A Cynical Look at Nikola Motors
Updated: Jul 3, 2020
In the last 2 weeks, there has been 1 company in the news that has been polarizing opinions. That company is Nikola Motors (NKLA). Some are saying it’s the next Tesla and you have to invest in it right now and you can retire in a few years, while others are calling this company a complete scam. So which is it? I decided to take a look at their website, lo and behold, I ordered myself a Nikola Off-road vehicle!
Yup, you can just pre-order a Nikola vehicle without any deposit or guarantees. And based on these faux orders, The CEO of Nikola is claiming $10 billion in pre-orders . This to me is an immediate red flag and so I decided to take a closer look. (And no, I don’t intend to actually buy the Nikola vehicle. I just placed an order to show how easy it is to reach a pre-order “revenue” of $10 billion).
What is Nikola?
Nikola is a company that builds hydrogen powered trucks. While hydrogen fuel is not a new concept, Nikola’s focus is in the trucking space, and their unique proposition is that they will sell the vehicle as a package along with fuel and maintenance. Essentially, when a company buy’s a Nikola truck, they are owning the truck for 7 years and buying the fuel and maintenance upfront.
The business model is an interesting one, because the main hurdle buyers will have is the refuelling of these trucks, but what Nikola is promising is that when you purchase the trucks, Nikola will build the fuelling stations along your delivery route so that they can provide you with the refuelling service. Basically, Nikola is not just a truck manufacturer, but also a service provider and this could be both a blessing and a curse for them.
Now lets try to do a balanced assessment of the company.
1. Better than Batteries
In theory, Hydrogen technology is a better source of energy for the vehicle. That’s because Hydrogen is lighter and enables you to carry more cargo whereas with a battery, you will lose out on some cargo on every trip just because you need to consider the higher weight of the batteries.
Additionally, batteries take much longer to charge (approximately an hour) vs 10 minutes to top up the hydrogen fuel. For companies that need to optimize the time the trucks spend on the road this is essential.
2. Customised service & no uncertainty
Nikola’s value proposition is very attractive for companies. They get custom built trucks and fuelling on routes. And there is no uncertainty in the maintenance cost as Nikola is responsible for it
1. Not a proven concept.
Nikola is currently valued at USD 25 billion dollars, and it does not have a product. Yes, everything that is announced by Nikola is only a concept. They have not proven that it can actually work. When Tesla went public, their cars had been on the road for more than a year. Nikola on the other hand, does not have a working product. These are just designs and concepts.
Nikola has marketed their deal with Anheuser-Busch (manufacturer of Budweiser beer) as their cornerstone deal in an attempt to show that there is demand for their trucks. However, the wording of the announcement states that Anheuser-Busch will “order up to 800” trucks. There is hardly any evidence of demand. And this is not the only example. They made a claim of $10 billion of pre-orders, and I have shown how easy is it to fudge that kind of number.
2. Economics are not attractive
Nikola claims that their hydrogen trucks are cheaper than the traditional diesel vehicles. They even have a Total Cost of Ownership analysis done. They claim that it costs 92 cents per mile to run a Nikola truck vs a diesel truck that costs 97 cents. This is just over 2% in savings. While this might seem attractive, do we think corporations will change their entire system and infrastructure for a 2% savings? The cost of switching alone might make the executives balk at this project.
Till this point, I have only analysed Nikola’s product and whether I think it will be a success in the future. However, when I invest in a company, I want to be able to trust that the company will deliver. And this is the part things get shady.
Nikola’s (ex)CEO, Trevor Milton is an interesting character. He has stepped down from the role of CEO and moved to the role of Executive Chairman right after the company went public. Does this give an investor confidence? He basically comes up with the concept and business model but decides not to be the one responsible for its execution.
Nikola has also filed a patent lawsuit against Tesla for infringing on its designs. However, in an interview, Trevor Milton basically admits that Nikola actually somehow had access to Tesla’s designs and what they did was to file patents for those designs before Tesla could and then sued Tesla for “copying” these designs. The whole case just reeks of corporate espionage.
To me, Nikola is likely to fail completely. There was another company that had similar traits to Nikola, and that is Theranos. Theranos, fortunately, never made it to an IPO however they were just as shady. Both companies have a charismatic CEO who was only able to fluff up their business with marketing gimmicks but had no product.
That’s why, I am staying away from this stock. The stock price may rise based on investor sentiment, however, I do not see Nikola coming up with a product anytime soon, and this is very likely going to 0.
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence