realized from cost cutting initiatives, we executed upon in Q2.
I'll start by $20 million use of working capital to scale up hydrogen fuel cell inventory and the impact of slower than expected collections due to the battery electric truck recall.
We have a lot more work to do and were always looking to make improvements to our cost structure and cash use there is a lot to digest this quarter beginning with revenue.
Due to the battery electric truck vehicle with Halton deliveries in early Q3.
Prior to the recall, we delivered three battery electric trucks to dealers. However, this was offset by the repurchase of seven battery electric trucks due to the cancellation of dealer agreements as we refocused our sales efforts in California.
As well as dealer he made some financing charges, resulting in that truck revenue of negative $2 4 million.
We generated 636000 service and other revenue primarily driven by service revenue.
They'll have charging assets and third party hydrogen sales.
Cost of revenue in the third quarter was $123 8 million.
Cost of revenue includes a $45 7 million write down of access and obsolete inventory.
Of which $32 7 million is attributable to the write down of battery box on the 140 battery electric trucks, how the Nikola inventory and 13 million for other battery electric truck components, including battery cells.
It also includes a 61 8 million warranty reserve to remedy the battery electric truck recalled.
This includes the estimated cost ranging year validate and retrofit the battery electric trucks that were previously sold to customers and dealers with an alternative battery box solution.
To be clear the warranty reserve is an accrued liability actual cash disbursements will take place over the next nine to 12 months as we validate the new components and work through the retrofits.
<unk> seen the majority of the cash spent in the first half of 2024.
Our goal is to offset the estimated $61 8 million cash impact with the collection of approximately $10 7 million in accounts receivable.
And an expected positive cash contribution margin of another $15 million from the sale of existing best trucks in our inventory once those trucks are updated with the new battery packs.
Resulting in a net cash spend of $38 1 million.
Total operating expenses came in at 107 million, including $18 7 million of stock based compensation expense and $9 8 million of accelerated battery electric and downward trend depreciation.
Absent of the Daimler truck depreciation operating expenses fell within our previously communicated guidance range Q.
Q3, operating expenses have improved by more than 27% versus the prior four quarters average driven by the impact of cost reductions we have executed in Q2.
Other non operating expenses for the quarter were driven by the loss on the creation of the conversion feature embedded in the April 2023, and June 2023 convertible toggle notes, partially offset by a gain due to the changes in the fair value of our common stock receivable.
<unk> as a part of the JV sale to Iraq.
These are noncash P&L items and have no impact on our cash burn.
And the end of the quarter, we maintained total cash and access to capital of $705 8 million subject to our stock price and market conditions and given our current cash burn rate. We believe we have adequate cash on the balance sheet to sustain us into 2024 and maintain enough axis.
The capital to continue funding operations and the execution of our business plan, including costs associated with the remediation of the battery electric vehicle.
We also had success in strengthening our balance sheet, but are using total debt by $87 3 million and total liabilities by $67 1 million during the quarter.
We have previously indicated we would need to raise approximately 600 million to fund their business to EBITDA positive by the end of 2025.
This long term thinking to fund the truck business remains the same.
During the third quarter, when we raised approximately $250 million of that.
However, we anticipate increased costs over the next nine to 12 months.
Associated with the battery electric truck recall, which would take the new capital requirement to approximately $400 million.
This number also assumes the majority of hydrogen infrastructure will be financed by partners.
We explore opportunities in the hydrogen production and dispensing ecosystem and continue to develop our energy strategy remain acquire additional capital in order to participate in hydrogen production and dispensing economics.
We may elect to invest into projects, where we see a compelling return on investment.
Depending on this project would allow us the opportunity to achieve economies of scale and drive down hydrogen costs, we see a growing opportunity in both hydrogen production and dispensing as with scale truck production and deliveries and other Oems come to market moving to guidance in Q4, we anticipate.
Levering between 30 to 50 is hydrogen fuel cell electric trucks for revenues between $11 3 million and $18 8 million.
So production is currently constrained due to supply chain ramp up.
And due to lower production and delivery of numbers for fuel cell and the path on the battery electric production and deliveries until the recall is remedied and we expect the gross loss margin will be outsized between negative 215 to negative 175%.
We expect total operating expenses to be between $82 5 million and $92 5 million, including approximately $15 4 million of stock based compensation expense.
And capex to be approximately $35 million.
Despite the challenges faced in the market and the business headwinds, we remain focused on achieving profitability and we have further optimized cost structures and put in place a strong team focused on execution.
