Just under two years ago and the headlines on Nikola (NASDAQ:NKLA) would have looked very different to how they do now. The company was then beset by what would prove to be a pivotal short-selling report that would dispose of its founder and CEO and set the common shares on a path of collapse that to some extent the company still has not recovered from. Indeed, when I first covered the company I was quite negative and stated that it had a valuation "solely built on the immense exuberance surrounding the future green world". Back then the SPAC phenomenon that Nikola had used to take itself public was still in full swing with animal spirits that had been fattened by the unending optimism that the ESG orthodoxy posited with the post-pandemic world.
This drive to reconstruct national economies around zero-carbon lines has only grown since then with the passing of the Inflation Reduction Act. A simply gargantuan and unprecedented piece of legislation that allocates $370 billion over the next decade to decarbonization initiatives. Nikola stands to benefit immensely from the act which provides tax credits and subsidies to promote the adoption of hydrogen technologies.
The Phoenix-based company has sought to redefine what once seemed like certain doom with the acquisition of Romeo Power (RMO), the launch of its Tre BEV electric semi-truck in Europe, and its collaboration with E.ON to advance hydrogen infrastructure for its class 8 semi-trucks. With a market cap of $1.65 billion, down more than 90% from its all-time highs, does the new Nikola warrant a refreshed look from investors looking to gain exposure to the structural shift of transportation? The automotive industry is set to experience one of the greatest shifts in the last hundred years with the allure of a world fast speeding into its new low-carbon future leading to continued investor enthusiasm around Nikola.
Nikola last released earnings for its fiscal 2022 second quarter which saw revenue come in at $18.13 million. This was versus nil revenues in the year-ago quarter and was a beat of $1.55 million on consensus estimates. The company produced 50 Tre BEVs at its Coolidge, Arizona facility and delivered 48 to dealers. Adjusted EBITDA loss of $94.35 million was an increase from a loss of $73.91 million last year. This meant an operational cash burn of $142.5 million during the quarter with capital expenditure at $37.2 million.
Nikola is still in the very early stages of its growth as the market for zero-carbon heavy-duty trucking is small and nascent stage with momentum only recently starting. The Inflation Reduction Act will significantly boost Nikola's near-term total addressable market as it provides tax credits of up to $40,000 per commercial BEV. There will also be a tax credit for commercial fuel cell vehicles of around 30% with a cap of $40,000.
Nikola is set to start delivery of its hydrogen fuel cell electric trucks by 2024 and is already underway with phase 2 expansion of its Arizona facility. This will enable the company to manufacture 20,000 units a year of BEVs and FCEVs. With this large capital outlay in focus, the company ended the quarter with cash and equivalents of $529.2 million and also has $312.5 million of available liquidity through two equity lines. Management stated during the quarter's earnings call that this liquidity provides a runway for the next 12 months. Nikola further plans to raise $400 million post-period end from an equity sale which would expand its runway. This came on the back of the approval by common shareholders during the quarter of a proposal to increase authorized shares from 600 million to 800 million.
A setback from Nikola has come from a just-announced recall of all the electric trucks it has sold so far due to a defect that could lessen occupant protection in a crash. The recall of all 93 Tre BEV Class 8 trucks Nikola has built to date is not great for credibility and will be an expensive cash-burning endeavour at a time when the company needs to establish and expand market share in the fledging yet fast-growing market for the decarbonization of heavy-duty trucks. The acquisition of Romeo Power has also run into issues with only 37.65% of outstanding shares of Romeo's common stock tendered in favour of the acquisition versus a minimum of 50.1%. Nikola has had to expand the deadline to tender shares to Oct 12, 2022, from the initial Sep 26, 2022 deadline.
This incredible pull of a world fast speeding into a zero-carbon future that is set to revolutionize transportation has led to a boom in companies like Nikola which stand to ride this structural shift to new highs.
The company has started to realize revenues, plans to sell 300 to 500 Tre BEV trucks in 2022, and has raised hundreds of millions of dollars from the enthusiasm investors have around the broader transition story. Whilst the recall represents a setback, the longer-term bull case is clear. The Inflation Reduction Act will help build momentum for sales and the launch of its hydrogen FCEV could finally help revenue rise to levels envisioned by its most optimistic bulls. I remain on the sidelines as Nikola continues to forge a new path.
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