Cowen Nikola Initiation Report

Sustainable Energy & Industrial Technology
NIKOLA CORPORATION
EQUITY RESEARCH INITIATING COVERAGE
June 17, 2020
Price: $62.93 (06/16/2020 )
Price Target: $79.00
OUTPERFORM (1)
INITIATION: MORE THAN JUST A TRUCK
COMPANY; OUTPERFORM AND $79 PRICE
TARGET
Jeffrey Osborne
646 562 1391
jeffrey.osborne@cowen.com
Thomas Boyes
646 562 1378
thomas.boyes@cowen.com
Emily Riccio
646 562 1383
emily.riccio@cowen.com
Key Data
Symbol NASDAQ: NKLA
52-Week Range: $93.99 - $9.92
Market Cap: $22.7B
Net Debt (MM): $232.7
Cash/Share: $0.11
Dil. Shares Out (MM): 360.9
Enterprise Value (MM): $22,944.2
BV/Share: $0.70
Dividend: NA
FY (Dec) 2020E 2021E 2022E 2023E
EPS
Q1 $(0.12) $(0.18) $(0.17) $(0.18)
Q2 $(0.14) $(0.19) $(0.17) $(0.19)
Q3 $(0.17) $(0.19) $(0.18) $(0.17)
Q4 $(0.18) $(0.21) $(0.17) $(0.16)
Year $(0.60) $(0.77) $(0.69) $(0.70)
P/E NM NM NM NM
Revenue (MM)
Year $0.0 $82.5 $300.0 $1,413.5
EV/S - 278.1x 76.5x 16.2x
THE COWEN INSIGHT
We initiate coverage of Nikola with an Outperform rating a price target of $79. We see
Nikola as an intriguing investment opportunity, leveraging one truck platform, 2 power train
options and 3 business segments, with optionality in powersports, pickups and AVs. We
believe the partner ecosystem derisks the ramp in production in '21. We highlight that ~50%
of the revenue stream is fuel related.
Nikola has sprinted out of the gates as a publicly traded company, focused on several
areas of heavy investor interest (carbon free Class 8 trucking, vehicle electrification and
hydrogen fueling). Nikola is likely to be a controversial stock in the eyes of many investors
and onlookers given it is pre-production. We are compelled by the ecosystem that the
company has formulated over the past 5 years, led by Bosch (global leader in electrical
systems) initially and more recently CNH/Iveco (top 5 truck OEM in Europe). This approach
is the opposite of Tesla, who builds as much as possible in-house. Nikola's internally
developed IP largely lies in software/firmware, the BMS (battery management system),
infotainment, aerodynamics to reduce drag coefficient and leverages partners for other
critical components which derisks the ramp in our view.
Innovative Business Model - Nikola's goal is to match or beat the current cost per mile
excluding the driver and lock in fuel certainty, something natural gas and EV trucks have
not been able to do. We assume an average of $0.95/mi relative to most fleets in the
$0.95-1.15/mi range. That cost pays for a 7-year truck lease, hydrogen fuel for 100,000
miles/year, and service. The model drives ~$665,000 of revenue per truck leased, which
about 35% is truck, 50% fuel and 15% service.
Highlights of the Financial Model - We assume initial BEV production in 3Q21 and FCEV
production in 1Q23. Note ~90% of the components in the FCEV are used in the BEV. We see
steady state of demand (and margins) for both the electric (BEV) and fuel cell (FCEV) coming
in the '25 to '26 time frame; however, we model the company breaking into GAAP EBITDA
positive in '24. We see a path to ~15% EBITDA margins assuming ~25,500 trucks are sold in
'26. We assume the company will need to raise ~$500mn in equity in late '21 so there will
be one more trip to the market. We assume accelerated hydrogen station rollouts in the
'24-'27 timeframe are debt financed.
Potential Upcoming Catalysts - We see June 29th Badger (pickup truck) details and
reservation opening as a catalyst as well as the naming of a manufacturing partner. Note
the Badger is not in our modeling at the moment given the lack of clarity on specifics. We
also see likely fueling partners announced and order announcements for the mid-21 launch
of the BEV Class 8 truck driving the stock higher.
Valuation and Price Target - Our $79 price target is based off of a 5.5x EV/Sales on our
2025 estimates. We are modeling 2H21 start of production for the BEV and mid-2023
for the FCEV truck. Our model assumes no production of the Badger, which we believe
is likely conservative given the likely news flow around the vehicle later this month. We
acknowledge a 5.5x multiple is a high growth multiple; however, we believe many unique
characteristics of Nikola and the scarcity value of the first to market zero emission truck
company justify the multiple. We also note the bevy of items that are not in our model that
we believe can accrete to investors over time which could provide further upside to our
price target. We have high confidence the ecosystem can drive revenue growth and a path
to mid-teens EBITDA margins over time.
COWEN.COMPlease see pages 83 to 87 of this report for important disclosures.

AT A GLANCE
Our Investment Thesis
We believe that Nikola is well positioned to address the growing need for low emissions and
zero-emission vehicles in the Class 8 trucking market. The company's focus on battery and
hydrogen technology and use of strategic partners particularly for vehicle manufacturing
should allow for a fairly smooth production ramp, in our view. Longer term we see the
company evolving into a more broad-based energy technology company as hydrogen fueling
infrastructure is slowly built out.
Forthcoming Catalysts
■ Partner for Badger Electric Pickup Truck
■ Strategic Partner(s) for Hydrogen Fueling
■ Potential Use of CNH/Iveco Facility to
Produce Fuel Cell and EV Trucks for the
European Market
Base Case Assumptions
■ Start of BEV production in 3Q21 and
FCEV in 1Q23.
■ No commercial success with Badger
pickup truck.
■ Raises $500mn in equity in 4Q21 for
capex and $775mn in corporate debt
from '23-25.
■ Takes 6 quarters of production of the
BEV truck and 3 quarters of FCEV
production to achieve positive gross
margins.
Upside Scenario
■ A faster ramp of production in Ulm,
Germany at Iveco to achieve 1H21
production and Coolidge, AZ facility starts
production faster in '22.
■ Less dilution or debt needed due to
finding a funding partner for hydrogen
station roll out.
■ Faster gross margin profitability after
start of production.
■ Commercial launch of the Badger pickup
through a partner.
Downside Scenario
■ Ramp up of production in Ulm, Germany
is not successful.
■ Greater dilution is needed for funding
needs of stations and lower output from
Germany and Arizona.
■ Elongated period of negative gross
margins in production.
Price Performance
Jun-20Mar-20Dec-19Sep-19
$100
80
60
40
20
0
Source: Bloomberg
Company Description
Nikola Corporation is a designer, manufacturer, and integrator of battery-electric and
hydrogen powered vehicles, with focus on the trucking market. The company offers
hydrogen infrastructure and fueling solutions for its hydrogen powered vehicles in the form
of a bundled lease solution. Nikola is also pursuing the power sports market with offerings
for both off-road and watersports applications. The company has also developed a pickup
truck called Badger that they are seeking a 3rd party manufacturing partner for.
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COWEN.COM2
COWEN
EQUITY RESEARCH
Nikola Corporation
June 17, 2020

Effective June 17, we are initiating coverage of Nikola with an Outperform rating and a
$79 price target. While the stock at first glance screens expensive, we believe the
ecosystem the company is leveraging through the use of strategic partners for design,
key components and manufacturing should allow a fairly smooth ramp of production of
the battery electric truck in the Summer of 2021, followed by a fuel cell variant in early
2023. In addition, Nikola is much more than just a trucking company and is really a
broad-based energy technology company. The company’s “moat” is above and beyond
just selling a truck with the company setting up a hydrogen station network in North
America today and likely Europe at some point in the future. The aim is to sell “energy
as a service” or “freight as a service” which at first sounds like a bunch of marketing
hype, but as investors fully appreciate the differentiated business model, we believe this
is unique and extracts more value per truck sold. A typical Class 8 truck may sell for
$145,000 and serve as a onetime revenue event for a traditional truck OEM; Nikola
however, is extracting close to $700,000 of economic value by leasing the truck, fuel
and service as part of a subscription for just under $1/mile over 7 years with terms
allowing 100,000 miles per year. We see this as appealing to fleets given it removes
fuel uncertainty, a factor that stunted demand of other alternative fuels such as CNG
and LNG in the past which had swings versus diesel.
The story of reinventing transportation overlaps with sustainable investing in a
significant way. New technologies and business models are emerging that address some
of society’s biggest problems including emissions, health, safety and finite resource
problems. Nikola has an ambitious roadmap ahead of it seeking to combine low cost
renewable energy paired with electrolyzers to create low cost carbon free hydrogen
fuel along corridors where dedicated route fleets travel. That refueling network will be
available to other OEMs as well, not just to Nikola trucks. The first mover advantage of
owning the hydrogen infrastructure and being first to market is the differentiation.
Decarbonizing heavy duty transportation is much more challenging than light duty
vehicles and we believe fuel cells leveraging low cost hydrogen produced through
electrolyzers are the solution to solve the carbon conundrum in heavy-duty long-haul
trucking and other industries such as rail and marine. This concept is only possible in
our minds because of two primary factors. First, fuel cell quality, cost and lifetime has
tremendously improved over the past 2 to 3 years and second, low cost renewable
electricity is now allowing electrolyzers to produce hydrogen at a lower price than
diesel.
Figure 1 – Supply Chain From Contracted Low Cost Renewable Power Generation to Fuel Cell Truck – All on a Cost Per Mile Model
Source: Nikola Corproation
Nikola Corporation is a startup that has captured a great deal of investor and media
attention due to its high-profile investor base and strategic investment from CNH.
Nikola’s primary offering is a Class 8 truck leveraging fuel cells and batteries in a hybrid
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EQUITY RESEARCH
Nikola Corporation
June 17, 2020

architecture. In our view, the company has done an impressive job developing
partnerships through which it hopes to vertically integrate the entire hydrogen and
transportation value chain. Key partners include CNH/Iveco, Bosch, Wabco, Nel, 174
Power Global (Hanwha Group), Ryder, and TE Connectivity.
While at first glance Nikola appears to just be a trucking company, we see the business
as a long-term play on energy and infrastructure. In addition to the trucks, the company
will be providing customers hydrogen fuel produced using an electrolyzer. This holistic
fuel cell truck offering will be sold as a bundled lease in a paid per mile structure with
both the truck lease, fuel, and service included. While the company is capital intensive,
especially for the station buildout, we would highlight the company only builds stations
in locations in which the trucks have already been sold versus speculatively building
stations. Given the fuel is part of the unique revenue model in which Nikola charges
fleets approximately $0.95 per mile, which includes the lease of the truck, fuel and
service, we believe the cadence of the capex required to build each of the stations will
be measured and align with sales of trucks.
