Nikola Corporation

truck, we will be there to provide it for them. That regulation is one of the sticks. On the carrot side, California is offering numerous incentives, including HVIP for up to $288,000 and ISEF for up to $408,000 for hydrogen fuel cell electric truck purchases. We think in the California ports alone, there is a tremendous opportunity for us to sell trucks and hydrogen at scale. So what's our plan to focus on California? One, first mover. We believe we are the first OEM in the market with a hydrogen fuel cell electric truck. We believe the competition is well behind us and anticipate there is white space for us to capitalize on our first mover advantage. Two, boots on the ground. We have Nicholas sales team members supplementing dealer sales teams to find every opportunity there is to sell our trucks. Selling new technology to a long-established industry is not easy, and we are educating customers so they understand and experience how great our technology is, the value it brings, and how we can support their operations with the fueling and charging required to keep their trucks running. Three, chicken and the egg, providing a fully integrated mobility solution. As transportation and logistics companies adopt this new technology, They want assurance they will have the energy required to keep their trucks operating. We are in the process of establishing fueling solutions for our customers in Northern and Southern California. In a tough macro environment, working with partners is critical to ensure there is adequate capital to complete these projects. How are we doing on our execution of these initiatives? It is difficult to analyze a nascent market. However, prior to the voluntary battery electric recall, we were second in market share for zero emissions vehicles with 21% share of registrations, outperforming some of the larger OEMs. That was based on our battery electric truck alone. If you go on the HVIP website and look at voucher data for vouchers requested in 2023, as of October 27th, you'd see Nikola has approximately 96% of the created vouchers for the hydrogen fuel cell electric truck tractors and about 50% of the created vouchers for the battery electric truck tractors. We're also seeing considerable momentum in the northeastern states like New York for up to $185,000 and New Jersey for up to $175,000. In addition, there is solid movement in Canada where there are incentives across all provinces, territories and municipalities for up to 200,000 Canadian dollars for the hydrogen fuel cell and 150,000 Canadian dollars for the battery electric truck. And in British Columbia, The BC Go Electric rebate provides another stackable $150,000 incentive, bringing that total to $300,000 Canadian dollars for a battery electric truck and $350,000 Canadian dollars for a hydrogen fuel cell electric truck. We are continuing to build sales momentum for both trucks, recently receiving wholesale purchase orders for 47 battery electric trucks from one dealer, despite the product and recall status. There are 277 non-binding fuel cell electric truck orders that have been placed from 35 customers with Nikola and our dealers, more than we can produce and deliver this year. In fact, if a fleet orders a hydrogen fuel cell electric truck today, they will likely not receive the truck until late Q2, 2024. Executing on our business plan requires top flight talent. During the third quarter, we announced the hiring of Mary Chan as Chief Operating Officer and Joe Capella as President of Energy. I previously worked with Mary at General Motors, where she served as President of the Global Connected Services Group. Mary is a recognized automotive leader who also serves on the board of Magna International. Joe joins us from Iwatani, where he served as Chairman and CEO of Iwatani Corporation of America. Joe and his team bring years of real on-the-ground knowledge of the hydrogen industry to Nicola. These two hard-charging folks have built and scaled businesses in infrastructure, connectivity, and technology, and their expertise will push Nikola towards even greater success. These are people who don't need to be here. They've had lots of success throughout their careers. Mary and Joe are here because they want to help make a difference and believe in Nikola's mission. Let's move into the business updates. First, the hydrogen fuel cell electric truck. We are incredibly proud of the entire team and all stakeholders playing a part in the development of the hydrogen fuel cell electric truck. We started serial production on July 31st and began delivering the first production vehicles to capture test fleets for commercial operations and customer validation late last month. In parallel, we started running customer demos in Southern California, supported by refueling with mobile fuelers and that existing hydrogen fueling infrastructure. To date, trucks and customer demos have accumulated more than 6,000 miles while achieving 98% uptime, receiving outstanding driver feedback. On the battery electric front, Nikola is committed to providing customers with a premium trucking experience, and safety is always at the top of mind. We issued a voluntary recall for the battery electric truck in August, asking customers and dealers to send their trucks back to Nikola for monitoring and repairs which also allowed us to investigate the cause of the battery issues. Extensive investigations have been commissioned and are currently ongoing, including assessments from three independent groups alongside the NECLA team. During these investigations, it was discovered that additional process and design changes may be necessary and that cell level issues may need to be addressed beyond the initially identified coolant manifold replacement. While we continue to identify the root causes of battery malfunctions to minimize vehicle downtime and maximize customer safety and satisfaction, we