Nikola Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 4, 2023

There are 13 speakers on the call.

Operator

Good morning, and welcome to Nicola Corporation's 2nd Quarter 2023 Earnings and Business Update Call. Currently, all participants are in a listen only mode. We'll begin today's call with a short video presentation followed by management's prepared remarks. A brief question and answer session will follow the prepared remarks. As a reminder, this conference is being recorded.

Operator

It is my pleasure to introduce Dylan Sanju from Investor Relations.

Speaker 1

Thank you, operator, and good morning, everyone. Welcome to Nikola Corporation's Q2 2023 Earnings and Business Update Call. Joining me today are Michael Lowsheller, Steve Gursky, Stacy Pesterik and Carrie Mendez. 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.

Speaker 1

Today's discussions include references to non GAAP measures. These measures are reconciled to the most comparable U. S. GAAP measures and can be found at the end of the Q2 earnings press release we issued today. Today's discussion also includes forward looking statements about our future expectations and plans.

Speaker 1

Actual results may differ materially from those stated and some factors that could cause actual results to differ are also explained at the end of today's earnings press release and on Page 2 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 Stacy will give their prepared remarks, followed by analyst Q and A. Then we will conclude with questions from our shareholders.

Speaker 2

Talend Logistics Inc. Is the asset based division of Talend Group. We're a trucking logistics company. We focus on a lot of ocean freight, drayage, intermodal. We want to be trendsetters.

Speaker 2

And I thought Nikola was the trendsetters for 0 emission for commercial vehicles. Obviously, you have competitors in the market, You don't see those type of trucks out there right now. You see Nikola trucks.

Speaker 3

The difference between us partnering with Nikola and another company is that they offer an All inclusive charging infrastructure. And it's literally just Play and play, which is perfect.

Speaker 4

What I love about this truck is it's safe. As a driver, you like to have a lot of visibility Within your mirrors and as you're driving and you see everything, especially since the cab over. The biggest thing when you're a trucker is is not is not going forward but backwards. Reversing with with this truck, it's it's fairly easy. You see everything.

Speaker 4

Once you drive this thing, I'm telling you, you're not going to want to go back to driving a diesel.

Speaker 2

I think they're Pioneers. Obviously, we want to be pioneers. So what a great way to partner up with someone that's already

Speaker 5

Thank you, Dylan, and good morning, everyone. Again, welcome to our 2nd quarter earnings call. Before we get into earnings, I would like to first address the leadership transition plan announced earlier this morning. Stephen Gierske, Chairman of Nicola's Board of Directors will succeed me as CEO effective immediately. I have decided to step down due to a family health matter and will be returning to Europe.

Speaker 5

To ensure a seamless transition, I will remain at Nicolas in an advisory capacity through the end of September to support Steve And the team. The Board and I are confident in appointing Steve as my successor. Steve was an early believer and investor in Nicolas and has been pivotal to the company's success. Over the years, Steve has worked closely with the management team on advancing Nicolas' corporate initiatives. His intimate knowledge Nicolas' business and products will enable him to hit the ground running with the speed required to capitalize on the exciting opportunities in front of us.

Speaker 5

Steve is a true champion of Nicolas' 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 quarter's call sharing with you that Nicolas is the real deal. 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 The 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 and delivering on our commitments.

Speaker 5

You have seen us in the news doing business with companies such as Global Energy Leader Fortescue Future Industries Bosch, the largest automotive supplier in the world J. B. Hunt, one of the largest U. S. Trucking firms Volterra for stations and Beotech for hydrogen supply and fueling solutions.

Speaker 5

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 Nicolas, and I am proud of each The road is never smooth. Bumps are to be expected, but we believe we have the people, The partners, the technology and the plan to make Nicolas and Heilah a True. World changing company. So let's get started.

Speaker 5

Beginning with the truck programs, We started serial production of the hydrogen fuel cell truck on July 31. The initial trucks take more time to build as these are the first ones built on the newly upgraded mixed model assembly line. As we build More trucks, they will come off the line faster and throughput will increase. We expect the first customer deliveries to happen in September. Helping drive sales of the hydrogen fuel cell truck, a pilot test with current and potential customers.