Figure 2 – Aiming to Disrupt the Complete “Green Energy-to-Wheel” Value Chain
Source: Cowen and Company, Company Presentation
To date, Nikola has announced 3 Class 8 trucks – the Nikola One, Nikola Two and Nikola
Tre as well as a line of powersports products and an electric and fuel cell variant of a
pickup truck called the Badger.
PLATFORM ENABLEDCORE BUSINESS
BusinessModelComponent
TargetUse
Case
Complementary offerings: significant overlap in
components; BEV and FCEV address different use cases
Additional growth opportunities based on truck
and H2 station platform
Increases addressable
market vs. truck
offering alone
H2 Production and
Refueling of FCEV
H2 Stations
• Economically produces H2
fuel via electrolysis
• Initial methodical roll-out
of targeted station
development along
“dedicated routes”
• Electricity input (grid,
solar, wind) purchased via
long-term supply
agreements
Long-haul
FCEV Truck
• H2 FCEV powered truck
• 500 – 750 mile range
• Attractive “bundle
pricing” model (truck, fuel,
maintenance)
Shorter-haul
BEV Truck
• BEV powered truck
• Industry-leading range of
up to 300 miles
• Leverages existing FCEV
work and partnership
with CNHI to co-develop
BEV truck for production
in the next 12 – 18
months
Capacity-as-a-Service
Autonomous Ready
• Level 4 hardware
standard
• Automatic braking and
lane keeping
• Full fleet management
solutions and data
capturing
• Over-the-air software
updates
Energy-as-a-Service
Grid Storage and
BEV Charging
• Leverage technology and
infrastructure to act as a
grid buffer and to capture
intermittent energy
sources
• Provide BEV charging
solutions to short-haul
customers
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EQUITY RESEARCH
Nikola Corporation
June 17, 2020

Figure 3 – Nikola One Figure 4 – Nikola Two Figure 5 – Nikola Tre
Source: Nikola Corporation
The Nikola One, which debuted in late 2016 as a prototype, features a 250 kWh EV
battery supplying 6 traction electric motors. The Nikola One is a hydrogen fuel cell
electric semi sleeper truck for the North American market. At the time of the launch,
U.S. Express reserved 5,000 fuel cell trucks, albeit with no money down. Nikola at the
time was aiming to have the truck out in 2020; however, now the fuel cell variant is
available in 2023. U.S. Xpress, the fifth largest asset based truckload carrier in the U.S.
with about 6,800 trucks is still using the announcement as part of a hiring push (HERE).
We believe the advanced features of the truck as well as the “cool” factor will help fleets
compete for drivers in a tight labor market for the commercial driving profession. A
Freightwaves article published in March 2017 discussed some of the operational
advantages the vehicle would offer U.S. Xpress. Note Nikola initially was offering 1
million miles of fuel; however, now is offering 700,000 miles, or 100,000 miles per year.
U.S. Xpress makes up more than one-third of the 14,600+ reservations on hand for the
fuel cell truck. We assume the fuel cell trucks that Nikola develops will achieve about 7
to 8 miles per kilogram of hydrogen in most conditions. Management believes that
about 90% of routes in Europe can use a 60kg tank, which would offer a range of 450
miles, and in North America an 80kg tank, which would offer a range of ~600 miles.
The fuel cell electric Nikola Two, is similar to the One but is a day cab features 80kg of
hydrogen storage in type IV carbon fiber tanks that fuels the two fuel cells, which have a
combined 240kW output to charge the 250kWh lithium-ion battery at the base of the
vehicle that powers six 800 Volt AC motors. The company believes that the low weight
of the fuel tanks and purpose-built design will result in the truck weighing 5-7K pounds
less than a similar diesel truck, while still having an estimated range of 500-750 miles
and a 15-20 minute refuel times and looks to compete with or exceed diesel trucks from
a performance standpoint. The ~175 pounds of on-board hydrogen stores ~3MWh of
energy and Nikola estimated at its annual Nikola World exhibition last year that it would
take ~30k pounds of lithium-ion batteries to store a similar amount of energy, making it
not feasible for long-haul trucking. For customers that do not need the range of 500-
750 miles, such as those around cities, the company is offering a BEV version that would
have a smaller range. Both the FCEV and BEV would contain similar architectures, with
the hydrogen tanks and fuel cell replaced with a larger battery pack in the BEV version.
Creating the technology required to power Nikola One and Nikola Two — their zero-
emissions hydrogen fuel cell trucks — required the engineering teams from Bosch, TE
Connectivity, and others to solve for very unique requirements. The teams needed to
develop a powertrain capable of delivering up to 1,000 horsepower, with 2,000 ft-lbs of
torque, provide capacity to carry a 110,000 pound load, achieve full recharge in 15
minutes, and display real-time performance data. The fuel cell variant of the trucks still
has a smaller lithium ion battery, largely for regenerative braking, constant connectivity
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EQUITY RESEARCH
Nikola Corporation
June 17, 2020

to allow for over the air (OTA) software updates, and cold starts. We believe that Bosch
has chosen PowerCell as the fuel cell vendor for the Nikola trucks. PowerCell has a long
history in the fuel cell space, having initially been owned by Volvo in Sweden.
The Nikola Tre is an all-electric truck that was unveiled in December 2019 in partnership
with CNH/Iveco. The truck will be built at Iveco’s Ulm, Germany factory and initially be
imported to the United States but also likely be sold in Europe. Iveco is part of Case
New Holland (CNH) and is Europe’s smallest traditional truck maker, competing with
Daimler, Volkswagen and Volvo among others. The prototype of the Nikola Tre was
revealed just three months after the partnership and investment from CNH/Iveco was
announced. Under their agreement, CNH took a $250 million stake in Nikola - comprised
of $100 million in cash and $150 million in services, giving the U.S. company scale and
manufacturing capacity for its various platforms. The truck will initially be all electric but
will have a fuel cell variant in 2023. We believe the Nikola partnership is CNH/Iveco’s
2025 emission compliance strategy. European truck manufacturers will be required to
cut carbon dioxide emissions from new trucks on average by 15% from 2025 and by
30% from 2030, compared with 2019 levels. Note that CNH said in September it would
spin off Iveco and list it separately at the beginning of 2021. The Nikola Tre is based on
the Iveco S-Way platform, a cab over engine truck manufactured since 2019 by the
Italian producer Iveco. Iveco will gain access to Nikola’s electrical technology and
infotainment systems and Nikola will be using many of the components from the Iveco
“parts bin” to manufacture the trucks. FPT Industries out of Turin, Italy, which is part of
Fiat Power Train, will be building the eAxles, the cabs will be made in Madrid, Spain and
final assembly will be done at the Iveco site in Ulm, Germany and then exported directly
to the United States.
Figure 6 – One Platform, Two Powertrains
Nikola's plan offers the most compelling solution we have seen thus far to the chicken
and egg problem for hydrogen infrastructure and consumption that has long plagued
the fuel cell industry and inhibited broader adoption of lower emission technologies
within the heavy-duty transportation sector. The Class 8 market has largely shifted to
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COWEN
EQUITY RESEARCH
Nikola Corporation
June 17, 2020

natural gas engines from Cummins to help reduce CO2 emissions in specific areas such
as California, and we see the hybrid fuel cell/battery solution as an intriguing
development.
We believe for Nikola to be successful in the first 10 years of production for the fuel cell
variant the company only needs to have 20 to 25 customers as they will look to phase in
leases for fuel cell trucks on dedicated routes as the stations are build out.
Nikola's strategy of pricing per mile in a lease that bundles in the truck along with both
fuel and service is likely to be viewed as attractive by fleet operators given it provides
stability and predictability that is not possible with diesel and avoids concerns on
residual value. The company has targeted $0.95 per mile, which is competitive with
diesel at $0.95-$1.10, but unlike diesel the price will be fixed due to the Nel hydrogen
partnership and not fluctuate based on the inability to hedge the price of diesel over
long durations. Service is also included in the lease price, with access to the ~800 U.S.
Ryder locations built in as well as with other service providers around the country.
While most truck OEMs are in the high teens to 25% gross margins, we believe Nikola
can trend to 25-30% because of the fueling revenue contribution, which largely kicks in
later in the decade as the fuel cell vehicles roll out to new fleets and stations are build.
We believe the target model below can be obtained by 2029 or 2030.
Figure 7 -Margins Step Up in 2025 as Fueling Revenue Ramps and Costs Decline for BEV/FCEV
Source: Cowen and Company
Note we are assuming the first two years of production are negative GM for the BEV
truck. By 2026 we believe cost reductions in fuel cells and related tanks can drive parity
pricing for BEVs and FCEVs at approximately $180,000 per unit of cost.
Figure 8 – Key BEV and FCEV Unit Modeling Assumptions
We see the hydrogen station investment for the company largely tapering off after
2028. While stations under construction peaks in 2026, it takes about 1.5 to 2 years to
finish a station.
Nikola Long Term Model Summary
2021E 2022E 2023E 2024E 2025E 2026E 2027E Target
Revenue (y/y) - 264% 371% 128% 75% 37% 34% -
Gross Margin -14% -1% 11% 17% 25% 27% 27% 30%
Operating Expenses 363% 93% 30% 20% 19% 21% 19% 15% - 17%
Operating Margin -377% -94% -18% 6% 12% 12% 14% 13% - 15%
2021E 2022E 2023E 2024E 2025E 2026E 2027E
Trucks (BEVs)
Deliveries 330 1,200 3,500 7,000 10,000 11,700 12,750
ASP ($k) $250 $250 $250 $250 $250 $250 $250
Cost per Unit ($k) $285 $254 $211 $201 $184 $180 $180
Trucks (FCEVs)
Deliveries - - 2,000 5,000 10,000 13,800 19,250
ASP ($k) - - $235 $235 $235 $235 $235
Cost per Unit ($k) - - $236 $210 $188 $180 $180
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June 17, 2020

Figure 9 – Key Hydrogen Station Assumptions
Battery and Fuel Cell Class 8 Trucks are Becoming Competitive
Battery electric drivetrains have become competitive with diesel trucks for lighter loads
or shorter distances on a total cost of ownership basis. For the longer range and
especially with heavier loads, all electric trucks are less practical. As battery energy
density and costs fall, we would expect range to increase. We note that Nikola is
focused on both fuel cell trucks, which will be used for dedicated routes on longer hauls
as well as all electric trucks, which are focused on the sub-350-mile market. We would
highlight that Cummins, covered by Matt Elkott shares this view on range as they have
acquired Hydrogenics in order to enter the fuel cell and electrolyzer market.
While a battery electric drivetrain’s cost of ownership increases as range increases, a
fuel cell based drivetrain has a relatively flat relationship with range, similar to the
diesel vehicles that it seeks to displace. To increase the range of a fuel cell truck, all an
OEM needs to do is increase the size of the onboard hydrogen tanks.
