Nikola Corporation

Thank you, Operator, and good morning, everyone. Welcome to Nikola Corporation's second quarter 2023 earnings and business update call. Joining me today are Michael Loscheller, Steve Gursky, Stacey Pasterak, and Kerry Mendez. A press release detailing our financial and business results was distributed earlier this morning. The release can be found on the investor relations section of our website, along with presentation slides accompanying today's call. Today's discussions include references to non-GAAP measures. These measures are reconciled to the most comparable U.S. GAAP measures and can be found at the end of the Q2 earnings press release we issued today. Today's discussion also includes forward-looking statements about our future expectations and plans. Actual results may differ materially from those stated, and some factors that could cause actual results to differ are also explained at the end of today's earnings press release and on page 2 of our earnings call deck and also in our filings with the SEC. Forward-looking statements speak only as of the date on which they are made. You are cautioned not to put undue reliance on forward-looking statements. After the video presentation, Michael and Stacey will give their prepared remarks, followed by analyst Q&A. Then we will conclude with questions from our shareholders. Please begin the video presentation. Thank you.

Talon Logistics Inc. is the asset-based division of Talon Group. We're a trucking logistics company. We focus on a lot of ocean freight, drage, intermodal. We want to be trendsetters. And I felt Nikola was the trendsetters for zero emission for commercial vehicles. You know, obviously you have competitors in the market, but you don't see those type of trucks out there right now. You see Nikola trucks.

The difference between us partnering with Nickel and another company is that they offer an all-inclusive charging infrastructure. And it's literally just play and play, which is perfect.

What I love about this truck is it's safe. As a driver, you like to have a lot of visibility within your mirrors. And as you're driving, you see everything, especially since it's a cab over. The biggest thing when you're a trucker is not going forward, but backwards. Reversing with this truck, it's fairly easy. You see everything. Once you drive this thing, I'm telling you, you're not going to want to go back to driving a diesel.

I think they're pioneers. Obviously, we want to be pioneers, so what a great way to partner up with someone that's already ahead of everyone else.