Speaker 5

During Q2, we completed 10 gamma trucks. 8 of the trucks will be used in pilot testing and 2 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 Q2, we continued building sales momentum, completing 66 retail sales, Double that of Q1 and completing 45 wholesale deliveries.

Speaker 5

The market for battery electric trucks is growing Daily, as customers discover the total cost of ownership benefits of the vehicles and additional government incentives The willingness of fleets to participate in the transition to 0 emissions trucks is increasing As the technology is derisked and the product is proven. The 45 wholesales to dealers last quarter reduced our inventory. We ended Q2 with 139 battery electric trucks in inventory on our side 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 Heylar, our Energy business.

Speaker 5

We made substantial progress in seeking to ensure that we have the required Supply and fueling solutions for customers in late 2023 2024. The Energy business is working ahead of truck sales to enable 0 emissions trucking operations with our fuel cell truck. We believe what needs to be offered to customers is a fully integrated mobility solution, and we believe Nicolas is the Only company providing that for customers today. Hydrogen infrastructure takes a long time to permit, build and requires lead time to procure production and dispensing equipment. We believe we are well ahead of And we'll continue to work with partners to build out the ecosystem.

Speaker 5

Our energy team continues to progress with Well established and capitalized partners. The joint station development partnership with Volterra is progressing well, And we have determined the first 8 station locations to be developed under the partnership. The station development plan received another boost with the announcement of grants for over €50,000,000 from various California agencies supporting the construction of 8 California stations. These grants will lower the capital cost for hydrogen refueling stations, and I expect it to meaningfully reduce dispensing costs. We are very appreciative of the partnership with California State and regulatory agencies who are working alongside us to support the energy transition.

Speaker 5

On the hydrogen production and supply side, We announced that a definitive agreement was reached with Fortescue Future Industry to acquire 100% of the Pfenex Hydrogen Hub project. The agreement with FFI aligns with our strategy of controlling the hydrogen molecule Through the ecosystem with the help of partners, the project has made good progress. We expect it to reach final investment decisions by the end of Q3 2023 and anticipate Phase 1 to be operational in 2025 with a production capacity of up to 30 metric tons per day, which could support up to 7.50 Nikola hydrogen fuel cell trucks. We are negotiating a hydrogen offtake agreement with FFI to support our needs. The FFI and Volterra partnerships are significant milestones to support Our capital light hydrogen infrastructure strategy.

Speaker 5

We continue working closely with partners such as Plug Power, Beotech and Linde to underpin our North American supply and infrastructure strategy. As of today, we have received 6 mobile fuelers and are on track to receive 10 more over the next year. We plan to have 9 mobile fuelers at several California locations available for customers by the end of 2023. We believe we have secured a 1st mover advantage on hydrogen infrastructure and will 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.

Speaker 5

Let's talk about the fire of our battery electric truck at our headquarters in late June. First of all, we are thankful No one was hurt. Secondly, it has been determined that only one truck started the fire and spread to the other 4. We have 2 investigations ongoing, 1 with our technical and safety staff and one being conducted by a third party, And we will share more when we know more. We want everyone to know, Nikola's trucks are designed with safety as a first priority and are rigorously tested prior to release.

Speaker 5

These tests include front, side and rear 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 11,000 hydraulic cycles, which simulates more than 15 years of driving and fueling. Extreme temperature testing, fire testing And the tanks undergo gunfire penetration testing to simulate high rate puncture similar to a vehicle collision.

Speaker 5

Not only is Nicola the pioneer of the truck itself, but of the safety system standards for heavy duty hydrogen fuel cell 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 what we are going to do To ensure Nicolas is around for the long haul, today, we communicated that we have accomplished some of those things already and believe What Nicolas is looking to accomplish is incredibly important. This is the hottest summer ever on record, And innovative companies and partners must work together to transition heavy duty transportation to 0 emissions. Class 8 trucks make up about 5% of registered vehicles on the road in the United States yet produce 23% of Emissions in the transportation sector. That is more than 380,000,000 metric tons of CO2 a year, Replacing just 1 internal combustion engine semi truck with a Nicola truck can avoid 106 metric tons of CO2 per year.

