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Piggybacking The Tesla Hype - Zero Emission Transportation Company Nikola Corporation To List On Nasdaq

Henrik Alex profile picture
Henrik Alex
16.31K Followers

Summary

  • Discussing surprise backdoor listing announcement and key transaction terms.
  • Company likely decided to pursue a backdoor listing after a recent funding round did not raise sufficient capital to execute on its aggressive business plan.
  • Even after the proposed $525 million private placement, Nikola will likely be required to raise a major amount of additional capital by mid-2021 at the latest point.
  • Company currently expects EBITDA profitability by 2024 but investors should take these projections with a huge grain of salt given the frequent delays experienced at Tesla and the company already having revised earlier projections.
  • Despite these issues, Nikola might very well attract meaningful investor interest as market participants are eagerly looking for the next Tesla.

In an apparent twist of fate, emerging zero emission heavy duty truck developer Nikola Corporation ("Nikola") is now trying to ride the coattails of its nemesis, Tesla Inc. (TSLA) by becoming a public company:

Nikola Corporation, a leader in the design and development of BEV and FCEV class 8 semi-trucks, along with VectoIQ Acquisition Corp., a publicly-traded special purpose acquisition company, announces that the two companies have entered into a definitive agreement to create a company focused on the development of next generation smart transportation. Upon the closing of the transaction, the combined company will be named Nikola Corporation and is expected to remain NASDAQ-listed under the new ticker symbol "NKLA."

(...)

The transaction reflects an implied enterprise value at closing of $3.3 billion. Cash proceeds raised in connection with the transaction, which will primarily be used to fund operations, support growth and for other general corporate purposes, will be funded through a combination of VectoIQ's cash in trust and a $525 million private placement of common stock at $10.00 per share led by institutional investors including Fidelity Management & Research Company, ValueAct Spring Fund and P. Schoenfeld Asset Management LP. Current Nikola stockholders will remain majority owners of the combined company at closing.

The boards of directors of both VectoIQ and Nikola have unanimously approved the proposed transaction. Completion of the proposed transaction is subject to approval of VectoIQ and Nikola stockholders and other customary closing conditions, including a registration statement being declared effective by the Securities and Exchange Commission, and is expected to be completed in the second quarter of 2020.

Investors following the red hot zero emission transport space might wonder why the company did not use the renewed hype around the industry's posterchild Tesla to conduct a more traditional initial public offering ("IPO") at a potentially much

This article was written by

Henrik Alex profile picture
16.31K Followers
I am mostly a trader engaging in both long and short bets intraday and occasionally over the short- to medium term. My historical focus has been mostly on tech stocks but over the past couple of years I have also started broad coverage of the offshore drilling and supply industry as well as the shipping industry in general (tankers, containers, drybulk). In addition, I am having a close eye on the still nascent fuel cell industry.I am located in Germany and have worked quite some time as an auditor for PricewaterhouseCoopers before becoming a daytrader almost 20 years ago. During this time, I managed to successfully maneuver the burst of the dotcom bubble and the aftermath of the world trade center attacks as well as the subprime crisis.Despite not being a native speaker, I always try to deliver high quality research to followers and the entire Seeking Alpha community.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (87)

Sanjay John profile picture
Good, informative article with data. This is what articles on SA should be like (at least most). Thanks.
Shanytc profile picture
I smell.. Pump and Dump
crafool01 profile picture
Interesting fact to point out about Nikola Motors is that it has $14 billion in orders for its trucks already, and TESLA that was founded in 2003 didn’t have over $10 billion in revenue until 2017 or 14 years after its founding, which is very good and why investors rewarded them with a market cap in 2017 that was 5x revenues. Nikola looks to most likely blow past $10 billion in revenues and in about a 1/3 of the time and with a diversified stream of revenue as this will include sales of hydrogen fuel eventually, and my guess would be that investors are more likely to reward NKLA with closer to TSLA’s current 5.77 times revenue for its faster growth and diversified revenue stream, which given the announced $3.3 billion deal value for Nikola starting to trade in June would represent some incredible Upside given we are talking about $50 to $60billion market cap. I realize the author went to a lot of effort to say that Nikola will need additional investment to achieve its production and sales and would point out that sordid TESLA and if they could do it then why the doubt about NKLA? I would say that NKLA is demonstrating even better management technology and growth than Tesla.
Henrik Alex profile picture
Again, Nikola's "backlog" doesn't really exist as the $14 billion number is old and the company has never updated on it but rather declared the order book "frozen" two years ago. Customers can walk away at any time at no penalty.