Thank you, Dylan, and good morning, everyone. Again, welcome to our second quarter earnings call. Before we get into earnings, I would like to first address the leadership transition plan announced earlier this morning. Steven Giersky, chairman of Nikola's board of directors, will succeed me as CEO effective immediately. I have decided to step down due to a family health matter and will be returning to Europe. To ensure a seamless transition, I will remain at Nikola in an advisory capacity through the end of September to support Steve and the team. The board and I are confident in appointing Steve as my successor. Steve was an early believer and investor in Nikola and has been pivotal to the company's success. Over the years, Steve has worked closely with the management team on advancing Nicolas' corporate initiatives. His intimate knowledge of Nicolas' business and products will enable him to hit the ground running with the speed required to capitalize on the exciting opportunities in front of us. Steve is a true champion of Nicolas' mission and I look forward to seeing the impact he will have in his new role as CEO. Going into our quarterly results, I began last quarter's call sharing with you that Nikola is the real deal. And we think that we are the best position company to lead the commercial zero emission transition and accelerate the hydrogen economy. I also laid out what Nikola's path forward was. Focus on North America. Deliver the first heavy-duty hydrogen fuel cell truck in the market. Provide hydrogen refueling solutions to enable fuel cell truck operations. Continue to build sales momentum and optimize spending to align with our focus. Today I share that we are solidly on the path we laid out and delivering on our commitments. you have seen us in the news doing business with companies such as global energy leader for tescu future industries bosch the largest automotive supplier in the world jb hunt one of the largest u.s trucking firms volterra for stations and biotech for hydrogen supply and fueling solutions We continue driving forward in our mission to decarbonize heavy duty commercial transportation. This is only possible with a great team that we have assembled at Nikola and I am proud of each and every employee who is along with us on this journey. When you are a pioneer, the road is never smooth. Bumps are to be expected. but we believe we have the people, the partners, the technology and the plan to make Nikola & Hyla a true world-changing company. So let's get started. Beginning with the truck programs, we started serial production of the hydrogen fuel cell truck on July 31st. The initial trucks take more time to build as these are the first ones built on the newly upgraded mixed model assembly line. As we build more trucks, they will come off the line faster and throughput will increase. We expect the first customer deliveries to happen in September. Helping drive sales of the hydrogen fuel cell truck are pilot tests with current and potential customers. During Q2, we completed 10 gamma trucks. Eight of the trucks will be used in pilot testing and two will be used in final validation testing. Interest in the hydrogen fuel cell electric truck is encouraging. To date, we and our dealers have received 18 customer orders for more than 200 trucks. On the battery electric truck during the second quarter, we continued building sales momentum, completing 66 retail sales, double that of Q1 and completing 45 wholesale deliveries. The market for battery electric trucks is growing daily as customers discover the total cost of ownership benefits of the vehicles and additional government incentives and regulations are introduced. The willingness of fleets to participate in the transition to zero-emissions trucks is increasing as the technology is de-risked and the product is proven. The 45 wholesale to dealers last quarter reduced our inventory. We ended Q2 with 139 battery electric trucks in inventory on our side and 92 trucks at dealers. We expect a significant reduction of inventory in Q3 and plan to start producing battery electric trucks again in early 2024 on a build-to-order basis. Moving on to Hyla, our energy business. We made substantial progress in seeking to ensure that we have the required supply and fueling solutions for customers in late 2023 and 2024. The energy business is working ahead of truck sales to enable zero emissions trucking operations with our fuel cell truck. We believe what needs to be offered to customers is a fully integrated mobility solution and we believe Nikola is the only company providing that for customers today. Hydrogen infrastructure takes a long time to permit, build and requires lead time to procure production and dispensing equipment. We believe we are well ahead of the curve and will continue to work with partners to build out the ecosystem. Our energy team continues to progress with well-established and capitalized partners. The Joint Station Development Partnership with Volterra is progressing well and we have determined the first eight station locations to be developed under the partnership. The station development plan received another boost with the announcement of grants for over 50 million from various California agencies supporting the construction of eight California stations. These grants will lower the capital cost for hydrogen refueling stations and I expect it to meaningfully reduce dispensing costs. We are very appreciative of the partnership with California state and regulatory agencies who are working alongside us to support the energy transition. On the hydrogen production and supply side, we announced that a definitive agreement was reached with Fortescue Future Industries to acquire 100% of the Phoenix Hydrogen Hub project. The agreement with FFI aligns with our strategy of controlling the hydrogen molecule through the ecosystem with the help of partners. The project has made good progress. We expect it to reach final investment decisions by the end of Q3 2023 and anticipate phase one to be operational in 2025. with a production capacity of up to 30 metric tons per day, which could support up to 750 Nikola hydrogen fuel cell trucks. We are negotiating a hydrogen offtake agreement with FFI to support our needs. The FFI and Volterra partnerships are significant milestones to support our capital light hydrogen infrastructure strategies. We continue working closely with partners such as Plug Power, Beotech and Linde to underpin our North American supply and infrastructure strategy. As of today, we have received six mobile fuelers and are on track to receive ten more over the next year. We plan to have nine mobile fuelers at several California locations available for customers by the end of 2023. We believe we have secured a first mover advantage on hydrogen infrastructure and will continue to provide updates as we execute our business plan. Before I turn the call over to Stacy to go over financials, I want to say a few things about safety. Let's talk about the fire of our battery electric truck at our headquarters in late June. First of all, we are thankful that no one was hurt. Secondly, it has been determined that only one truck started the fire and spread to the other four. We have two investigations ongoing, one with our technical and safety staff and one being conducted by a third party, and we will share more when we know more. We want everyone to know Nikola's trucks are designed with safety as the first priority and are rigorously tested prior to release. These tests include front, side and rear crash testing, battery coolant leakage monitoring and battery thermal runaway detection. Our trucks meet and exceed federal motor vehicle safety standards and United Nations Global Technical Regulations 20 standards, as well as meet the industry best practices, including the Society of Automobile Engineers, the International Organization for Standardization, and the Underwriters Laboratories. The testing we just described was also conducted on the fuel cell electric truck. Additionally, the hydrogen systems on the truck underwent further rigorous validation testing, including more than 11,000 hydraulic cycles, which simulates more than 15 years of driving and fueling, extreme temperature testing, fire testing, and the tanks undergo gunfire penetration testing to simulate high-rate puncture similar to a vehicle collision. Not only is Nikola the pioneer of the truck itself, but of the safety system standards for heavy duty hydrogen fuel cell electric vehicles. We have team members on staff who have been a part of establishing the standards for hydrogen and how it's going to be used in the United States. So we previously shared what we are going to do to ensure Nikola is around for the long haul. Today we communicated that we have accomplished some of those things already and believe we are well on our way to execute all of our milestones and lead Nikola to profitability. What Nikola is looking to accomplish is incredibly important. This is the hottest summer ever on record and innovative companies and partners must work together to transition heavy-duty transportation to zero emissions. Class A trucks make up about 5% of registered vehicles on the road in the United States, yet produce 23% of emissions in the transportation sector. That is more than 380 million metric tons of CO2 a year. Replacing just one internal combustion engine semi truck with a Nikola truck can avoid 106 metric tons of CO2 per year. There is a massive opportunity for Nikola and we expect to play a critical role in the transition to zero emissions. Thank you all once again for being a part of this journey as we strive to accomplish our mission together. Now I'd like to pass it off to Stacey. She will share with you how we are reducing our cash burn as we refocus our business. Stacy, the floor is yours.

