Nikola (NKLA) Analysis: A deep dive into the company that defrauded millions

I recently decided to dive deeper into Nikola (NKLA)’s FCEV design and pricing model and found further research that back up my claim as Nikola being nothing but a fraudulent scam.

Nikola claims that they have the industry first holistic leasing program, including maintenance, fuel, and use of the vehicle. They plan on leasing for $0.95 per mile at 30% margin. This implies an expense of $0.67 per mile to Nikola.

Nikola (NKLA): Hydrogen costs

According to the DoE, it currently costs $5.10/kg to produce, compress, and dispense hydrogen. Nikola claims they can do this for $2.47/kg. I highly doubt their estimate, and will elaborate on that later. Hydrogen has a specific energy 33.3 kWh/kg. A Fuel cell Electric Vehicle (FCEV) has an average thermal efficiency of 55%. A diesel semi tractor, which easily compares to Nikola’s offerings, consumes about 1.25 kWh of work per km (or 2.125 per mile) of useful work loaded.

This implies the Nikola truck will use 3.86 kWh of hydrogen per mile, at a cost of $0.59 per mile, or $0.29 using their estimates. The DoE estimate could be pretty rosy as well, Hindenburg Research cited a practical price of $16 per kg for hydrogen in their report. Nikola’s estimate in the leasing breakdown is 7.5 miles per kg of hydrogen at $2.47 per kg. That works out to $0.33/mile. Our estimates are pretty close, excluding hydrogen costs. It looks like, in a surprising twist, they actually overestimated the energy consumption of a tractor

NKLA: The doubtful cost estimate

$2.5 per kg implies $0.075 per kWh of hydrogen produced. The average price for Industrial electricity in Arizona, the state they are headquartered in, was $0.068/kWh, some of the cheapest in the US. Of course, there isn’t a 1:1 conversion of electricity to hydrogen: an electrolyzer uses about 50 kWh per kg of hydrogen (specific energy of 33.3kWh/kg), making the electricity expense alone in excess of $0.10 per kWh of hydrogen. Electricity must also be used to compress the hydrogen. This would take another ~4 kWh, though we’re already over budget.

Unless they use California electricity at an average cost of $0.15 per kWh. The electricity expense for the Electrolyzers alone exceeds their estimates, much less depreciation expense, cost of capital, maintenance expense, salary expense, etc.

I suppose they can use renewable excess during off-hours for cheap, but the rapidly decreasing costs of energy storage will likely level out those low prices rather quickly. This also only works in Arizona and a select few other states; California not included.

There is the issue of a startup paying to build huge electrolyzers that might have a utilization factor of ~30%, and additional high pressure storage will be needed. The abhorrent upfront capex needed to try and drive down operating costs is not viable for them.

Fuel cell costs of NKLA

Part of the reason there are currently so few FCVs on the road today is the limited service life of a fuel cell. Fuel cells are precision manufactured components that degrade quickly when jostled & vibrated too violently. This is not good when combined with the rock-hard suspensions of semi tractors.

The DoE targets a useful life of 150,000 miles for a fuel cell. Currently, there is no information confirming this target has been met. A Toyota Murai comes with a 100,000 mile warranty on its FC. For the sake of argument, I will assume Nikola FCs can meet this target. The DoE targets a cost of $40/kW for fuel cell production in 2020, provided mass hits 500,000. This hasn’t happened yet, but I will again assume this to give Nikola the best chance. Nikola’s decision to use exclusively GM FC technology in their Badger pickup indicates to me they have nothing “up their sleeve” to make the technology more viable, despite my optimistic assumptions.

I’ll assume the Nikola Two’s Fuel cell is 500 kW, less than the 750 kW claimed output. I think it likely their horsepower claim will be a peak power figure only achievable when the motors draw on the battery & FC. I cannot confirm this, because Nikola does not list the output of their motors and FC separately (along with myriad other questionable, or lack of, claims). I think this is reasonable, considering FC thermal efficiency is maximized between 20% and 30% load, and a semi will average ~90 kW of useful work required on the highway, translating to ~170 kW of FC usage. This is near the peak efficiency band of a PEMFC. This assumption also allows steady-state operation at 66% of the “rated” output. This implies an upfront cost of $20,000. A targeted useful life of 150,000 miles implies a depreciation expense of $0.13 per mile.

NKLA’s battery costs

Using BNEF 2023 battery cost estimates of $100/kWh, that equates to $25,000 of battery expense. Assuming a useful life of 0.25M miles, more than any existing warranty currently covers, that results in a depreciation expense of $.125 per mile.

Lastly, I extrapolated an FCEV COGS of $175,000 per truck from their Financial projections, minus the $45,000 of equipment already listed, and a 15% conservative scrap value to help Nikola here, leaves $104,000 depreciated over 700k miles, or a $0.15 depreciation expense per mile.

NKLA’s maintenance costs

Nikola assumed a $0.061/mile maintenance cost. Any engineer should be able to see such a claim and immediately question it. Tires alone should account for $0.03 per mile. That leaves $0.031 for brakes, air lines, HVAC, wiring, electrical equipment, motors, inverters, those battery and FC expenses. I already calculated, sensors, etc. They make no additional provisions for the battery/FC in their leasing breakdown. The ICCT puts BEV per mile maintenance at ~$0.19/mile. How they squeezed 70% of those costs out, as an unproven startup, by going for a more complex FC-BEV hybrid is beyond me.

