Electric truck maker Nikola Corp. is laying off 7% of its workforce — and 100 employees — and slowing production of its battery-electric trucks because the more it makes, the more money the company loses.
In a news-filled, third-quarter earnings report on Thursday, Nikola also said it is revising an executive compensation plan that could have made multimillionaires of top leaders if certain share price thresholds were met.
Executive pay plan revamped
Nikola dropped $40 and $55 per share thresholds and extended a $25 a share bogey until June 2024. The moves allow Nikola to return $58.8 million to its balance sheet.
Nikola shares traded Thursday around $3, far from meeting the lowest tier of $25 per share that would allow executives to lock in share grants they agreed in 2021 to take in exchange for accepting $1 a year in salary for three years.
Economic headwinds, rising inflation and borrowing costs, and unforeseen costs associated with purchasing troubled battery pack supplier Romeo Technology led Nikola to pull guidance on production for Q4 and 2023. It said it will not meet its already-lowered estimate of building 300 battery electric trucks this year.
Nikola also indefinitely delayed construction on the third phase of its $600 million plant in Coolidge, Arizona.
The company remains on track to deliver hydrogen fuel cell-powered electric trucks in the second half of 2023 and finish the second phase of the Coolidge plant, which would allow it to build 20,000 Class 8 trucks a year.
‘Adequate’ liquidity for next 12 months
Nikola had about $1 billion in liquidity at the end of Q3 with $400 million in cash and equivalents.
It can sell $312 million in discounted shares through an existing equity line of credit and $295 million through an at-the-market arrangement with Citigroup Global Markets. It already sold $105 million through that deal.
Total liquidity rose from $841 million at the end of Q2 and is “adequate” to fund Nikola’s business plan for the next 12 months, CFO Kim Brady told analysts on a Q3 earnings call.
Nikola revenues of $24.2 million beat analysts’ estimates by $2 million. A per-share loss of 28 cents came in 10 cents lower than analysts expected. An early 10% gain in the share price reversed itself to a negative position during the conference call. Shares closed down 10.91% at $2.93 on Thursday.
Post-purchase Romeo surprise
Nikola learned after purchasing the struggling battery pack maker that Romeo subsidized battery pack enclosures by $110,000 each. Nikola needs five quarters to get those costs on par with competitor.
“We have a significant gap between average sale price and cost per unit, so we are losing money,” Brady said. “It’s important, at least for the next five quarters, that we’re very thoughtful about this. We want to make sure we are as well prepared as we think through 2023. We know the market could get worse.”
Nikola will cut operating and capital expenses in 2023 by 20% to 30%, Brady said.
Why bother with battery-electric?
Analyst Bill Peterson from J.P. Morgan asked why Nikola is pursuing battery electric trucks when other manufacturers can make them more efficiently and at lower cost.
“We feel good that we have two [zero-emission] legs to stand on,” Nikola President Michael Lohscheller said. “At the end of the day, the customer will decide.”
Nikola has more letters of intent to purchase the fuel cell truck it will begin producing in the second half of 2023 than it does for battery-electric trucks. Originally, the company only planned to offer the battery-powered truck in Europe.
“I think there is a lot of opportunity for the fuel cell. But I feel very good that we have both alternatives,” Lohscheller said.
Cowen analyst Jeffrey Osborne appeared to agree.
“We see demand accelerating more meaningfully ahead in 2024 when fleet decarbonization targets begin to take effect and California regulation starts,” he wrote in an investor note.
Most trucks in dealer inventory
Nikola delivered 75 battery-electric Tre models in Q3, when it recalled all 93 early models. It found a seat belt issue in cabs imported from manufacturing partner Iveco.
Customer deliveries amounted to just 14 trucks in the quarter. Another 97 are in dealer inventory. Sales to end customers are slow because charging infrastructure and reimbursement from a California rebate program is lagging.
As a small company, Nikola cannot offer much to help early customers meet their charging needs for electric trucks they purchase. Larger legacy players like Daimler Truck North America, Volvo Trucks North America and Paccar Inc. sell chargers and help fleets navigate tedious and expensive infrastructure installation issues.
Editor’s note: Updates with closing stock price an analyst comment.