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Edited Transcript of NKLA.OQ earnings conference call or presentation 9-Nov-20 9:30pm GMT

·46 min read

Q3 2020 Nikola Corporation Earnings Call Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Nikola Corporation earnings conference call or presentation Monday, November 9, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Britton M. Worthen Nikola Corporation - Chief Legal Officer & Secretary * Kim J. Brady Nikola Corporation - CFO * Mark A. Russell Nikola Corporation - President, CEO & Director * Umran Ashraf ================================================================================ Conference Call Participants ================================================================================ * Daniel Harlan Ives Wedbush Securities Inc., Research Division - MD of Equity Research * Hilary Elizabeth Cauley JMP Securities LLC, Research Division - Associate * Jeffrey David Osborne Cowen and Company, LLC, Research Division - MD & Senior Research Analyst * Joseph Robert Spak RBC Capital Markets, Research Division - Autos and Leisure Analyst * Paul Coster JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies * Pavel S. Molchanov Raymond James Ltd., Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to Nikola Corporation's Third Quarter 2020 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. At this time, I would now like to turn the conference over to Nikola's Chief Legal Officer, Britton Worthen. Thank you, Britton. You may begin. -------------------------------------------------------------------------------- Britton M. Worthen, Nikola Corporation - Chief Legal Officer & Secretary [2] -------------------------------------------------------------------------------- Thank you, and good afternoon, everyone. Welcome to Nikola Corporation's Third Quarter 2020 Earnings Call. With me today is Mark Russell, Chief Executive Officer of Nikola; Kim Brady, Chief Financial Officer; and Umran Ashraf, Global Head of Vehicle Engineering. During today's call, we will make certain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are predictions, projections, and other statements about future events that are based on current expectations and assumptions, and as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the earnings press release we issued today as well as the Risk Factors section in our current report on Form 8-K, as amended, that we filed with the Securities and Exchange Commission, June 8 and June 9, 2020, in addition to the company's subsequent filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date they are made. Readers are cautioned not to put undue reliance on forward-looking statements. With that, I will now hand the call over to Mark. -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Thanks, Britton. We're pleased to welcome you to Nikola's Third Quarter 2020 Earnings Call. Thanks to the continued work of all of our dedicated people, Nikola made significant progress this quarter on our previously announced milestones. On today's call, we'll give you an overview of what we achieved during the quarter, including updates on our manufacturing facilities in Ulm, Germany and Coolidge, Arizona, and also give you some context for our other announcements. We also want to do something different this quarter, some technical insights into our Nikola Tre prototypes, which are being assembled in Ulm, Germany at the IVECO Industrial complex there. We've asked Umran Ashraf, our Global Head of Vehicle Engineering for Battery Electric Vehicles, to give you a short primer on the systems in the groundbreaking Nikola Tre. After that, Kim will discuss our financial results, and then, of course, we'll open up the line for Q&A. Let me start with a brief comment about General Motors. There's been a lot of speculation about our ongoing discussions with GM. The contemplated agreement, which would give GM an equity stake in Nikola in exchange for various in-kind services is not yet closed, but discussions do continue, and we'll give you further updates when appropriate or required. Next, let me update you on our joint venture manufacturing facility within IVECO's industrial complex in Ulm, Germany, and also on progress with our greenfield manufacturing facility in Coolidge, Arizona. Along with our partner, IVECO, we've made substantial progress on the refurbishment of the joint venture manufacturing facility that will be dedicated to the Nikola Tre production in Ulm. The utility, civil work and building infrastructure are being completed, including the manufacturing floor. Construction of the work cells is currently in process. Upon completion of the work cells, we'll install an Automatic Guided Vehicle line and the heavy-duty assembly tools we'll need there, including impact drivers and tilting systems. And barring further COVID-related delays, all of this work is on track to be completed and ready for the start of production by the end of 2021. Nikola broke ground on the construction of our greenfield manufacturing facility in Coolidge, Arizona in July. The facility's master site plan is complete, and it's been submitted to, and approved by, the city of Coolidge. In August, preliminary earthwork began preparing for grading work and utilities. Site grading began in October. Our manufacturing partner, Walbridge, also awarded the initial building subcontracts in October. Building pad preparation and utility work continue this month, and foundations, floor slabs and steel erection will follow through December and January. We continue to submit secondary permits as required, and we'd like to especially thank the city of Coolidge's building department, which has provided excellent and responsive support in helping us stay on schedule. Manufacturing process engineering for Coolidge is underway, including work on key initial equipment such as frame turning, the heavy-duty dyno, enroll and break test. Based on our current rate of construction, we think we'll be ready for production trials starting in mid-2021, followed by a ramp up to the start of limted serial production by the end of 2021. To focus and prioritize all of our work, we've recently aligned our organizational structure to match our key milestones. Dedicated leaders and teams are now concentrated on executing well-defined and critical objectives that will drive us to the start of production for the Tre battery-electric vehicle and the continued engineering of our platform for hydrogen fuel cell powered trucks. We now have a dedicated commercial and technical lead for each of our 2 primary vehicle programs for Class 8 battery-electric vehicles and Class 8 fuel cell-electric vehicles, and the result has been a heightened focus with a robust set of accountabilities. Shared services such as business development, marketing, vehicle design, vehicle safety, software, manufacturing are working closely with both teams to create solutions that meet the respective programs demands. And dedicated functions such as Vehicle Engineering, have cleared mandates for milestone achievement. Let's turn now to our recent Board and leadership changes. On September 20, Trevor Milton approached the Board and volunteered to step aside as Executive Chairman and from the Board. The Board accepted his resignation, and Steve Girsky, the former Vice Chairman of General Motors and a member of the Board, was appointed as Chairman. Last month, we announced the appointment of 2 new independent board members, Steve