Nikola Motor Company (NKLA) – The SPAC is back (plus a magic money machine).


Nikola is a company I haven’t heard of until a week ago or so. It is a pre-revenue, prototype-product company that according to their web site develops Hydrogen fueled and electric trucks.

The VC past

The company did a Series D funding round in September last year at a pre-money valuation of 3 bn USD which is quite remarkable for such an early stage company and they seem to have received ~500 mn USD from corporate partners CNH, Bosch and Hanwa. Although the valuation would raise some eyebrows, this would be still not considered super crazy by VC standards if they have a great team and great technology assets.

The company is obviously trying to piggyback on Tesla’s recent success, which the name of the company cleary does not hide (Nikola Tesla now has a a company each for his first name and his family name…) . Funnily enough, the first name sued the family name for a 2 bn USD patent infringement.

However some things were strange even at that stage:

Overall, I would personally doubt the 3 bn USD valuations. Unicorn companies often lie big time about their achieved valuations and few participants have an incentive to tell the truth.

Anyway, the series D round seems to have been only a semi success and not enough to actually secure start of production.

Enter the magic SPAC 

I guess some of my readers know what a SPAC (Special Purpose Acquisition Company) is: It is a company that goes public and raises cash, with the intent of buying (or merging with) another promising company at some point in the future. At the end of the day it is a “backdoor IPO” mechanism that allows the future partner  to avoid all the hassle with actually doing an outright IPO.

One of these SPACs or blank Cheque companies was a company called VectoIQ that went public in May 2018 with the target of finding a suitable operating company within the next 2 years. The company issued 23 mn shares at 10 USD per share, netting the company around 225 mn USD after fees.

The way these SPACs work is that he “founders” received another 5.75 mn shares basically for free before the IPO. So those people who bought the stock at 10 USD actually got diluted by ~1/3 already on the first day. As a “sweetener”, IPO investor received additional warrants to have a better upside potential in case something would happen and if now deal would have been done until may 18th 2020, the IPO investors would get their money back and the founder’s shares would be worthless.

For a long time, Vector IQ traded at around 10 USD, before in the beginning of March, VectoIQ announced that (fanfare) Nikola Motor would be the target. After a quick “Pop” , even one month after the announcement, VectoIQ traded at 10 USD per share, before finally the stock started to climb to around 34 USD pre merger.

Now the real magic begins: The combined company after re-listing has 360.9 mn Shares outstanding, which at the pre-merger price of 34 USD would have meant a market cap of ~12.3 bn USD.  But this is not the end of the story: In the first few days of trading, the stock “exploded” to 86 USD or a 31 bn USD market cap. AT the time of writing the stock price was still 70 USD or 25 bn USD market cap (plus Warrant).

As a small side story, as part of the merger, some “family and friends” were able to invest 500 mn USD at a valuation of 10 USD per share.

Another funny side story was that Nikola applied for a small business Corona-emergency loan in April and actually received 4 mn USD.

SPACs like VectoIQ are often used to quickly cash in on a trend with often inferior business models. The circumvention of the IPO allows the company to trade without big scrutiny from professional investors. Considering how soft IPO analysts usually are, going via a SPAC normally itself is a sign of weakness.

SPAC usage is often highest towards the peak of bull markets and the overall performance for SPACs is shitty:

They construct a sample of 158 SPACs for the period 2003-2008 and report positive performance in the range of 2% to 3% for SPACs in the short term. However, for long term performance, the average half year return is equals to -14%, average one year return is -33% and average three years return
is -54%. They state that board independence and the structure of ownership do not affect returns.

The magic Nikola money machine: Selling the same truck twice

As Nikola not only wants to become the “Tesla of Hydrogen Trucks” but also in parallel wants to create the Hydrogen infrastructure, they probably need a lot more money than the roughly 1 bn or so they have now in the bank.

Here is an interesting interview with the founder on finances:

The first note is that Nikola was always claiming they had 14 bn of “pre orders” for their trucks, but actually it seems to be only a 800 mn USD order from Anheuser Bush so far.

However the most astonishing feature of this interview is the part where he explains the financing of the hydrogen network which is the “Most valuable asset” of the company (because we are a “Energy tech” company”):

“We sell the trucks to the customers, i.e. sell them the leases. Then we sell the leases off and use the money for building the Hydrogen Network”.