2021E 2022E 2023E 2024E 2025E 2026E 2027E
Hydrogen Stations
Hydrogen Stations Placed Under Construction 2 13 28 57 98 108 100
Cumulative Hydrogen Stations Placed in Service (Can be under construction) 2 15 43 100 198 306 406
Stations Completed and Available for Fueling in Period - - 10 14 34 68 106
Cumulative Hydrogen Stations Available for Fueling - - 10 24 58 126 232
Total FCEV Trucks in Service - - 2,000 7,000 17,000 30,800 50,050
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June 17, 2020

Figure 10 – Technology Comparison of Hydrogen, Battery Electric and Diesel Trucks
(1) Estimated hauling capacity includes both cargo capacity and the weight of the trailer
Weight is critical for trucks, both from a regulatory perspective but also from a
monetization perspective. The fuel cell variant of the Nikola is about 3,000 to 5,000
pounds lighter than its battery electric peer. A general rule of thumb in the trucking
industry is that every pound of cargo hauled is worth about $0.50 so weight limits on a
full load could cost the fleet up to $2,500 at the high end of the delta. Beyond range and
faster refueling, we believe operators that operate near the gross vehicle weight limits
of trucks will also favor hydrogen solutions to avoid this potential financial loss.
Potential Catalysts Ahead For The Stock
We see a variety of near-term catalysts emerging over the next two to three quarters
that in our view can further boost sentiment for the stock. Notably, we are monitoring
the following, which we see a high likelihood of occurring and would be additive to our
initial modeling of the company:
1) Potential for CNH/Iveco’s facility to produce fuel cell and all electric trucks for the
European market.
2) A strategic partner or partners announced for hydrogen fueling
3) A formal launch of the Badger pickup truck leveraging a third party manufacturing
partner
We explore each of these potential catalysts below:
Hydrogen-Electric 100% Battery Electric Diesel
Primary Power Unit (PPU) Hydrogen Fuel Cell Battery Diesel Engine
Refuel/Charge Time 10-15 minutes Several Hours 10-15 minutes
Est. Range
500-750 miles
(Long-haul)
100-350 miles
(Medium-/Short-haul)
500-750 miles
Refill Affect on Electrical Grid
Hydrogen stations act
as buffer & balance grid
Recharge to be managed within grid
load capacity
N/A
PPU Sustainability Profile
Hydrogen is the most
abundant element on planet
Dependent on further advances in
technology
Access to oil reserves can be costly
and prices are highly volatile
Impact on Emissions Zero emission vehicle Zero emission vehicle
Heavy emission vehicle unlikely to
adhere to future regulations on
emissions standards
Est. Vehicle Weight ~22,000 - 24,000 lbs ~25,000-27,000 lbs ~17,000-19,000 lbs
Est. Hauling Capacity(1)
~56,000-58,000 lbs ~53,000-55,000 lbs ~61,000-63,000 lbs
Complementary
Use Cases
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June 17, 2020

Europe Momentum - We are upbeat about potential market developments in Europe
given the CO2 regulations in Europe requiring heavy duty vehicles to reduce emissions
by 15% in 2025 and 30% in 2030. In some cases, the failure to comply with the 2025
target could penalize OEMs by as much as €38k per truck. Even absent the fine, we
believe OEMs could see a payback of less than 2 years depending on operating needs.
Europe is much further along in embracing hydrogen as a fuel and given the already
heavy renewable energy penetration rates, we see a solid opportunity to pair surplus
electricity generation with multi-MW electrolyzers to generate cost effective hydrogen
relative to the elevated prices of diesel in the region relative to the United States.
Third party researcher Bloomberg New Energy Finance expects a sharp uptick in fuel
cell heavy duty trucks in 2026, with the market surpassing 2100 units, up from about
450 in 2023. While we believe their forecasts are extremely conservative, we believe
the timing of the hockey stick and regional focus on Europe and the United States are
correct, with China dominating longer term.
Figure 11 – Anticipated Fuel Cell Heavy Duty Commercial Vehicle Sales (‘000)
Source: Bloomberg New Energy Finance, Cowen and Company
Fueling Partnership: Nikola has a strategic partner for many of the key facets of its
business; however, on the hydrogen fueling side the puzzle pieces are only in place for
electrolyzers with NEL equipment and 174 Power Global, a division of Hanwha Group in
Korea, to supply solar panels and potential solar farms that would feed the needed 17.6
MW of electricity needed for each hydrogen station. We would expect management to
look to partner with other suppliers as they seek to build out ~400 potential stations
across the United States and Southern Canada and potentially expand to Europe at
some point in time. Note that ~400 stations should cover the dedicated routes in North
America; however, if the company were to target all of the 1.8 million trucks on the road
today, an additional 300 stations would need to be build out for non-dedicated routes.
We believe the company will focus exclusively on dedicated routes for the first 10 to 12
years of production. Domestically we could envision a partnership or joint venture with
a truck stop chain, similar to what Clean Energy Fuels did with Pilot for natural gas, or
perhaps partner with a more strategic oil & gas company such as Shell or Total. Both
have extensive experience with Hydrogen and Total is already building out stations in
Germany as part of a consortium (more details HERE). Beyond potential capital and
revenue sharing, a major global oil & gas partner could offer expertise in energy trading,
electricity procurement and carbon compliance. We would highlight electricity
-
20
40
60
80
100
120
140
2020 2025 2030 2035 2040
China Europe U.S.
Japan South Korea India
Rest of World
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June 17, 2020

procurement monitoring as a particular area of focus because electricity comprises
about 85% of the cost to produce hydrogen through electrolysis, thus if a partner were
monitoring spot power prices near each station and taking advantage of disconnects in
pricing which occur frequently on a temporary basis due to heavy renewable electricity
penetration from wind and solar, hydrogen generation through electrolysis could be
viewed as a form of arbitrage and using storage tanks as a means of generating very
cost effective fuel.
We note that Nikola has joined, and currently leads, a consortium of partners and
competitors to create a standard on dispensing equipment so that stations can be
utilized by Nikola and its competitors without fears of compatibility. Air Liquide,
Hyundai, NEL, Nikola Corporation, Shell and Toyota all signed a Memorandum of
Understanding (MOU) for hydrogen fueling components in early 2019. The cross-
industry group of both vehicle and infrastructure companies has signed the MOU with
the purpose to test pre-commercial 70MPa hydrogen heavy duty vehicle high flow
(H70HF) fueling hardware for future Class 8 (40 Ton) trucks. The industry group has
created specifications for the fueling nozzle, vehicle receptacle, dispenser hose and
breakaway device components
Badger Commercialization: We are not assuming any commercialization of the Nikola
Badger in our modeling, which is likely overly conservative. Management has noted they
would only look to commercialize the vehicle if another OEM manufactures it. Recent
press reports and tweets from founder Trevor Milton have noted that formal orders for
the vehicle will commence on June 29th
and that the company is considering three
potential manufacturing partners and the vehicle will be available for customer
deliveries in 2022 or earlier. What the complexion of such a manufacturing agreement
could look like is unclear. We would assume the company would pursue a manufacturing
deal with an existing OEM with excess capacity domestically or someone like a Magna
Steyer, a division of Magna that has over 100 years of experience in vehicle production
and is currently building the Jaguar E and I-Pace, Mercedes G Class, BMW Z5 and 5-
Series as well as the Toyota GR Supra. Magna Steyer also has a contract with Sony to
develop their new electric vehicle, which was launched at CES earlier this year. If Magna
was not the partner, then we believe a deal could be struck with a traditional domestic
OEM. Given the likely low utilization rates at many OEM facilities domestically, we
believe such as deal could be of interest under the right economic scenario for both
parties.
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Figure 12 – Nikola Badger
Again, we are not assuming in our modeling or positive stance on the stock any success
for the Badger. We note that Chairman Trevor Milton noted via Twitter earlier this
month that on June 29th
reservations would open up for the vehicle and later in the
month on June 10th
said, “exciting news coming with the Badger soon.” Until a thorough
understanding of any launch related costs and timing for the truck are known, we would
rather err on the safe side and not include the vehicle in our model. The Badger truck
itself will be available as either a pure battery-electric or a battery-electric/fuel-cell
hybrid. The electric version will have a claimed 300 miles of range, while the fuel-cell
version will up that number to a claimed 600 miles. We would assume the electric only
version will be available prior to the hybrid fuel cell variant, similar to the cadence of the
truck launch.
We believe the Badger leveraged the Nikola NZT powertrain skateboard, an all-terrain
vehicle we describe further in this report. Press reports and interviews with
management on various podcasts suggest the battery pack will be 160 kWh in size.
Differentiation of Nikola Versus Tesla – Leverage Partners Versus Doing Everything In
House
Both Nikola and Tesla derived their corporate names from the same place, Nikola Tesla,
a Serbian-American who was an engineer and futurist and best known for his
contributions to the modern alternating current (AC) electricity supply system. While
both companies also have extremely charismatic founders who love Twitter and are
involved in the electrification of transportation, the similarities stop there. Elon Musk
has called fuel cells “fool cells”, “staggeringly dumb” a “load of rubbish” for several years
and noted at its annual shareholder meeting that “success is simply not possible” in
hydrogen fuel cells. We don’t see the situation as a zero-sum game and expect both
technologies to coexist in trucking, with range, weight needs and route determining
which technology is used. We see hydrogen as best suited for dedicated routes, which
make up about 20-25% of the 1.8 million Class 8 trucks on North American roadways
today. Keep in mind that Nikola is developing both kinds of trucks despite being known
as a fuel cell trucking company; they will have an all-electric version in 2021.
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While it remains to be seen which technology will win the tug of war for Class 8
trucking, we see both technologies playing a role depending on route and range needs
and believe Mr. Musk is overly simplifying things. While the technology debate between
the two parties will likely persist, we note both companies share similar societal goals in
hoping to revolutionize the transportation industry.
We have covered the fuel cell sector for 15 years now and up until the last 3 to 4 years,
the sector was largely made up of what we would put in the camp as publicly traded
science experiments, comprised of companies with a great deal of hope and associated
investor returns but plagued with high capital costs relative to existing technologies,
inadequate lifetime of the units and uncertainty on where cost efficient hydrogen would
come from. Over the past few years, fuel cell technology and battery technology have
both improved. Nikola is looking to leverage both and we note that about 90% of the
components in a fuel cell truck are the same as the electric variant.
While Nikola is looking to commercialize both fuel cell and battery technologies and
Tesla is looking at just electrified vehicles, the approach to commercialization is radically
different. Nikola’s approach is centered on creating a partner ecosystem, many of which
are co-investors in the company. The two most important partners in our minds are
Bosch and CNH/Iveco. Bosch was critical in accelerating battery and fuel cell integration
into the initial design. Iveco is the market share leader in natural gas engines in Europe,
having shipped over 30,000 units and worked with fleets in helping build out dedicated
natural gas routes. We believe Iveco’s connectivity with fleets that have a bias toward
alternative powertrains as well as robust dealer network can be an asset for Nikola to
leverage, especially as we move closer to 2025 when more stringent CO2 regulations
kick in. Intellectual property developed by Bosch and Nikola are co-owned by both
companies.
