Nikola Corporation (NASDAQ:NKLA) Evercore ISI Global Clean Energy & Transition Technologies Summit June 15, 2022 2:00 PM ET
Company Participants
Kim Brady – CFO
Conference Call Participants
Chris McNally – Evercore ISI
Chris McNally
Well, hello, everyone. And welcome to — again back to the penultimate session of Evercore’s Clean Energy and Transition Technologies. Chris McNally here. Alongside my colleague, Doug Dutton from the Automotive and Mobility team, and we just could not be more excited to have a fireside chat with Nikola and their CFO, Kim Brady, really to talk about clean energy. But from — very much different than we talked about for the rest of the summit, really from the end applications in medium and long haul trucking via Nikola’s — both their hydrogen business and battery electric. So, Kim, first of all, welcome to the conference.
Kim Brady
Thank you.
Chris McNally
The way I think about it on the back of your Capital Market Day in March in Phoenix, where I actually got to drive one of their Class 8 trucks by far, the first time I ever drove a 12 ton vehicle, I drove like a Tesla. And it was quite shocking how easy it was to drive a battery electric Class 8. Would really love to hear a lot about the story in terms of the ramp up production, which we heard a couple of months ago, where we sit, and then we’ll move into other topics. But from there, I just wanted to say welcome.
Kim Brady
Thank you.
Question-and-Answer Session
Q – Chris McNally
Maybe that’s the right place to start production, right? You’re moving it, roughly, I think about one truck per day. Now, rolling off the line, I think that’s going to be about five by the end of the year, but maybe if you can give a little bit of the context to what’s happening this year to make that production ramp occur?
Kim Brady
Sure. As you know, we provided guidance for this year that we will deliver anywhere from 300 to 500 trucks. We have enough battery cells allocated to us to build 500 trucks. So why 300 to 500? When we think about our supply chain constraints, it’s clearly that things are getting better, but it’s not walk in the park. This is something that we have to work at it every single day. And so while we have a confirmation from our supply chain partners with respect to key electrical components, when it comes to manufacturing of modules and packs, there are some challenges by our supplier in terms of manufacturing efficiency and yield. And so right now, we are not getting consistent delivery in terms of modules and packs that we would like. And so that’s the reason why when we shared with The Street that we have caveated that on the downside, it’s about 300 trucks and we can build up to 500 trucks.
Just to give you some additional insights in terms of the level of intervention that it takes to manage supply chain. For our first 100 trucks, we have a spreadsheet where we look at all the key critical components on a daily basis, where we try to anticipate in terms of actual delivery dates when we actually work with our supply chain partners. Even though they may give us confirmation about what the delivery date is, they also have challenges with their tier 2 and tier 3 suppliers, something that they’ll have to actively manage. And so this is something where senior management team, we look at this spreadsheet 2 times a week, and making sure that we understand what are new constraints that we haven’t considered, because even if we have a confirmation, this is daily whack-a-mole. It’s something that we have to intervene each day and we have to be super-proactive to make sure that we’re on target. So when you think about our build schedule, we are actually building about 2 trucks per day by end of the year. We’re looking to get to about 5 trucks per day. But just so that you understand, to meet our guidance, we only need to get to about 3 trucks per day. And so we feel confident that we’ll get to 3 trucks per day here very soon in the next couple of months. So we’re not concerned about that. It’s really one of our biggest constraint that we’re trying to manage is the delivery of modules and packs from our supplier.
Chris McNally
And that’s a great way to think about, I think what investors are excited about, looking for confirmation of is that sort of exit rate at the end of the year. And you’ve also provided guidance for 2023 on some of these critical components. Can you remind us, pack supply, cell supply, some of the numbers that you’ve provided for 2023, and maybe a little bit about the new relationship with Proterra, which is going to aid in some of the pack supply?
