Is Nikola The Future Of Trucking? Investors Think So

Nikola Trucking
Source: Nikola

There is a new transportation company that’s making waves in 2020: that company is called Nikola. If you’re wondering who that is, you’re not alone, it popped up out of nowhere. Nikola came on the scene in a weird way, but it now has a market value of more than $12 billion. That’s just the intro, this company has plans to disrupt the trucking industry just like Tesla is penetrating the auto markets.

It may be time to start paying attention to Arizona-based Nikola (ticker: NKLA). 

Do These Names Sound Familiar?

Tesla and Nikola, did that ring a bell? It should, both companies are named after the famous inventor Nikola Tesla. He was the man that cane up with AC, also called alternating current. In the early 19th century, he was in a constant battle with Thomas Edison, the inventor of DC or direct current electricity. This outlines the AC and DC battle.

Westinghouse used Tesla’s AC patents and pushed AC generating technology. Edison’s General Electric (GE) pushed DC generating tech. Alternating current won. It’s easier to modulate voltage using AC electrical current. The precise reasons might be technical, but no one wants a 10,000 volt outlet powering their toaster.

What Does Nikola Make?

In short, Nikola makes trucks. They make heavy-duty trucks that are for transporting goods and trucks that haul cement.

Interestingly, their smaller heavy-duty trucks are battery-powered, just like you see in Tesla’s cars. They’re scheduled to begin selling around 2021. The larger semi-trucks are powered by hydrogen fuel cells and those are due to be sold in 2023. 

How well will they sell? That remains to be seen, but Nikola says it has already have more than $10 billion worth of sales in backlog. Wow!

In the near future, Nikola even has plans to make light trucks. The kind made by Ford Motor and General Motors.

Nikola’s Hydrogen Fuel Cells

If you don’t know what a fuel cell is, it’s similar to a battery. It uses chemical energy to create electrical energy using catalysts. Nikola’s fuel cells use hydrogen as the fuel to start the chemical reaction. 

Now, hydrogen gas doesn’t have any carbon, so the byproducts of the fuel cell reactions are water (H20). Due to this, no carbon dioxide is created.

That’s great and all, but where can you get hydrogen gas? Don’t worry, Nikola has already thought that out. The reason the company is so unique as a car or truck maker is because it has plans to build its own network of hydrogen filling stations. The company plans to manufacture the hydrogen gas by splitting water using electricity, this is a process that’s referred to as water electrolysis. (Hydrogen can also be made other ways including chemical reactions beginning with natural gas.)

How Big Is Nikola?

As of June 2020, Nikola has around 360 million shares outstanding which are trading for about $33.75 a share, giving the company a market value above $12 billion. That’s big for a trucking company.

If you compare Nikola to the largest truck producers in the world, it’s clear they can hold their own. Paccar (PCAR) and Volkswagen (VOW.Germany) spinoff Traton (8TRA.Germany) are 2 of the largest truck makers in the world with market values, including debt, of about $21 billion and $24 billion respectively.

Another big truck maker, Navistar International (NAV), is worth around $5 billion, also including debt. Diesel-engine giant Cummins (CMI) is worth about $28.5 billion. 

How Nikola Made It Big Time

Nikola’s size is impressive, but how did a $12 billion company arrive on the scene seemingly overnight? It’s a little complicated. 

The deal wasn’t a traditional initial public offering. A special purpose acquisition corporation, or SPAC, named VectorIQ bought Nikola and renamed itself. The deal was made official on June 3, 2020.

Steve Girsky led VectorIQ. He is a long-time automotive insider once on the board of GM. He’s now on the board of Nikola. Trevor Milton is the founder of Nikola, super talented and a visionary that rivals the best in the world.

What’s Nikola Stock Worth?

This is a tough one, no one really knows. In fact, the company has sold anything, although it does have a lot of pre-orders.

If we use Tesla as an example again, they started out with a market value of about $2.5 billion in 2010 when significant sales for the EV pioneer were roughly two or three years away. Tesla eventually traded for X10 sales when it started selling the Model S sedan back in 2012. 

Nikola, for its part, projects about $1.4 billion in sales by 2023, when the company will be selling both battery and fuel cell powered vehicles. It’s hard to turn a single number like that into a detailed valuation.

Nikola’s sales projection for 2023 is predicated on about 5,500 trucks sold and operating 28 hydrogen filling stations. For some additional context, Paccar sells about 200,000 trucks a year. Traton sells about 240,000. 

Who’s Backing Nikola?

Steel distributor Worthington Industries (WOR) provided Nikola with seed capital and now owns about 5.5% of the company. That’s worth about $670 million. Worthington’s entire market value is about $1.9 billion. 

Worthington stock is up about 16% so far this week. The move has added about $265 million to Worthington’s market value. Nikola stock closed up $2.22, or 6.58%, to $35.97 in Friday trading (June 5th, 2020).