Figure 13 - Network of Strategic Partnerships Reduces Execution Risks, Improves Commercialization Timeline and Provides Long-Term Competitive
Advantage
• One of the world´s largest and most
recognized photovoltaic manufacturers
and energy providers
• Series C investor and exclusive solar
panel provider
• #1 global engineering service provider to
the Commercial Vehicle industry for cab
development
• Cab and Chassis engineer
• Largest producer of electrolyzers and
other hydrogen equipment
• Series C investor and hydrogen
production equipment supplier
(electrolyzers and other components for
hydrogen stations)
• Largest truck leasing company in the U.S.
with over 800 service centers and 6,000
highly trained technicians
• Primary but non-exclusive service
partner
• Leading global supplier of braking control
components and air management systems
to medium- and heavy-duty trucks
• Series B investor in Nikola and brake
traction and stability control system
developer
• World's largest independent company for
the development, simulation and testing of
powertrains
• Designer and developer of first-in-class
vehicle and hydrogen fuel cell test facility
• International leader in the development, manufacture, marketing,
and servicing of a vast range of light, medium, and heavy commercial
vehicles
• Series D investor and partner in 50/50 European joint venture and
North American production alliance
• Leading global supplier of technology and services to automotive,
industrial, energy, building technology, and consumer end markets
with ~410,000 employees and ~$90B in annual revenue
• Series B and C investor and powertrain design (e.g., fuel cell,
battery, VCU) co-development partner
• Any related IP will be jointly owned by Nikola
OTHER KEY INDUSTRY PARTNERS
MARQUEE CO-DEVELOPMENT PARTNERS
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Given Elon Musk was already a billionaire when Tesla was formed, the company had the
luxury of aiming to internally develop and manufacture as much as possible, ranging
from seats to motors and inverters, all of which differentiate Tesla versus peers,
especially in terms of range and electrical efficiency of the battery. Since founder
Trevor Milton was not a billionaire and the company was fairly bootstrapped for cash in
the 2015 and 2016 timeframe, the company’s approach was to leverage partners and
jointly develop IP for a true hybrid fuel cell battery electric truck that had a zero
emission profile. Back in 2015 and 2016, the concept of zero emission trucking was not
actively being discussed or developed by other OEMs, thus we believe many Tier 1 and 2
suppliers were energized by the vision and willing to help. We believe Bosch and
Worthington were some of the key initial partners; however, overtime many more were
added as shown on the figure above but also other smaller partners such as TE
Connectivity and Meritor played a key role. Given the scope of zero emission
transportation has greatly evolved since 2015, we do not believe such an ecosystem of
high-profile strategic partners could be assembled by a startup in today’s environment
as there is less of a debate about the trajectory of zero emission transportation. Nikola’s
view is they aim to share the IP that is jointly developed on many of the facets of their
business.
While Nikola has leveraged extensive use of partners for the key components of the
vehicle and to build out its energy ecosystem, the company largely designed the exterior
and interior of the vehicle with its in-house design team. The infotainment and HMI
(human to machine interface) cluster centered around a 17” display and 13” instrument
cluster is compelling and differentiated in our view. This technology includes video
camera displays in rearview mirrors and digital displays equipped with programs to plan
routes and track mileage, sleep, and expenses. By designing the trucks to help truckers,
they are enabling transport companies to operate more efficiently. For example, the
truck’s data architecture is designed to support more autonomous functionality that can
be used in the future when regulations allow. When the industry decides to use these
features, transport companies can leverage the high-speed data connectivity to platoon
vehicles and predict maintenance, repair, and overall cost-of-ownership, making it easier
to manage the fleet and safer to operate on the road, while also helping reduce driver
errors and fatigue issues.
Figure 14 – Advanced Connectivity Features in the Nikola Two Figure 15 – Infotainment System Should Improve Trucker Experience
Source: Cowen and Company, Company Reports
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We would also note that Nikola filed a lawsuit against Tesla almost two years ago,
claiming that Tesla’s Semi Truck infringed upon a series of three patents for the original
Nikola One truck.
Nikola’s lawsuit against Tesla is centered around the similarities between the trucks
design, with Nikola claiming the fuselage of the tesla semi is too similar to the design of
the Nikola One, which was publicly revealed a year earlier than Tesla’s. The specific
claims are centered around the fuselage itself, the windshield design and the mid-entry
door design with the folding and retractable step. Thus far, the U.S. Patent Office has
upheld Nikola’s patents upon appeal by Tesla.
As noted above, Nikola has leveraged partners to develop prototypes quickly. We
believe a common question investors have among many about the Nikola investment
case is where does the IP reside. Similar to any vehicle, a series of Tier 1 suppliers have
put together the key building blocks for the 3 generations of Nikola trucks. We see the
core IP of Nikola being the business model as they are largely an infrastructure and
energy company that also makes trucks. The unique value proposition of fuel certainty
would not be available to potential customers without the fueling. We believe Bosch
and CNH/Iveco largely derisk the ramp up relative to other startups who are attempting
to do everything inhouse such as Tesla. Over time, now that Nikola has ample liquidity,
we could see some key differentiated components brought in-house. Perusing the
company’s current job postings as of the publication of this report suggests that is the
direction they are headed. Openings for inverter engineers, firmware, software and
system architecture engineers to us suggest the company will expand on some of the
key building blocks that partners have developed.
Nikola also noted in a November 19, 2019 press release that they have developed a
1,100 watt-hours per kilogram lithium ion battery, which would double the range of a
vehicle, reduce weight by ~40% and cut 50% of the material cost per kWh compared to
existing lithium ion batteries. In subsequent press interviews, it became clear that
Nikola has only manufactured these cells with smaller form factor pouch cells relative to
what is needed in a vehicle or truck. Migrating to larger form factors has been a
challenge for numerous startups as coin sized cells migrate to full sized units. While we
are unclear of the specifics of the battery claim and are not assuming any success in our
modeling, press reports with founder Trevor Milton noted the battery eliminates costly
cathode components such as nickel, cobalt and magnesium and uses a “while different
type of chemical with a lithium component.” In a Forbes interview, Mr. Milton noted
that the battery was developed by an unnamed university lab Nikola was involved with
and they have “locked up all the IP.” With the battery development, Nikola has added 15
PhDs and 5 master’s degree team members from the unnamed company. There are
numerous alternative form factors and chemistry combinations for lithium-based
batteries, so it is unclear if Nikola is working on a sulfur-based battery leveraging lithium
metal, some form of solid state, or something else. Other press reports noted that the
battery is more conductive than standard 2170 form factor cells given the Nikola
approach removes binder material and electric current collectors from the cell, which
take up weight and space within the battery. We note that Daimler has some intensive
work underway in lithium sulfur batteries as well as we were in attendance for their
battery update at last year’s International Battery Seminar presentation. The team from
Daimler noted challenges with liquid electrolyte to lithium sulfur ratios (E/S ratio) and
cycle life and challenges with Wh/L, however if higher abuse tolerances could be
achieved, they felt it could be commercialized. Now that the company is publicly traded,
we would expect more details to emerge at some point; however, we are assuming no
commercialization of any in-house developed battery technology and anticipate Nikola
will use off the shelf 2170 format cylindrical cells and do their own pack assembly,
similar to what Tesla does today at the Gigafactory leveraging Panasonic cells. Note
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Nikola, nor Bosch that we are aware of, does not have a framework agreement with a
cell vendor similar to Tesla’s with Panasonic. Commentary from Nikola management at
their April 2020 analyst day for the sell side noted the company works with all 3 major
cell vendors (LG, Samsung SDI and Panasonic).
Unique Business Model – Pay Per Mile Instead of Buying the Truck
Nikola is offering a differentiated bundled lease model, which provides customers with
the fuel cell truck, hydrogen fuel, and maintenance for a fixed price per mile, locks in fuel
demand and significantly de-risks infrastructure development. Note that the bundled
truck, fuel and service model is only offered with the fuel cell variants of Nikola’s trucks
whereas the all-electric trucks do not offer the bundle and revenue recognition is just at
the time of the sale.
Figure 16 – Nikola Revenue Segmentation
We highlight that the company as of the date of the IPO had 800 trucks from Anheuser
Busch that had a legally binding contract and a reservation list of 14,600 trucks.
Typically, fleets place deposits on trucks when they have confidence that they will
receive their truck within 12 months. This is done in an effort to slot in new trucks into
the schedule of expiring leases. As we move closer to 2023, we would anticipate that
many fleets in this reservation base will migrate to formal contracts. The lack of
committed backlog has been a source of investor anxiety and we would expect
management to make every effort to convey growing backlog as orders materialize.
Note that orders can only be taken from fleets operating on corridors that have fueling
built out, which has started between Los Angeles and Phoenix along Interstate 10;
however, we believe the Interstate 5 corridor north from Los Angeles to San Francisco
will be built out and then likely San Francisco to Reno along Interstate 80. Over time,
we expect the company to move eastward along Interstate 10 and 80 and branching out
to other Interstate routes.
Note the all-electric Nikola Tre also does not have a publicly announced backlog, but
given shipments are anticipated to commence in mid-2021, we would expect press
releases from Nikola in the coming months for the European built Nikola Tre.
Nikola Revenue Contribution by Key End Markets ($mn)
2021E 2022E 2023E 2024E 2025E 2026E 2027E
Truck - BEV $83 $300 $875 $1,750 $2,500 $2,925 $3,188
Truck - FCEV $0 $0 $470 $1,175 $2,350 $3,243 $4,524
Service & Maintenance $0 $0 $12 $54 $141 $278 $471
Hydrogen $0 $0 $56 $245 $640 $1,263 $2,139
Other Revenue (Powersports, Badger) $0 $0 $0 $0 $0 $0 $0
Total Revenue $83 $300 $1,413 $3,223 $5,631 $7,708 $10,321
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Figure 17 - Nikola’s Advantage: Bundled FCEV Offering is More Attractive Than Diesel
As fleet customers take delivery of their trucks, Nikola looks to securitize the truck
portion of the lease. Our model assumes they can extract ~$160,000 of value per truck
securitization assuming a 7% interest rate. We assume the actual truck price is
$235,000, so just under 70% of the value of the truck is being securitized to free up cash
for the company. Assuming a $0.95/mile subscription is entered into, that will generate
$665,000 of revenue over the 7-year term. We believe about ~35% of the $665,000
revenue stream is allocated to the fuel cell truck, ~50% to the fuel and the remaining
~15% is attributed to service and maintenance.
Some of the basic math to drive our revenue assumptions for the fuel cell related trucks
are as follows:
 Lifetime Revenue - $0.95/mile x 100,000 miles/year x 7 years = $665,000
 Assumed truck price of $235,000 – because it is securitized, revenue
recognition for this portion of the revenue stream can occur immediately as
the lease commences - $235,000/$665,000 = ~35%.