Shindler, who was also elected to take Steve Girsky's place as Chair of the Audit Committee; and Bruce Smith, who is our newest independent director. Both Steve and Bruce are seasoned leaders, and we welcome their experience and perspective as we continue to execute on our priorities. And finally, before I turn it over to Umran, let me give you just a brief legal and regulatory update. Nikola proactively contacted and briefed the SEC during the quarter regarding our concerns pertaining to a report published by a short seller. Our council has been in close contact with the SEC and the Department of Justice, and we are fully cooperating with both in their requests for information and documents. We remain focused on achieving our stated milestones and in continuing to drive our business forward and create value for our shareholders. With that, I'll turn you over to Umran. He'll give you some insight into the exciting technology employed in our new battery-electric Tre prototypes. Umran? -------------------------------------------------------------------------------- Umran Ashraf, [4] -------------------------------------------------------------------------------- Thank you, Mark. Nikola has accelerated the development of the Tre BEV 6x2 prototypes for the U.S. market by working with IVECO in Ulm, Germany, until our Coolidge, Arizona, manufacturing facility is fully operational. The Nikola Tre BEV is part of our portfolio for zero emissions Class 8 trucks that meet the distribution and delivery applications classified as short to medium haul. The Nikola Tre BEV's heavy-duty truck elements are leveraged from the production S-Way platform in partnership with IVECO. This includes the chassis elements such as the high-strength steel ladder frame with multilink rear suspension on the solid axle with electronically controlled air springs and 17-inch air disc brakes, all integrated with the state-of-the-art Bosch electrohydraulic steering system. Nikola's technology focus on developing electric vehicle propulsion architecture, including the high-voltage battery system, electric drive axle, vehicle thermal management, vehicle controls and human machine interface, including infotainment. Nikola has engineered a bespoke 800-volt propulsion architecture for the Class 8 battery-electric truck, consisting of 720-kilowatt hour multipack battery system integrated with a 480-kilowatt continuous and having 1,020 kilowatt peak single-speed PMSM dual-motor drive electric axle. The system is capable of handling 82,000 pounds gross combined vehicle weight, with a projected range of 250 to 300 miles, up to a maximum speed of 75 miles per hour, with hail start-up to 17% grade with 1,800 Newton meters of peak torque at the motors. The 800-volt system, inclusive of an active liquid-cooled 720-kilowatt hour multipack battery, is a unique architectural approach in managing large amounts of onboard batteries energy for an all-electric Class 8 truck. It is a modular approach for the parallel design of 9 packs. Each of the multi packs is at system voltage and managed in parallel for our redundancy and safety with a sophisticated vehicle-controlled architecture integrated into the battery management system. These packs are engineered for durable, heavy-duty truck missions such that they are IP67 and IP69K for environmental tightness and thermal conditioning to handle both extreme hot and cold climates. They are also structurally integrated inter truck chassis where the battery mass contributes the dynamic stiffness characteristics while still enabling configuration flexibility for onboard battery energy for potential truck variants. Nikola engineered and integrated the thermal architecture, smart vehicle controls and HMI for the Class 8 truck associated with performance management, range optimization and features and functions, including stability control features like ABS, electronic stability control and electronic-controlled air suspension load management. Key features of the human machine interface include keyless entry via cloud assignment that is integrated into a user smartphone, telematics connected to the cloud, commercial truck navigation, over-the-air update and big data management, asymmetric encryption scheme for vehicle communication. The assembly progress continues for the first 5 prototypes being built in Ulm, Germany. The first truck has been assembled and is undergoing systems commissioning, including torque command calibration on the test track and debugging. Since most Nikola Tre systems are heavily integrated using Nikola proprietary controls software, the commissioning of the second Nikola Tre will progress at a much faster pace than the first truck as the software will have gone through debugging on the first completed vehicle and can be flashed onto second completed truck. Our target completion of the assembly for the remaining prototype trucks is by Q4 2020. We anticipate the commissioning phase to be completed prior to full track validation kick off by the end of Q1 2021 or the start of Q2 of 2021. Validation will consist of durability testing, propulsion, endurance, brake testing, hot and cold weather testing, range testing, high mileage accumulation with payload and regulatory compliance. We anticipate testing on proving ground tracks during the first half of 2021, eventually transitioning to testing on defined routes on select roadways that is expected in the second half of 2021. I'll now hand over to Kim to discuss Nikola's third quarter financial results. -------------------------------------------------------------------------------- Kim J. Brady, Nikola Corporation - CFO [5] -------------------------------------------------------------------------------- Thank you, Umran. I would now like to provide a review of our public market activity and third quarter financial results. On July 22, we announced the redemption of public warrants. We completed the warrant redemption process on a cash basis on August 21. As a result of the warrant redemption, 22,877,806 warrants were exercised into common shares, resulting in an additional $263 million of cash to the balance sheet. Focusing on the results in the third quarter, net loss was $117.5 million. And on a non-GAAP basis, adjusted EBITDA totaled negative $58.8 million. Adjusted EBITDA excludes $52.2 million in stock-based compensation, $1.5 million in depreciation and amortization and $5.2 million in regulatory and legal matters, which represents legal, advisory and other professional service fees incurred in connection with the short-seller analyst report from September 2020. Research and development expenses were $51.5 million, including $4.6 million of stock-based compensation expense. R&D expenses consist primarily of cost incurred in the development of Nikola BEV and fuel cell electric vehicle trucks. This cost include the following: personnel cost for in-house engineering and research functions; expenses related to materials, supply and third-party services; fees paid to third-parties for outside development; IVECO in-kind services for vehicle integration, product validation and engineering support; and depreciation for our R&D facilities and prototyping equipment. We expect our research and development costs to increase for the foreseeable future to achieve our technology and product road map. During the third quarter of 2020, we incurred approximately $65.8 million of SG&A expenses, of which $47.6 million is stock-based compensation. SG&A