will retrofit existing customer trucks containing Romeo design battery packs with ones from an alternative supplier. Stacy will provide updates regarding how that affects the numbers. Despite the recall, we continue to see increased demand for the battery electric truck. This is happening while the truck is not currently available for sale. a testament to our position in the market as one of the few companies able to provide hardworking zero-emissions trucks to fleet customers at scale. We expect to have the first trucks back in customer hands in Q1 2024, and I've taken to call it 2.0, because not only will it have improved battery packs, but new features including scheduled departure charging, improved HMI, and Bluetooth functionality, all at a lower material cost. On the energy side, we continue working with industry-leading partners to ensure we have the hydrogen supply, transport logistics, storage solutions, and dispensing locations to support the operations of our hydrogen fuel cell electric trucks in customer fleets this year and beyond. We're pleased to say we have secured enough energy offtake to support customer operations in 2023 and the beginning of 2024. The team is diligently working with partners to secure additional hydrogen offtake to support future sales alongside securing fueling assets and locations to fuel the trucks. We also continue to see positive momentum on the federal incentive front with $50 billion allocated from the Investing in America agenda and another $7 billion in support from a DOE grant. This is a massive amount of funding and will accelerate the development of hydrogen infrastructure required to scale and lower the cost of hydrogen. We are excited to demonstrate the fully integrated mobility solution provided to customers with the fuel cell truck and hydrogen fuel, and look forward to sharing more progress with you on the hydrogen highway as we continue developing the refueling ecosystem. Now we'll hand it off to Christian Appel, our head of vehicle platform, to provide you with details on the hydrogen fuel cell truck, and then Stacy will share our financials. Christian.

Thank you, Steve. We're incredibly excited to show the world the model year 2024 hydrogen fuel cell electric truck. We believe this is the first zero tailpipe emissions truck available in North America that is truly capable of servicing the majority of day cab regional and medium haul freight operations. The truck's up to 500 mile range gives fleets the flexibility in operations capable of servicing longer range medium and regional deliveries. and providing fleets who run slip-seed operations a similar refueling time to diesel cabs without disrupting logistic operations. Furthermore, the payload capacity of the hydrogen fuel cell electric truck can be much better than other long-range zero-emission trucks. And as we continue making enhancements to the product, we expect to continue closing the gap to diesel payload parity. One of the most critical things to building the best products is that we are vertically integrated with our vehicle controls and software development. This allows us to optimize the operation of the truck across incredibly complex systems and includes functions such as mountain mode and in the future predictive energy management. The software on the truck can optimize the drivetrain to power the vehicle with both the fuel cell power module and the battery or by one system independently of the other. Mountain Mode optimizes the battery energy usage on the vehicle, allowing for maximum regenerative braking power downhill and consistent performance uphill. The truck provides drivers with an advanced HMI, a mobile app, and comfortable drive, while being optimized for performance, efficiency, and durability, supporting the fleet customer's most critical KPIs, such as uptime and cost of operation. This is merely a bit of what the truck can do. I could speak all day about the truck and I invite you to look at our website, social media channels and send us questions to learn more. Passing it to Stacey to cover the numbers.

Good morning everyone. Huge thank you and congratulations to Christian and the entire Nikola team for officially launching the fuel cell truck. We've been developing this track for many years, and this is a huge milestone for the team, turning a new page for the company. Now onto the Q3 results. Despite tackling numerous headwinds during the quarter, I am pleased with the team's commitment to operate with financial discipline by continuing to reduce cash burn and focusing our spend on things that matter to our future. We were successful this quarter in accessing capital markets, raising approximately $250 million primarily through convertible notes and the ATM, thus increasing our unrestricted cash position by $136.2 million from Q2 and nearly tripling unrestricted cash since the first quarter of this year. We are making good progress towards our goal of having 12 months of liquidity on hand. Quarterly cash use came in at $111.9 million, well below our target of $120 million, reflecting a 25% improvement from Q2 cash use of $148.3 million. The improvement came from $50 million benefit realized from cost cutting initiatives we executed upon in Q2, offset by $20 million use of working capital to scale up hydrogen fuel cell inventory and the impact of slower than expected AR collections due to the battery electric truck recall. We have a lot more work to do and we're always looking to make improvements to our cost structure and cash use. There is a lot to digest this quarter, beginning with revenue. Due to the battery electric truck recall, we halted deliveries in early Q3. Prior to the recall, we delivered three battery electric trucks to dealers. However, this was offset by the repurchase of seven battery electric trucks due to the cancellation of dealer agreements as we refocused our sales efforts