Speaker 5

There is a massive opportunity for Nicolas, and we expect to play a critical role in the transition to 0 emissions. Thank you all once again for being a part of this journey as we strive to accomplish our mission together. Now I'd like to pass it off to Stacy. She will share with you how we are

Speaker 6

Thank you, Michael, and good morning, everyone. As we look at our Q2 results, we are really turning the corner on the next phase of our business and improving our financial help. We got our cash burn substantially, while also improving our balance sheet and increasing our unrestricted cash position by $107,000,000 We remain focused on our strategic priorities and delivering value to our shareholders by focusing on the North American market, achieving a first mover advantage in hydrogen economy and continuing to build sales momentum. This quarter, we executed many actions to reduce our spending and align Nicola's cost structure with our new strategic priorities. We closed down battery production operations of Romeo, reduced headcount in Phoenix and Coolidge by more than 20%, completed the sale of European JV to IVECO and went through a company wide cost rationalization to ensure that every dollar spent is in line with the company's priorities.

Speaker 6

Those decisions, while at times difficult to make, helped Nicola accomplish cash burn below our $150,000,000 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 Cash burn below $100,000,000 per quarter by the end of this year through 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 truck revenue of $14,900,000 and net truck revenue of $12,000,000 after $2,900,000 of dealer rebates and incentives. Dealer rebates are related to 2022 whole sales, which were executed at higher ASPs than they're being retailed for in 2023.

Speaker 6

As most of our 2022 wholesales have 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 $324,000 per unit, unchanged from Q1. Despite the revenue rebate impact in Q2, we continue to see improvements in gross margin come in with negative 180% this quarter from negative 2 13% in Q1. Gross margin improvements are attributable to higher revenue, lower manufacturing labor and overhead as we have optimized resources and operations in Coolidge and improved inbound freight and inventory costs as we have transitioned to a built to water model. We expect to continue seeing gross margin improvements on the battery electric trucks as we start utilizing battery packs manufactured in Coolidge and optimize bill of materials costs, specifically on the battery pack enclosure and battery cells.

Speaker 6

In the longer term, We anticipate the fuel fuel truck to be superior on the gross margin due to higher average sales price as we benefit from the 1st mover advantage and high incentives in states like California and labor, freight and overhead savings once we begin assembling the fuel cell power modules in Coolidge later this year. On both trucks, we have ample opportunities for bill of material cost reduction as we scale volumes 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 $141,000,000 within the provided guidance range. During the quarter, cash burn was $148,200,000 better than our $150,000,000 target.

Speaker 6

Most of the improvement in Q2 came from slowing down CapEx investment and working capital usage. With a build to water production model, stronger sales momentum and floorplan financing solutions, we anticipate further improvements in working capital utilization. Our goal for the second half of twenty twenty three is for the working capital impact to be neutral as the proceeds from existing bev inventory sales offset working capital needed to scale up fuel cell volumes. Despite volatile market conditions, we raised additional capital and improved our cash position to $295,400,000 in Q2. This is an increase of approximately $92,000,000 from Q1.

Speaker 6

The increase in cash came from net proceeds of $96,000,000 From the follow on offering completed in April, dollars 49,000,000 Coolidge Land sale leaseback proceeds, $58,000,000 from the ATM and convertible notes and $26,500,000 net proceeds from the JV divestiture. The cash balance at the end of Q2 does not include $20,700,000 we received in July from the first phase of the Pfenex hydrogen health acquisition by FFI. As of the beginning of July, we maintained total access to capital of approximately 743,000,000 and believe we have adequate cash on the balance sheet to sustain us into 2024. As we announced yesterday, our stockholders approved Proposal 2 at our 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.

Speaker 6

As 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 Moving on to the guidance. For the Q3, we expect total truck deliveries to be between 60 90 trucks For the net truck revenue of $18,000,000 to $28,000,000 generating a gross margin of negative 165% to negative 110%. Total operating expenses for the quarter are expected to be in the range of $90,000,000 to $100,000,000 including $16,500,000 of stock based compensation. This is more than a 30% reduction versus first half of twenty twenty three levels.