We are working diligently to find additional cost reduction opportunities without jeopardizing, our first mover advantage and monitoring capital markets to raise additional cash.
During the third quarter, we beat our cash burn target of $120 million and strengthens our balance sheet raising $250 million.
Increasing our liquidity runway, despite the new expenses for the battery electric truck and hydrogen infrastructure.
We maintain strong liquidity in our stock and have continued to demonstrate our ability to raise capital.
As new regulations begin to take effect in California. We believe there is demand to scale production on both the battery electric and hydrogen fuel cell electric truck and 2024 and achieve their production and delivery volume scale that is necessary to reach positive gross margins and eventually reach profitability.
I will now pass it back to Steve for closing remarks.
Thanks, Stacy to close the call I'd like to talk about Green shoots a typical sign of a recovering plants and positive momentum for health and life.
We told you we would begin hydrogen fuel cell electric truck production in Q3, and we did with.
We told you we would continue reducing our cash burn and improve our liquidity and we have.
We have strengthened our leadership and operational expertise, including adding our CLO Mary and President of energy Joe.
And we continue to work diligently to assist our customers with the recall of our battery electric truck and the introduction of our hydrogen fuel cell electric truck.
These are all strong signs or green shoots.
And if we're continuing the green shoot analogy, we're getting fed by the momentum of the marketplace and government regulation, especially in California.
There are two things that I used repeatedly here at Nikola which are applicable to our growth.
First RDM and Vinayak <unk> fassi them.
It means find away or make one.
The resilience of the <unk> team is unmatched we have endured plenty and we'll continue driving forward in our mission to Decarbonize heavy duty commercial transportation.
We have government regulation and incentive tailwind at our back the first commercially available hydrogen fuel cell electric truck in North America, and the team to execute.
Second we say don't chew on yesterday's breakfast and effective way to make sure we can learn and benefit from the past and move forward.
Yes, we've had setbacks, but we are moving forward and today, we are in an incredibly strong position to capitalize on our first mover advantage with our fuel cell truck and lay the foundation for the hydrogen highway beginning in California, and we will continue to keep our commitments and remain transparent.
This concludes our prepared remarks, operator, please open the line for analyst questions.
Thank you if he would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue.
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 keys.
Our first question is from Jeff Osborne.
With TD Cowen. Please proceed.
Hi, Jeff.
Yeah.
Hello Hello.
Hi, Jackie.
Curious on your observations.
First quarter on the job.
As it relates to the interfacing with customers around both the fuel cell and the best putting aside the recall issues.
Great to see the policy moving in the right direction, but whats the readiness level some of the fleets that you're having dialogues with.
So good question.
Customers are super interested in this.
The order bank increased.
To $2 77.
And I would argue the CRM, what's at the top of the funnel is growing everyday.
And I would say, it's two to one.
Fuel cell over Bev right now and maybe even a little more.
But outside of that customer has any other observations first quarter on the job in terms of.
I'm, an investor rule for <unk>.
So.
People laugh at me around here, but you've learned pretty quickly in this place that every day is an amazing day at Nicola.
And some are good and some are less so but.
When I got here was to not screw up the momentum that was continuing and I think if you saw one of the slides the cashes up the burn is down and the orders are up.
Certainly the challenges here like there are being first in anything but the interesting thing about this places theres nobody running away from these challenges.
And I would tell you that as Jeff the one of the highlights.
Our quarter was the event in Coolidge on the 28, there were 900 people at that event launching celebrating the launch of the fuel cell truck 900 people suppliers were showing their staff. Many of you people where their suppliers were showing their stock. It was the customers who are there the dealers were there and there was a who's who.
Of the hydrogen industry was there and if anything turns the page on the path that Nicola it's that event. There is no way a year ago two years ago, Nicole it's sort of a hosted an event like that and it was really just spectacular.
Yeah.
Perfect maybe one quick follow up on the on the Bev side I was surprised to see the orders what what's the readiness on the charging side, that's been an obstacle for beyond one or two other locations or are these the one dealer with the 40 units I think you said 47 is that multiple customers just sort of walk.
Or are people truly planting for 10 to 15 trucks that one depot.
So that dealer has experienced around this so in general the charging is better than it was but it's still an issue that customers are going to have to understand and deal with we can help them with <unk> and things like that but that dealer in particular has experience around this and has customers that are.
Up to date on this.
And they are and their customers are taking their customers are taking.