Kim Brady
Sure. We have not provided official delivery guidance for next year or production guidance. What we have stated is that we have enough battery cells allocated by our cell suppliers to build up to 2,300 trucks. And right now, by end of this year, we’ll also have Proterra as the provider of battery modules and packs. And we anticipate, and as you know, whenever you actually onboard new battery cell supplier, there’s time in terms of that’s required for cell characterization and various validation and testing. Typically it takes about 9 to 12 months. We do think they will be on — they are tracking on plan and their cells and their modules and packs will be available to us for 2023.
Chris McNally
And in terms of packs, I think there’s a lot of questions around internal capabilities and I know internal pack development. It’s one of the things that you wanted to do. Can you talk about the timeline for Nikola to do their own packs in addition to getting some from Proterra and maybe how many people, where are the critical sort of sources of IP that you could start to develop that, and I guess work more to become vertically integrated and reduce risk ’23, ’24, ’25?
Kim Brady
Sure. I think one of our goals is to be vertically integrated when it comes to battery packs. What that really means is that we purchase cells from 5, 6 major cell suppliers, but when it comes to battery modules and packs, ultimately, right now, we’re relying on third party to be able to do that. But as we go out to 2023 and 2024, our target delivery numbers are becoming significant. And we think to reduce manufacturing risk that we need to consider also in house development when it comes to modules and impacts. And that’s something that we’re looking at and to be in a position to do that probably by, towards the end of 2023.
What that means is that we’re not concerned about manufacturing side of modules and packs, but we need to make sure that we got appropriate IP with respect to battery module, BMS system, and that’s something that we’re looking at to make sure that we are in ready — we are ready to be able to do that by towards the end of 2023.
Chris McNally
Fantastic detail. It also gives a little bit of a sense of the path of development, right, and how far the company has come over the last 18 months. Now before we kind of move into some of the hydrogen areas, some of the energy topics that we’ve been discussing at the summit, maybe you could just give an overview of the commonality between the BEV truck and the hydrogen fuel cell truck. Because obviously I think the BEV truck is a proof of concept really on the motion of the vehicle, on the components that you can build the truck. How many of the components are sort of overlapping, what is difficult so that we can kind of know that the ramp of the hydrogen truck can almost be even smoother than sort of the path of the BEV?
Kim Brady
That’s a great question. It’s important that you understand that Nikola, we are already producing and selling Nikola Tre BEV, battery electric truck. This is for short haul applications. These are trucks for inner city to range operations and it represents about 20% of the Class 8 market. And when you think about the remaining 80%, what we call medium haul and long haul, we believe battery electric truck is not ideal because of the weight and the range challenges. And so we are also developing hydrogen fuel cell truck. Right now we’re probably about the only player other than BYD who’s actually selling battery electric truck, and we will have our fuel cell truck start of production in the second half of 2023. And we are likely about couple of years ahead of any of our competitors, both existing OEMs, as well as new entrants. The reason why we’re able to go fast is that when you think about our fuel cell truck, it’s on the same platform as our battery electric truck.
So what that means is that key components that are different are really the size of the battery. For fuel cell truck, battery size is much smaller. 2 packs, 160 kilowatt hour battery packs versus for BEV you were talking about 9 packs, about 750 kilowatt hours. You also have what we call fuel cell power module, that’s the propulsion system, and then onboard hydrogen tanks to provide hydrogen. If you think about the commonality and the components, and this is really the beauty in terms of how we think about our fuel cell truck, not only then when it comes to manufacturing, we’ll be manufacturing both battery electric truck and fuel cell truck on the same line. So we have manufacturing efficiency, but commonality in terms of powertrain components, things such as eMotor and eAxle and inverters, those are the same; some of the core components, things such as a braking system, steering system. And when you think about the HMI interface, as well as vehicle control and the chassis, they’re all the same system.