Thank you, Michael, and good morning, everyone. As we look at our Q2 results, we are really turning the corner on the next phase of our business and improving our financial health. We got our cash burn substantially while also improving our balance sheet and increasing our unrestricted cash position by 107 million. We remain focused on our strategic priorities and delivering value to our shareholders by focusing on the North American market, achieving a first mover advantage in hydrogen economy, and continuing to build sales momentum. This quarter we executed many actions to reduce our spending and align Nicholas cost structure with our new strategic priorities. We closed down battery production operations of Romeo, reduced headcount in Phoenix and Coolidge by more than 20%, completed the sale of European JV to Evaco, and went through a company-wide cost rationalization effort to ensure that every dollar spent is in line with the company's priorities. Those decisions, while at times difficult to make, helped Nikola accomplish cash burn below our $150 million target. Our team continues to work diligently finding opportunities to optimize our cost structure, and driving financially disciplined decision-making. As a result, we believe we have high visibility to reduce cash burn below $100 million per quarter by the end of this year through a combination of lowering ongoing OPEX and CAPEX run rates and managing our working capital usage by continuing to build sales momentum and reducing inventory on a balance sheet. In Q2, we sold 45 battery electric trucks for gross truck revenue of $14.9 million and net truck revenue of $12 million after $2.9 million of dealer rebates and incentives. Dealer rebates are related to 2022 wholesales which were executed at higher ASPs than they're being retailed for in 2023. As most of our 2022 wholesales have been retailed by now and pricing levels are stabilizing, we expect rebate activity to come down. Excluding dealer rebates, the average sales price for the battery electric truck was approximately $324,000 per unit unchanged from Q1. Despite the revenue rebate impact in Q2, we continue to see improvements in gross margin coming in at negative 180% this quarter from negative 213% in Q1. Gross margin improvements are attributable to higher revenue, lower manufacturing labor and overhead as we have optimized resources and operations in Coolidge, and improved inbound freight and inventory costs as we have transitioned to a built-to-order model. We expect to continue seeing gross margin improvements on a battery electric truck as we start utilizing battery packs manufactured in Coolidge and optimize bill of materials costs specifically on the battery pack enclosure and battery cells. In the longer term, we anticipate the fuel cell truck to be superior on a gross margin due to higher average sales price as we benefit from the first mover advantage and high incentives in states like California and labor, freight, and overhead savings once we begin assembling the fuel cell power modules in Coolidge later this year. On both trucks, We have ample opportunities for bill of material cost reductions as we scale volumes and localize our supply chain. This is something our team will be laser-focused on heading into 2024, and it will be critical to achieving gross margin break-even. Operating expenses in Q2 came in at $141 million within the provided guidance range. During the quarter, cash burn was $148.3 million, better than our $150 million target. Most of the improvement in Q2 came from slowing down CapEx investment and working capital usage. With a built-to-order production model, stronger sales momentum, and floor plan financing solutions, we anticipate further improvements in working capital utilization. Our goal for the second half of 2023 is for the working capital impact to be neutral. as the proceeds from existing BEV inventory sales offset working capital needed to scale up fuel cell volumes. Despite volatile market conditions, we raised additional capital and improved our cash position to 295.4 million in Q2. This is an increase of approximately 92 million from Q1. The increase in cash came from net proceeds of 96 million from the follow-on offering completed in April 49 million Coolidge land sale leaseback proceeds, 58 million from the ATM and convertible notes, and 26.5 million net proceeds from the JV divestiture. The cash balance at the end of Q2 does not include 20.7 million we received in July from the first phase of the Phoenix Hydrogen Hub acquisition by FFI. As of the beginning of July, we maintained total access to capital of approximately $743 million and believe we have adequate cash on the balance sheet to sustain us into 2024. As we announced yesterday, our stockholders approved Proposal 2 at our annual meeting, increasing the number of authorized shares of our common stock. This will allow us to continue accessing the capital markets strategically and efficiently and maintain liquidity to fund and execute our business plans. subject to market conditions, availability of capital, stock price, and other variables, of course. As we have redefined our business plan and reduced our cash burn, we currently anticipate being EBITDA neutral by the end of 2025 and estimate that we will need approximately $600 million of additional capital to fully fund the business model and achieve profitability. This is substantially lower than what was previously estimated. Moving on to the guidance. For the third quarter, we expect total truck deliveries to be between 60 and 90 trucks for the net truck revenue of 18 to 28 million, generating a gross margin of negative 165 to negative 110%. Total operating expenses for the quarter are expected to be in the range of 90 to 100 million, including 16 and a half million of stock-based compensation. This is more than a 30% reduction versus first half of 2023 levels. Q3 capex is expected to be $25 to $30 million. We have a line of sight to further reduce cash burn to roughly $120 million in Q3, with July cash burn already coming in below $40 million. We are updating the full year 2023 guidance. as we now have better visibility on the commercial side, as well as into the savings from our realigned cost structure. For the full year, we expect to deliver 300 to 400 trucks for total revenue of 100 to 130 million, generating gross margin of negative 110 to negative 85%. We expect to realize a 30% reduction in operating expenses moving forward. Operating expenses for the full year are now expected in the range of 395 to 415 million, including 85.1 million of stock-based compensation. To wrap up, we had a strong quarter and have improved our financial results, strengthening our balance sheet. We have substantially reduced cash burn, while almost doubling our unrestricted cash position. Executed on our cost savings initiatives, regained closing bid price compliance with NASDAQ, developed a clear understanding of the capital requirements to fund the business to positive EBITDA, and continued demonstration of our ability to access capital. I want to sincerely thank the entire Nikola team for executing, being efficient, creative, and demonstrating an ability to do more with less. While we are pleased with the results so far, there is still much to accomplish. And we assure you we're working diligently to achieve our goals and turn Nikola into a profitable business. I will now pass it back to Michael for closing remarks.

