High on Hydrogen: Can Nikola live up to the hype?

On the morning of June 29, 2010, as Tesla prepared to launch its IPO, the omens weren’t good—it was a down day for the NASDAQ, and pundits on the stock-market shout shows were ridiculing Tesla, pointing out that the company was losing money, and had sold only a little over a thousand cars. 

Above: Nikola's hydrogen truck and Tesla's electric semi (Image: EVBite)

The pundits were wrong, however, as they so often would be over the coming years. After opening at 17, TSLA closed just under 24, a first-day surge of 41%, making it the second-best IPO of the year, and raised $226 million. It was the first IPO of an automaker since Ford had gone public in 1956. At the end of the day, a laughing Elon Musk poked fun at the pundits—alluding to an ongoing column called the “Tesla Death Watch,” he said, “They may be waiting for a while.”

A decade later, in June 2020, the stock market and its chroniclers have a very different view of the electric vehicle industry. Tesla has evolved from a money-losing startup into the world’s most valuable automaker, and the flagship stock of a sizzling sector.

When Nikola (NKLA) became a publicly traded company on June 3, through a merger with a special purpose acquisition company (SPAC), it faced a much friendlier investment environment than Tesla did in 2010. And so far, as Al Root explains in a recent article in Barron’s, the story of its stock market performance has been quite different as well.

The two companies have more in common than the fact that both are named for Serbian-American inventor Nikola Tesla (who, ironically, died penniless in 1943, in a cheap hotel located only a few blocks from the NASDAQ stock exchange). Both are electric-only automakers that aim to electrify the heavy-duty trucking segment, and both started up with a strategy that requires years of investment before profitability appears.

Like most startups, Tesla lost a lot of money for a lot of years—it didn’t achieve positive free cash flow until about 9 years after its IPO. Likewise, Nikola doesn’t even hope to generate cash flow until 2024 or 2025. However, probably due to the fact that today’s market has far more interest in EVs, Nikola’s shares came out of the gate stronger than Tesla’s did. Shortly after it started trading on NASDAQ, the company’s valuation soared to almost $30 billion, before settling back to around $10.5 billion. As Irina Slav writes in OilPrice.com, “that’s still pretty spicy for a business yet to generate any revenue.”

Unlike Tesla at its IPO, Nikola has no factory, and hasn’t built any vehicles. Tesla started moving into its Fremont factory in 2010, shortly before its IPO. Nikola recently broke ground on a $600-million factory in Arizona, where it will produce trucks for the North American market, but it plans to build its first trucks in a German factory belonging to Italy’s Iveco.

As a recent article in Bloomberg points out, Nikola has extensive connections in Europe—German automotive supplier Robert Bosch helped develop Nikola’s electric powertrain, and Bosch and Iveco each own more than 6% of the company.

Above: ARK Invest CEO Cathie Wood discusses the differences between Nikola and Tesla (YouTube: CNBC Television) 

Of course, the most obvious difference between the Californians and the Arizonans is their different powertrain preferences. Tesla’s Semi, like all its vehicles, runs on batteries, whereas Nikola foresees a major role for hydrogen fuel cells.

The conversation around fuel cells has evolved quite a bit since Tesla co-founders Marc Tarpenning and Martin Eberhard rejected the technology in favor of batteries back in 2003. A growing number of automakers, including VW, Honda, GM and Daimler, have decided that hydrogen isn’t a viable solution for passenger cars. However, when it comes to certain types of vehicles, such as aircraft and ocean-going ships, as well as industrial processes, there are some arguments in its favor. Nikola has been touting hydrogen as a better option for heavy-duty vehicles since its founding (although it has backslid a bit, now saying that it will produce a battery-electric truck in 2021 and a fuel cell truck in 2023).

Nikola founder Trevor Milton acknowledges that the battery-electric powertrain is a better choice for light-duty vehicles. “There are two different markets,” he said in a recent interview. “A lot of people think hydrogen competes with batteries—it doesn’t."

Policymakers in Europe certainly believe that hydrogen has a role to play—the EU’s Green Deal includes incentives to produce hydrogen from renewable sources. In addition to making trucks, Nikola has plans to generate hydrogen and to build out a refueling network. Bloomberg sees this as a substantial risk, as it estimates that each hydrogen station will cost some $17 million.

We’ll see how that works out. Nikola faces a greater risk: unlike Tesla in 2010, it’s entering what’s shaping up as a competitive market. Hyundai recently began delivering fuel cell trucks in Europe. Bloomberg reports that Daimler, the world’s largest truck maker, plans to start production of its electric eActros and eCascadia models next year, and has formed a joint venture with Volvo AB to develop hydrogen fuel cell systems for heavy vehicles. Electric bus maker Proterra is developing an electric delivery truck chassis in partnership with Freightliner, and may be eyeing the heavy-duty truck segment.

These aren’t the only potential players. In fact, a couple of years from now, this may be a pretty crowded market. However, it will surely be the Tesla/Nikola race that grabs most of the headlines. Nikola has made an impressive beginning in the stock market, but Tesla has a long head start on the road.

And after a soaring stock market debut, Nikola shares shifted into reverse this week. The stock plunged more than 10% following its first quarterly earnings report. “We’re a pre-revenue company. We told everyone from the beginning of the year, look, give us until the end of this year,” Nikola CEO Trevor Milton told CNBC. “People want us to be Tesla in our first three weeks… That’s not going to happen.”

Meanwhile, a couple of Tesla Semi prototypes have been shuttling parts between Nevada and Fremont, and Elon Musk recently hinted that it may be time to bring the Semi into series production soon. However the friendly rivalry develops, the trucking industry and the environment will be winners.

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Written by: Charles Morris