Chunks of trucks.
Got it that's all I had thank you.
Yes.
Our next question is from Jeff Kauffman with vertical research partners. Please proceed.
Thank you very much.
Hey, How're you doing Steve congratulations.
Thanks and welcome.
That that you've been away from this story.
So a question for you and a question for Stacy for you.
Talk a little more about the hydrogen highway because youre not the only one using that phrase I think it means different things to different people, but can you talk about the opportunity here.
Not just in California, but as we expand across the country and how you see that developing and how Nicola is going to participate in that not just through the truck sales, but also on the energy side of that opportunity.
Sure so.
To make this model work, Jeff we need focus and density.
Okay. This can't be just blow out a bunch of trucks too.
Wholesale on the dealers and have them jam them into the market. We didn't know where the hydrogen is where the routes are where the customer who are the customers that run those routes and thats our target market.
So, California is the most incentive friendly as we said in the video it's got carrots and sticks.
We are deploying lots of people in California, and it's not just dealers, we're deploying our people as well to educate people.
To educate customers how it works in this incentive.
Mays is not that easy to navigate so having people on the ground is super helpful. Here. So start in California. There are seven hydrogen hubs that have been funded around the country. Those are logical places for us to go.
And it's about connecting these hubs and in California, South North and then connect in between and then we can move all the way up.
But right now the focus is California, we need to be very super efficient Super capital efficient, we need to prove the IRR of these first sort of HUD. So to speak and then we can develop more.
Okay, and then the energy side of the business.
Well the energy the energy side.
In what sense.
Well it just help us understand how the company participates have been selling trucks, that's easy to visualize.
But what is the energy business look like as we build out along this highway so it start and then Stacy will chime in but.
There's three youll can be participating in the hydrogen economics, you can transport and you can dispense and your purchase so those are call. It four buckets of hydrogen.
Wed like to be in the <unk> and the <unk>.
Our purchase in the hydrogen and economic side, we don't have the capital to be there as we develop our business we'd like to work our way back into that right now it's about acquiring large quantities of hydrogen for our customers and getting them to where they need to be in dispensing them in an efficient manner.
Of course.
Just quickly to add to that though as far as the financial aspects of the energy business have a look at it right. Now. So there is a near term as Steve has mentioned is there is a longer term and the near term we're less focused on profit and we're more focused on making sure we have that customer experience and we're enabling their early fuel cell truck operations right. I mean, we are first to market with <unk>.
Sure our customers have hydrogen where and when they need it as.
And it will take time to ramp up that hydrogen revenue things I've shared on the last call with you guys. Its about 60 to 80 K annually revenue per truck and hydrogen rates per truck. That's in operation. So you'll only start seeing meaningful revenue stream as we start scaling up that translated in the next say 12 months.
And the short term hydrogen will likely have negative margins. However, we are doing several things to make sure that we can manage that REIT and eventually get to the positive margin one what Steve had mentioned.
We need to find customers that are willing or have to pay a premium for that integrated energy and track solution because of regulation because of the incentives we need to build out density so to make sure. We're utilizing the assets that we have.
Utilization of the assets is number one factor that will help us drive down the hydrogen cost in the short term and in the longer term as more supply comes on line.
And as we are able to finance our ability to come in and participate in producer Economics defense and economics that obviously will also help us drive that.
Hydrogen cost down.
Okay, and then Stacy if I can just one final follow up.
Thank you for the detailed <unk> guidance.
The story has evolved from where it was just a quarter ago or two quarters ago and I remember we were talking about trying to get down to a cash burn of about a $400 million run rate by the end of the year I want to look through the recall because thats going to play itself out in the next few quarters, but if I look at the underlying business.
Where do you think the cash burn target should be in terms of a run rate at the end of this year and where are you targeting as a run rate at the end of next year.
Sure Great question.
So just cash burn the story Youre right. The story has evolved and it will continue evolving by our financial targets are not changing so we.
Our focus we are having some challenges like the fabric also for managing through as a result of that our ultimate target for this year in Q4 was $100 million.
There will be a temporary increase to that of about 40. So 140 for Q4 is what im expecting here and Thats driven by two thanks. Some battery Paul obviously, we can sell through the inventory in Q4.
And then the fuel cell delivery guidance effectively is being reduced due to supply chain challenges. So those two factors. So I'm working capital items that are driving that cash burn up to 140.
They are temporary and will reverse in 2020 for it to work through those challenges and start selling the trucks.