And so when we have developed Nikola Tre fuel cell alpha, which was actually tested with Anheuser-Busch in Southern California, that test was concluded pilot testing on April 29th, and we’ll be starting TTSI testing next week. That went extremely well for an alpha truck. We are in the process of building our beta fuel cell trucks for additional validation and testing. And beginning of next year, we’ll be building what we call gamma trucks and going to start of production into second half of next year. And so this allows us to get to market quicker probably by a couple of years. And the alpha that we currently have, that’s being tested is very mature alpha. And that’s the benefit that we have using the common platform.
Of course, with our hydrogen fuel cell truck, we also have advanced vehicle control and energy management, which is going to be important. And the fuel cell truck is ideal, especially for medium haul up to 500 miles and then also long haul. When it comes to long haul, we will introduce what we call next gen fuel cell truck, which will be late 2024, early 2025 and that will address let’s say 900 mile range. Because when you think about Class 8 truck market segment, you have short haul, which is ideal for battery electric truck, about 20% of the market. And then you have about 35% of the market what we call medium haul up to about 500 miles and then anything longer than that would be long haul. And that represents about 45% of the market.
So you got to make sure that you have product that’s able to address both short haul, medium haul and long haul. And we would submit to you that Nikola is the only company right now that has product to address all those market segments.
Chris McNally
And Kim, that’s a great teaser into sort of the next questions around the hydrogen side of the business. And I think we have a lot of generalists and people who are new to sort of the transportation sector. Maybe we can even step back and give that 1-0-1 to what are the chicken and egg problems that Nikola is solving by doing the full hydrogen transportation ecosystem? And maybe you can talk a little bit about that idea of task, right? Travel, transportation as a service, the idea that you could essentially deliver for roughly the price of diesel, $1 per mile, obviously a clean hydrogen-based transportation. So maybe just a little bit of an overview on hydrogen transportation?
Kim Brady
Sure. I think we’re — everyone’s getting excited about hydrogen economy, and this is important, especially when it comes to the decarbonization. And we all recognize that this is going to be good for the world. And when need to do that. When it comes to what we call transportation space on highway solution, the biggest challenge with hydrogen is not hydrogen generation. But can you build out that ecosystem and do it in a way so that you can be at parity with diesel? So when we think about parity with diesel, we’re talking about total cost of ownership, truck acquisition cost, repair and maintenance, ultimately, fuel. And our value proposition to our customers is that we will match parity. When it comes to total cost of ownership, we believe we can match that. So it makes your transition from diesel to zero-emission vehicles much easier. That means depending on geography, your total cost of ownership can run probably anywhere from $0.90 to about $1.20, $1.30 per mile. Of course, California is going to be at the higher end. East Coast is going to be at the higher end. The Midwest tend to be lower.
And so ultimately, when you are selling trucks and fuel to what we call on-highway market, so these are for-hire carriers as well as for private carriers, they are very sensitive in terms of total logistics cost. And this is where we’re trying to make sure that we’re delivering a solution that doesn’t increase. And so we are giving them more advanced trucks, that’s zero-emission and cleaner fuel so that they can make that transition.
Most corporations, especially progressive corporations, they want to do that, but you do have some infrastructure challenges with hydrogen trucks. You got to make sure that infrastructure is available. And because it’s not available, our value proposition is that we are going to sell when we go to market. Truck, repair and maintenance, as well as fuel, how do we do that? That means we got to make sure that we have fueling infrastructure in place. You’re not going to be able to simply build that fueling network. That will cost billions and billions of dollars. And the way we think about that is really bringing partners to help us build that infrastructure, both on the production hub side as well as station side, and then do that with an asset-light approach and capital efficient approach, but we really control the distribution side. And so that’s what we’re trying to accomplish. You have to roll this out and you got to highly orchestrated. So when we think about our fuel cell truck, when do we deliver fuel, when do we deliver trucks next year, most of those trucks we will be sold to California market first, and then to Arizona, and then perhaps Oregon, Seattle, going out to Texas to East Coast, Florida, and then up the Atlantic Coast and Midwest. And so this will have to be highly orchestrated because we got to make sure that we have fueling infrastructure in place.