Speaker 6

Q3 CapEx is expected to be $25,000,000 to 30,000,000 We have a line of sight to further reduce cash burn to roughly $120,000,000 in Q3 with July cash burn already coming in below $40,000,000 We are updating the full year 2023 guidance as we now have better visibility on the commercial side as well as into the savings from our realigned cost structure. For the full year, we expect to deliver 300 to 400 trucks for total revenue of $100,000,000 to $130,000,000 generating gross margin of negative 110% to negative 85%. 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 $395,000,000 to $415,000,000 including $85,100,000 of stock based compensation. To wrap up, we had a strong quarter and have improved our financial results, strengthening our balance sheet.

Speaker 6

We have substantially reduced cash burn, while almost doubling our unrestricted cash position, executed on our cost savings initiatives, regained 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. I want to sincerely thank the entire Nikola team for executing, being efficient, creative and demonstrating an ability to do more with less. While we're pleased with the results so far, there is still much to accomplish. And we assure you we are working diligently to achieve our goals and turn Nikola into a profitable business. I will now pass it back to Michael for closing remarks.

Speaker 5

Thank you, Stacy. So as you have heard during the call, we are doing the right things at Nicolas. We have increased our cash position while also substantially reducing our cash burn. We are building sales momentum and advancing the transition to 0 emissions commercial transportation. And we are making progress in the hydrogen refueling business with partners.

Speaker 5

As we look forward to Q3 and the second half of this year, We expect investors will see the following from the Nicolas team. 1st, building sales momentum 2nd, ensuring we have the fueling solutions to support customer fuel cell truck operations. 3rd, Continue to reduce cash burn. 4th, and raise 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 Nicolas' CEO.

Speaker 5

As I step away to be with my family, my belief in Nicolas' purpose To pave the way for a 0 emissions future has never been stronger. Steve is a seasoned automotive executive with a proven track record. And he is exactly what Nicolas needs right now entering this next phase of the company's history. Steve, over to you if you

Speaker 7

would like to say a few words. Thanks, Michael. I've known 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. I look forward to staying in touch with you, and I speak on behalf of the entire Nikola team in wishing you and your family well.

Speaker 7

I want to thank Michael for his hard work and dedication to advancing Nikola's mission to pioneer solutions for a 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 energized and ready to take on this role, I'm excited about the many opportunities ahead of us. That concludes our remarks. Operator, please open the line for analyst questions.

Operator

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

Speaker 8

Yes. Hi, good morning and thanks for taking my question. And Michael, also I do wish you and your family well as well. Maybe just want to talk about that transition is my first question. Steve, sometimes when folks come into the CEO role When they were chairperson, it's sometimes only a temporary thing.

Speaker 8

Are you looking to kind of stay at Nicola for the long term? And can you maybe tell us, Again, was this a very sudden thing? Did they just call you last night, Steve? Or was there a large external board search down here?

Speaker 7

So thanks, Mike. So I'm in it to win it here. I'm 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.

Speaker 7

A well functioning Board had succession plans for all scenarios, And we had a succession plan for this one and I was it and I was happy to step up and move into this role. Does that help?

Speaker 8

Sure. No, I certainly appreciate that. I want to turn to What's coming here in the second half off the production line? Can I just confirm, is this going to be entirely fuel cell vehicles, If I'm reading everything correctly here? And then will all those vehicles have the bundled lease program attached to them?

Speaker 8

I know you have at least 1, the flotation queued up for this year, but what's the plan to make sure that all those trucks coming off the line in the back half of the year here have the hydrogen that they need?

Speaker 5

Yes. Thanks, Mike. And this is Michael here. Let me take this. So first of all, in terms of the production, as we said, so we have started The production of the fuel cell truck, obviously, very important milestone this week for the company.

Speaker 5

We have the flexibility to produce both trucks on one assembly line, which is 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 the build to order concept, we will also produce BEV electric trucks going forward. But now the next couple of months till the end of the year, it's 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.

Speaker 5

In terms of the go to market strategy, I mean, obviously, various elements play a key factor. Just Finish that. So first of all, the hydrogen availability is very important in terms of the mobile fueler, But several customers obviously want a bundled lease as well. And case by case, we will offer this as well. But there's not One go to market approach for everybody, it depends by customers.

Speaker 5

But yes, that plays a role too.

Speaker 8

And I guess just to clarify your answer, That will explain maybe why there might be a lower ASP embedded in the Q3 guidance of $300,000 pullover versus $340,000 for the last quarter. It's simply a different ASP for the FCV, that's all it is? Okay.