 Revenue attributable to fuel – 700,000 miles / 7.5 miles per kg of hydrogen x
$3.75/kg price for fuel = $350,000, or ~53% of the total $665,000 revenue
stream. This revenue stream is recognized ratably over the 7-year lease. We
believe if Nikola can procure power at $35/MWh, that they can produce fuel at
$2.50/kg including depreciation. We estimate the sensitivity to electricity
prices, which make up ~85% of the cost to produce hydrogen is about $0.50-
0.60/kg for every $10 change in electricity price per MWh. Note that both
hydrogen trucks and diesel trucks get about 7-8 miles per unit of fuel, either
per gallon or per kilogram, so the price for hydrogen per kilogram needs to be
roughly in line with a 7-year average of diesel price per gallon to make
economic sense.
Total cost of ownership certainty
Historically, diesel fuel has comprised anywhere from 40-60% of
total ownership costs(1). Nikola’s Bundled Lease offers operators
complete cost predictability at cost parity with diesel
Better Performance
Outperforms diesel and battery trucks in range, horsepower and
torque. Shorter recharge time than battery electric trucks
Enhanced Safety
6x2 drive, torque vectoring, faster stopping, lower center of
gravity
Hydrogen Safer than Diesel
Lower vapor pressure, will not form combustible mixture with air,
harder to ignite, hydrogen dissipates into atmosphere
Extensive safety testing performed by third-party experts
Environmentally Friendly
Zero emissions and nearly silent. Hydrogen stations powered by
renewables
Autonomous Ready
Enhanced autopilot, automatic braking, and automatic lane keeping
standard on each vehicle
THE INDUSTRY’S FIRST EVER “BUNDLED PRICING”
PROJECTED NIKOLA VS. DIESEL COST PER MILE
• 7-year lease/700,000 miles
• Lease includes the cost of truck, hydrogen fuel, repair,
and maintenance
• Lease model eliminatespayback period and technology
risk for customers, enablingmore rapid adoption
Includes all
vehicle, service
& maintenance
and fuel costs
Fuel Cost:
~$0.51 per Mile
Service & Maint:
~$0.21 Per Mile
Vehicle
Payments:
~$0.26 per Mile
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
Nikola Traditional Diesel
Total TCO:
$0.95 per Mile
Total TCO(2):
~$0.97 per Mile
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 Lastly, service is anticipated to be just under 15% of the revenue stream at
about $80,000 over the 7 years. We are assuming service makes up about 11
cents per mile and that it costs about 7% of revenue. We see this as the
segment of the model with the most likely volatility and uncertainty. Nikola
originally signed a service agreement with Ryder in 2016 that was exclusive;
however, both parties have agreed to release the exclusivity clause in recent
weeks. Service and maintenance cost of goods are booked in the P&L as they
are incurred and the cash flow impact is also booked as service & maintenance
is provided. Fuel cell trucks are anticipated to have substantially lower service
and maintenance needs per mile tan diesel trucks, mainly due to fewer
mechanical moving pieces relative to diesel.
Figure 18 - Single Fuel Cell Truck Lease Unit Economics
1) Analysis does not include potential financing charges that may be incurred to securitize and monetize some portion of the Nikola lease
2) Hydrogen fuel cost includes all hydrogen station related operating expenses including electricity costs, water costs, station personnel cost, and hydrogen station
maintenance
3) Vehicle profit presented before corporate general and administrative expenses
4) Assumes each station has a 21-year useful life and supports 210 truck leases during each 7-year lease period
5) Does not include any potential upside from truck residual value at the end of the lease
Nikola will use securitizations to recycle capital from the fuel cell 7 year leases. Our
model assumes a 7% interest rate, 7 year loan term with a ~70% loan to value, which
leads to a 1.7x debt service coverage ratio assuming a price of $235,000 for the truck
and approximately $160,000 of initial cash flow is securitized. We believe such a
structure could be setup with an investment bank or perhaps with a financial arm of
Cash New Holland.
PROJECTED CASH GENERATED PER TRUCK LEASE PROJECTED LEASE MODEL ECONOMICS
$665,000
$188,174
$230,637
$46,760
$26,365
$173,064
Lease Revenue Truck Materials
& Labor
Total Fueling
Cost
Service, Maint.
& Other
Station Capex
Per Lease
Cash Per Truck
Lease
Projected Nikola Lease Model Economics (1)
Gross Revenue $665,000
Materials $173,624
Labor - direct and indirect 7,500
Warranty Expense @ 3.0% of Truck Revenue 7,050
Truck Cost $188,174
Nikola Cost per kg of Hydrogen $2.47
x kg of Hydrogen used over 700,000 miles @ 7.5 Miles/kg 93,333
Hydrogen Cost Per Truck Lease(2)
$230,637
Service & Maintenance Cost @ $0.067/Mile $46,760
Total Service & Maintenance Cost $46,760
Total Cost of Nikola Lease $465,571
Vehicle Profit Per Nikola Lease (Before Corporate G&A)(3)
$199,429
Vehicle Profit Margin 30.0%
Station CapEx per Lease(4)
$26,365
Cash Generated per Truck Lease(5)
$173,064
Each individual FCEV truck lease is anticipated to have steady cash generation over the life of the lease
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Figure 19 – Nikola Illustrative Example of Securitization Structure
Source: Nikola Corporation (April 2020 Analyst Day)
The lease model with the accompanying securitizations has an impact on the timing of
revenue recognition and associated cash flow. The company has provided a helpful
illustrative example regarding the matter.
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Figure 20 – Illustrative Fuel Cell Truck P&L and Cash Flow
Source: Nikola Corporation (April 2020 Analyst Day)
1) Numbers in the table illustrate approximate amounts to which Nikola on average expects to receive from FCEV lease
2) Numbers in the table per lease year does not sum to the total lease value due to rounding
Opportunities Outside Trucking Look Intriguing But Path to Commercialization For
Nikola is Unclear
We note that Nikola has developed several products in its Powersports division, aiming
to leverage a “halo effect” of the brand. Outside of potential success with the Reckless
with the Marines and other affiliated Department of Defense agencies, we are not
hopeful on any of the products on this segment. We view them largely as a distraction
for management, with a different channel to market, service and repair. While we find
the product features compelling, we just don’t believe management should be spending
time in commercializing these products. The NZT, which stands for net zero toll, and
Reckless were initially focused on by Nikola because the platforms allowed for faster
testing of suspension components from Meritor now used on the truck, motor design,
batteries and battery management software. Now that those features have all been
fully baked, we believe these additional projects should only be explored if they can be
done in a capex light manner through the use of a third party for manufacturing. We
believe there is also optionality to do a joint venture with a partner for this segment or
to divest it at some point in time as well.
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Figure 21 – Nikola NZT Figure 22 Reckless Figure 23 – Nikola WAV
The NZT is an off-highway vehicle (OHV) that Nikola is marketing. The company’s
website indicates that the NZT will start production in 2021 and pricing starts at
$80,000. With HVAC, torque vectoring, infotainment/HMI, and ABS brakes pricing is
anticipated to be $95,000-$100,000. There are two primary variants of the NZT, the
NZT 198 which has a 198kw offering 266hp as well as the NZT Limited, which is based
on a 440kw drivetrain pumping out 590hp. The NZT also has 3 different battery pack
sizes, ranging from 75 kWh, 100 kWh and 125 kWh, offering ranges of 90, 120 and 150
miles respectively.
Targeting the military, the Reckless is based on the NZT platform and the company was
awarded a $4.35mn contract in October 2019 in conjunction with Pratt & Miller
Engineering to integrate fuel cells. Nikola received $1mn of the $4.35mn project. The
Reckless OHV (off highway vehicle) is a completely electric vehicle that can go from 0 to
100 kilometers-per-hour in just over three seconds. The vehicle has a modular capability
that can plug and play with a remote weapons station and military drones. The Reckless
uses a 125-kWh battery pumping out 555hp and 4,900 ft-lbs. of torque with four
separate electric motors. The vehicle is named after Staff Sergeant Reckless, a heavily
decorated war horse in the United States Marines during the Korean War that delivered
supplies without a handler to the front lines of battle. The Reckless was initially called
the Nikola Zero and tested by the Marines at Camp Pendleton in 2017, largely against
the Polaris RZR line. The goal of the Reckless design is to be narrow enough to fit into a
V-22 Osprey aircraft. The vehicle also has a low acoustic and thermal signature. The
vehicle can also act as a generator for the military, exporting 15kw of power.
Lastly, the Nikola WAV is a jet ski style vehicle that Nikola has introduced that features
some high tech attributes including a 12-inch, 4K display embedded in the dash and LED
lights in the front and back of the vehicle. Nikola has developed a battery architecture
specifically for watercraft. The company’s website has no expected production date or
cost available; however, they are taking no money down reservation orders.
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What Is Not In Our Model That Could Be Upside
Our modeling of Nikola only assumes commercialization of the BEV and FCEV trucks and
related fueling and service. We believe there are multiple areas of upside to our model;
however, handicapping the probabilities of success in any of the areas highlighted below
is a challenge, thus we have elected to exclude them.
 Powersports – assume no revenue from NZT, Reckless and WAV
 We are assuming the JV with CNH/Iveco only produces BEV trucks from 2021
to 2023 until manufacturing migrates to the Coolidge, Arizona facility in the
Summer of 2023. We see a high probability that this is overly conservative,
especially as Iveco moves closer to the 2025 CO2 mandates in Europe.
 We are assuming zero residual value for the leased vehicles, which could be
overly conservative.
 We are assuming no success for autonomous trucking in our model. We
believe that fleets could be in a position to pay Nikola about $0.40/mile should
autonomous trucking work. Nikola's trucks are designed with autonomous
driving in mind, which may provide revenue to Nikola in the future as well as
potential cost savings to customers. All Nikola products will be built with a
space claim for an autonomous hardware suite. Given the nature of Nikola’s
dedicated route customers, operating point-to-point interstate routes between
its hydrogen stations, Nikola’s trucks provide an ideal testing environment for
further development and advancement of autonomous technology. When the
various regulatory agencies have approved some level of autonomy, the
company will likely consider a partnership with a software vendor. We note
Bosch is already developing such software for Daimler and others in the light
duty vehicle market.
 We are not assuming any success in energy optimization, where the company
could essentially use electrolyzers and related hydrogen storage tanks as a
form of economic arbitrage. The increased volatility from renewable energy
creates a distorted energy production curve, resulting in both predictable (e.g.,
the sun comes out every day) and unpredictable (e.g., the wind blows stronger
on some days compared to others) surplus energy production capacity. This
surplus energy typically goes unused, and in extreme cases must be traded
away at zero or even negative revenue to the utility provider. Hydrogen
production can be used to balance the grid by taking excess energy production
and storing it for future use. Nikola can also help balance the grid by allowing
utilities and power providers to interrupt hydrogen station electricity
consumption during peak demand. Nikola's ability to turn excess energy into
hydrogen may offer operators and energy providers the ability to increase
revenue by selling otherwise wasted off-peak generating capacity.