Chris McNally
Perfect. We heard the police sirens that maybe the 2:00 PM fed meeting and some traders having a short term heart attacks. But some maybe we can talk a little bit about some of the disclosures that you gave around the hydrogen distribution side. At the Analyst Day, you sort of discussed the concept of a supply model, supply company, where either through special purpose vehicles, right, for financing, you would become the distributor of this hydrogen. And mostly in the beginning years, I think you alluded to this, the offtake would be to yourself, right? Because you are going to be really the largest user of hydrogen. Can you help us with some of the economics or what that may look like, some of the incentives that are available at the state level, and then how that may — the interplay between the Operating Co and the Supply Co may work?
Kim Brady
Okay. So let me try to explain this as simple as possible. It is somewhat complex. However, when we think about our infrastructure, hydrogen infrastructure, and this is going to be a key component, recognize the fact that we are bundling when we go to market, truck acquisition costs with fuel and repair and maintenance, this really is our competitive moat and competitive advantage for the next 10 to 12 years or perhaps even 15 years. That’s what’s going to give us an advantage, because there is no fueling infrastructure. And when you think about infrastructure players, they’re not willing to simply go out and build, this is not, you build it and you will come, there’s too much risk. And so you really have to orchestrate both manufacturing of the trucks, that’s where we bring the demand. And so when we actually try to go and partner with our infrastructure partners, both strategic and financial investors, the reason why they want to partner with us is that because we are bringing the demand side, and that’s really important.
So when it comes to hydrogen infrastructure, you have to think about in terms of 3 components, hydrogen production hub, and then distribution, taking the molecule and ultimately to dispensing locations. And so when we think about partners, we’re trying to form partners for our production hub, and then for our dispensing locations, because they are capital-intensive, and our goal is to be asset-light and capital efficient. So how do we accomplish that? For hydrogen production hub we will create SPV, hydrogen production asset will be in that SPV. There will be debt financing of about 70%, equity of about 30%. And we will identify partners, both strategic and financial.
Our first hub in Arizona, we have already announced that it will be TC Energy. This is a perfect marriage. The reason is that TC Energy, they are a midstream pipeline player, yet they can no longer build pipeline. When Keystone XL project got canceled, all of a sudden they had no revenue generation opportunity. They have shifted their objective for the next 50 years. That is to make sure that they are decarbonizing and participating in hydrogen economy and making sure that they own hydrogen hubs. And so when you think about TC Energy, they generate their $13 billion revenue, 80% gross profit margin, 50% EBITDA, they generate $6 billion of operating cash flow a year. They got to deploy their capital. We are cash poor. And so they will be putting up most of the capital for the equity portion of the hub. We will own a tiniest sliver in terms of equity. But because we are actually helping develop this hub, we will be the sole offtaker in terms of hydrogen.
And so we will buy hydrogen from SPV and our distribution company or Supply Co, this entity will own 100% because we’re buying hydrogen that’s produced by hub. And then we’re transporting that to dispensing locations where we could own it, or it could be owned with a partner or investor. Once again, it will be an SPV. So essentially we believe with hubs, they can generate — depending on locations, they can generate hydrogen at anywhere from, let’s say about $2.75 to perhaps high $3.
And when hydrogen production tax credit passes, there’ll be a bit of gold rush because hydrogen production tax credit at the federal level, which is not passed, is still in the legislation could be up to about $3 per kilogram. So think about that. Essentially, you are saying if that passes, very similar to, when you think about solar and wind, what drove the cost down in renewables for the last 15 years is federal level tax credit. If that’s actually afforded to a generation of hydrogen, you are going to have very low cost hydrogen that’s significantly lower than diesel. So we buy it at a certain price. And essentially what we’re trying to do is for the hub owners, give them approximately 9%, 10, 11% return.