So far, the company has only produced two prototypes and is already years behind its original plans. Remember, commercial production should have started THIS YEAR already, now it is projected for 2023 (and will almost certainly delayed again).

Investors like you are looking for the next Tesla and this is ok but so far the company has only sold shares while its technology appears to me mostly vaporware at this point.

Remember, they have stopped working with PowerCell and are now trying to develop an own fuel cell stack which is quite an effort.
Davewmart profile picture
@Henrik Alex

Nikola are also planning to use their proprietory magic battery, with unheard of performance, demonstration to follow.

Yeah, right.

At least the boss seems to have managed to cream off money for his own mansion on the back of this hopium.

I have been a long term advocate of hydrogen, but this is another California pump operation.
Henrik Alex profile picture
@Davewmart

Yes, there are certainly a lot of questions around the viability of Nikola's technology which to a large extent still does not exist at this point.

That said, it doesn't matter. Investors are desperately looking for the next Tesla, likely providing Nikola with the chance to raise some much needed cash soon.
B
Very few comments are being made about the diversity of this company one being the military one being Recreation one being Automotive in one being big rig industry. They haven't even begun to do any future plans toward International markets. Nikola Sports could change the recreation industry with their electric watercraft they could change the way the military sees off-road vehicles in their use in the theater and of course you have the weekend truck enthusiasts and nobody can argue that the style that they presented is worth a second and third look not like the silly Tonka toy feature Tesla put out
Henrik Alex profile picture
You must be kidding. For the time being, Nikola will largely remain a vaporware company which is already far behind its stated plans to commercialize there "technology" whatever that might be.
Andreas Hopf profile picture
"I think of this company as more than just a semi manufacturer but rather both a semi and energy company"

Tesla derives 94.1% of its revenue from automotive business, more than ever, while the energy generation and storage segment has stalled since years.

Revenue - gross margin

$410,022,000     8,5%
$374,408,000   11,8%
$399,317,000   17,2%
$371,497,000   11,5%
$324,661,000     2,4%
$368,208,000   11,6%
$402,000,000   21,9%
$436,000,000   11,7%

Don't even ask what the net margin is. In other words, it's another one of Elon Musk's futile taxpayer co-financed hobbies, not a business.
crafool01 profile picture
The author is taking a jab at buyers of this stock as looking for the next TESLA as if that could be a bad thing? I think of this company as more than just a semi manufacturer but rather both a semi and energy company, and with that I believe it is constructive to look at the entire energy stock sector, which is trading like the steel stocks in the 1990s with low single digit P/Es which implies the market is telling us that we are right to be looking at alternative energy stocks, which I would definitely put this stock. The key to this company is they will be selling monopoly/utility like routes for their trucks and hydrogen refueling stations. To me the idea of having an onboard generator to recharge e.v. Batteries just makes good sense and especially good when it is clean zero pollution and fast to refuel. Hydrogen infrastructure is needed and these truck routes with dedicated customers will be very important for Nikola and every other Hydrogen Fuel Cell vehicle company, as Nikolas CEO says, I hope Mercedes Freightliner, BMW, and any other manufacturer out there makes a better even cheaper semi and that those trucks come to our stations as well. This is a technology energy company that is positioned to take on big oil.
Henrik Alex profile picture
BMW isn't into trucks :-))

At this point Nikola is neither a truck manufacturer nor an "energy company" but rather just wishful thinking or as others might a provider of vaporware (pun intended).
crafool01 profile picture
According to this BMW is in trucks, www.popularmechanics.com/...