Additionally, the ability to store unused energy in the form of hydrogen
reduces the need for peak power generating plants that are typically costly to
build and operate, and that historically are heavily underutilized. Instead,
Nikola could potentially build excess hydrogen storage on-site, then sell excess
hydrogen back to the grid during periods of peak demand. It is this area where
we think a partnership with a Shell, Total or other energy production and
trading firms would make strategic sense. Each station in its current design
has about 30 hours of hydrogen storage, assuming full utilization of about 210
trucks per day. The level of storage could be opportunistically increased in
certain geographies that have more volatile swings in electricity pricing such as
the Texas panhandle from excess wind power production.
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Figure 24 – Volatile Energy Production Curves Created by Renewable
Power Create an Opportunity for Electrolyzers
Figure 25 – Beyond Fuel, Hydrogen Can Be Used as a Power Source
 We are assuming the company does not receive any form of government
incentives, either for the purchase of the truck or state or regional programs
such as the low-carbon fuel standard (LCFS) in California. Given the bevy of
government incentives that in recent weeks have accelerated, in particular in
Europe, we believe this is another area of conservatism in the model. The
Nikola team has noted in recent investor presentations that the LCFS credit in
California could offset the capital cost of the facility by $5-10 million. Note
Nikola plans to build 10 to 12 stations in California.
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Figure 26 – Summary of Notable Policies Supporting Fuel Cell Vehicles
Source: Bloomberg New Energy Finance
Coolidge, Arizona Manufacturing Facility Ramp Key to the 2023 and Beyond Story
In the Spring of 2019, Nikola acquired about 400 acres of land in Coolidge, Arizona,
which is about 50 miles south of Phoenix, Arizona. The land, which was bought for an
undisclosed sum, is located in the Inland Port Arizona industrial park, which is served by
rail and truck. Rail abuts the property and Interstates 10 and 8 are nearby.
Nikola intends to break ground on the Coolidge site in 3Q20, with the aim of having
initial final assembly possible in late 2021. The company expects 5,000-unit capacity in
Coolidge in early 2022 and reaching a full capacity available of 45,000-50,000 units by
the end of 2023 assuming the factory runs 2 shifts. Should the company run 3 shifts,
we believe there is enough capacity to produce up to 55,000-60,000 trucks per annum.
The company anticipates that one third of the capacity will be for BEVs, with the
remainder for FCEVs. We note that both trucks can be manufactured on the same
assembly line and they have ~90% parts commonality between them.
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Beginning in 2021, Nikola expects to utilize existing excess capacity at Iveco's Ulm,
Germany plant to begin production of the Nikola Tre BEV for U.S. delivery. These first
trucks will be imported into the U.S. to fulfill launch customer orders. Nikola will also
build the Nikola Tre (both BEV and FCEV) for the European market in Iveco's Ulm,
Germany facility. The Ulm facility has the ability or product 5,000-10,000 trucks per
year. The company expects most 2021 BEV sales to be focused on California and New
York, states that have incentives. The trucks will focus on urban metro, inner city, local
delivery, port operations and drayage operations applications. We believe one to two
launch customers will be announced in the coming months and participate in initial fleet
testing and initial production of the all-electric Nikola Tre.
The company has laid out several phases of construction for investors to monitor:
Phase 1—Low Volume Production—up to 5,000 units per year:
 Begin construction mid-2020
 Warehouse space (approximately 100,000 - 150,000 square feet)
 Low-volume production capacity (approximately 5,000 units per year)
 Complete construction by the end of 2021
 Commissioning and start-up with Nikola Tre BEV in production in Q1 2022
Phase 2—High Volume Production—up to 50,000 units per year:
 Begin construction early-2021
 Complete manufacturing facility (approximately 1,000,000 square feet)
 High-volume production capacity (approximately 50,000 units per year)
 Complete construction by the end of 2022
 Commissioning and start-up with Nikola Two FCEV in production in Q1 2023
A Deeper Look into the Heavy Duty Commercial Trucking Market
The global commercial vehicle market, in its broadest definition, includes light, medium,
and heavy-duty trucks, buses, RVs, vans, and other commercial vehicles. We estimate it
to be well in excess of $1.0 trillion dollars in revenue globally. The US pure-play truck
OEMs operate primarily in the truck manufacturing market, and within that, primarily in
the medium and heavy-duty markets. Narrowing down the market further, heavy-duty
(class 8 and 7) trucks in North America constitute one half to just over two thirds of
OEM business. PACCAR and Navistar are the only US-based, pure play commercial
vehicle OEMs. Nikola is aiming to join the crowd in 2021 with the launch of their battery
electric truck.
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Figure 27 : Overview of Commercial Vehicle Classifications
Source: Cowen and Company estimates and DOT
End markets for heavy-duty trucks include industrial, consumer, and vocational
applications in the truckload, LTL, and other freight industries. Additionally, many non-
freight companies and government agencies have their own trucking fleets. Medium-
duty trucks are used in parcel service and local pickup and delivery operations as well as
in lighter vocational applications.
Global Heavy-Duty Class 8 Truck Market
A subset of the global >6t truck market discussed above, the global Class 8 tractor
production market exceeds $250Bn in annual revenue, according to our estimate. This is
on production of more than 2.2MM units. We estimate that North America has a roughly
$45Bn market share, or just under 20% of global revenue. This is on production of
~325K units, or ~14% of global production.
Duty Class Gross Vehicle
Weight (lbs)
Class 1 0 - 6,000
Class 2 6,001 - 10,000
Class 3 10,001 - 14,000 ˂6t & ˃6t
Class 4 14,001 - 16,000
Class 5 16,001 - 19,500
Class 6 19,501 - 26,000 ˃6t Truck Market
Class 7 26,001 - 33,000
Class 8 33,001 - 80,000 ˃16t Truck Market
˂6t
Gross Vehicle Weight Classification (t)
Light Duty
Medium Duty
Heavy Duty
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Figure 28 : The Global Class 8 Production Market Consists of 20 Primary Manufacturers (2019)
Source: Cowen and Company estimates, PACCAR, ACT Research
Figure 29 : Daimler Enjoys the Largest Class 8 Market Share in the US, Followed by PACCAR – March 2020 Retail Sales
Source: Cowen and Company estimates, PACCAR, SEC filings, ACT Research
Daimler
(Freightliner,
Western Star)
40%
PACCAR
(Kenworth,
Peterbilt)
30%
Volvo (Volvo,
Mack)
19%
Navistar
11%
United StatesClass8 Market Share
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Figure 30 - Historical and Projected US Class 8 Active Population and Average Age
Source: Cowen and Company estimates and ACT historical data
ACT Research segments the on-highway Class 8 freight market between private and
for-hire fleets, representing 53% and 47% of the Class 8 market, respectively. Private
fleets, such as Anheuser-Busch ("AB"), Walmart, are almost all regular route operations
or "dedicated" routes running point-to-point. The for-hire market, such as JB Hunt, XPO
Logistics, can be further broken down into: contract 32%, spot 12%, and dedicated 3%.
Dedicated for-hire fleets are mostly outsourced private fleets that run point-to-point.
Historically Relatively High Barriers to Entry; Powertrain Shift Presents Opportunity
for New Entrants
Unlike its customer base, which is highly fragmented, the North American heavy-duty
truck manufacturing market is dominated primarily by four companies controlling 99%
of the market: Daimler, PACCAR, Volvo, and Navistar. Of these, only PACCAR and
Navistar are U.S. based and can be considered pure-play truck OEMs.
The long-haul freight market is still dominated by diesel powertrains, given the fuel's
ubiquity and substantially higher energy density. However, in the post VW emissions
scandal era, governments have begun to examine emissions regulations more closely.
The charge has been most notably led by local government and cities primarily in
Europe, which have begun to set regulations limiting diesel vehicle usage or even
outright banning them. Given many OEMs operate on global production platforms the
industry expects to see widespread availability of alternative powertrains overtime.
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The short driving distances and frequent stop-and-go duty cycles of commercial vehicles
make them excellent candidates for incorporating cleaner modes of propulsion, which
can increase fuel economy by 30-40%, reduce harmful emission by up to 30% and
reduce maintenance costs by up to 30%. With heavy-duty diesel vehicles offering
extremely poor fuel economies of 5-7mpg, a 30-40% improvement can result in
significant fuel consumption savings.
There are a number of factors for fleets to consider when deciding whether or not to
buy an electric, fuel cell or natural gas vehicle. We are seeing positive developments in
all of the factors including initial purchase price, fuel costs and maintenance costs.
Beyond maintenance expenses, miles driven per year is a key metric. Most
conversations we have had with fleets at tradeshows such as MATS, The Work Truck
Show and ACT (Advanced Clean Transportation) have indicated that a truck needs to
consume 15,000 gallons of fuel per year at a minimum to make the economics of
powertrain conversion work, with a more compelling situation at 20,000 gallons. Note
the typical truck gets upwards of 6 to 7 miles per gallon in fuel economy.
Figure 31 - Overview of Nikola’s Addressable Market
1) Includes both short-haul and long-haul heavy duty truck markets
2) Including vehicle, fuel, and service & maintenance; based on proprietary research from ACT Research
While the light duty vehicle (passenger car) market gets the bulk of attention as it
relates to electrification, there is an accelerating shift toward cleaner and cost-effective
solutions in the bus, refuse, and Class 4-8 trucking market. The societal pressure and
regional political will are in place to eliminate truck emissions over time. The only
questions are how and when. OEMs have stepped up their offerings in the last 12 to 18
months and the sector is no longer dominated by startups, with Daimler, Volvo,
PACCAR, etc. now launching new platforms. The trends of fuel efficiency, safety, and
connectivity seen in the passenger vehicle market are making their way into the
commercial vehicle market as well.
• Commercial vehicle buying decision driven by Total Cost of Ownership (TCO)
• The largest Class 8 fleets are replaced every 3-5 years on average — adoption of new technology is expected to be rapid once it passes TCO
parity threshold
• Increasingly stringent global emissions standards will increase comparative advantage of zero emissions vehicles relative to diesel
• In some cases, such as city centers, diesel will be banned entirely
• Governments, fleet owners, and other stakeholders are demanding a zero emissions solution
KEY DRIVERS FOR ZERO EMISSION COMMERCIAL VEHICLE DEMAND
• Dedicated routes are primarily comprised of private fleets and
dedicated operations of large for-hire carriers
• For initial rollout of FCEV, Nikola will target the largest private
and dedicated fleets with either nationwide or significant
regional distribution networks
• Focus on dedicated routes allows for targeted, capital-efficient
deployment of hydrogen stations
N.A CLASS 8 TRUCK SEGMENT STRATEGY
1,800,000 class 8 semi-trucks on the road daily (1)
+25%
450,000 trucks run on
dedicated routes
75%
1,350,000 trucks
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We don't see a silver bullet technology evolving in a winner take all scenario, with
natural gas, propane, electric, and fuel cells all playing a role. Historically, natural gas
and propane were the most cost effective; however, the move toward zero carbon as a
focus of corporate fleets in California and others is leading the industry more toward
electrified solutions in our view.