So we buy hydrogen, that’s produced by hub that we help develop. And then we transport that to dispensing locations where we’ll sell it for $4, $4.50, $5 depending on the market. And so we are capturing that significant margin there. And the entity, the distribution company, or Supply Co, we will own 100%. That’s the entity that we will own. And so that’s how we generate very attractive economics.
And so when you think about for our fuel cell trucks, we’re not generating revenue from our trucks, but we’re generating revenue from fuel. And think about as you continue to have installed base of fuel cell trucks after 3, 4, 5 years, you’re going to be generating actually more revenue from fuel. And so that’s what makes really interesting when you think about Nikola and you think about both products, both BEV and fuel cell trucks and ultimately fuel revenue that you’ll be generating and the fuel margin. We believe ultimately our fuel margin will be higher than margin from our trucks.
Chris McNally
And that looked good. That’s sort of the dream of auto, right? I mean, you hear about Ford and GM wanting to own the life cycle of the investor when it’s essentially a one-time sale. Now, 100 years later, they’re trying to get back into repair and maintenance. But I want to go back to one of the things that you discussed. And before we go to the PTC and Biden, could you also discuss some of the credits that are available now on a state level for things like dispensing?
Kim Brady
Sure. So it’s important that you recognize. For hydrogen dispensing in California, you have LCFS credit that can be monetized and also generate probably up to $2, $2.50 in terms of per kilogram, depending on the Carbon Intensity Index. So there are credits available right now at the state level on the dispensing side. And what we’re trying to make sure is that there will be credits available on the production side at the federal level. And when you add credits on both side, essentially, you’re talking about almost free hydrogen. That’s what makes really interesting as we think about next 10 to 15 years that will be driving energy transition.
Chris McNally
So, now to the big question, you called it the gold rush, PTC and Biden. There is this view, Wall Street that, anything, Biden bill is now dying, dead. Can you talk about the prospect of either a slim down, BBB, what level — what are you hearing? Obviously in Arizona, you have a strong view of the political players. Anything you can add on Biden legislation that even maybe slim down to something just more like hydrogen focused?
Kim Brady
Well, clearly, it likely will slim down, no question about that. What is important is that while BBB legislation has not passed, the federal level production tax credit, that bill is still in there. And we anticipate ultimately that will pass because it’s good for the country and good for the world.
And the two key senators that will ultimately control that, we believe will be Senator Manchin and Senator Sinema, and both are in favor of that bill in terms of federal level hydrogen production tax credit. So we are hopeful. Just recognize that when we think about our business model, we don’t include any incentives at the federal level. But whenever you have major disruption, what is important is that you have both [carrot] and mandates. And we have states with more incentives now and that’s continued to expand. And then we also have mandates in terms of emission restriction, as well as we are also talking about federal level production tax credit, which will be really super-interesting and exciting.
Chris McNally
And then for the overall hydrogen business for you, I mean, do you see any strategic gaps left in Nikola over the next 12 to 24 months? When I look at the organization, you’ve made strategic hires in Bosch for the manufacturing and the powertrain side and fuel cell. You have made major hires in terms of trading from BP and things like that. Any strategic gaps that you think are things that you could still build upon to become more vertically integrated over the next couple of years?
Kim Brady
When it comes to hydrogen infrastructure side, the type of investment that’s going to be required over the next 10, 20, 30 years is massive. You’re talking about hundreds of billions dollars of investment to make sure that infrastructure is available. The question is how do you make that kind of investment over that time and making sure that you are able to generate appropriate return on that investment? And that’s the reason why a partnership becomes so important to us because we’re not looking to make that investment by ourselves. We are putting together partnerships on production hubs. We’ve already announced our partnership with TC Energy and they will be our partner when it comes to our first hub, which will be in Arizona, on the border of California. This hub will serve both California market as well as Arizona, and potentially parts of Western Texas.
