(Bloomberg Opinion) – When Nikola Corp. went public on Nasdaq in June, the Phoenix-based clean transportation company quickly rose to a valuation of nearly $ 30 billion.
Since then, its market value has dropped to a more reasonable $ 10.5 billion, but that is still spicy enough for a company to not yet generate revenue. Its most promising products are its heavy trucks, which are powered by electric batteries or hydrogen fuel cells.
The rise of Nikola (whose name is blatantly another evocation of electrical engineer Nikola Tesla) will have reinforced the opinion among European auto industry executives that the US stock market operates under different rules. While Tesla Inc. is only modestly profitable, it’s worth around $ 275 billion, more than Europe’s five largest automakers combined.
At least Europe has a stake in the latest highly publicized project. Founded by Trevor Milton, a 38-year-old American college dropout, Nikola relies heavily on the experience of the old continent. Robert Bosch Gmbh, a German automotive supplier, has helped develop the American company’s electric powertrain, and the first Nikola trucks will be built at a German factory owned by Italy’s Iveco, a truck manufacturer backed by the billionaire Agnelli family. Bosch and Iveco each own more than 6% of Nikola. CNH Industrial NV, parent of Iveco, has just recorded a fair value gain of $ 1.5 billion on that investment. (one)
The most important question is whether a startup that depends on so much outside help should have a dizzying valuation like Tesla, which develops much of its technology. And if Europe has this experience, why hasn’t it produced its own rival for the automaker Elon Musk?
Maybe it is a lack of chutzpah. Nikola’s name is not the only reason it is often compared to Tesla. Milton’s hyperactive presence on Twitter makes Musk seem meek by comparison. Both men’s ambitions extend beyond the sale of zero-emission vehicles to the production and storage of clean energy. While Nikola focuses on heavy duty trucks, it has promoted a variety of consumer products, including a pickup truck called Badger. These are catnip for retail investors, as evidenced by excitement over Musk’s Cybertruck.
While Tesla and Nikola work on electric heavy trucks, they differ in at least two important ways. The first is hydrogen: Musk is derogatory, while Milton thinks hydrogen is the perfect fuel for long truck trips. The second is your attitude towards building things internally.
Admittedly, in its early days Tesla worked with Lotus to help build the Roadster, and Daimler AG helped develop the S Saloon model. Tesla partners with Panasonic to produce battery cells. But Musk is famous for trying to build his own technology, from electric powertrains and auto-driving software to car seats.
According to Cowen analyst Jeffrey Osborne, Nikola developed his own software, infotainment and battery management system, as well as the vehicle’s aerodynamics. You have outsourced or used contracted help to do many of the other things. More than 200 Bosch employees participated in the construction of important parts of Nikola’s trucks, including the electric axle motor, the vehicle control unit, the battery and the hydrogen fuel cell. The result is a mixture of intellectual property owned by Nikola and its suppliers separately or together.
However, there is no doubt who has the deepest experience. So far, Nikola has obtained 11 US patents, about 1% of the Bosch total is awarded in a typical year. “Bosch is paid to help us meet industry standards for products,” Milton told me.
Getting partners to provide the technology components has some advantages. Nikola has only 300 employees, and yet their first trucks should begin to roll off the production line soon. Working with partners reduces the risk of manufacturing delays and quality issues that plagued Tesla.
It is an efficient use of capital as well. Nikola’s research and development expenses were only $ 68 million last year. Tesla spent $ 1.3 billion. After going public, Nikola has around $ 900 million in cash, although that won’t go far in the automotive business. For the North American market, Nikola plans to manage its own manufacturing, with technical assistance from Iveco. Nikola started this week at a $ 600 million factory in Arizona.
Whether or not you think broad participation from outside partners should influence your high valuation, there are other things that could alter Nikola’s plans.
Building a refueling network is a central part of its business model, but this will not come cheap at $ 17 million for each hydrogen station. The company is also entering a competitive field populated by more experienced and better capitalized rivals. Daimler’s Mercedes-Benz was unable to continue his first experiments with electric cars, and he let Tesla roar past. You probably won’t make the same mistake with trucks.
Daimler is the world’s largest truck manufacturer and plans to start production of its eActros and eCascadia electric models next year. The German giant also formed a joint venture with Sweden’s Volvo AB to develop heavy-duty hydrogen fuel cell systems. Companies value that venture at just 1.2 billion euros ($ 1.4 billion), putting Nikola’s assessment in perspective.
Even if its share price seems overblown, Nikola’s unlikely surge shows investor demand for clean transport companies that still don’t have a foot in the combustion engine’s past. European manufacturers have the technical skills, but must find better ways to capitalize on investor excitement through new business models or spin-offs. Otherwise, someone else will.
(1) This was measured on June 30 when Nikola’s stock was much higher
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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