I wouldn’t call a company with $10 -$14 billion in orders wishful thinking, but rather a company about to kick into the next stage as leader in the EV market as AB’s $800 million deal for trucks looks pretty promising to me. Not to mention, Nikola May get a possible $2 Billion award in suing TESLA for infringing on its semi truck design. If Elon were smart, he would offer a Big price like $15 billion in TESLA stock to buy Nikola.
Henrik Alex profile picture
@crafool01

BMW, of course, has nothing to do with trucks. You apparently didn't even read the 5-year-old article linked by you as the EV-Truck discussed only carried parts for the company's manufacturing plants and was owned by a trucking company.

Nikola is years behind its original plans and Anheuser-Busch can walk away at no cost at any time just like all of the company's "customers".

I would be TRULY surprised if Nikola would be awarded a single dollar under the lawsuit.

And Elon Musk will certainly not buy a vaporware company.
Invader from Earth profile picture
I would be interested in a side by side comparison, including costs, of LNG, BEV, FCEV and diesel technologies. The H2 stations could be franchised, which would change the projected cost and revenue streams. The FCEV and BEV could also be leased, which would also change the cost and revenue streams.
crafool01 profile picture
There is no doubt that ESG investing is picking up steam and likely to be around a long time by just looking at the decisions of some of America’s largest and most respected institutional investors like the endowment funds of Harvard and money managers like Jeremy Grantham of GMO speak of divesting fossil fuels stocks to not only do the right thing but to avoid permanent loss of capital. Hydrogen fuel cell technology is the most attractive and exciting and realistic alternative to fossil fuel for powering our transportation needs as it is plentiful, doesn’t have the range anxiety, weight issues and complicated battery material issues, which constrain and hold the battery electric vehicles to their 2% penetration levels, and hold them back from being the answer the world needs for universal worldwide mass adoption to combat climate change that could be from carbon dioxide.

Philip Fisher the other great investor that Warren Buffett followed his teachings was a legend at growth company investing, and he and his son Ken Fisher were great at coming up with rules to help investors value growth companies, which are difficult to value most of the time given they typically lack earnings per share like Nikola currently does, however Nikola does lack earnings, I believe a Warren Buffett would apply Fisher’s rules for growth stocks, and specifically the fact that Nikola’s merger with VTIQ is happening at the very attractive valuation of $3.3 billion dollars, which is less than 1 times sales for Nikola if we use the fact that Nikola already has around a $4 billion dollar backlog of orders for its trucks and vehicles. Fisher’s rules were that buying a true growth company for less than 1 times revenue was generally a very good value. This merger is happening at less than 1 time revenue and I believe the many advantages that the Nikola semi has to traditional semis that we will see multiples of this back log as companies follow pace and move as they have announced toward carbon neutral.

I am a buyer of VTIQ and do believe it will follow the TSLA success route to a degree, but I say to a degree because Nikola is more than a semi company they are as the CEO Trevor Melton explains an Energy technology company and his ambitious plan to roll out the hydrogen fuel stations network worldwide is enormous, but this guy created a multi billion dollar semi company with leading technology by JVing with parts companies and others and not spending 10s of millions of his own dollars, and I believe the $1 billion in cash that he will have after the merger is an ample amount for him to JV with some REITs and build hundreds of hydrogen fuels stations worldwide.

Buy VTIQ.
Henrik Alex profile picture
They won't have one billion in cash after the merger, just a little over $700 million and this will be gone entirely until mid-2021. First large-scale station not expected to be commissioned until 2022 and these stations are entirely uncharted territory as no one has ever built a station close to that size so far, particularly not based on electrolysis.

Technology remains early stage and rather complex and failures are more the rule than the exception so far. Capex is massive.