Thank you, Stacey. So as you have heard during the call, we are doing the right things at Nikola. We have increased our cash position while also substantially reducing our cash burn. We are building sales momentum and advancing the transition to zero emissions commercial transportation. And we are making progress in the hydrogen refueling business with partners. As we look forward to Q3 and the second half of this year, we expect investors will see the following from the Nikola team. First, building sales momentum. Second, ensuring we have the fueling solutions to support customer fuel cell truck operations. Third, continue to reduce cash burn. forth and raise adequate capital to execute on our business plan. Before we close, I just want to say that it has been a privilege and honor to have served as Nikola's CEO. As I step away to be with my family, my belief in Nikola's purpose to pave the way for a zero emissions future has never been stronger. Steve is a seasoned automotive executive with a proven track record, and he is exactly what Nikola needs right now entering this next phase of the company's history.

Steve, over to you if you would like to say a few words. Thanks, Michael. I've known Michael and his family for over a decade. We've worked together in many capacities, and I cannot overstate what Michael has contributed to this company. I look forward to staying in touch with you and I speak on behalf of the entire Nikola team in wishing you and your family well. I want to thank Michael for his hard work and dedication to advancing Nikola's mission to pioneer solutions for a zero emissions world, and would also like to thank the board for placing their trust in me as we work toward continuing the company's momentum. I feel energized and ready to take on this role, and I'm excited about the many opportunities ahead of us. That concludes our remarks. Operator, please open the line for analyst questions.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for our participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Mike Schutzke with DA Davidson. Please proceed.