According to the Environmental Protection Agency and the European Environment
Agency, the transportation industry causes an estimated 25% to 30% of U.S. and EU
greenhouse gas emissions. While heavy-duty trucking represents less than 10% of the
overall industry, it is responsible for approximately 40% of transportation industry GHG
according to the International Council on Clean Transportation. With ever-expanding e-
commerce freight demands that society accelerated during the COVID-19 pandemic,
zero-emission vehicles are believed to be one of the only viable options for a sustainable
future.
Figure 32 – Three Primary Drivers to New Powertrain Adoption for Trucks
Source: Cowen and Company, Bloomberg New Energy Finance
According to third party consultancy Bloomberg New Energy Finance (BNEF), for lighter
trucks and urban duty cycles, battery electrics (BEV) or range-extender hybrids (REX)
will be at cost parity with diesels on a total cost of ownership (TCO) basis within three
years. For some use cases, they are already the lower cost option. However, the capital
costs of electric light trucks will not reach those of diesel until 2026 for REX or 2030 for
BEV according to their analysis. Operators and manufacturers will have to devise new
funding schemes to take advantage of the lower lifetime costs. New financing
mechanisms such as what Duke Energy is doing with UPS and commercial trucking
partner Workhorse Group are aligned with BNEF’s views. In this situation, Duke is
financing the charging infrastructure and batteries within the trucks and UPS is paying
an upfront cost comparable to a traditional internal combustion engine truck. Duke then
intends to use the batteries in a second life application within its own electric grid once
the state of charge falls below acceptable use for UPS within its daily routes.
Rising
policy
support
Evolving
financing
methods
Falling
battery
costs
• Subsidies
• Mandates and targets
• Battery leasing
• New charging solutions
• Improving TCO competitiveness
• Approaching upfront price parity
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BNEF further expects that heavy-duty electrified trucks for urban applications will cost
at least twice as much as equivalent diesel vehicles (on an upfront basis) until the early
2020s. Still, their TCOs will approach those of diesel by 2022 and all-electrics will reach
TCO parity in the mid-2020s. Electrifying the long-haul heavy-duty segment is a
challenge due to charging infrastructure issues and weight penalties, both topics that
we explore further in this discussion.
Lastly, BNEF has noted that the economics of natural gas drivetrains are getting better
for heavy-duty vehicles, while diesel powertrains will incur increasing cost burdens for
emissions compliance. Natural gas trucks have already reached TCO parity with diesel in
long-haul applications and will do so in urban duty cycles by the early 2020s.
Figure 33 - Total Cost of Ownership ($/mile) of Light Commercial
Vehicles in the United States (Various Powertrain
Technologies)
Figure 34 - Total Cost of Ownership ($/ton-mile) of Light
Commercial Vehicles in the United States (Various
Powertrain Technologies)
Globally, about 29% of greenhouse gas emissions emanate from the transportation
sector. Governments continue to focus on driving GHGs down and thus have regulations
in place for the auto industry. To that end, the price of fuel is not impacting the direction
the industry is headed in terms of fuel efficiency, new technology being added to the
vehicle, or emission reduction initiatives.
Commercial delivery trucks are an initial area of focus on alternative powertrain
developments and the industry is at the nexus of several mega trends underway in
society today.
 Urbanization (see our Smart Cities report HERE)
 Online commerce and demands for just in time delivery
 Corporate desire to reduce their CO2 footprint (see our ESG report HERE)
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
$/mile
Diesel
CNG
LNG
BEV
REX
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
2018201920202021202220232024202520262027202820292030
$/ton-mile
Diesel
CNG
LNG
BEV
REX
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EU negotiators agreed to impose a cap on CO2 emissions for trucks for the first time on
February 18th
2019, following an increase in the requirements for cars that we
highlighted in our Ahead of the Curve report HERE. The EU government has set a 30%
CO2 reduction for 2030 fleet compared to 2019 levels, and also endorsed a 15%
reduction for 2025 in the interim. Switching from diesel to natural gas trucks can result
in a 20% reduction in C02, and up to 100% reduction for trucks that utilize renewable
biogas. We see the Westport portfolio as very attractive for OEMs looking for a range of
alternative powertrain solutions to meet these regulations and could see increased
activity from new customers.
Connectivity and Automation; Path to Improving Vehicle Efficiency
Fleet operators are increasingly engaging with vehicle technology suppliers to explore
the benefits of connected and autonomous vehicles. In the short and midterm, rather
than removing the driver, these systems are intended to increase retention while also
improving vehicle safety and reducing costs. Many fleet operators can see driver
turnover rates as high as a 100% annually, which elevates both hiring and logistic costs.
ADAS technologies can improve working conditions for drivers and also capture data
and coach drivers on more efficient vehicle operation.
Purdue University is spearheading work on platooning, which requires the intersection
of connectivity and automation. Platooning can improve emissions and save on fuel
costs by as much as 7%, however, under manual operation, this is difficult to do safely.
In order to take advantage of platooning benefits, trucks need to follow at a distance as
low as 40 feet. Human brake reaction time under good conditions is 1.40 seconds but
using connected and autonomous technology can reduce that response time to just 0.03
seconds. Using V2V systems, multiple trucks can be incorporated into a platoon. For a
more thorough investigation of autonomous trucks, see our Ahead of the Curve report
HERE.
Drivers and Fuel Remain the Largest Cost Component for Fleet Operators
The largest cost component for vehicles on a per mile basis is the driver followed by the
cost of fueling the vehicle. Fleet operators are continuously searching for ways to better
control these costs given these factors represent 65% of average per mile fleet costs.
New powertrains are largely focused on reducing fuel costs and hopefully repair and
maintenance costs. Vehicle connectivity coupled with ADAS and autonomous systems
could help to improve driver efficiency and vehicle operation. Drivers under levels 4 and
5 of autonomy could be eligible to fulfill mandatory rest brakes while the truck is still
under operation. This would not only improve work quality for the driver, but also allow
the truck to operate more efficiently by making more deliveries over a shorter period of
time. Additionally, connected systems can assist the driver with braking and
acceleration rates as well as leverage telematics and infrastructure sensors to plot more
efficient delivery routes in real time.
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Figure 35 – Average Fleet Total Cost Per Mile
Source: Purdue University (Work Truck Show 2018), Cowen and Company
Exploring Technology Developments in Trucking Powertrains
Much like the early days of natural gas, battery technologies must determine where the
dividing line is for higher horsepower applications. Eight or nine years ago, the debate
for heavy duty trucking was how to store natural gas on trucks, CNG or LNG.
Figure 36 – Tug of War Between Natural Gas and Battery/Fuel Cell Solutions in Transportation
Source: Cowen and Company, Company Reports
Heavy duty trucking segment is often in the middle of the debate on alternative
powertrains due to its position in the fuel consumption spectrum. Like CNG, Battery
Electric Vehicles (BEVs) will quickly dominate the passenger vehicle markets through the
Class 6-7 segments of transport buses, and refuse trucks, though getting enough
kilowatt-hours stored on anything larger becomes a challenge.
Driver,
40%
Fuel, 25%
Purchase,
14%
Repair,
10%
Other,
11%
Car Truck Bus Garbage Truck 18- Wheeler Plane Train Ship
BEV FCEV
CNG LNG
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Both battery electric and fuel cell technologies require their own unique infrastructure;
one being the power grid’s need to update its distribution system, while fuel cells will
require a major roll-out of hydrogen refueling centers. While the infrastructure isn’t
usually the focus of investors, it remains top of mind for fleets evaluating adoption of
alternative powertrain solutions and in our mind a potential gating factor for adoption
relative to passenger cars which can charge at home or at work.
Figure 37 – Estimated Equipment Prices and Cost Per Mile of Various Heavy Duty Powertrains
Source: ACT Conference 2018, Cowen and Company
Battery Electric Powertrains
The early market for commercial electric vehicles was constrained by high prices and
limited demand. Falling battery costs, engineering advancements, and anticipation of
more stringent emissions regulations, especially in cities, are driving renewed interest in
the sector. Tesla’s bold claims in 2017 regarding its Semi truck offering have made fleets
take notice and sharpen their pencils on exploring battery electric trucks in greater
detail.
Elon Musk on Twitter November 12, 2017 on the Tesla Semi Truck Launch – “This will
blow your mind clear out of your skull and into an alternate dimension.”
Much of what was revealed in 2017 still doesn’t exist today and the ramp up of Tesla’s
offering is still unclear. While Tesla’s initial aim of selling up to 100,000 trucks per year
in 2021 were far off of reality (they now claim “limited” volumes in 2020), the market is
moving quickly toward electrified options, with Daimler most recently leading the
charge.
Competitive Environment Intense – Nikola Looks to Have First Mover Advantage and
Controls the Fueling
Nikola is not without competitors in the race to decarbonize Class 8 trucking. While
Tesla’s Semi launch is the most topical for investors since their 2017 reveal, there are
many other electric and fuel cell Class 8 trucks in development.
Diesel Natural Gas (NG) Hydrogen Fuel Cell (FCEV) Electric (BEV)
Cost $140,000 Capital Cost
$42,000 Residual Value
$3.13/gal diesel fuel
$2.75/gal DEF
$185,000 Capital Cost
$40,000 Residual Value
$2.48/dge of nat gas
$300/DGE in tanks
Residual Value N/A
$1.50/dge H2
$0.11/kWh
$300/kWh in batteries
$0 Residual Value Analysis
$0.11/kWh
$100/kWh in batteries
Range 1,000+ miles
Dual Alum. Tanks
Dense fuelingnetwork
600 miles
120DGE tank package
Adequate fueling
network
1,000+ miles
350kWh storage
H2 fuelingnetwork notyet
available
500 miles
1MW storage
Surperchargingstations not
yet available
Weight
(Battery Pack
Weight/kWh)
20,000 lbs. 21,000 lbs. 20,000 lbs.
10-15#/kWh
24,000 lbs.
10-15#/kWh
Performance 6.5 - 8.5 mpg
425 – 600 hp
1,650 ft-lb
$0.10/mi maintenance
5.0 - 6.0 mpge
400 hp
1,400 ft-lb
13 - 15 mpge
1,000 hp
2,000 ft-lb
17 - 19 mpge
1,000 hp
2,000 ft-lb
OperatingCost
per Mile
$0.775 $0.926 $0.72 $0.726
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Figure 38 – Tesla Semi Truck Figure 39 – Interior View of Tesla Semi
Source: Tesla
Kenworth has showcased its T680 version. XOS Trucks, Hylilion, Lion Electric, Daimler
and many others have entered the fray for the all-electric side. On the fuel cell side,
testing has been underway for several years. The biggest step forward in the industry in
our view was Cummins’ (covered by Matt Elkott) acquisition of Hydrogenics in 2019.