That's for this year for next year. The goal again the goal remains the same $100 million a quarter average cash burn for 2024.
So that has not changed.
We will see a little bit heavier of a cash burn in the first half of the year as we execute and work through the battery call and then we expect to see some of the benefits from that the offsetting benefit from collecting the bap and selling through the remaining <unk> inventory as well as the benefit of reaching our gourmet.
<unk> targets later in the year, So 2024 will average out to about $100 million.
<unk>.
And so let me just add something to that Jeff.
The early trucks this quarter and next quarter are going to be the least profitable trucks, we produce theyre going to have the highest bomb because we're doing whatever we can get the trucks out the door and the prices on these trucks were from commitments that we made some time ago to the early launch customers as we move through and Stacy mentioned it before.
As we get more volume the bump comes down and we're applying the goal of the team is to find the customers that value being in the front end of zero emission and they're out there and they are willing to pay a premium for this.
Well congratulations and thank you for the clarity on this call.
Thank you.
Our next question is from Bill Peterson with Jpmorgan. Please proceed.
Yeah, Hi, Bill.
Yes. Good morning, Thanks for providing all the details as usual I want to pick up on this last.
This last question, so I think in the prior call or maybe two calls ago.
The team has provided guidance around 1000 total trucks in 'twenty 415 to 2025 being kind of a tipping point to breakeven I guess, how should we think about that one quarter or do you still feel confident in that guidance in terms of timing and volumes.
I guess could the fuel cell makeup the majority of that I think you've talked about that's where the majority of the emphasis.
Basically try to get a sense of where the breakeven points for battery fuel cell trucks and I think earlier in this call you mentioned that that was the two point, though is cheaper pack. So maybe that changes some of the economics as well.
Oh sure, yes happy to expand on that so again the breakeven goal remains the same we are seeing a little bit of a challenge with.
Some of the things I've mentioned drag for 2024.
So one of the things to highlight obviously will reduce the volumes.
For Q4 of this year and a lot of the FCB sales things that you already have an oracle pushing to that for the first half of 2020 for some of the early customers do you have lower preferential pricing right because they're early adopters to that.
Is something that we need to work through and we'll have to offset that finding.
Finding other customers that are willing to pay premium will have to pay a premium.
Supply chain challenges right as we're working through making sure that.
We can manage our bond targets, which again remain the same ultimate bond target for fuel cell trucks to get to 275 by the end of.
2025 and for the back obviously with the new back end with the volumes. That's the thing that we can achieve if we can get to below $2 50.
Two years from now obviously, it's a step at a time on a normal run rate once we get our targets.
<unk>, we can maintain our average selling price of about 400 feet for fuel cell.
If we sell about 300 to 350 trucks a quarter, we can break even on a gross margin basis. So that's really the magic number looking for again as I mentioned, we have to make sure we maintain a certain level of ESPN rohit our bump targets.
Yes, and the only thing Jessica just to reiterate just to reiterate bill.
One of the things we've learned in this February call is people actually like our trucks and are willing to pay for it and we're getting a lot of.
Compliance so why don't I get my truck back end and we're finding out that archrock performs better than other trucks and what we're trying to do and because of that we're learning a lot from lots of things. The early hydrogen trucks as well people are willing to pay up and we haven't tested how much people value being on the.
And of zero emission, but we know what they are out there.
Okay.
For that debt.
Additional context.
It looks like Theres, just a lot less information in your release as well as presentation versus prior as it relates to the energy business.
I know you have a new head of this so maybe we'll get more information as we move forward, but I wanted to kind of checking that some of the milestones. I mean, you had you talked about a partnership with altera with some eight stations per station was supposed to be coming online here is by the end of this year.
And of course, you acquired the hydrant hub.
Kind of like to get an understanding of whats maybe that's waiting for 40, <unk> tax credits clarity, but try to get an update there as well and then I think you were supposed to deploy nine mobile reinsurers in California by the end of 'twenty three so let's just try to get a sense of where these projects are maybe what they're waiting on I know you provided some contact.
Some color around.
Investing where it makes sense, but.
Just where do we stand.
Yeah, So just to be clear when you think about this model.
Customers, you've got energy and you've got a truck and at any one point somebody is going to be ahead, and somebody is going to be behind and to be very efficient you need to keep those as close as you can so we're in a case, where if the truck has got supply chain issues, where you don't want to get out over our skis on getting stations in fuels and things like that in <unk>.