Speaker 5

In terms of the ASP, it's very similar, but obviously, we have now done some inventory liquidation and that had Also an impact on the ASP. But in general, please think about that the ASP for the fuel cell truck is higher, because the price is higher, the incentives are higher. So there is a significant difference between BEV and the fuel cell truck. In addition to that, obviously, where we have competition on the battery electric On the fuel cell truck, we have clearly a first mover advantage and are uniquely positioned.

Speaker 8

So I

Speaker 5

hope that clarifies it.

Speaker 6

This is Stacy. If I may just jump in. First, how we think about The ASP guidance going forward, like for the bath rate, as Michael alluded to, as we're selling through the existing inventory, DSP will normalize and be about $300,000 to $220,000 range. And for the fuel cell, we're kind of seeing ourselves settling in $400,000,000 $425,000,000 range.

Speaker 8

Okay. That makes sense. I appreciate it guys. I'll pass it along. Thank you.

Operator

Our next question is from Jeff Kauffman with Vertical Research Partners. Please proceed.

Speaker 9

Thank you very much. First of all, Michael Fotzer, 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, and I'm sure we'll talk a whole lot more.

Speaker 6

I want

Speaker 9

to go back to Stacy's comment 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, but 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 the cost reductions and kind of what we're looking at over the 2 years.

Speaker 6

Yes. Great question. And so really last time we talked about what we needed to be able to produce and sell about 1,000 trucks. Most of those trucks, I would expect to be on the fuel cell side. Obviously, the mix will be determined by the customer.

Speaker 6

But given kind of the momentum In the early order activity, we're seeing most of the truck volume will come from the fuel cell. With that, I think for if you think about the fuel revenue, That will take a little bit of time to ramp up, right? If you think about each fuel cell truck you sell, you're going to be bringing in somewhere between 80 to 60 to 80 Revenue for the hydrogen, a year for each truck and operation. So it's going to take time to ramp up that revenue. And then if we look in 2025, Really the target there is bringing in about 20% margin on the fuel cell truck and about 15% to 20% margin on that hydrogen.

Speaker 9

Okay. And then I think Michael may have asked this, but have initially the thought with the fuel cell model was these are all going to be leases with maintenance and fuel bundled in. How is our thinking This is with maintenance and fuel bundled in. How is 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?

Speaker 9

Or are we still thinking kind of this long term lease model where we've got maintenance and fuel packaged in?

Speaker 5

I mean, Jeff, I would definitely say, I mean, first of all, whenever we now sell 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, obviously, the first key question from customers is hydrogen, right? And I think the combination there, truck, Hydrogen, this is where obviously, Nicolas is uniquely positioned. Maintenance is a key factor too. So therefore, I think Bantley will play a role, but the key discussion with customers is like, okay, TCO of the truck and then obviously what about the hydrogen included. This is Where most of the debates are.

Speaker 5

And again, Nicolas is very well positioned there, and that's why the whole energy play is so important, including mobile fuel stations, etcetera.

Speaker 9

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

Operator

Call. Our next question is from Bill Peterson with JPMorgan. Please proceed.

Speaker 10

Yes. Hi. Thanks for taking the question. Following up on the EBITDA walk in 2025 to neutral, I believe last quarter you mentioned we needed to deliver around $1,000 to $1500 next year and then double in 2025. My first question is, Is that number are those figures still hold?

Speaker 10

And my second question is, how should we think about the mix in 2024? Is this going to be vast majority fuel cell at this stage? Or how should we think about the mix into next year?

Speaker 6

Hi, Bill. Yes, 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 reduction that we've talked to and we've been able to make as far as just being more efficient and bringing the overhead down and some of the labor costs down, It's probably a little bit lower than $1,000 but not that far off from that. And then in 2025, we would need somewhere between $1500,000 to 2,000 trucks to get to EBITDA positive enough to cover the CapEx.

Speaker 6

So we start really generating the cash flow, right, the positive cash flow. As far as the mix, again, as I said, we'll let the customer decide. But right now, what we anticipate is for the most part, the volume will be on Fuel cell sites and then for the bath, we'll just build to water as the economic makes sense of those orders.

Speaker 10

Yes, thanks for that. And nice job on reducing costs and cash burn. So now you're targeting below $100,000,000 per quarter exiting this year. I guess, can you give us a feel along following on the prior question, under current cash burn expectations beyond this year? And I guess, your plan to Maintain sufficient liquidity through commercialization.

Speaker 10

So I think you mentioned you now need $600,000,000 which is below prior expectations. So I guess, how urgent does the capital raise feel to you? I mean, should we assume this is imminent? Or I mean, how is your thinking on this? I mean, Can this be a step function or at least multiple ranges or just any color you can provide on how you're thinking about raising capital from here would be helpful?

Speaker 6

Yes. Thank you. I mean, obviously, 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, right, going from $240,000,000 to $250,000,000 That's where we are right now in Q2. And A lot of that is coming from working capital improvements, right, build to order, collecting on our sales, reducing our inventory.

Speaker 6

And now as we head into Q3 and Q4, how we get to that 100 is we will start actually realizing the impact of all of those Actions that we have carried out, right, in Q2, so getting out of Cyprus, getting out of Europe, reducing our headcount. So all of those will start bringing some benefits on the OpEx run rate. Also CapEx will go down significantly, right, as we're Pretty much down the school, which at this point is with the fuel cell assembly line in Q3. So that's really how we get to that 100,000,000 And then second part of your question, obviously, we feel good about where we are, right? We've increased our cash position.

Speaker 6

We have lower cash burn. And so with those two variables, we have a little bit less urgency as far as if you compare it to where we were in Q1 as far as the capital raise. So yes, we have the availability to go out there and raise capital. We have the shares now. But we can afford being a little bit more selective On that and really looking at options that are aligned with our long term capital needs And the timing on that, right, would have to be something that we will look at and we'll balance.

Speaker 6

As far as the 6 $100,000,000 is really just a function of our forecasted cash burn going forward and we 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, first half of next year as we scale the fuel cell Truck. So again, we feel pretty good at where we are. We'll make sure we're being efficient on the capital raise And strategic and also disciplined with our spending.

Speaker 10

Thanks, Stacy, and best wishes, Michael, and good luck Steve looking ahead.

Speaker 7

Thanks, Tom.

Operator

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

Speaker 11

Hi, thanks ahead. Just have one quick question. What is contemplated in the lower delivery expectations for the year? I think you mentioned 100 units for the fuel side. And retail delivery seems to be there was an uptake on a quarter over quarter basis for the best size.

Speaker 11

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?

Speaker 6

Yes. So I can take that. So I think the question was just the reasons for reducing guidance or some of the background in reducing guidance, full year guidance Going from where we were to $300,000,000 to $400,000,000 We don't really talk about the mix. We don't break out the beverages anymore again because we're building to order. We will have to see how that shakes out with the customer demand for the most part again.

Speaker 6

For this year, we have 140 barrels on hand that are available to sell. And then once those are sold through, we will resume production next year. And on the fuel cell, as Michael had alluded to, we plan to build about 120 fuel cell tracks. So really the guidance for the rest of the year is just based on what we're able to build Based on the lead times, based on the build to order strategy, that will take a little bit longer and based on some of the lead times with our suppliers. So on the gross margin, really the gross margin if you look at the overall improvement of the gross margin From where we were to where we had it, a lot of that will be driven off of the volume.

Speaker 6

Our overhead is fixed, right? And As long as we are manufacturing to the levels that we've talked about through the next few years, we don't need To scale the overhead significantly, so really the margin will be just a function of the revenue. And so in the guidance, as you see, we lower delivery guidance, obviously, you will see the margin coming down.

Speaker 11

Thank you.

Operator

Our next question is from Tyler DiMatteo with BTIG. Please proceed.

Speaker 12

Yes. Thank you and good morning everyone. Thank you for the time. I see I wanted to phrase it a different way on the cash Rich, can you provide a little more color on the working capital portion? I realize you said inventory is going to step down.

Speaker 12

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. What other efficiencies could we squeeze out on that that could really benefit the cash position?

Speaker 6

Yes. So I'll start and maybe then Michael can chime in on the production side. Thank you for the question. So as far as just where we are as we get to our cash burn targets, On the spend and the CapEx side, we feel very good. Substantially, all the reductions have been actioned in Q2.

