Editor’s note: Updates final paragraph with closing stock price.
Republic Services (NYSE: RSG) has canceled an order for 2,500 battery-electric refuse trucks from Nikola Corp. (NASDAQ: NKLA), raising new questions about the electric truck startup’s ability to generate revenue to keep its business plans alive.
Development of the trucks based on the Nikola Tre would take too long to develop and cost more than expected, Nikola said in a press statement Wednesday.
The goal of the collaboration with Republic was to design and build an industry-first fully integrated refuse truck based on a zero-emissions battery-electric drive platform and body. It would also integrate multiple new systems.
On a call Wednesday morning with investors, Nikola management said the Republic program was running $200 million over budget. And it would require a new bottom-up design instead of leveraging the Tre base chassis as planned, according to Cowen Inc. analyst Jeffrey Osborne.
“This was the right decision for both companies given the resources and investments required,” Nikola CEO Mark Russell said. “We support and respect Republic Services’ commitment to achieving environmentally responsible, sustainable solutions for their customers.”
Republic is testing a Mack LH Electric refuse truck. A second Mack LH Electric is in service with the New York City sanitation department. Mack is taking orders for electric garbage truck sales in 2021.
The Milton factor
The loss of the Republic business is the second undoing of a project put forward by founder and former Executive Chairman Trevor Milton. His much-hyped Badger battery-electric pickup truck was canceled when a $2 billion deal with General Motors Co. unraveled in late November.
Milton left the company in September after a scathing report by short seller Hindenburg Research alleging Nikola was built on a series of lies and misrepresentations by Milton. The Justice Department and the Securities and Exchange Commission are investigating the claims.
“Given the tidal wave of bad news for Nikola over the last few months, this was not the news that investors wanted to see under their Christmas tree,” Wedbush Securities analyst Dan Ives said in an investor note Wednesday. “The company still has a Kilimanjaro-like uphill climb to gain back Street credibility heading into 2021.”
Nikola plans to begin deliveries of the battery-powered Tre in the U.S. in 2021. The company has not named any other customers for the truck. But Russell earlier said municipalities expressed interest in the cabover model because of its tight turning radius and ability to maneuver in urban areas.
The Tre originally was planned for manufacture and sale only in Europe. Prototypes are being built in a joint venture with CNH Industrial N.V. (NYSE: CNHI) subsidiary Iveco at a plant in Ulm, Germany. An early Tre prototype was shipped to Arizona, where Nikola is building a $600 million assembly plant. The Tre initially would be assembled from imported kits.
Nikola also plans to break ground on its first commercial hydrogen station in 2021. It has a pending agreement to purchase electricity at a discounted rate from Arizona Public Service. Making hydrogen through a process called electrolysis requires a lot of electricity.
Selling hydrogen at a price comparable to diesel fuel is viable only if the electricity used to make it is cheap.
“Nikola remains laser-focused on delivering on our battery-electric and fuel-cell electric commercial truck programs and the energy infrastructure to support them,” Russell said.
Nikola shares closed Wednesday at $15.03, down 10.70%. Milton remains Nikola’s largest shareholder with more than 88 million shares, about 25% of the company stock.