expenses consist mainly of the following costs: personnel-related expenses for corporate departments; professional fees related to legal, accounting and financial advisory; public company costs, such as insurance, SCCPs and compliance. We expect our SG&A expenses to increase for the foreseeable future as we scale head count with the growth of our business and as a result of operating as a public company. Our total head count now exceeds 429 and is growing at a major but steady pace as we continue to build our team. By the end of 2020, we anticipate our head count will be more than 530. Turning to the balance sheet. We ended third quarter with approximately $908 million of cash and cash equivalents, excluding $15 million of restricted cash. Restricted cash is inclusive of customer deposits associated with the Nikola Badger; cash collateralization of our equipment term loan; and the required deposits to P&L land holdings for the construction of the Coolidge, Arizona, manufacturing facility. We currently have no debt outstanding aside from $4.1 million equivalent loan fully secured by the restricted cash on our balance sheet. Our capital expenditures totaled $15.2 million year-to-date and $8.9 million during the third quarter. Capital expenditures are comprised mostly of investments in R&D equipment. Weighted average shares outstanding for the third quarter was 377,660,477. GAAP net loss per share for the third quarter was $0.31, and non-GAAP net loss per share was $0.16. Non-GAAP net loss per share excludes stock-based compensation and regulatory and legal matters previously mentioned. As a pre-revenue company, we believe the best way to evaluate Nikola's result is to track our progress toward achieving announced milestones. We remain committed to our goal of announcing collaboration partners for electricity procurement and hydrogen fueling stations. In addition, during the fourth quarter of 2020, we expect to make continued progress toward the assembly of remaining Tre BEV and construction of the Coolidge, Arizona, facility. Management is laser-focused on prioritizing programs and aligning resources to achieve these milestones and lay the groundwork toward becoming a leader in the zero-emission transportation industry. This concludes our prepared remarks. We will now open the line for questions. Operator? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question today is from Jeff Osborne of Cowen. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2] -------------------------------------------------------------------------------- Just a couple of questions on my end. Mark, I was wondering if you could go through, prior to GM coming into the fray as a battery and fuel cell supply supplier, what the original plan was? And what the fallback plan would be in the event that, that supply agreement doesn't go forward? And I'm talking more for the Class 8 program as opposed to the Badger. -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Sure, Jeff. The base plan that we are going into production with for the Nikola Tre BEV, battery-electric vehicle, is a battery pack that we have designed and engineered and which contains a battery module designed and engineered by Romeo, which contains cells from a Korean supplier. And that's what we will be going into production with next year. The agreement with GM was going to give us options for the next generation of our vehicle, which would be based on a noncylindrical cell. GM is developing an Ultium battery system that's based on pouch or large-format cells. That would have given us another option for Generation 2 of our vehicles. But it was -- our primary path is the path that we've already developed and which we are going into production with now. So GM was just going to give us an additional option for the next generation of vehicles, especially in the event that, that technology is able to hit its targets in terms of performance and cost, which are very aggressive, which -- and which we hope they hit. And that's one of the reasons we're interested in doing the deal. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4] -------------------------------------------------------------------------------- That makes sense. And can you just touch on as it relates to the fuel cell development program with their JV with Honda in the event that you don't use them at all, what the plan was there? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [5] -------------------------------------------------------------------------------- Yes, Jeff, it's almost the same story. So our base plan is to go into production with a fuel cell that we have developed in collaboration with Bosch over a number of years. That's been especially engineered and designed to be used in heavy-duty truck, heavy-duty vehicle. The Hydrotec from General Motors is also an impressive fuel cell system. But right now, it's engineered for passenger cars, like most fuel cell systems are today. So then the deal with GM that would give us, again, a backup plan that we could use for future iterations of our vehicles. Using that technology, which tests very impressively, by the way, we're impressed with the Hydrotec system and -- in our testing. And so we'd love to have that as an option for our vehicles, in addition to the system we developed with Bosch. But the base plan is to use the system we've already developed, and we are engineering into our production vehicles for the fuel cell system. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [6] -------------------------------------------------------------------------------- Got it. And then just 2 other quick ones. It was unclear with the Tre that you have the picture of, is that operational today? You alluded to test track word for torque. Is it actually moving? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [7] -------------------------------------------------------------------------------- Yes, it has been on the test track. It's been on the dyno. It's in commissioning. -------------------------------------------------------------------------------- Jeffrey David Osborne, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [8] -------------------------------------------------------------------------------- That's great to hear. And my last question for either of you is just as it relates to the stations. Can you remind us with the order that you place right after going public, what the timing is of the build-out of the stations? I recognize that you alluded to reiterating that you'll have partners announced by year-end, if I heard Kim correctly, and then electricity agreements, which will be certainly helpful to understand the economics of it. But can you just talk about what the timing is of that equipment showing up and when you would have your first station under construction? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [9] -------------------------------------------------------------------------------- We placed those orders so that they would have enough lead time now to deliver them in time to be installed in the first station next year, and then stations come online after that. We ordered enough electrolyzer equipment, which is the most expensive -- single most expensive part of the station. We ordered enough of that equipment to build up to 5 stations of 8 tons capacity each, 8 tons of daily hydrogen production each. So we did that to make sure that we were ahead of the curve on the lead time to make sure we could get underway in time to hit our milestone that we have in the time line that we previously published, which is us breaking ground for the first station next year. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- The next question is from Paul Coster of JPMorgan. -------------------------------------------------------------------------------- Paul Coster, JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies [11] -------------------------------------------------------------------------------- They're not all related to GM, I promise, Mark. But I'll start off with -- are you still committed to closing the deal by early December? And can you contextualize a little bit your comments that were reported, I think, in the Financial Times around the Badger initiative? What message do you want to convey to shareholders regarding the desirability of proceeding with that initiative? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [12] -------------------------------------------------------------------------------- Paul, unfortunately, I can't give you any more color than we've already given you. It's -- I think it goes without saying that we're interested in doing the deal with GM, if we can get it done. And we'll give you updates when and as needed. And then with regard to the Badger, we've just been very consistent. When we announced the Badger, we said we'd like to -- we would do that with a partner. GM is -- the GM deal anticipates being that partner. And that's all we can report at this point. -------------------------------------------------------------------------------- Paul Coster, JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies [13] -------------------------------------------------------------------------------- Okay. Then Nik -- the Badger initiative entailed some $700 million -- up to $700 million of investment in facility at GM. I mean some of us looking at it and saying, well, maybe it's better not to proceed with that. Can you just kind of give us some sense of the nature of the spend with the GM deal plus Badger -- plus the Badger versus a non-GM scenario. What kind of time line? And how long does the cash last before -- how far do you get down your road map essentially in either scenario? And how quickly? -------------------------------------------------------------------------------- Kim J. Brady, Nikola Corporation - CFO [14] -------------------------------------------------------------------------------- Paul, great question. As you know, and we have talked about this previously, with respect to GM transaction, it's something that we are still in the works. And we feel confident that we'll get greater clarity here in the next couple of weeks. But until then, then it's going to be difficult in terms of sharing with you any additional detail. But you're right to the extent that we move forward with the Badger, there is corresponding capital commitments. As we kind of think about that, ultimately, there are a number of perhaps considerations potentially that we could discuss with GM and potentially perhaps delay some of those commitments. But to the extent that we have to move forward then, of course, then we have to think about our capital expenditures closely. To give you some context, as we think about into 2022 -- 2021 and consider all of our priorities with respect to Nikola Tre BEV as well as Nikola Tre fuel cell for Europe as well as U.S., it is important that we prioritize our capital expenditures as well as operating expenditures. And right now, looking at our cash position, we feel pretty confident that we'll be able to meet all of our operating commitments as well as CapEx with respect to our ongoing programs. Now in our estimation of the cash balance, we're not including anything related to the Badger. However, we believe that based on existing cash that we have, that we should have adequate cash flow and still could end next year with $300 million or more cash on the balance sheet. Understanding that as we talked about last quarter, that at some point, we will consider going out to market and raising potential additional equity. And we always have suggested that we will do that likely a year in advance of when we actually need that cash. And so we -- if we exclude cash need for CapEx related to the Badger, we think we will need to go out to market sometime, potentially middle of next year. But once again, this really depends on the market condition and when we think will be optimal time and when we can actually minimize any dilution in terms of our shares. -------------------------------------------------------------------------------- Paul Coster, JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies [15] -------------------------------------------------------------------------------- Can you just clarify, the $300 million year-end cash balance is including the Badger expenditure or excluding the Badger expenditure? -------------------------------------------------------------------------------- Kim J. Brady, Nikola Corporation - CFO [16] -------------------------------------------------------------------------------- Excluding the Badger expense. -------------------------------------------------------------------------------- Paul Coster, JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies [17] -------------------------------------------------------------------------------- Excluding. Got you. Okay. -------------------------------------------------------------------------------- Kim J. Brady, Nikola Corporation - CFO [18] -------------------------------------------------------------------------------- In 2022, this is the expenditure we need in all of our CapEx needs for Nikola Tre BEV as well as Nikola Tre fuel cell as well as CapEx that we need for hydrogen stations as well as all the operating expenses that we need to cover. -------------------------------------------------------------------------------- Paul Coster, JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies [19] -------------------------------------------------------------------------------- So under that scenario, you don't need to come back to Capital Markets in '21, unless circumstances permit, make it worthwhile. Got you. And then last question. Customer orders. We haven't seen any additional ones since the refuse truck deal. Are you intentionally sort of holding back there? Or has the whole sort of fuss associated with the founder sort of just turned everyone off for a period? And maybe just talk to us a little bit about that dynamic, Mark? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [20] -------------------------------------------------------------------------------- Sure, Paul. The interest in and the need for our vehicles has never been higher. The number of jurisdictions that are going to require zero-emission vehicles in some way, shape or form, goes up and has not gone down. The whole time I've been watching it for many years now, the number of jurisdictions that have outright bans or phaseouts or targets for getting rid of fossil fuel vehicles increases pretty much every time period. And that's not -- I don't see that going away. And with the results of the election in the United States this week, I think that can only accelerate. So the need for, and the demand for, these vehicles has never been higher. We've said many times that we welcome everybody into the space because we think it's going to take the effort of many capable and competent players to meet the needs of the commercial transportation market as it transitions from fossil fuels to zero emission. So it's not a demand problem. We're just being very careful and very selective about who we partner with on the customer front. We consider our launch customers to be partners. And that's why we've been very careful in selecting them. And as you can see -- as you've seen in the past, with Anheuser-Busch, they do become our partners. They help us in many ways with our business plan and model. -------------------------------------------------------------------------------- Paul Coster, JPMorgan Chase & Co, Research Division - Senior Analyst, Alternative Energy & Applied and Emerging Technologies [21] -------------------------------------------------------------------------------- So you're not actively seeking new customers at the moment? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [22] -------------------------------------------------------------------------------- No, we have lots of customer conversations going on. All I'm saying is that we're very, very careful about who we make a hard contract with. You'll see us continue to be very careful and deliberate about that. -------------------------------------------------------------------------------- Operator [23] -------------------------------------------------------------------------------- The next question is from Emmanuel Rosner of Deutsche Bank. -------------------------------------------------------------------------------- Unidentified Analyst, [24] -------------------------------------------------------------------------------- Dennison on for Emmanuel. I have a couple of questions to follow up on some of the stuff said earlier. Can you just go over what milestones we can expect before year-end? I think in the past, you indicated a Tre order. You indicated a hydrogen partner. Just want to check, should we still expect those things before year-end? What has kind of been pushed out? And what kind of latest thinking there? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [25] -------------------------------------------------------------------------------- We're still targeting those dates. We would like to have an additional customer agreement announced by the end of the year, and we would like to have a collaboration on the station infrastructure hydrogen side announced by the end of the year. Those are still good targets for us, we think. Things got slowed down here just a little bit recently. We had some travel that got interrupted because of the increasing COVID restrictions in Europe. So we've had just a little bit of a slowdown in terms of being able to travel and things like that. But at this point, we're still trying to get those deals done and ready for announcement by the end of the calendar year. If we didn't get them done before New Year's, I would anticipate they would not slip very far into the first of the year. -------------------------------------------------------------------------------- Unidentified Analyst, [26] -------------------------------------------------------------------------------- Got it. And specifically on the hydrogen partner, can you go over what exactly you're sort of looking for? What -- I think there was something rumored in the press or report on the press a couple of months ago. Is the thinking still -- you now have about 3 or 4 types of partners and that's the way you kind of want to go? Or has the thinking evolved? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [27] -------------------------------------------------------------------------------- That's still how we see it. And from the different players we've talked to now for some time and have had conversations with us for some time, bring different things to the table. You have people that are operating existing networks of fossil fuel stations for heavy trucks in the U.S. and Europe, and they have locations already which are helpful. You have people in the electricity space, utilities, electricity traders, renewable energy partners, of which we already have one. We have significant investments from Hanwha, which is one of the world's largest solar panel providers and makes solar arrays. That's one of the reasons they're involved with us. And you have Bosch who are already in the hydrogen space, industrial gas players and others who are already producing and distributing hydrogen for existing market uses who would like to be in this space as well. And then you have the integrated energy majors who usually have their fingers in pretty much all of those things at the same time. So we -- I believe that before we are done building out our network of hydrogen fueling stations in our supply chain, that we will have done some deals with pretty much all of the above. I expect that we will be doing business with people in each one of those segments before we're done. And what we announced first will depend on which one makes the most sense to start with. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- The next question is from Joseph Spak of RBC Capital Markets. -------------------------------------------------------------------------------- Joseph Robert Spak, RBC Capital Markets, Research Division - Autos and Leisure Analyst [29] -------------------------------------------------------------------------------- Mark, just want to follow up on sort of the comments with the infrastructure partner and maybe some of the other partners. So this is all due to travel and some other logistical issues. Has there been any -- as far as you said, there hasn't been any change in either caution from partners or perceived change in negotiating positioning, given some of the noise around the company? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [30] -------------------------------------------------------------------------------- Well, obviously, everybody reads the news, and people could read the short-seller report like anybody else. But the people that we're talking to strategically, I don't think we're distracted by that, generally. I'm sure there are exceptions to that. But generally, people are focused on the long-term opportunity and the structural change in the global energy markets that this possibly represents and probably represent. And so that -- the only thing slowing us down, I think, at this point, is the logistics that we're talking about here, which are not -- and I don't want to mean to imply, but that's massively slowed us down. Just saying that things are -- and we thought things would continue to loosen up in terms of travel and logistics, and that's not happening at the moment, as you know. So that -- it's just to ascertain, but that -- again, that's also a distraction. And we believe that the strategic reasons for us to be able to do these things is, again, stronger than ever so that's why we're confident you're going to see us announce something on this front. And that will -- as I just mentioned, that will not be the last one either. That will just be the first. -------------------------------------------------------------------------------- Kim J. Brady, Nikola Corporation - CFO [31] -------------------------------------------------------------------------------- And Joe, as Mark talked about, to give you some additional insight, it's not simply a matter of entering into a contract. This is all about, is it the right location, is it the right price, when we think about electricity procurement from a single location perspective to potentially even much greater in terms of potential collaboration. And so we suggested that all the discussions that we've had prior to Hindenburg report, is continuing after, and it's just a matter of in terms of when we can strike right deal that makes sense for both parties. And so all those discussions are going. Of course, it's going slow than we anticipated, partially due to COVID as well as we are nearing year-end. And sometimes, that tends to slow down, especially when you have holidays, but we are very much focused on accomplishing what we have committed by year-end, if not, into Q1. -------------------------------------------------------------------------------- Joseph Robert Spak, RBC Capital Markets, Research Division - Autos and Leisure Analyst [32] -------------------------------------------------------------------------------- Okay. Thanks for all that color. The battery electric vehicle architectural system split on Slide 2 you showed, is that how we should also expect the, I guess, let's call it, division of labor once the Tre is made in Coolidge, maybe with the possible exception of a different battery relationship? And how would that chart look like on a hydrogen version of the truck, recognizing that you obviously need -- would need to introduce it? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [33] -------------------------------------------------------------------------------- So I'll just say, in general, Joe, that our long-term goal is to have a supply chain for North American trucks that is as much North American as we can practically make it. And then the supply chain for European trucks would be as much European as we can practically make it. Obviously, we're not going to start out that way. We've got a disproportionate amount of the bill of materials that comes from Europe to start with, since we started with a bill of materials that IVECO had put together before we did the deal. And -- but with the purpose that we're engineering and providing the key parts of the electric vehicle and the software, those parts will be more straightforward in terms of establishing supply chains that match the geography in which the truck is intended to be sold. And the fuel cell truck will look as somewhat similar with the addition of the fuel cell system. The -- we got thermal on there. Yes, we got thermal on there. So they will look very similar, actually. But you'll have a fuel cell system and maybe a couple of other minor differences where Nikola will be the primarily responsible party. -------------------------------------------------------------------------------- Joseph Robert Spak, RBC Capital Markets, Research Division - Autos and Leisure Analyst [34] -------------------------------------------------------------------------------- Last one for me is, so it sounds like you'll have 5 Tres by the end of the year, some more in the frist quarter of '21, but it also sounds like these are still -- and correct me if I'm wrong, but it sounds like there's still sort of more of your internal testing and validation before they're sent to customers. So can you just update us again on when you expect customers to start to get some test vehicles? And how long do you anticipate them needing to incorporating into their fleet, doing their own testing to see how much it costs to operate before they go ahead and -- with the larger orders to be fulfilled? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [35] -------------------------------------------------------------------------------- You are correct. These are 5 production prototypes. They will not be sold and won't be on the road for customer use. We'll be using them for testing and validation only. Next year, we will be building further prototypes, some of which will go on the road for road testing and will be used in customer fleets. And then next fall, we will be producing for regular customer sales. So it will be the end of 2021 that we will be shipping units from serial production into regular customer fleets. And again, one of our focus -- one of our reasons for focus on specific launch customers is to try to limit the number of customers that we're doing this work with. We don't want to get involved in a huge number of customers with a small number of trucks with each. We'd like to concentrate as much as we practically can with launch customers who are going to -- who are collaborating with us on the vehicle design and the testing and the validation. -------------------------------------------------------------------------------- Joseph Robert Spak, RBC Capital Markets, Research Division - Autos and Leisure Analyst [36] -------------------------------------------------------------------------------- So there'll be data shraing back and forth? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [37] -------------------------------------------------------------------------------- Correct. Yes, absolutely. -------------------------------------------------------------------------------- Joseph Robert Spak, RBC Capital Markets, Research Division - Autos and Leisure Analyst [38] -------------------------------------------------------------------------------- Okay. And I guess, just again, how -- like, as we all know, the commercial truck purchase is one of economics and cost of ownership. So how long do they really need to -- how do these initial customer trials do you think need to last before they get some good data? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [39] -------------------------------------------------------------------------------- Well, some of the data will take some time to be accumulated in terms of end-of-life health for the battery and things like that. We simulate that, of course, and we'll do accelerated testing. But as everybody knows, for example, with Tesla batteries, it was until they were out there for 7 years, but you knew how good they were at the end of 7 years. And of course, they turned out to be really good, as everybody knows. And since we're basing our batteries on the same base cell, we hope that we get the same result. But only actual experience will prove that out. But we share test data with our target customers. We share a lot of the information that we have, and we -- and they, frankly, have shared data back. We get a lot of great data from our partners and our customers. And then we think we're sharing data with them because we're working on this as a team. And we believe that they'll get enough data and information for them to commit to volumes of trucks upfront, just like the announced deals that we have are for volume. Well, I think you'll see more and more deals like that going forward. We will give trucks to customers for test purposes, but our priority is going to be on our launch customers. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- The next question is from Daniel Ives of Wedbush Securities. -------------------------------------------------------------------------------- Daniel Harlan Ives, Wedbush Securities Inc., Research Division - MD of Equity Research [41] -------------------------------------------------------------------------------- Yes. And thanks for all the insight. And the questions -- so my question first, again, for Mark. When we look back the last few months, what's been the biggest challenge for you and the team? And obviously, it seems like you've overcome a lot of it. But I mean just -- I'll start there. -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [42] -------------------------------------------------------------------------------- Well, our biggest challenge is get ridding the world of fossil fuels. But when it comes down to actual logistics, people who have never done something like this don't understand what it entails. We're disrupting a vehicle industry that has been iterated and perfected over a century. The own facility where we are building these trucks was building heavy trucks over 100 years ago. And they've been building heavy trucks at that location powered by fossil fuels for a century. And they've got really, really good at it. And now we're asking them to build heavy trucks with a completely different design. Their motor force is currently on a completely different system. And this is a lot of work. It requires tremendous amounts of engineering, tremendous amounts of testing and validation, tremendous amounts of verification and simulation. And we are just so grateful that we have such strong partners who have worked with us to get us to this point, and we're grateful to our team who do an incredible job. We have an incredible team of people that have come to us from all over the world and from all the other established players who've come here with 1 single purpose, and that's to rid the world of fossil fuels. That's the passion that motivates Nikola people is we have a mission. And if we're successful and (inaudible) succeed, we're going to help the world solve one of the most difficult challenges for emissions, and that's how do you get heavy stuff long distances. Commercial transportation is one the toughest things to solve for zero emissions. And that's what Nikola is all about. Battery electric trucks for short range, fuel cell electric trucks for long range, and we think we can cover that whole ground. We're one of the few people who have a plan for both. -------------------------------------------------------------------------------- Kim J. Brady, Nikola Corporation - CFO [43] -------------------------------------------------------------------------------- I'm going to understate in terms of the amount of effort that we put in to realign the organization, as Mark talked about in the last 4 to 6 weeks. Of course, we've had some distraction and want to recognize that. But at the same time, I think because of that, we have been able to strengthen our Board as well as we have been able to focus and realign and we established priority with respect to Nikola Tre BEV as well as time line for Nikola Tre fuel cell for Europe as well as the U.S. And so we want to fully recognize the efforts the team has gone through to really focus and prioritize, and that's really important. Because of that, I think we'll be able to accelerate in terms of our execution. -------------------------------------------------------------------------------- Daniel Harlan Ives, Wedbush Securities Inc., Research Division - MD of Equity Research [44] -------------------------------------------------------------------------------- Are you -- from a partner perspective, are you hearing from partners that maybe you weren't expecting to hear from in terms of looking to partner with Nikola? is that a trend? And obviously, you're going to be selective, but in all different sort of areas, in terms of the push versus pull, are you starting to hear from more and more partners wanting to be a part of this vision on the hydrogen fuel cell side of next year? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [45] -------------------------------------------------------------------------------- Well, I think we have heard from a few people that we haven't heard from before. And at this point, I'd be surprised if that circle expands dramatically because at this point, one of the side effects of the last few interesting months is that everybody we ever run into has heard of Nikola now. Well, everybody knows who we are at least. So we -- and that has brought some things. I think some people got aware of us that weren't aware of us. And that has led to a few conversations that we weren't having before. But we were very focused on talking to everybody in the space who is willing to talk to us from the beginning. And so we feel like we have pretty good conversations with everybody that could reasonably be a partner with us, and we're grateful for the conversations, and we're interested in partnering with people where it makes sense for both of us. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- The next question is from Hilary Cauley of JMP Securities. -------------------------------------------------------------------------------- Hilary Elizabeth Cauley, JMP Securities LLC, Research Division - Associate [47] -------------------------------------------------------------------------------- I wanted to first kind of follow up on one of the earlier comments about the supply chain, and just any additional context you can give for timing on when you expect to be able to source some more of those materials domestically versus kind of continuing to import these? And are these conversations that are kind of already ongoing or is the focus to kind of focus on getting this up and running and then focusing there? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [48] -------------------------------------------------------------------------------- So Hilary, that's a good question. The raw materials for the Tre is -- on a line basis, is more than 80% -- more than 90%? -------------------------------------------------------------------------------- Umran Ashraf, [49] -------------------------------------------------------------------------------- Probably about 90% to 95%. -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [50] -------------------------------------------------------------------------------- Over 90% of the bill of materials by line item for the Tre is stock from the parts been at IVECO and CNH. So because we're not innovating tire and wheels and frames and cab frame, body and weight, we're not innovating the parts of the truck, other than the -- we're trying to make everything as good as we can make it. And that's one of the blessings of partnering with IVECO, by the way. The IVECO S-Way was only introduced in July of '19 as one of the newest diesel vehicles in the world. So we had a very new, recently validated platform to pick from. But more than 80% of the value of the vehicle comes in the less than 10% of the bill of materials that Nikola is engineering and taking the lead on. The battery, the e-axles, the motors, the inverters, the control systems, the software, the thermal systems, the parts of the vehicle that make it an electric vehicle, that's the part that Nikola is specializing in and takes the lead on in our partnership with IVECO. So the existing bill of materials was very European focused because IVECO has no North American manufacturing presence. The rest of the products are a mix because we've been willing to partner with anybody in the world who we think is world-class and is interested and sees the future the same way that we do. And that's what led to our collaborations with Bosch, with MAHLE on thermal, with Meritor and Wabco and people like that. So that's a mixed bag. And what we're trying to do, as we said, is domesticate both supply chains. So the parts that are currently sourced in the United States, for example, our batteries are sourced from the