When you think about that partnership, and we have been — we have not fully articulated what that means, but we suspect we’ll be in a position to do that in Q3 with TransCanada. So investors can fully appreciate how expansive and deep this partnership is. But even just for Arizona hub, we have land already on the LOI. Our engineering study is almost completed. The TC Energy Board is already familiar with our project. This is very important project. It’s highly visible at the highest level of TC Energy. And we’ll be able to announce in terms of what that means and how much of equity investment that they’re looking to make, and ultimately hear how many hubs that we’re looking at across the country, because this is not a small investment.
So when you think about Nikola, right now, I don’t believe by the market there’s any recognition in terms of value for our hydrogen trucks and none for our hydrogen infrastructure. This will become more clear. So that’s why we believe purely from value perspective there are — when you think about our fuel cell truck, which really is 80% of the market and our fueling business, that value is not included in Nikola’s stock price. And so that’s why it’s really exciting when you think about in terms of where the direction of the market is going.
And so there are other conversations that we’re having, that we haven’t disclosed with respect to production hub partners. But guaranteed, it will be more than just TC Energy. And these are large strategic names that you all readily recognize.
When it comes to our dispensing locations, there are a number of conversations that we’re having that likely we will be in a position to disclose in second half of this year, where we have various permutation in terms of our station development and ownership, so that you can see how we’re rolling out station infrastructure in California, starting with California. And so that’s what’s going to help you understand in terms of how we’re really executing on our hydrogen infrastructure side, which is super-exciting. When you think about this energy transition and decarbonization, this is once in a lifetime opportunity. When in your lifetime have you seen energy transition like what’s happening now? You have to understand and see that vision, and you got to capitalize it because this literally is 2030 year growth story, that’s happening.
Chris McNally
I think those announcements actually will be extremely important. I mean, we spoke about, I think the focus of public markets so far has been on the BEV and the BEV rollout. When I think we’ve written about that we think 80% of the value of Nikola can be in the hydrogen business.
One last one for me, because I want to leave, 10 plus minutes for Q&A. On the hydrogen side, the pilot testing with Budweiser, can you just remind us, where we are? How that’s going? And essentially the timeline going forward over the next two years?
Kim Brady
Sure. So we had our fuel cell truck alpha tested with Anheuser-Busch, in Southern California for beer runs between their Van Nuys distribution center. And that test is completed. But during the testing period, we logged over 12,000 miles and transported over 2 million pounds of beer, and we had pretty successful in terms of uptime and reliability. Now the testing will start at TTSI. We actually expect our uptime and reliability to improve with TTSI. And remember, this is alpha vehicle that we’re testing and incorporating all the learnings into beta and ultimately to gamma. And so we’re pretty excited about testing of our fuel cell trucks. We believe we have the most advanced fuel cell trucks in the world. But not only that, when we actually introduce our fuel cell trucks for start of production next year, there’s no one out there bringing fuel cell trucks this early. If you think about Daimler and Volvo partnership, they’ll talk about second half of this decade. When you think about Hyundai who has fuel cell truck, their range is only about 150 miles. Our fuel cell truck will have range up to 500 miles. It’s pretty exciting spec. When you think about the spec up to 500 miles refueling time of 15 — 10 to 15 minutes, continuous horsepower of 645, you got two battery packs of 162 kilowatt hour battery packs and then you’ve got 70 kilograms of hydrogen on board, with let’s say 5 hydrogen tanks, 2 settled and then 3 backpack. And so it’s pretty impressive spec being able to address what we call medium haul. And this is really ideal in terms of we’re addressing the market, which you’re not going to be able to do with BEV trucks.
Chris McNally
Great. We’ll pause there. I want to hand it off to the audience for any Q&A. Don’t be shy. I have more questions. But anyone?
Unidentified Analyst
I can ask one selfishly real quick.
Chris McNally
Go for it, yes.