Yes, hi, good morning, and thanks for taking my question. And Michael, also, I do wish you and your family well as well. And maybe I just want to talk about that transition to my first question. Steve, sometimes when folks come into the CEO role, when they were chairperson, it's sometimes only a temporary thing. I'm looking to kind of stay at Nicola for the long term. And can you maybe tell us, again, was this a very sudden thing? Did they just call you last night, Steve? Or was there a large external board search down here?

So thanks, Mike. So I'm in it to win it here. I'm closing on a place and tomorrow we're going to be spending time a lot of time in Phoenix. I plan to be on the road a lot though visiting customers and partners. I'm here for the long haul as long as it takes to win a well functioning board had succession plans for all scenarios. and we had a succession plan for this one, and I was it, and I was happy to step up and move into this role. Does that help?

Sure. No, I certainly appreciate that. I want to turn to what's coming here in the second half off the production line. Let's confirm it looks like it's going to be entirely fuel cell vehicles, if I'm reading everything correctly here. And then will all those vehicles have the bundled lease program attached to them? I know you have at least one fuel station queued up for this year, but what's the plan to make sure that all those trucks coming off the line in the back half of the year here have the hydrogen that they need?

Yeah, thanks, Mike. And this is Michael here. Let me take this. So first of all, in terms of the production, as we said, so we have started the production of the fuel cell truck, obviously a very important milestone this week for the company. We have the flexibility to produce both trucks on one assembly line, which is also a very interesting thing in terms of efficiency. But you are correct. For this year, we plan to produce a fuel cell truck. Obviously, then with the build-to-order concept, we will also produce best electric trucks going forward. But now, the next couple of months to the end of the year is all about the fuel cell truck. And as we said, we think we will produce more than 100 trucks, which I think is a very good first step in terms of the launch of the product. In terms of the go-to-market strategy, I mean, obviously, various elements play a key factor. Just finish that. So first of all, the hydrogen availability is very important in terms of the mobile fueler. But several customers obviously want a bundled lease as well. And case by case, we will offer this as well. But there's not one go-to-market approach for everybody. It depends by customers. But yes, it plays a role too.

and i guess just just to clarify your answer that will explain maybe why there might be a lower asp and better than the third quarter guidance that's 300 000 a little over versus like 340 for the last quarter it's simply a different speed for the fcv that's all it is okay

In terms of the ASP, it's very similar, but obviously we have now done some inventory liquidation and that had also an impact on the ASP. But in general, please think about that the ASP for the fuel cell truck is higher because the price is higher, the incentives are higher. So there is a significant difference between BEV and the fuel cell truck. In addition to that, obviously where we have competition on the battery electric truck, on the fuel cell truck, we have clearly a first mover advantage and are uniquely positioned. So I hope that clarifies it.

This is Stacey. If I may just jump in. First, how we think about the ASP guidance going forward, right? For the bath, as Michael alluded to, as we're selling through the existing inventory, ASP will normalize and be about 300 to 220K range. And for the fuel cell, we're kind of seeing ourselves settling in 400, 425 range. Ah, okay. That makes sense.

I appreciate that. I'll pass it along. Thank you.

Our next question is from Jeff Klossman with Vertical Research Partners. Please proceed.

Thank you very much. First of all, Michael Foxer with your family and best of luck on your endeavors. And Steve, I'm very much looking forward to working with you going forward. So congratulations. And I'm sure we'll talk a whole lot more. I want to go back to Stacy's comment about seeking to be EBITDA neutral by the end of 2025. And I was just thinking this is going to be more of a fuel cell mix. And there's also going to be a fair amount of Hyla fuel that is moving around the country at that point in time. So can you give us an idea of that break even that you're looking at? What kind of fuel cell truck population are we looking at around break even? Not annual sales, but kind of how many fuel cell trucks and how much fuel do we need to be moving around the country to be thinking about an operating break even given the cost reductions and kind of what we're looking at over the next two years.