NKLA’s leasing

Adding their low per mile maintenance expense of 0.061 + 0.15 + 0.125 + 0.13 + 0.59 gives us an aggregate $1.06 per mile expense for Nikola. Using their fuel expense estimate of $0.29, this equates to $0.76 which is still more than their projected gross expenses. The first estimate is 50% over what they need for their claimed 30% gross margin at $0.95 per mile.

Note: I used a projected battery expense, projected FC service life target, and projected FC production expense. None of these have been met. I used the average resistive forces acting on a US tractor-trailer, which appear to be lower than the number Nikola uses. I did not include warranty expenses in my estimate. Additionally, these are EXPENSES, and includes zero profit for the suppliers of these parts. The GM-Nikola deal clearly shows there will be little vertical integration in their production, and such allowances would have to be made.

A more reasonable estimate, including a still optimistic 3% interest expense for truck capex, a 0.4% annual warranty expense (corresponding to their presented 3% estimated reserve). That reserve is very optimistic: Tesla used a higher reserve on the S model for years, while building a simpler product with a warranty length/distance with a literal order of magnitude lower than the Nikola truck.

A low maintenance expense of $0.12, and a 10% margin for battery & FC production, we end up with an $0.92 per mile expense, or more than Nikola can afford, even when using their untenable $2.5 per kg hydrogen estimate. This is before G&A expenses. Their leasing business model is not possible.

Nikola (NKLA) Lease Projections v. Income Projections: Internal Chaos or Outright Fraud?

It’s possible some of the folks at Nikola have already found those problems out, though. Nikola says they have plans to lease their trucks. They’ve had presentation slides including the idea, and their truck descriptions on their website include a leasing plan.

In their most recent presentation at the DB Global Auto Industry Conference in June, however, the leasing cost breakdown slide was conspicuously missing. Their financial projections slide showed 2,000 FCEV trucks being produced in 2023, and 470 million in revenue from FCEV sales.

This represents $235,000 per truck, and their FCEV revenue scales exactly linearly into their 2024 projected sales; no room for residual from the 2023 trucks. They’re projecting to sell them! 

Revenue from maintenance and Hydrogen sales are also listed separately. Their Financial projections clearly show the upfront sale of trucks with additional Hydrogen fueling and maintenance revenue, and the leasing model slide removed, it’s easy to see why.

Their projected combined expenses and capex exceeds $7.5 billion through 2024, significantly more than their current $1 Billion in assets and a couple of lease payments would allow for. This would take some intense share dilution (not something I think Trevor would be on board with) or extremely expensive leverage.

It’s not like they’re going to get cheap loans secured against their proprietary trucks, requiring their proprietary stations, to run only their customers’ preset routes. A bank wouldn’t want that kind of collateral. The leasing idea is a real mess.

One can claim that the lease model is still in the description of the trucks, but so are battery and fuel cell specifications for the Nikola one. The Nikola one was, ostensibly, never actually powered by hydrogen, and development has since been abandoned. It looks like their leasing Idea may have been abandoned as well.

I’ll also point out that an expected 2024 FCEV maintenance revenue of 56 million on 7000 trucks sold, assuming an average of 50,000 miles per truck sold in 2024 (the average mileage if the trucks are sold at a constant rate through the FY) and 100,000 per truck in 2023, equates to 12.4 cents per mile, more than double the $0.061 projected maintenance costs in the April lease presentation. Either they plan on making a killing from maintenance, or there was some aggressive re-shuffling of numbers when maintenance went from an expense to revenue stream, or vice versa.

The same analysis of hydrogen expenses puts their per kg revenue at $4.08. Still low, but a hefty sum above their $2.47 cost average on the leasing slide.

If we use their projected FCEV maintenance revenue of $0.124, $4.08 per kg H2 revenue, and $235,000 truck price depreciated over 7 years with no interest expense, the cost of ownership, according to their income projections, is $1 per mile for a 100,000 mile year. More than they say a diesel will cost.

It’s pretty clear that Nikola cannot possibly make a profit with their lease model, and Nikola’s finance department has indirectly acknowledged this. Hydrogen tech is still many, many years away. Nikola’s move fast and break things approach (though I’m not convinced we’ve seen much moving outside of gravity assists) will end up a “move fast and bankrupt things” strategy.

Should you buy Nikola (NKLA) stock?

Shares of Nikola (NKLA) appear to be a very bad investment option, the Money Midnight Indicator is expecting its price to decrease considerably in the next several months. The majority of the metrics point to this investment being highly unattractive.

Other EV companies we recommend investing in:

  • Tesla (TSLA)
  • Workhorse (WKHS)
  • Kandi Technologies (KNDI)
  • Nio (NIO)
  • ElectraMeccanica (SOLO)

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Jay Lorrence
Investor of 12 years and Managing Editor of Money Midnight, a news outlet focused on highly profitable investment ideas and bold underground research.
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