The transaction brought in-house fuel cells and electrolyzers to an engine OEM.
Cummins’ commentary at trade shows such as ACT and the Work Truck Show since the
acquisition are aligned with Nikola’s view of the world, that above 300 miles of range
will be a challenge to accomplish with an all-electric version of a Class 8 truck.
In addition, more recently in the middle of the pandemic, Volvo Group and Daimler Truck
formed a joint venture to develop fuel cell based trucking solutions. The venture aims to
have initial production in 2024 and will not be offering fueling according to statements
made at the time of the announcement.
Weichai, China’s largest engine OEM has also taken a ~20% stake in fuel cell maker
Ballard Power and has formed a joint venture that expects to begin production this
Summer for the China market. Separately, Ballard is working with Paccar on testing fuel
cell trucks in the Los Angeles area for drayage applications.
Competition in the Class 8 heavy-duty truck industry is intense and new regulatory
requirements for vehicle emissions, technological advances, and shifting customer
demands are causing the industry to evolve towards zero-emission solutions.
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Figure 40 - Select Medium and Heavy Duty BEV and FCEV Announcements
Source: Cowen and Company, company Presentation
Fleets will likely look at total cost of ownership (TCO) as a primary factor in comparing
solutions from companies like Nikola among other factors such as :
 product performance and uptime;
 availability of charging or re-fueling network;
 emissions profile;
 vehicle quality, reliability and safety;
 technological innovation;
 improved vehicle operational visibility;
 ease of autonomous capability development; and
 service options
BEV ANNOUNCEMENTS
FCEV ANNOUNCEMENTS
• Market is awakening to the vast
potential of BEV and FCEV heavy duty
trucks
• Nikola trucks are in advanced stages of
development and testing and are
expected to meet specific use case
needs, supporting potential rapid
market adoption
CF Electric
Short Haul and Refuse Fleet
trials 2019
AEOS
Class 7 Truck
Announced production 2020
ET-1
Class 8 Truck
Announced production 2019
International eMV
Medium Duty
Production 2021
Semi
Class 8 Truck
Limited production 2020
Plan to spend €1B+ in electro
mobility by 2025
FCEV Truck
Heavy Duty
Limited production Q4 2019 (10 units)
H2 XCIENT
Heavy Duty
Production 2023
FCEV Truck
Class 8 Truck
No announced production
Announced goal to have H2 series-
production vehicles by the end of the
2020s
JV With Volvo - Production 2024/25
eActros
Class 8 Truck
Serial Production 2021
eCascadia
Class 8 Truck
Serial production 2021
E-Fuso Vision One
Class 8 Truck
Serial production 2021
FL and FE
Medium and Heavy Duty
Serial production March 2020
Z.E. Lineup
Short Haul and Refuse
Pre-series model testing 2H19
LR Refuse
Refuse
Testing 2020
Same Truck Group
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Daimler’s own view of electrified trucking solutions suggests that subsidized use cases,
such as what we see in the ports of California due to California Air Resources Board
requirements, will be the first market for adoption. We note that Nikola is also starting
in California with anchor customer Anheuser Busch, leveraging its Van Nuys, CA
brewery and building out stations in Interstate 10 for the route between the Los
Angeles and Phoenix area.
The push to decarbonize trucking has drawn a great deal of interest in recent months,
with a greater focus on Europe; however, while Federal mandates are not as strict,
regional rules such as those in California as well as commercial desire to reduce carbon
footprints is leading to increased interest in the sector. Since 2016, transportation has
been the biggest direct source of U.S. greenhouse gas emissions. Most of the sector’s
emissions come from road transport, which derives over 90 percent of its energy from
petroleum. According to the EPA and the EEA the transportation industry causes an
estimated 25% to 30% of U.S. and EU greenhouse gas emissions. While heavy-duty
trucking represents less than 10% of the vehicle population, the ICCT estimates it is
responsible for approximately 40% of emissions from the transportation industry,
making them disproportionate contributors to pollution. Diesel vehicles are a major
source of harmful air pollutants and GHG emissions. The associated local air pollution,
particulates of oxides of nitrogen and particulate matter emissions, negatively impacts
health and quality of life. Additionally, diesel exhaust has been classified as a potential
human carcinogen by the EPA and the International Agency for Research on Cancer.
Studies done on exposure to high levels of diesel exhaust indicate a greater risk of lung
cancer.
A significant share of global GHG emissions stem from heavy-duty vehicle
transportation. We believe zero-emission vehicles are one of the only viable options to
reduce emissions in the transportation sector to meet climate, ozone, and regulatory
targets. According to the U.S. Emissions Center for Climate and Energy Solutions, in
2017, U.S. GHG emissions totaled 6,457 million metric tons ("MMT") of CO2 equivalents.
Medium and heavy-duty vehicles accounted for 7% of total emissions, equal to 431
MMT of CO2 equivalents. The EEA's report on GHG in Europe found that in 2017, EU
GHG emissions totaled 4,481 MMT of CO2 equivalents. Heavy-duty vehicles accounted
for 5% of total emissions, equal to 224MMT of CO2 equivalents.
In addition, consumers are increasingly demanding that corporations take action to
reduce their carbon footprint. A study by Nielsen cited that nearly half (48%) of U.S.
consumers say they would "definitely" or "probably" change their consumption habits to
reduce their impact on the environment, placing reducing emissions high on the agenda
for large corporates. For example:
 Amazon has pledged to become carbon neutral by 2040;
 BP has pledged to become carbon neutral by 2050;
 DB Schenker plans to reduce specific CO2 emissions by 30% before 2020 and
50% before 2030, compared to 2006 baseline;
 DHL set a goal to reduce all logistics-related emissions to zero by 2050;
 UPS has committed to sourcing 40% of its ground fuel from low carbon or
alternative fuels by 2025
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 Walmart set a goal of an 18% emissions reduction in their own operations by
2025 and to work with suppliers to reduce emissions by 1 gigaton by 2030.
The trucking industry has less volume for lithium ion batteries than passenger
cars and the associated packs are typically a different form factor. This is the
primary factor for why pricing in 2019 is about 20-30% above typically cited
passenger car battery prices.
Battery Price Decline Critical for Adoption of Electrified Trucks
Battery prices for heavy duty trucks will take longer to reach industry wide averages
due to customized battery management systems. We note that one factor to watch
however is that a number of heavy-duty truck makers are also in the passenger vehicle
business and may be able to combine purchasing power to further drive down costs.
Figure 41 – Anticipated Battery Costs For Heavy and Light Duty Commercial Vehicles
Elon Musk says his company’s battery-powered big rig will be 20% cheaper to operate
than diesel trucks and represents “economic suicide for rail.” Mr. Musk stated that the
cost of running three or more "platooned" electric semis would approach the cost of
shipping rail. Without knowing the cost of the electric trucks, the cost of building the
infrastructure nationwide and internationally to support such trucks as well as other
costs, we wouldn't want to speculate as to how accurate or how far off the mark such a
statement is (most of what Mr. Musk says is exaggerated, especially around timing, in
our view).
Tesla’s passenger car sales are about 2/3 domestic and 1/3 international. If the same
breakdown were true for trucks Tesla would have about 35% domestic share of Class 8
trucks and 6% globally, both figures we find incredibly unlikely given the risk averse
nature of fleet operators.
Tesla’s view is that the truck will be 20% cheaper to operate on a per mile basis. Many
details on their assumptions were not provided. We have attempted to build a payback
analysis using the 2 main assumptions they did offer - $0.07/kWh electricity and
~$100/kWh battery packs. If those assumptions are used, we get to a 3-year payback.
0
50
100
150
200
250
300
350
400
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
2018 $/kWh
HCV battery price
LCV battery price
Experience curve
COWEN.COM38
COWEN
EQUITY RESEARCH
Nikola Corporation
June 17, 2020

Note DHL and others have indicated paybacks cold be as low as 2 years. Assuming
current battery prices and commercial electricity pricing from the grid of $0.09/kWh in
lieu of solar, we see paybacks today more in the 5 to 6-year time frame. If Tesla is
unable to drop its 2170 battery production costs down to the $100/kWh range from the
current $150-175 range (and industry pricing of $175), we believe the Tesla Semi will be
dead on arrival. Our estimated sensitivity to those assumptions is shown below.
Figure 42 –Estimated Tesla Semi Payback Period
Source: Cowen and Company, Tesla
A traditional diesel truck has about an 800 to 1,000-mile range between refueling and
Tesla noted that its truck will have a range of 500 miles at maximum gross vehicle
weight at highway speeds (60 miles per hour). Tesla further noted that 80% of routes
for truckers are less than 250 miles, noting that it could return to base and recharge.
In regard to charging, Tesla has noted that a traditional truck can take 20 minutes to
refuel with diesel and that Tesla trucks are aimed at charging at their origin or
destination and would be able to achieve 400 miles of range with a charge of 30
minutes through a series of “mega” chargers worldwide. Tesla views 400 miles as 6 to 7
hours of driving for a traditional trucker and charging can be done while the trucker is
taking a break for a meal or to use the restroom. The “mega” chargers will be solar
powered chargers with Tesla Powerpacks, which should enable the company to
guarantee electricity rates in a particular region to the fleet operator. While the “mega”
charger idea sounds impressive, we also note that these chargers are likely to have
challenges with permits and interconnections with utilities as many substations near
potential customers likely do not have enough capacity to deal with such a load
increase.
Estimated Payback - Electric Trucks vs. Diesel Class 8 Trucks (Years)
3.0 $25 $50 $75 $100 $125 $150 $175 $200
$0.03 0.3 1.0 1.8 2.5 3.3 4.0 4.7 5.5
$0.04 0.3 1.1 1.9 2.6 3.4 4.1 4.9 5.7
$0.05 0.3 1.1 1.9 2.7 3.5 4.3 5.1 5.9
$0.06 0.4 1.2 2.0 2.8 3.7 4.5 5.3 6.2
$0.07 0.4 1.2 2.1 3.0 3.8 4.7 5.6 6.4
$0.08 0.4 1.3 2.2 3.1 4.0 4.9 5.8 6.7
$0.09 0.4 1.4 2.3 3.3 4.2 5.1 6.1 7.0
$0.10 0.4 1.4 2.4 3.4 4.4 5.4 6.4 7.4
$0.11 0.4 1.5 2.5 3.6 4.7 5.7 6.8 7.8
$0.12 0.5 1.6 2.7 3.8 4.9 6.0 7.1 8.2
$0.13 0.5 1.7 2.9 4.0 5.2 6.4 7.6 8.7
$0.14 0.5 1.8 3.0 4.3 5.5 6.8 8.0 9.3
$0.15 0.6 1.9 3.2 4.6 5.9 7.3 8.6 9.9
ElectricityPrice($/kWh)
Battery Cost ($/kWh)
2020 Tesla Target E stimated Current Industry Pricing
COWEN.COM 39
COWEN
EQUITY RESEARCH
Nikola Corporation
June 17, 2020

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