Yeah, great question. And so really last time we talked about, you know, what we need is to be able to produce and sell about a thousand trucks. most of those trucks that would expect to be on the fuel cell site, obviously the mix will be determined by the customer, but given kind of the momentum that we're seeing in the early order activity, we're seeing most of the truck volume will come from the fuel cell. So with that, I think for, if you think about the fuel revenue, that will take a little bit of time to ramp up, right? If you think about each fuel cell truck you sell, you're going to be bringing in, you know, somewhere between 80 to 60 to 80K of revenue for the hydrogen. a year for each truck in operation, so it's going to take time to ramp up that revenue. And then if we look at 2025, really the target there is bringing in about 20 percent margin on the fuel cell truck and about 15 to 20 percent margin on the hydrogen.

Okay. And then I think Michael may have asked this, but have – you know, initially the thought with the fuel cell model was these are all going to be leases with maintenance and fuel bundled in. How is our thinking on fuel cell moving forward? Is it going to be kind of a hybrid model with some being sales and no tie into the fueling? Or are we still thinking kind of this long term lease model where we've got maintenance and fuel packaged in?

I mean, Jeff, I would definitely say, I mean, first of all, whenever we now sell fuel cell truck, and the good news is we have many orders in already considering the stage of the production we are that we just launched. Obviously, the first key question from customers is hydrogen, right? And I think the combination there, truck, hydrogen, this is where obviously Nikola is uniquely positioned. Maintenance is a key factor, too. So, therefore, I think bundled lease will play a role, but the key discussion with customers is like, okay, TCO of the truck, and then, obviously, what about the hydrogen included? This is where most of the debates are. And, again, Nikola is very well positioned there, and that's why the whole energy play is so important, including mobile fuel stations, et cetera.

Okay. Thank you very much. That's all I have.

As a reminder, to star one on your telephone keypad if you would like to ask a question. Our next question is from Bill Peterson with JP Morgan. Please proceed.

Yeah, hi. Thanks for taking the question. Following up on the EBIT walk in 2025 to neutral, I believe last quarter you mentioned we needed to deliver 1,000 to 1,500 next year and then double in 2025. My first question is, Is that number or those figures still hold? And my second question is, how should we think about the mix in 2024? Is this going to be vast majority fuel cell at this stage? Or how should we think about the mix into next year?

Hi, Bill. Yeah, I'll take that. For the most part, that thinking that we've shared last time on the break-even is still in place. With some of the reduction that we've talked to, and we've been able to make as far as just being more efficient and bringing the overhead down and some of the labor costs down, it's probably a little bit lower than a thousand, but not that far off from that. And then in 2025, we would need somewhere between 1500 to 2000 trucks to get to EBITDA positive enough to cover the CapEx. So we start really generating the cashflow, right? The positive cashflow. As far as the mix, Again, as I said, we'll let the customer decide, but right now, what we anticipate is for the most part, the volume will be on the fuel cell side. And then for the bath, we'll just build to order as the economics make sense of those orders.

Yeah, thanks for that. And nice job on reducing costs and cash burn. So you're now targeting below $100 million per quarter, actually, this year. I guess, can you give us a feel on the prior question on your current cash burn expectations beyond this year? And I guess your plan to maintain sufficient liquidity through commercialization. I think you mentioned you now need $600 million, which is below prior expectations. So I guess, how urgent does the capital raise feel to you?

I mean, should we assume that I mean, how are you thinking on this? I mean, can this be a step function or at least multiple raises or just any color you can provide on how you're thinking about raising capital from here would be helpful. Yeah, thank you. I mean, obviously, this is a lot of work. of the very difficult decisions again I think we've been able to show very good progress right going from 240 250 million that's where we are right now in q2 and a lot of that is coming from working capital

improvements, right, bill to order, collecting on our sales, reducing our inventory.

And now, as we head into Q3 and Q4, how we get to that 100, is we will start actually realizing the impact of all of those actions that we have carried out, right,

in Q2, so getting out of Cyprus, getting out of Europe, reducing . So all of those will start bringing some benefits in the OPEX run rate. Also, CAPEX will go down significantly, right, because we're pretty much done with Coolidge at this point and with the fuel cell assembly line in Q3. So that's really how we get to that 100 million. And then second part of your question, obviously, we feel good about where we are, right? We've increased our cash position. We have lower cash burn. And so with those two variables, we have a little bit less urgency as far as, you know, if you compare to where we were in Q1 as far as the capital rate. So, yes, we have the availability, you know, to go out there and raise capital. We have the shares now. But we can afford being a little bit more selective on that and, you know, really looking at options that are aligned with our long-term capital needs and the timing on that, right?