Unidentified Analyst
So, Kim, it sounds like you’re operating across the spectrum of the hydrogen refueling ecosystem through your SPVs and through other ventures here. But is Nikola considering developing sort of something like a mobile hydrogen refueling station for in between trips or trips where the range exceeds maybe the range of the initial truck range?
Kim Brady
So we have mobile charging for BEV trucks, which are interim solutions, as well as mobile fueling solutions for our customers as an interim solution. As you know, to build out the initial network when we think about stations, as well as hubs, they will likely not be coming online until perhaps like 2023, early 2024. For any customers that are looking to order our fuel cell trucks next year, we have mobile fueling trailers, they’ll be available.
Chris McNally
And then a question that always comes up. It’s usually after the presentations, when we’re all very excited about the future of this technology. But from practical and investment standpoint, people always want to know free cash flow burn, capital markets need. So I think you’ve addressed a lot of these questions. But just for — as a reminder for everyone, can you talk about where your capital needs are after you’ve raised $600 million from equity line of credit, you recently did a convert, what else would be needed to sort of fund the business through 2023 and thoughts about how Nikola may approach that?
Kim Brady
Great question. We’ve recognized in the current market environment, the biggest challenge for electric vehicle OEMs, especially new entrants is going be cash. We anticipate that there will be number of players that will go out of business, file bankruptcy. There will be acquisitions. And you are already starting to see that. And so this space will shake out. The big question is that who’s going to be the survivor and who will be able to thrive? We already believe that we are the market leader when it comes to commercial trucks and we intend to stick around and continue to build trucks and make sure that we have number one market share when it comes to zero-emission vehicles, as well as making sure that we are the strongest player when it comes to delivering hydrogen with our vehicles.
Now this requires a lot of cash. We are still somewhat pre revenue. We started generating revenue in April, but we still burn cash. And so the way we think about managing our cash flow is that we want to make sure that we have enough cash and liquidity on hand at any given point for the next 12 months of operation. So that’s how we manage our cash. In end of Q1, we announced that with our convertible debt offering that we executed, we had about $1 billion of liquidity, meaning cash and what’s available under ELOC. We actually closed — so that you know, we closed our comfortable debt on June 3rd. And so, once again, we still have adequate cash and liquidity available. We still have about [$50 million] remaining on our ELOC 1, there’s $300 million available on ELOC 2. We still have about $900 million of liquidity on hand. And we’re trying to make sure that by the end of the year that we have enough liquidity for 2023. We recognize that for the next 12 months and 18 months, it’s going be a little bit tough. And it’s we don’t know when the market will open up.
It’s not that we can’t go out and raise capital. We got to be really cautious and be careful simply because we don’t like our current stock price. We think it’s significantly undervalued, and we don’t want to give our stock away. And we are conscious about dilution. And so, we’ll have to think about that in terms of what the right way to raise some additional capital. But we want to give you comfort and assurance that we’ll always have enough liquidity on hand for the 12 months of operation.
Chris McNally
And Kim, based on just the guidance that you’ve given, plus the convert, where roughly as it stands today, are you expecting to end the year in terms of cash, just so we could sort of figure out that number?
Kim Brady
I think we stated that by year end, we like to end up with about $800 million to $900 million of cash and liquidity on hand. Do we need that much? I think we can reduce that amount for what we need for 2023. The big portion of 2023 spending was going to include CapEx for our Phase 3 expansion of our manufacturing plant. Right now, we completed Phase 1. We are working on Phase 2, which will be completed by beginning of 2023, which will give us production capacity of about 20,000 units. And Phase 3 CapEx, which was going to be the largest around 200 to 300 — probably $250 million to $300 million, that was for really Phase 3, going from 20,000 to 40,000 units per year.
So when we think about this, do we need to get there by end of next year or beginning of 2024? No. And so, likely we are debating about potentially deferring that, which would mean that the amount of OpEx and CapEx we need for 2023 will decline.