in California, as well as dealer rebates and financing charges, resulting in net truck revenue of negative $2.4 million. We generated $636,000 in service and other revenue, primarily driven by service revenue, the sale of charging assets, and third-party hydrogen sales. Cost of revenue in the third quarter was $123.8 million. Cost of revenue includes a $45.7 million write-down of excess and obsolete inventory, of which $32.7 million is attributable to the write-down of battery packs on the 140 battery electric trucks held in Nikola inventory, and $13 million for other battery electric truck components, including battery cells. It also includes a $61.8 million warranty reserve to remedy the battery electric truck recall. This includes the estimated cost to re-engineer, validate, and retrofit the battery electric trucks that were previously sold to customers and dealers with an alternative battery pack solution. To be clear, the warranty reserve is an accrued liability. Actual cash disbursements will take place over the next 9 to 12 months as we validate the new components and work through the retrofits. We anticipate seeing the majority of that cash spent in the first half of 2024. Our goal is to offset the estimated $61.8 million cash impact with the collection of approximately $10.7 million in accounts receivable and an expected positive cash contribution margin of another $13 million from the sale of existing best trucks in our inventory once those trucks are updated with the new battery packs. resulting in a net cash spent of $38.1 million. Total operating expenses came in at $100.7 million, including $18.7 million of stock-based compensation expense and $9.8 million of accelerated battery electric demo truck depreciation. Absent of the demo truck depreciation, operating expenses fell within the previously communicated guidance range. Q3 operating expenses have improved by more than 27% versus the prior four quarters average, driven by the impact of cost reductions we have executed in Q2. Other non-operating expenses for the quarter were driven by the loss on the realization of the conversion features embedded in the April 2023 and June 2023 convertible toggle nodes. partially offset by a gain due to the changes in the fair value of our common stock receivable as a part of the JV sale to IVECO. These are non-cash P&L items and have no impact on our cash burden. At the end of the quarter, we maintain total cash and access to capital of $705.8 million, subject to our stock price and market conditions. Given our current cash burn rate, we believe we have adequate cash on the balance sheet to sustain us into 2024 and maintain enough access to capital to continue funding operations and execution of our business plan, including costs associated with the remediation of the battery electric recall. We also had success in strengthening our balance sheet by reducing total debt by $87.3 million and total liabilities by 67.1 million during the quarter. We have previously indicated we would need to raise approximately 600 million to fund their business to EBITDA positive by the end of 2025. This long-term thinking to fund the truck business remains the same. During the third quarter, we raised approximately 250 million of that However, we anticipate increased costs over the next 9 to 12 months associated with the battery electric truck recall, which would take the new capital requirement to approximately 400 million. This number also assumes the majority of hydrogen infrastructure would be financed by partners. As we explore opportunities in the hydrogen production and dispensing ecosystem and continue to develop our energy strategy, we may require additional capital in order to participate in hydrogen production and dispensing economics. We may elect to invest into projects where we see a compelling return on investment. Participating in these projects would allow us the opportunity to achieve economies of scale and drive down hydrogen costs. We see a growing opportunity in both hydrogen production and dispensing as we scale truck production and deliveries and other OEMs come to market. Moving to guidance. In Q4, we anticipate delivering between 30 to 50 hydrogen fuel cell electric trucks for revenues between $11.3 million and $18.8 million. Fuel cell production is currently constrained due to supply chain ramp-ups. Due to lower production and delivery numbers for the fuel cell and the pause on the battery electric production and deliveries until the recall is remedied, we expect the gross loss margin will be outsized between negative 215 to negative 135 percent. We expect total operating expenses to be between 82.5 million and 92.5 million including approximately $15.4 million of stock-based compensation expense and CapEx to be approximately $35 million. Despite the challenges facing the market and the business headwinds, we remain focused on achieving profitability and we have further optimized cost structures and put in place a strong team focused on execution. We are working diligently to find additional cost reduction opportunities without jeopardizing our first mover advantage and monitoring capital markets to raise additional cash. During the third quarter, we beat our cash burn target of $120 million and strengthened our balance sheet, raising $250 million, increasing our liquidity runway despite the new expenses for the battery electric truck and hydrogen infrastructure. We maintain strong liquidity in our stock and have continued to demonstrate our ability to raise capital. As new regulations begin to take effect in California, we believe there is demand to scale production on both the battery electric and hydrogen fuel cell electric truck in 2024 and achieve the production and delivery volume scale that is necessary to reach positive gross margins and eventually reach profitability. I will now pass it back to Steve for closing remarks.