Place so given the assumptions we made we don't need nine mobile fuels in California. This year, we need something less.
And frankly, we were using.
300 mile assumption on truck on truck.
On driving everyday and early drivers are doing about 170 is what we're seeing so that also enables us to use less here. So.
And there is opportunities if we want to be capital efficient to use other people's sites. So again. This is about just satisfying the customer is number one here being capital efficient as number two here.
So that's sort of where we're going.
Okay. Thanks for that.
Can sneak in one more it's kind of related to that.
A question on supply chain, so on the fuel cells.
Can you spend more on the supply chain. This is this on the battery side I know you heard the supplier was going through bankruptcy or are you able to get sufficient pack volumes at this point and then you've talked about a third higher for both is that the same supplier for fuel cell or is that a different supplier enough spoke and this can be a fuel cell truck utilize that to given it apparently has a better cost structure.
So we're not talking about the Bev supplier, yet it's premature to talk about that I'm sure. It will come out when it comes out.
On the supply chain front.
Battery supplier is going through normal launch issues I wouldn't describe their launch issues as any different than any other but there are other suppliers out there that we're launching new technology that are creating.
Pickups, nothing insurmountable, it's just about theyre going through their launches were going through ours, you've got new technology launching in a number of different places and.
That's basically all of it nothing insurmountable things are moving ahead. They are not moving at the pace, we wanted them to be but they are moving ahead.
And if I if I can just add to that quickly seen kind of the supply chain challenges.
The <unk> launch.
We do have challenges on the field side, it's significantly better I think comparatively because we've learned a lot our supply chain base is a lot more stable and also work to get ahead of it. So a lot of the things right, we're kind of running parallel path and looking at alternatives as we anticipate those issues come out.
Okay makes sense. Thanks, thanks for the insights.
Thank you.
Our next question is from Tyler <unk> with <unk>. Please proceed.
Yes, hi, good morning, everyone. Thanks for taking the questions Steve I wanted to follow up on the comments related to some of your assumptions and fuel cell in southern California.
Some of that initial feedback been in the interplay.
So the fuel cell truck to third party mobile.
Can you just add a little bit more color related to that please.
So we've been running demos in California, I think we've done over 6000 miles in demos who've got 98% uptime, we are fueling at our spots in other people's spots to get fuel into these demos.
<unk> of our demos right now are focused on southern California, We will start demo ing in the north.
<unk>.
TBD, but probably in the next quarter or so we will start demo ing in the north, but maybe first quarter something like that.
And Thats.
I think thats.
Don't know anything else.
Anything else you <unk> I think that covers it.
Okay, Great and then I wanted to follow up on your comments related to the sale of the network with regards to your internal sales team as well as maybe the dealer sales team can you just talk a little more color in terms of how you're thinking about utilizing the both of those together to really go to market and so we're small.
Our orders.
Yes. So this this selling new technology to an old industry is complicated.
And we need to educate the dealers and we need to educate the customers and having our own team on the ground supplementing the dealers I think is super helpful. Here California's.
<unk> state with a tremendous amount of opportunity for us. So also pretty tricky to navigate these voucher the whole voucher system and frankly, a lot of the voucher stuff is targeted towards smaller fleets, which is a prime target for us.
Okay, great. Thank you for the time guys really appreciate it I'll turn it back to the queue.
Thank you.
Our next question is from Mike Zaremski.
<unk> with D. A Davidson. Please proceed.
Good morning, and thanks for taking my questions.
Wanted to first touch on the nonbinding orders had mentioned 277 as of as of today.
Can you refresh my memory.
What has to happen to make this as the bonding orders do you have to go through a test with one or two first or is it.
Infrastructure being built in the percentage of those leases or is there something else.
Stacey Yeah sure.
I think that there's a few things that have to happen and I know things haven't really changed but what has changed as you know, we're making very good progress on them. So number one a lot of customers who required demos, which for some of them. We have started already some of them were about to start here.
The downloads can take anywhere from a couple of weeks a couple of months, depending on the size of the customer oftentime, a larger customer like a larger faithful require more time right because large companies take time to go through their processes.
Incentive right, so having disclosed essentially all of the vouchers HB vouchers in California for hydrogen fuel cell truck or Nicola about applications for Nikola truck.
But for a lot of people. This is a new process and we're helping and working staff.
Very closely with them and with dealers to get those incentive then and go through the process.
Once that was done incentive application is in the next big thing, obviously is making sure we have customer comfortable with the hydrogen infrastructure.