I am highly skeptical regarding their H2 Network plans.
crafool01 profile picture
VTIQ has over $817 million in cash and the PIPE has $525 million, so I still believe Nikola’s statement of around $1 billion after merger and the fact they have a semi backlog of orders of $4 billion. Trust the stations are big but if you notice anything about Nikola it is they have been geniuses in my opinion at forming joint ventures and I can bet they will have ample opportunities to JV some of their stations with REITs, and electrolysis for the creation of hydrogen is a known technology that doesn’t require that much energy and there is nothing to stop them from supplementing their hydrogen production with others and marking it up as a reseller. They will have huge advantage with their station network given their captive fleet of trucks that will use them and eventually other fuel cell drivers needing hydrogen will add to their revenues, economies of scale and profits.
Davewmart profile picture
@JBBanker

I am down as a proponent of the hydrogen economy if anyone is on this forum

That in no way mitigates my standards demanding realistic plans and concentration on feasible technology rather than pie in the sky scams

Nikola is very much in the Kalifornia Kon category, as far as I am concerned.

Their vehicles are to use substantial batteries, and they sacked the highly reputable Power Cell as a partner in this.

In their place, they are relying on utterly untested in real applications breakthrough technology:

www.greencarcongress.com/...

I don’t believe a word of it.

They took a leaf out of Tesla’s play book, and when their initial capital raise failed, got billions from the gullible for a hope and a prayer blue sky technological gamble.

He has a nice mansion though, on zero production.
beaky profile picture
I have found that the prevailing opinion on 90% of the companies in the stock market, based on reading Seeking Alpha, is that they are all scams
crafool01 profile picture
I agree that these message boards do attract the short sellers that point out the inevitable difficulties to be encountered and try and game investors, which is unfortunate.
tomatojuice profile picture
Let this company be debated by the bulls and bears just like Tesla was for years. Nothing is guaranteed, but please have a very long term outlook. Somebody said something along the lines of "people over estimate what can happen in 5 years, but underestimate what will happen in 10 years".
djunh1 profile picture
tesla was the poster child for this last bull market run, which I believe is coming to an end soon. Tesla's share price is doing all sorts of crazy things, but as this market transitions, so shall teslas share price as a result.

This name would be a very, very speculative buy based on the volatility as of late. I am even interested in buying it day trades, but would not be buying something with such large captial needs right before ( or during actually) a potential global liquidity problem.

Funding is easy during good times. And it lasts a while. When things get bad, they get bad in a hurry. Just look at the feds ongoing operations in the overnight markets. When all of this starts to lock up and conditions get bad, I wouldn't want to be caught holding any of these companies which rely a lot of new credit.
tomatojuice profile picture
@djunh1

I agree with everything you said. I however, am putting this in my long term speculative portfolio. I don't care how much it goes down over the next 5+ years. Let's say though that we do have a global recession and things are ugly for 3 years or however long. By time this company is running full on steam ahead, if it ever does become successful, you won't be able to get in anywhere near these prices. Don't bet the house on it and don't bet any money you are going to need in the next 5 years.
Henrik Alex profile picture
Apparently, funding was rather difficult for Nikola as of late thus the urgent need for the backdoor IPO
eenmakkie profile picture
Seems they all want to raise fast cash as BLDP will sell 75M$ ATM now.
@Henrik is the other 75$M of the 150M shelf already used?
Or is there a risk of a new offering also after the ATM is sold out?
Henrik Alex profile picture
Yes, they will utilize the existing shelf offering. I don't expect more share sales beyond the ATM.
Andreas Hopf profile picture
It's just another hype as the greenwashing hysteria rages on.

"Despite these issues, Nikola might very well attract meaningful investor interest as market participants are eagerly looking for the next Tesla."

That and the need for ESG investing could make buying some shares another fun gamble.
maximumvalues profile picture
Well, I shorted TSLA at the close. See what tomorrow brings. I've been shorting since the beginning of the month and even today stayed short and my account only changed $1 in the red lol. Craziest market ever. Even crazier than 2008.
r
Been a long time since CNBC actually helped the trading in a stock intraday (VTIQ). Man I miss the old days when it was almost daily.
doubleE profile picture
If you look at Tesla’s record, they are usually a couple of years late but deliver the promised range at 10% to 15% above the promised cost. That means we should see a bonafide 500 mile range semi from tesla in the next 18 months. At that point, the hydrogen semi has no value proposition.