It would have to be something things that we will look at and we'll balance. As far as the $600 million, it's really just a function of our forecasted cash burn going forward and through the time when we get to profitability, which will be 2025. And most of that capital will be

in the second half of this year slash first half of next year as we scale the fuel cell truck.

So again, we feel pretty good about where we are. We'll make sure we're being efficient on the capital race and strategic and also disciplines with our spending. Thanks, Stacey. Best wishes, Michael, and good luck looking ahead. Thanks, Bill.

Our next question is from Winnie Dong with Deutsche Bank. Please proceed.

Hi, thanks for having me. Just have one quick question. What is complicated in the load delivery experience?

I think you mentioned. 100 units for the few society and retail delivery seems to be.

There was an update on a quarter over code basis.

For the best size, so I guess what's driving that and then also he's also going to the drivers of the gross margin change.

Yes, so I can take that. So I think the question was just the reasons for reducing guidance or some of the backgrounds in reducing guidance going from where we were to 300 to 400. We don't really talk about the mix. We don't break out the Babbers or Seals anymore again because we're building to order. We will have to see how that shakes out with the capital. For the most part, again, for this year, we have $104 already on hand that are available to sell.

And once those are sold through, we will resume production next year. And on the fuel cell, as Michael has alluded to, we plan to build about 120 fuel cell tracks. So, really, the guidance for the rest of the year is just based on what we're able to build, based on the lead times, based on the build-to-order strategy that will take a little bit longer, and based on some of the lead times with our suppliers. So on the growth margin, really the growth margin, if you look at the overall improvement of the growth margin from where we were to where we had it, a lot of that will be driven off of the volume. Our overhead is fixed, right? And as long as we are manufacturing to the levels that we've talked about through the next few years, we don't need to scale the overhead significantly. So really the margin will be just a function of the revenue.

And so in the guidance, as you see. Delivery guidance. Obviously, you will see the margin coming down. Thank you.

Our next question is from Tyler DeMatteo with BTIG. Please proceed. Yeah.

Thank you, and good morning, everyone. Thank you for your time. Stacey, I wanted to phrase it a different way on the cash bridge. Can you provide a little more color on the working capital portion? I realize you said inventory is going to step down. I mean, really, how are you thinking about that beyond this year into next?

And the second part of the question, is there anything else that can be done on the opportunity

the reason so in comments that you you alluded to in terms of the manufacturing and labor you know as we think about you know the manufacturing of the fuel cell coming off the line what other efficiencies could we squeeze out on that that could really benefit the cash position Yeah, so I'll start and maybe then Michael can chime in on the production side. Thank you for the question. So as far as just where we are as we get to our cash flow, On the spend and the CapEx side, we feel very good. Essentially, all the reductions have been actioned in Q2. And, you know, our spend is something, as you know, that we can control and offset as needed.

And, of course, we'll look for incremental reduction opportunities in OPEX and CapEx side. And you may find them, but right now what was planned on the 30% reduction, second half versus the first half. So that's what we've actioned already. The working capital, as you alluded to, is, you know, probably one of the biggest areas where recruits have variance to plan just because this is something not, what will be key is really

their ability to sell trucks to dealers to resell those trucks and collect payments in a timely manner.

If we're not able to do that, then we'll have cash tied up in inventory and AR, and that's similar to what had happened in the above launch until we switched to the built-to-order. So some of the things that we're doing, obviously for the fuel cell launch, we're approaching it in a little bit more of a pragmatic way. We're ordering material based on indication of customer demand. We're not over-ordering, we're not over-investing in inventory. And then on the other side, we've switched to built-to-order. For the rest of this year, the proceeds from selling the BAP, right, will be a working capital benefit for those 140 trucks, as we already have them there. So that's really where we'll get a lot of favorability for the rest of this year from working capital from those BAP units. And of course, we're still working on floor plan financing, right? Making sure that we have floor plan financing in place with our dealers so we're able to increase that and we're able to accelerate our collections.