Speaker 6

And our spend is something, as you know, that we can control and offset as needed. And of course, we'll look for incremental reduction opportunities in the OpEx and CapEx side. And we may find them, but right now what was planned on the 30% reduction second half versus the first half. So that's what we've actioned already. The working capital, as you alluded to, is probably one of the biggest areas where we could have variance to plan just because this is something that What will be key is really our ability to sell trucks to dealers, to retail those trucks and collect payments in a timely manner, right?

Speaker 6

If we're not able to do that, then we'll Cash tied up in inventory and they are and that's similar to what had happened in the BEV launch until we switched to the build to order. So some of the things that we're doing, Obviously, for the fuel cell launch, we are approaching it in a little bit more of a pragmatic way. We're ordering material based on indication of customer demand. So right, we're not over ordering, we're not over investing in inventory. And then on the BAB, as we've switched to build to order for the rest of this year, the proceeds From selling the BAP, right, will be a working capital benefit for those 140 trucks as we already have them there.

Speaker 6

So that's really where we'll get a lot of favorability for the rest of this year from working capital from those bev units. And of course, we're still working on floorplan financing, right, making sure that we have floor plan financing in place with our dealers, so we're able to increase that and we're able to accelerate our collections.

Speaker 5

Yes. And just to add in terms of obviously the overall cost of the fuel cell truck and the efficiency and coolage is limited at the beginning in the phase of the launch, right? So we do the first trucks. We do the 100 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.

Speaker 5

This is normal. We have done now the 2nd launch, 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%, 35% in the 1st stable year, Richard, and obviously 2024.

Speaker 12

Okay, perfect. Thank you for the time guys.

Operator

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

Speaker 1

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 Nikola and how will you create Value for shareholders.

Speaker 5

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 Q2, we made progress toward that goal. We have a first mover advantage on the hydrogen fuel cell truck and will begin delivering production vehicles to customers next month. We are also advancing The energy ecosystem with partners and improving the sales strategy for the battery electric trucks.

Speaker 5

So when you look at Nicolas, you see We have a management team making conscious decisions to eliminate unnecessary spend, be wise with capital and drive forward the transition to 0 emissions with our first to market world class products. We believe if we continue to execute And built on this momentum, we will be able to deliver on our promises, generating value for shareholders And simultaneously decarbonize heavy duty trucking.

Speaker 1

Thank you, Michael. The second question is,

Speaker 6

As we discussed on the call, station grants will reduce our hydrogen dispensing costs 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 LCFS credit in California. On the truck side, Vouchers in states like California and New York make purchasing a zero emission truck easier for fleets as it lowers the acquisition cost, making the total cost of ownership more competitive to a diesel truck. A great example is the California HVIP program, which can offer up to $288,000 towards the purchase of a fuel cell electric truck. We also believe we will see increased demand as new regulations come into play.

Speaker 6

For example, in California, only 0 emission drayage trucks can register in the cargo line system beginning next year. So there are significant incentives for fleets to transition to 0 emissions.

Speaker 1

Thank you, Stacy. The third question is, When will Nicola achieve profitability?

Speaker 6

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 The 3 most impactful variables to that are 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 1,000 trucks to get to gross margin breakeven and close to double that to reach positive EBITDA.

Speaker 6

We estimate the average selling price will be approximately $400,000 per truck, driven by the combination of 1st mover advantage and incentives offerings, 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 costs for both trucks. As we scale the volume, we will have better visibility into piece price reductions based on our supply chain. Ultimately, we need to see our bill of materials reduced to approximately $275,000 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.

Speaker 7

So let me just Go ahead, sorry.

Operator

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

Speaker 7

Great. I'm getting used to this. So Let

Speaker 10

me just close with this. I want

Speaker 7

to thank everybody for participating. I want to thank you for your support. I just want to say I've been involved with this company For a little over 3 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 a truck and we are. Nobody thought we could sell a truck and we are.

Speaker 7

And nobody thinks we can decarbonize this industry and we will. I am excited to be here. I'm excited to be part of this team. Michael, we will stay in touch, I'm sure. So thank you all for listening in.

Operator

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

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Earnings Conference Call
Nikola Q2 2023
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