Which we're working with third parties that we have our own mobile fueling locations. We plan to have two by early next year operating in California for customer purposes. So those are kind of the main things that need to happen to turn them into binding orders, obviously, there's a lot of pricing negotiations and things like that I will favor already RF.
277, we've turned 20 already into the dealer orders that have been received by Nicola.
That essentially covers given in our guidance half of your production for Q4.
Great.
<unk>.
We mentioned on the call that we if you order a truck today, you're probably not going to get until the end of the second quarter. So.
Part of the challenges is prioritizing these customers.
To the ones that value.
Things here omission.
Most are highly.
Got it got it I appreciate those details.
Wanted to turn secondly to the dealer network.
Understood correctly, Stacy you implied that.
Have to do it dropped out during the quarter and so on.
Inventory has to be bought back I wasn't sure what that was all about.
Can you share.
Certainly that was outside of California dealership can you share the status of just kind of the broader.
Tycho when a dealership assistance today in Europe.
Plan to develop that thank you.
Yes, I think thats.
The current the buybacks to dealers from which we bought backpacks and we are contractually required to ensure the choose to terminate a dealership relationship to buyback those trucks. Those decisions are made by by Nicola a lot of times there may be now in combination with the dealer depending on demand depending on how much time, and our resources and dealer has to.
Jade to nickel and business.
Not necessarily just because of this deal has happened to be outside of California. We are focusing primarily on California. So expecting that if we do sign up future dealers. They are most likely going to be more likelihood that they will be in California going forward, but we don't necessarily have any active plans to cancel any other dealership relationships at this point.
Great I appreciate those details I'll pass along.
Okay.
Thank you I will now hand, the call back over to Dylan for the Investor questions.
Operator, we received a series of questions from retail investors through the same platform. The majority of which can be summed up into three topics one hydrogen fuel cell electric truck production deliveries and orders.
<unk> battery electric truck repair and strategy and three liquidity, so Steve let's start off with the first question. How do we think about hydrogen fuel cell electric truck production deliveries and how many orders have been received to date.
Thank you Dylan, we began zero production of the hydrogen fuel cell electric truck on July 31, and had our formal launch event on September 28.
We delivered the first trucks in late October for commercial operation and captured fleets and will soon begin delivering wholesale trucks to dealers.
They will then start delivering the trucks to end customer fleets.
In Coolidge, we have a production capacity of up to 2400 trucks per year. So we have more than enough production capacity to meet our targets. This year and next and we are working with our suppliers to ensure we have the materials and components to meet our targets and customer demand.
As I stated earlier to date Nikola and our dealers have received 277 non binding orders for the hydrogen fuel cell electric truck from 35 different customers.
That is more than our production and delivery guide for Q4, so customers ordering trucks now will likely not receive a truck until late Q2 of next year.
We believe there will be a large appetite for our trucks in the California market beginning in 2024, when the advanced clean fleets rule goes into effect and drayage customers much begin, replacing ICD trucks with zero emission vehicles.
Thank you Steve many of the questions on say had to do with the recall remedy and how we plan to move forward with the battery electric truck can you provide some color on our strategy there.
Sure as I discussed earlier, we are replacing the packs in the existing customer battery electric trucks with new packs from an alternative supplier.
The battery electric truck to point, though will also come with upgraded features.
To reiterate that we are seeing strong demand for the truck receiving pose for 47 trucks from one dealer and deals in California continue to submit HPT voucher applications.
As of October <unk> had approximately 50% of the issued vouchers that were requested in 2023 for battery electric truck tractors.
We have one truck platform with two powertrains, which provides customers optionality depending on their duty cycle and we believe having two products is the right option moving forward as I stated before we anticipate having the first battery electric trucks back in customer hands in Q1 2024.
Great onto the next topic Stacy the investors ask how well capitalized are you to take new orders and ramp production.
So on the liquidity front, we have done a good job of strengthening our balance sheet. We raised 250 million during the third quarter nearly tripling our unrestricted cash since Q1 and maintained cash and access to capital of approximately $705 8 million.
We have completed the phase two assembly hall expansion and mixed model lineup kulich, allowing us to produce both battery electric truck and hydrogen fuel cell truck on the same line. So when dissipate with will not need to spend much in capex. The scale the truck business for the next few years.
Demonstrated a strong ability to access the capital markets and we're making good progress on increasing our liquidity runway.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
Yes.
Okay.
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