Truck manufacturer Nikola Corp.'s net loss in the third quarter topped $425 million—10% more than its net loss from the first half of this year—as executives continue to wrestle with a voluntary product recall they issued in August.
After investigating the battery fire that destroyed two trucks at Nikola's Arizona headquarters in June, CEO Steve Girsky and his team recalled 209 of the company's battery-electric trucks. The investigation, which Girsky said remains "ongoing," has indicated that the problem came from a coolant leak within the Romeo Power battery packs installed for the vehicle. However, the fix may become more extensive than previously believed.
"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," Girsky said Nov. 2, adding that Nikola will retrofit the trucks with alternative packs.
The recalls had a profound impact on the company's financials, which came in well below estimates. Revenues were negative for the quarter because of the recall, and Nikola's cost of sales totaled $124 million, most of which was attributed to the writing down of the battery packs' value and a $61.8 million warranty reserve. That cost included the estimate to "re-engineer, validate, and retrofit" previously sold trucks.
According to CFO Stasy Pasterick, that nearly $62 million won't be used all at once.
"Actual cash disbursements will take place over the next nine to 12 months as we validate the new components and work through the retrofits," she said. "We anticipate seeing the majority of that cash spent in the first half of 2024."
Nikola focuses on California market and fleet incentives
Looking forward, the company still has big plans, including focusing on a California market loaded with incentives for zero-emission vehicles. The California hybrid and zero-emission truck and bus voucher incentive project (HVIP), launched by the California Air Resources Board in 2009, provides millions in point-of-sale vouchers to make the transition cheaper. As of October, Nikola trucks represented 96% of the hydrogen fuel cell electric and half of the battery-electric truck-tractor HVIP vouchers requested in 2023.
Golden State legislators also passed the Advanced Clean Fleets Regulation in 2020, which requires manufacturers with Class 2b-8 chassis or complete vehicles with combustion engines to have an increasing percentage of their sales be zero-emission trucks between 2024 and 2035. All newly registered port and drayage trucks are also required to produce zero emissions starting in 2024.
As for Q4, executives provided guidance on what to expect: 30 to 50 HCEV truck deliveries representing anywhere from $11.3 million to $18.8 million in revenue. However, losses will likely be larger than usual, according to Pasterick.
"Fuel cell production is currently constrained due to supply chain ramp up. Due to lower production and delivery numbers for the fuel cell, and the path on the battery-electric production and deliveries until the recall is remitted, we expect gross loss margin will be outsized between negative 115% to negative 135%," she said.
Shares of Nikola (Ticker: NKLA) rose after the company's earnings report Nov. 2 but have since given up those gains. On the morning of Nov. 7, they were changing hands around $1.05, which value the company around $1 billion. The shares are up slightly over the past six months, but in early August were trading well above $3.30 for a brief time.