Fallout from Romeo Power near-collapse stings Lightning eMotors

Romeo’s surprise

Romeo unexpectedly notified Lightning that it would not honor its commitments to supply battery packs or provide further service or support under its long-term supply agreement, Reeser said.

Romeo did not figure in Lightning eMotors’ future product plans, but its battery packs were critical to Lightning’s ability to ship products built on prior platforms.

Reeser hinted the company might sue to get the battery packs it is due.

“We expect Romeo to meet its obligations and will evaluate all appropriate actions in that regard,” he said.

Deferred purchases because of the timing of new federal incentives and rising interest rates also contributed to the shortfall, Reeser said. Still, the company produced 128 vehicles and powertrains in the last three months of 2022, more than any quarter in its history.

Romeo’s struggles lead to fire sale

Romeo’s struggles to keep up with demand led to Nikola paying $144 million in an all-stock transaction. Nikola was Romeo’s biggest customer and the Phoenix-based electric truck startup considered allowing Romeo to fail but chose to acquire the company instead to secure its battery supply.

Nikola found out during the purchase process that Romeo was discounting the price of its packs sold to Nikola by $110,000 each, a pricing gap Nikola now has to make up as it takes over production at a new facility Romeo opened in June in Cypress, California.

No intentional interference

Mark Russell, who was Nikola’s CEO at the time of the Romeo acquisition, told FreightWaves in July that Romeo planned to honor its commitments and Nikola would not “intentionally interfere subject to any future negotiations or changes in circumstance.”

Nikola on Wednesday declined to comment on its exposure, if any, to Romeo’s supply agreements.

Nikola knew of Romeo’s production problems but not the extent of them at the time of the takeover. It dispatched global manufacturing lead Mark Duchesne to Cypress to oversee the operation. 

But the glacial speed of making packs and absorbing their previously hidden costs will impact Nikola truck production for the next year, the company said on its Q3 earnings call in November. The bill of materials for the battery-electric Nikola Tre costs significantly more than Nikola can charge for it.

Paccar: ‘No impact at all’

Another Romeo customer, Paccar Inc., had a five-year battery pack supply agreement with Romeo for the Peterbilt Model 579EV Class 8 tractor — a direct competitor of the Tre.

The Nikola-Romeo deal had “no impact at all,” Paccar CEO Preston Feight indicated during the company’s Q3 earnings call on Oct. 25.

“We have a really good supply base structure with the battery producers in the world and have long-term contracts in place that give us adequate supply,” Feight said.

Related articles:

Lightning eMotors launches online Fleet Planner solution

Nikola acquires struggling Romeo Power to secure battery supply

Nikola cuts workforce, slows production of loss-making electric trucks

Click for more FreightWaves articles by Alan Adler.