Chris McNally
Because it gets pushed into ’25. Perfect. Again, open up to any Q&A. But I’m sure one of the questions that does come out, this high level question about competition, who does Nikola compare themselves to, whether it’s on the BEV side? I think we’ve talked a lot about the hydrogen production. I think we know the partners. More on the manufacturing side, whether it’s BEV or potential hydrogen trucks. Names like Hyzon, names like Tesla, if they are to come out with the semi, what are some of the benchmarks that your engineers are comparing the Tre? Again we’ve talked about Daimler, but just maybe you can talk, some of the — the next one to three years, some of the players that you’re looking at to go up against on [RFQs]?
Kim Brady
So when we think about competitors, we really think about incumbents as well as new entrants. And while it is important to think about our competitors, we’re very much focused on execution. When we think about our BEV trucks, how do we differentiate our BEV trucks from our competitors? Our BEV trucks has three things. One, we have the longest range in terms of the battery pack. We have the largest battery pack, 750 kilowatt hour battery pack, which is probably at least one-third longer in terms of range. So we’re trying to minimize range anxiety for our customers. We think that’s important. And then also it’s got shorter wheelbased hydro turning radios, great visibility, because it’s a flat nose for inner city driving. That’s not an issue, because your average speed on inner city maybe 30 to 40 miles. And so we think it’s a perfect truck in terms of differentiation from our competitors.
The challenge in terms of our competitors have, especially for OEMs, they’re trying to milk their current cash cow as long as possible, which is diesel truck. They know that someday they’re not going to be able to drive diesel truck. And so at what point do we make that transition? And when they’re looking to make that transition, they got massive investments. So how do you tell The Street, and how to get your board to support, “Hey, we need to start selling less diesel trucks and make more zero emission trucks.” It’s hard to sell. It’s difficult to self-cannibalize. And so that’s really the advantage of speed that we can move.
When it comes to new entrants, we are ahead of the market and we think we got the best product. And so our goal is to continue to push. Speed is really important to us. And when you think about speed, generally takes more capital to move faster. And time-to-time we may make mistakes, but we think it’s so worthwhile to move fast and trying to accelerate adoption and trying to gain market share as much as possible.
So when we think about our economics, our revenue first, that’s our goal, trying to increase our adoption rate, trying to sell as many trucks as possible, and then reducing cost over time to make sure that we get to higher gross profit margin and ultimately positive EBITDA. The couple models that we look at is like Amazon and Tesla in terms of how they actually achieve that. And so when you think about Amazon, it took them probably close to 20 years to get to positive EBITDA. For Tesla, it took seven years, because what they try to do is make sure that they gain market share as quickly as possible, because that’s one of the best way to actually reduce costs, because scale is going to be important. And so we look at that in terms of making sure that we’re balancing in terms of when we think about long term value creation.
But at the same time, we understand that investors are looking at positive cash flow. But you have to think about in terms of, this is 30 year game that you’re playing, because the energy transition will take that long. And so you want to make sure that you identify the horse that can actually create value for that long. And so we’re playing long game. We’re not looking for just short term profit. We want to make sure that we have the best products, that’s our focus. And then making sure that we execute this in a way that requires little CapEx and we want to be capital efficient and asset-light when it comes to infrastructure.
Chris McNally
Well, Kim, I think that’s about time. So it’s been honestly a pleasure discussing the future of hydrogen mobility with you. For those in the audience, if you want to learn more about Nikola, please feel free to email the team. Also happy to put you in touch with the team at Nikola, and go out and visit and maybe drive some Class 8 trucks in Arizona like our team did.
Kim Brady
Let us know, because we will host you in Arizona where you can come out and actually see our manufacturing plant, touch, and feel, and ride in our fuel cell truck as well as our BEV truck. And we’ll let you even drive it, a Class 8 truck.
Chris McNally
Thanks, Kim. Thanks everyone.
Kim Brady
Thank you.
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