(Bloomberg) — Nikola Corp. entered this year with ambitions to start full production of a battery-powered semi-truck, make progress on a fuel-cell big rig and break ground on a network of hydrogen fueling stations.
It’s going into 2022 with those and other objectives incomplete — and a shrinking cash pile to make them happen.
One of the first of a series of electric vehicle startups to gain a public listing by merging with a blank-check company, the once high-flying stock is mired at less than the SPAC’s $10-a-share offering price three years ago.
Nikola’s been stuck in neutral since last year, when its founder resigned under a cloud of fraud allegations, General Motors Co. pulled away from a partnership and it lost a key truck supply contract. Efforts to rebuild trust with investors have been hurt by repeated production delays.
While the company says it has access to plenty of funds — including an obscure financing tool to raise more money if needed — Nikola has burned through one-third of its cash on hand over the past 12 months as it tinkers with its battery-powered trucks.
Those vehicles won’t be ready for commercial sales until early next year, even as the company steps up spending on them and a separate initiative to develop hydrogen-powered semis that today exist only as prototypes.
“Given the challenges, they have limited options,” Dan Ives, an analyst at Wedbush Securities with a neutral rating on the stock, said in an interview. “They will have more options to tap capital in private or public markets” only if the company is able to meet its near-term production goals, he said.
Missed Targets
Delivery targets for its debut ‘Tre’ electric semi have been pushed back twice this year and Nikola now plans to produce up to 25 trucks by year end. It delivered the first two last week. But those won’t generate immediate revenue because they are pre-production vehicles, built without key parts in short supply such as semiconductors.
Nikola’s 2020 merger with the SPAC gave it a cash injection of more than $900 million. Riding high following the listing and bold predictions for success by its outspoken founder and then-chief executive officer, Trevor Milton, Nikola’s market capitalization at one point exceeded Ford Motor Co.
At the time of its merger, Nikola and Milton vowed to revolutionize the world of commercial vehicles with long-haul trucks that ran on hydrogen and a nationwide network of fueling stations. But by September of last year, Milton left amid federal regulatory probes examining claims he’d exaggerated the company’s progress and misled investors.
Nikola is eager to close that chapter after reaching a deal with the government over those allegedly misleading statements. The company agreed on Tuesday to pay a $125 million civil penalty to the U.S. Securities and Exchange Commission without admitting or denying wrongdoing.
Read more: Nikola to Pay $125 Million SEC Penalty Over Milton Comments (1)
A settlement allows the company to “leave the past in the past and look ahead,” RBC analyst Joseph Spak, who has a sector perform rating on the stock, wrote in a Nov. 4 note to clients after Nikola disclosed the talks with the SEC.
Unusual Financing Tool
Nikola’s valuation has plunged to $4 billion and the company forecasts it will end the year with around $350 million in cash remaining on its balance sheet. The startup says it has access to more capital via an unusual tool: equity lines of credit, reached earlier this year with a little-known financier.
The equity lines give Nikola the right to demand New York-based Tumim Stone Capital LLC buy shares at a time of the startup’s choosing at the market price minus 3%. Nikola can draw on the line only in installments, which are capped. To date it has called on $72.9 million, leaving a remainder of $527.1 million.
“We believe this will provide ample liquidity for Nikola to fund our stated operational milestones through the end of 2022,” Chief Executive Officer Mark Russell, who succeeded Milton, said in a statement.
An equity line of credit is not a new financing instrument, but it isn’t widely used. Typically it’s a tool of last resort when more common forms of fund raising aren’t available. Fellow troubled EV startup Lordstown Motors Corp. unveiled a similar deal with an investment fund in July.
“It is predominantly used for a public company that’s very small and its equity story is not holding up,” according to Reed Smith partner Tadashi Okamoto, an attorney specializing in debt and equity offerings. “Historically, it has a very negative market perception because it has a very significant dilutive effect.”
Rightsizing Drive
All told, Nikola will end 2021 with access to around $850 million, based on its public statements, which it said is sufficient to finance itself for the next year. RBC Capital Markets expects Nikola to draw down the full amount. The company’s chief financial officer, Kim Brady, suggested last month another capital raise may be in the cards, potentially in the form of a follow-on offering.
Nikola’s management has culled once-promised products like an electric pickup and a suite of motorized recreational vehicles. Instead, the company is focused on getting its heavy-duty electric trucks into production. It’s also made small steps toward developing a fueling network for the planned fleet of hydrogen trucks.
Full production of the battery electric truck is still on track for the end of the first quarter of 2022 despite supply chain backlogs, the company told Bloomberg by email. Nikola plans to initiate output at its own facility in Coolidge, Arizona, and at a site in Ulm, Germany — part of a joint venture with CNH Industrial NV’s Iveco unit.
Strategic Investor Selldown
A year ago, Russell said Nikola had secured pledges from unspecified strategic investors to keep their shareholdings intact. But that was before the stock in April breached $10 for the first time since the SPAC merger.
Some key investors have shed part of their stakes, including major automotive supplier Robert Bosch Gmbh and Hanwha Corp., a South Korean energy and financial services conglomerate.
Milton has also been a drag on the stock. Since being indicted in July, he has sold more than $300 million of his shares. Representatives for the former CEO haven’t responded to requests for comment on the share sales.
He’s since been sued by the SEC and charged by the U.S. Justice Dept. for allegedly making false statements. Milton has said he’s innocent and asked to have the charges dismissed. His former company said it will seek reimbursement from him for the costs and damages in connection to the investigation and other government probes.
Nikola’s embattled founder remains the single largest shareholder, according to Bloomberg data. He also holds stock through an entity, T&M Residual, owned jointly with current CEO Russell. Nikola has said Russell manages the T&M shares independently of Nikola.
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