Note that a semi is far less susceptible to cold weather range depletion than a passenger car because the far larger battery size reduces cabin and battery heating load as a proportion of stored energy.
crafool01 profile picture
Tesla could easily provide a 500 mile Semi, but what would it have to weigh with the necessary battery capacity, and how much impact would that have on available freight load to haul? Batteries weigh too much. If weight wasn’t enough of an issue there is the other “wait” to contend with, which is how long will the truck have to sit charging at the end of the 500 miles to go the next 500 miles? Nikolas semis need only about 15 minutes and no battery can or will be able to match that. So hydrogen fuel cell equals far less weight and same fueling time as a traditional diesel. Thus, 500 mile TESLA battery powered is obsolete before it gets off drawing board.
Sir V-i-val profile picture
The Tesla Truck is a total joke...It would not even able to do 200 miles with normal full cargo...Nikola could be a very interesting start-up
d
Do you have the maths to support your statement?
Henrik Alex profile picture
a start-up valued at almost $6 billion...
Sir V-i-val profile picture
It is the lease that makes Nikola something else...Unlimited miles and free hydrogen fuel are offered to buyers, as part of a special leasing program, which will set them back for $5,000 to $7,000 monthly, for a 72-month program. Owners will be able to trade the One when the contract expires, or when the semi clocks 1 million miles (1.6 million km)......7000 a month that is about 180 a day...In countries like Germany,France,Belgium etc truck drivers get at least 1 dollar/km meaning after 2.5 hours all your costs are paid for as a truck driver
Davewmart profile picture
I am a fan of hydrogen for transport.

But that does not change the basis of my judgements.

This is another nonsense California hype company

They are 'just' going to make batteries with specs way beyond anything that is on the market.

They have nothing, just hype and pipedreams.
johnny..cage profile picture
Fuel cell no batteries. This tech makes sense on very long ranges and torque for hill climbing. Negative is lack of hydrogen stations.

Tesla’s semi is a complete scam. Battery tech no where near practical. Nikola collapses any market they were trying to con you on. BMW now collapsing the other with a stellar EV. This one has long range promise on the tech that is.
Davewmart profile picture
The Tesla truck for long range is a joke, the best they might be able to turn out would be the same as everyone else already has on the road for deliveries.

That is because they do not have a magic battery, just a propensity to lie.

The same goes for Nikola.
At one time they seemed to have fairly realistic plans, using reputable battery suppliers.

They must have found out that the numbers did not work even with that, as they ditched the company and the plans.

Nikola now plan on a thumping great battery, but one which has magic properties so that they are suddenly going to introduce a battery with unheard of specs.

They are not just focussed on fuel cells.

It is complete cobblers in my view, and they are fantacising to get a capital raise.
Sir V-i-val profile picture
@johnny_cage The Tesla would need batteries that would weigh about 20.000 lbs...that is 20.000 lbs that you cannot have as load...meaning you ain't making a dime as a truck driver
Jmac Investing profile picture
Any info and what the VTIQ to NKLA share conversion will be. On Nikola's twitter account they have pinned a tweet that states "Upon completion of the transaction announced today, Nasdaq traded (VTIQ) stockholders will automatically become stockholders of nikolamotor publicly traded stock (NKLA) upon completion of the merger. This is not a solicitation, rather an explanation for those that have asked."
Henrik Alex profile picture
What do you mean?

Existing Nikola shareholders will own 320.7 million shares or 79.6%
Existing VectoIQ shareholders will own 29.6 million shares or 7.3%
New investors from the proposed private placement will own 52.5 million shares or 13.0%
Jmac Investing profile picture
so does that mean the 29.6 million VectoIQ shares will be converted to 29.6 NKLA shares?
Jmac Investing profile picture
Are you buying $VTIQ yourself?
m
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