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Nikola acquires struggling Romeo Power to secure battery supply

One startup buys another in a defensive move that also fosters growth

Nikola Corp. is acquiring battery supplier Romeo Power in an all-stock deal that brings battery production in house. (Photo: Alan Adler/FreightWaves)

Nikola Corp. is acquiring struggling startup Romeo Power Inc. in a $144 million all-stock deal that Nikola says will assure its supply of battery packs critical to assembling electric trucks. 

The transaction exchange ratio implies Romeo’s shares are worth 74 cents each, a 34% premium to its closing price Friday of 55 cents. Romeo shareholders get a 4.5% pro forma ownership of Nikola. The boards of both companies have approved the deal.

The deal potentially preserves up to 400 jobs at Romeo.

“In the short run, we need everybody there,” Mark Russell, Nikola CEO, told FreightWaves. “We need as many batteries as they can produce. It can be a challenge for them to keep up with us. We need all the help we can get there.”

Nikola expects to save $350 million on battery costs by 2026 and reduce non-cell-related battery pack costs by 30%-40% by the end of 2023 because of the acquisition.

Nikola is providing Romeo $35 million to keep operating until the deal closes, expected at the end of October.


“Following an extensive review of alternatives, we firmly believe that this combination offers the best opportunity for Romeo shareholders to participate in the ongoing value creation at a larger scale, stronger combined company. It is exciting to see Romeo joining the Nikola family,” Robert Mancini, Romeo chairman, said in a press release.

SPAC shakeout

It is the latest evidence of a shakeout of young companies that went public during a frenzy of mergers with special purpose acquisition companies in 2020 and 2021. Shell companies created by blank check investors targeted startup companies that had little or no revenue and were years away from making money.

“Only time will tell if it’s the beginning of something bigger in terms of a wave or something like that,” Russell said. “In a space where a bunch of startups got going, some of them are not going to make it. It’s inevitable that there’s some consolidation as things go along.”

Nikola (NASDAQ: NKLA) itself was among the earliest SPACs. While it is beginning to deliver trucks to customers and book revenue, its future is far from certain. An attempt to increase the number of authorized shares to raise new money has so far been thwarted by Trevor Milton, the founder and former executive chairman who faces trial on federal fraud charges in September.

But the Romeo (NYSE: RMO) acquisition fits under what is left from Nikola’s current 600 million-share pool, Russell said. A thrice-adjourned annual meeting to vote on raising the authorization to 800 million shares resumes Tuesday. Nikola needs the proxies of less than 1% of outstanding shares for the proposal to pass.

“We included the need for shares here in our overall planning,” Russell said. “And we know we can get it done regardless of any other factors.”

Battery worries

Nikola was concerned for months about Romeo’s ability to keep up with its need for battery packs, designed by Nikola and manufactured by Romeo.

The company expects to manufacture 300 to 500 trucks this year. It will update that estimate when it releases second-quarter financials on Thursday.

The Phoenix-based electric truck maker in January signed a long-term contract with Romeo competitor Proterra Inc. to lock in a second source of batteries. 

Nikola also is investigating the Ultium battery from General Motors. The automaker tentatively agreed to become a contract manufacturer of a since-canceled Nikola electric pickup truck in exchange for 11% Nikola equity. That deal unraveled as part of a scandal ignited in September 2020 by a scathing report from Hindenburg Research.

“For some time, we have thought we needed more control of our battery destiny,” Russell said. “Part of it is defensive, making sure you have security of supply. But also strategically. Batteries are in a constant state of flux. There’s constant improvements, both at the cell level and at the module and pack level.”

As part of the deal for Romeo, Nikola takes over a new 215,000-square-foot manufacturing plant in Cypress, California, that Romeo just completed last week. But don’t look for Nikola to get into the battery business beyond its own needs.

“We’re not going to be a merchant of batteries,” Russell said. “This in the long run will become our in-house capability.

Romeo Power’s new battery-manufacturing plant in Cypress, California, will become Nikola’s in-house battery operation as part of its $148 million all-stock acquisition. (Photo: Nikola)

“You get a brand-new facility that’s got new equipment in it, and you get 400 excellent, passionate people who are really experts in batteries. That’s what we’re paying for.”

Sorting out the details

Romeo’s book of business, once estimated at $554 million, includes a five-year deal with Paccar Inc. announced in April 2021 to supply battery packs for the Class 8 Peterbilt 579EV and Model 520EV refuse truck. Peterbilt directly competes with Nikola in battery-electric trucks.

“[Romeo] will certainly fulfill whatever commitments they’ve already made,” Russell said. “We won’t intentionally interfere, subject to any future negotiations or changes in circumstance.”

It’s too soon to know how other arrangements Romeo has will play out. Romeo a year ago signed a long-term deal with South Korea’s LG Energy Solution Ltd. to purchase cylindrical lithium-ion battery cells through 2028. Nikola also has an eight-year contract to purchase battery cells with LG.

“That’s been the part of the deal that you learn last because it’s competitively sensitive,” Russell said. “We don’t know everything about those deals at this point.”

It is public knowledge, however, that Republic Services, a major manufacturer of refuse vehicles, is an investor in Romeo. Timothy Stuart, Republic COO, is one of eight Romeo directors.

Republic and Nikola canceled a deal in December 2020 for Nikola to build thousands of electric-powered refuse trucks for Republic.

Romeo’s journey

Founded in 2016, Romeo may have been better off before its SPAC with RMG Acquisition Corp. that resulted in Romeo receiving $384 million in proceeds when the merger closed at the end of 2020.

Romeo stock once touched $38 a share before beginning a precipitous fall that coincided with greater SPAC scrutiny by the Securities and Exchange Commission. 

CEO Lionel Selwood was ousted in August 2021, replaced by former Bloom Energy COO Susan Brennan.

Romeo took a financial turn for the worse in February when it was forced to buy out BorgWarner Inc.’s 50% interest in a joint venture formed in 2019. BorgWarner had invested $50 million in Romeo for a 20% equity stake. In February 2021, BWA paid $880 million to acquire commercial vehicle battery maker Akasol.

Nikola signs multiyear deal for Proterra battery technology

Nikola projects production of 300-500 battery-electric in 2022

Truck Tech: Nikola’s proxy pursuit to raise share count gets harder

Click for more FreightWaves articles by Alan Adler.

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Alan Adler

Alan Adler is an award-winning journalist who worked for The Associated Press and the Detroit Free Press. He also spent two decades in domestic and international media relations and executive communications with General Motors.
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