Yeah, and just to add in terms of obviously the overall cost of the fuel cell truck and the efficiency and coolage is limited at the beginning in the phase of the launch, right? So we do the first trucks. We do 100-plus trucks this year. But then going into next year, you will see significant bond reduction but also significant efficiency improvements on the direct labor side. This is normal. We have done now the second launch, but also from experience with other companies. Also, in terms of automotive experience, you should see efficiency gains on the labor side.

in the amount of 30, 35% in the first stable year, which is then obviously 2024. Okay, perfect. Thank you for the time, guys. Thank you. Thank you. I will now hand the call back over to Dylan for shareholders

Thank you, Operator. There are a few recurring themes in the questions which we have consolidated.

The first question is, what is the future for Nikola and how will you create value for shareholders?

We believe the future looks bright for Nikola.

We are making the difficult but right decisions to reduce cash burn

and achieve profitability quicker. In the second quarter we made progress toward that goal. We have a first mover advantage on the hydrogen fuel cell truck and will begin delivering production vehicles to customers next month. We are also advancing the energy ecosystem with partners

and improving the sales strategy for the battery electric trucks. So when you look at Nikola, you see we have a management team making conscious decisions to eliminate

eliminate unnecessary spend, be wise with capital and drive forward the transition to zero emissions with our first to market world class products. We believe if we continue to execute and build on this momentum, we will be able to deliver on our promises, generating value for shareholders, and simultaneously decarbonized heavy-duty trucking.

Thank you, Michael.

The second question is, how do you see government incentives and regulation affecting Nikola moving forward?

Great question. Government incentives incentives and new regulations are very positive for nickel.

As we discussed on the call, station grants will reduce your hydrogen dispensing costs and help reduce the capex investment for station development. This is in addition to existing hydrogen production and dispensing credits, such as clean hydrogen production credits, offering up to $3 per kilogram and up to $2 per kilogram LCSS credits in California. On the truck side, vouchers in states like California and New York make purchasing a zero emission truck easier for fleets as it lowers the acquisition cost, making the total cost of ownership more competitive to a diesel truck. A great example is the California HVAC program, which can offer up to $288,000 towards the purchase of a fuel cell electric truck. We also believe we will see increased demand as new regulations come into play. For example, in California, only zero-emission dry-age trucks can register in a carbon line system beginning next year.

So there are significant incentives. incentives for fleets to transition to zero emissions.

Thank you, Stacey.

The third question is, when will Nikola achieve profitability? Last quarter, we discussed we have a path to achieve positive EBITDA in 2025.

Q2 was a step in the right direction towards achieving that goal, and we expect to continue finding ways to optimize our costs.

While reducing capital expenditures is critical,

To get to profitability, we need to generate meaningful gross margins from the sale of our products.

The three most impactful variables to that are volume, average selling price, and the bill of material cost for the truck.

We've already spoken to the continued build of sales momentum, and we expect that to increase as the hydrogen fuel cell truck becomes available.

We still expect to have to sell at least 1,000 trucks to get to gross margin break-even and close to double that to reach positive EBITDA.

We estimate the average selling price will be approximately $400,000 per truck, driven by the combination of first-mover incentives and incentives offerings, especially in states like New York and California.

California. Now that the fuel cell truck is in production, one of our most important priorities going into 2024 will be reducing the bill of material costs for both trucks. As we scale the volume, we will have better visibility into piece price reductions based on our supply chain.

Ultimately, we need to see our bill of materials reduced to approximately $275,000 per truck. Between that and localization of key components, we expect that we can achieve our desired profitability targets by the end of 2025.

So let me just... Go ahead. Sorry.

I'm sorry. I was just going to close out the Q&A and hand it back to Steve for closing remarks.

Great. I'm getting used to this.

Let me just close with this. I want to thank everybody for participating. I want to thank you for your support. I just want to say I've been involved with this company for a little over 3 years since the IPO in 2020. I've seen a lot, but I've also tell you that nobody thought they could engineer a truck and we are. Nobody thought we could build a truck and we are nobody thought we could sell a truck and we are and nobody thinks we can decarbonize this industry and we will. I am excited to be here. I'm excited to be part of this team. Michael, we will stay in touch, I'm sure. So thank you all for listening in.