United States right now, we would like to get a European supply chain established as soon as practical. And for the parts that are coming from Europe, which is a lot of the existing bill of materials, for example, we want -- we would like to get a domesticated supply chain established as soon as practical. We anticipate, for some of those things, that can happen fairly quickly. And for some of those things, we think it will take up to several years, frankly, for some of the parts. So it will be a varying answer depending on the part, some quickly, some will take months, I mean, and a few might even take a few years to get completely domestic. -------------------------------------------------------------------------------- Umran Ashraf, [51] -------------------------------------------------------------------------------- In terms of process, we have sourcing council on a weekly basis between IVECO and Nikola to review those parts that are been internally sourced. And the goal would be by sometime towards the end of 2021 and early 2022, majority of the parts could be localized. But as Mark indicated, some components may take longer. And this is all about looking at volume and potential impact on BOM. And to the extent that some parts will take longer, it's simply because, based on volume and type of part, that it makes sense to continue to import from Europe a little bit longer than simply trying to localize it over the next 1.5 years. But ultimately, we recognize that we want to get to a position where we have localization of all components. -------------------------------------------------------------------------------- Hilary Elizabeth Cauley, JMP Securities LLC, Research Division - Associate [52] -------------------------------------------------------------------------------- Okay. Great. And then I'm just kind of wondering, obviously, a lot of interest in the fuel cell truck and quite an impressive backlog there. I'm just wondering if you could share any thoughts on timing and when we might start to see some of those preorders converting to binding orders? And that's all I had for you. -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [53] -------------------------------------------------------------------------------- It's another good question, Hilary. Thank you. The focus has been on getting orders fixed and firm when they are in the 1-year window. So when we're 12 months from production, we're looking to have firm commitments in place. That's kind of a rolling target we have. Now that's going to vary either way, of course, from time to time. But as we reach 1 year from production, we would like to have launch customers in place. And so 1 year from production for the fuel cell truck will be in 2022. Fuel cell truck goes into production in '23. And so in 2020 -- I hope we can do this faster than this, but we would be targeting to have a hard contract in place with a launch customer a year out from production. -------------------------------------------------------------------------------- Operator [54] -------------------------------------------------------------------------------- The next question is from Pavel Molchanov of Raymond James. -------------------------------------------------------------------------------- Pavel S. Molchanov, Raymond James Ltd., Research Division - Research Analyst [55] -------------------------------------------------------------------------------- Let me take a step back. You referenced the election a few minutes ago. And obviously, given your comments about decarbonization, let me just ask, what do you -- what would you like to see from the Biden administration, assuming not a whole lot perhaps can get through the Senate, any executive actions that you would be encouraged by? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [56] -------------------------------------------------------------------------------- Well, we expect the Biden administration to be more aggressive than the Trump administration on this -- on these matters. And in the event that the Senate falls to Democratic control, then you've got the possibility of something like the green new deal, which, of course, makes the whole country look more like California. All of those things will be positive for the demand profile for our products and for our business model. -------------------------------------------------------------------------------- Umran Ashraf, [57] -------------------------------------------------------------------------------- And Pavel, I think we talked about this, with the Biden administration, we would expect the restoration of Paris Accord, and we would expect much greater participation by federal government with respect to green energy. I think they look at that as a centerpiece in terms of creating new jobs, and we think that's important. To the extent that the perspective is that you can wean off fossil fuel and create high-paying jobs with green energy, this is going to be an extremely important transition, especially in the U.S. There have been less focus and less emphasis on the Trump administration, but we think that will definitely change. And so it's going to be good for Nikola. -------------------------------------------------------------------------------- Pavel S. Molchanov, Raymond James Ltd., Research Division - Research Analyst [58] -------------------------------------------------------------------------------- One more policy question, this one about Europe. As part of the European Climate Law, which is due to be approved next month, there's some really aggressive electrolyzer targets. I think 40,000 megawatts by the end of this decade. In that context, would you consider expanding your targets for fuel station construction in Europe, which historically have been pretty small? -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [59] -------------------------------------------------------------------------------- Yes. Again, one of the reasons that we are planning to construct fewer stations in Europe is because we believe in Europe, they will be of average larger size, the volume on the trunk routes in Europe is higher comparatively than to the U.S. We also see the increase of government-led action in Europe or the comparative greater government-led action in Europe compared to the United States. There are some very impressive large-scale green electricity, electrolyzer hydrogen production projects underway in Europe, some of them very impressive and which we are following along and in talks with. We would like to be involved in those things, and we encourage them. And we want to do our part to accelerate the rollout of some of these infrastructure projects. We think it will help facilitate the building of the network that we're undertaking there. And that all parties and people who want to get involved in this would be welcome from our perspective. It helps to save the planet. -------------------------------------------------------------------------------- Operator [60] -------------------------------------------------------------------------------- There are no additional questions at this time. This will conclude today's conference. You may disconnect your lines. Thank you for your participation. -------------------------------------------------------------------------------- Mark A. Russell, Nikola Corporation - President, CEO & Director [61] -------------------------------------------------------------------------------- Thank you.