I listened to that passage at the end several times because I thought that I don’t understand it due to not being a native speaker, but after hearing it five times I am convinced that this statement is utter bullshit.

What Milton is basically saying is that someone supposedly is paying a second time for the very same truck that enables him both, to actually build the truck and additionally finance the hydrogen network. You will also not be able to “sell the lease” to the trucking company as a lease does mean that there will be no or only a very small upfront payments.

But it seems that such details do not bother a true genius.

Some differences to Tesla:

From what I understood, the main difference to Tesla is that part of the trucks will not be build by Nikola but by CNH in its existing factory in Ulm/Germany. The basis will be an existing Iveco truck plus an infotainment system and a Nikola Power train which itself seems to have been developed by Bosch.

They also seem to offer “freight as a service”, I.e. guaranteeing the customers a certain amount of driven miles including all costs. I guess this is the “Lease” he wants to selloff to someone else but the truck company will for sure not pay upfront and somehow he needs to finance the truck.

The biggest issue in my opinion is the fact, that all customers of Nikola will be businesses  who run on very thin margins. So other than Tesla, Nikola will not be able to charge for any coolness factor, but the trucks need to be cheaper all in than the existing mass produced trucks by all competitors.


All in all, Nikola looks like a cheap (and pretty bad) copy of Tesla, trying to ride the current Fuel cell /hydrogen /zero emission boom. For people who have a longer memory, they might remember a fuel cell boom 20 years ago with names like Ballard Power (which by the way has gained 300-400% in the recent months).

What I have seen so far from the CEO looks pretty bad with quite incoherent communication. I haven’t checked the technology behind Nikola but to me it looks like a big marketing story that used the “SPAC” structure toi create a quick “pump and dump” scheme to fleece retail investors that want to somehow participate in the next Tesla.

There is certainly a small chance that they are able to inflate this for some time and raise enough money to have a chance to do something, but I am still surprised how quickly after the Covid-19 crash we see such crazy schemes coming up again.

I also guess that this will not be the last Hydrogen “pump and dump”. Maybe I should try to find one among the many small shitty stocks in Germany and ride the wave too 😉















  • Tow and a half year later, Trevor “I sell the same truck twice” Milton has been found guilty and will most likely go to jail:

  • Smart move: Instead of relying on his “magical trcuk leasing model”, Trevor goes for the more traditional route of printing more shares:

    That is actually a pretty good capital allocation (for the initial sharehloders and Managment) if you own extremely overvalued shares to sell them against hard cash. Well done !!

  • Well written. Greed and stupidity are an awesome combination.
    To name an automotive company „Nikola“ is so inventive. Maybe I should found a company called „Nile“ or „Pineapple“, my plan has to do with artificial intelligence or something similar.

  • Nice article and agree with you analysis that this is an absolute dog. Just to explain the sale/lease; t is poorly stated and here is what I think he means as it is quite common in the industry (and I do it all the time as we own a leasing company and dealers businesses); the client leases the truck from the leasing company and then Nikola sells the truck to the leasing company. The leasing company makes their money on the financing spread and the operational statistics of the truck. The latter is where I believe NKLA will struggle as there is no operational history of this truck (nor the company for that matter) which means to be safe the lease needs to be marked up which means it will be very hard to compete with alternative trucks as this is a thin margin business as someone said in one of the comments. This is a disaster waiting to happen and I can’t believe people buy this stuff …. but I’ve been wrong on TSLA before

  • Interesting Bloomberg article on Nikola:

    The prototypes that they showed didn’t even contain a fuel cell nor could they drive at all. But who cares anyway ?

  • My main issue with this is that hydrogen is a very poor fuel. If you already have the electricity to produce hydrogen, why not save the conversion loss (twice) and just store it in a battery?

    Here is a great video by “Real Engineering” which compares both technologies:

    Bear in mind that battery technology has already come a long way, whereas hydrogen still has the same problems it had 20 years ago. Hydrogen technology seems like fusion power to me: always 20 years out.

  • My main issue with this is that hydrogen is a very poor fuel. If you already have the electricity to produce hydrogen, why not save the conversion loss (twice) and just store it in a battery?

    Here is a video by “Real Engineering” which compares both technologies:

    Bear in mind that battery technology has already come a long way, whereas hydrogen still has the same problems it had 20 years ago. Hydrogen technology seems like fusion power to me: always 20 years out.

    • The major problem with batteries is that they can only store a limited amount of energy (and I believe that this is due to fundamental physics, not just technological problems). This inherently limits the range that you can achieve with battery-powered vehicles.
      The major problem with power-to-liquid (or hydrogen) is that it is much more energy-intensive than just the generation of power. However, if energy could be generated very inexpensively, this problem does not appear to be unsurmountable.

  • Darren Gillen

    RE: the lease arrangement with the trucks, does he mean that the trucks will be leased to the buyers, and then the resulting lease assets will be securitised and sold to someone (institutions?), with the inflow of capital being used to fund the development of the hydrogen network? I’m not sure that’s a brilliant/sustainable plan but I don’t think he’s implying that they will sell the truck twice

  • I think they will sell/lease some trucks to large companies (such as ABB, UPS, FedEx,…) who want to promote their Green credentials. The same will be true for Tesla’s trucks (which don’t look at all practical with the driver sitting in the middle of the cab where he can’t see either side of the truck directly and where he can’t easily pay tolls, hand over his waybills,…), For the economics, trucks either cube out (loads fill the truck’s volume) or gross out (load reaches maximum weight allowed). With the extra weight of batteries e-trucks will not be able to carry as much weight. For long haul trucks the extra time to recharge the batteries will be a serious problem because of the severe hours of service limits on truck drivers. So e-trucks could have a market for local deliveries like for FedEx or UPS. Fred Smith of FedEx has said he would really like to get rid of the maintenance required for IC engines. They don’t seem practical for heavy loads or long haul trucking.
    The fact that they are doing both fuel cells and batteries seems like they are trying to do too much for a startup. Focus?
    Why anyone would want to get into a capital intensive and very very cyclical business like trucks is beyond me.
    The fact that the founder bought an expensive ranch reminds me of WeWork’s Neumann, suggesting he views the company as his personal ATM.

  • Are you short NKLA?

  • Bayard Martensen

    Watched it. I think what he means is that they sell the trucks via leases to customers, and then sell the leases off to banks/finance companies and use the money from the sale of the leases to pay for A. the truck they just sold and B. the hydrogen network.

    • You are just repeating the same nonsense (sorry for that strong statement). They first have to finance the production/construction of the truck. If they lease the truck to the customer, they don’t get any (or very little) upfront money, so they are still short the production cost. In theory they can then sell the lease (at a discount) to an investor, but that only recovers the production cost for the truck. No one will pay upfront without security for the future fuel charges etc. ANy investor will only finance the value of the asset (i.e. the truck). Son no, no magic money machine, even if you repeat it 10 times.

      • Bayard Martensen

        I think an investor would be willing to finance the value of the lease payments if the buyers have good enough credit ratings.. I mean plenty of banks financed solar company leases on residential solar and way over the value of the assets based on the lease payments.

        • hmm, I think residential solar is a very different asset than a commercial truck. For starters it is not that easy to steal a solar roof comapred to a movable truck. In Europe for instance, for a long time these solar projects had government guaranteed electricity prices and the only risk was he weather.

          Also a solar roof doesn’t have any ongoing expenses which the truck clearly has and this risk need to be covered from someone. If the trucks break down more often than planned, the banks are clearly not willing to take such a risk.

          Most trucking companies are pretty bad credits anyway as the business is really hard and in Europe they are mostly located in jurisdictions where company tend to simply disappear when they are in trouble.

          Maybe some banks/investors are crazy enough to do that, but at least in Europe the credit risk charges for this kind of financings would be prohibitive for any bank or insurance company

          I don’t believe that financing the Hydrogen network indirectly through sub investment grade trucking companies will work.

          Maybe Nikola has found the “philosopher’s stone” of infrastructure financing.and I am wrong, but so far they only seemed to have found (retail) investors who overpay for the shares.

        • Bayard Martensen

          I tend to agree with you. I think the fueling networks will have to be financed separately from the trucks and justify themselves economically.

    • Would be in effect:
      – Nikola (A) sells the asset to the Buyer (B) and gets cash (lump sum)
      – Buyer gets that cash today via a loan from a Financial Corp (C; i.e. a Bank)

      You can slice and dice these relationships between A, B, C introducing Leases etc, but the asset gets sold once, and only once! Anything else is called fraud (not magic) I believe

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