Nikola's Breakout Charts Path For Other High-Tech Startups

As shares in electric truck startup Nikola Corp. NKLA surge, a banker who ran the book on the company's reverse merger said similarly structured public offerings in clean transportation are likely this year.

Nikola went public on June 4 following a merger with VectoIQ, a "blank check" company created specifically to invest in Nikola, which it chose from more than 100 companies it examined over two years. The official term is a Special Purpose Acquisition Company (SPAC).

Nikola shares opened Tuesday at $79.80 after closing Monday at $73.27, a 103.7% gain from  Friday, June 5. The company's valuation upon its June 2 merger was $3.3 billion. It now exceeds $32 billion.

"Nikola's No. 1 goal is stable growth over time," CEO Trevor Milton told FreightWaves.

Nikola stock became available to European investors for the first time yesterday, June 8. The company Class 8 Tre model will be assembled in a joint venture with IVECO in Ulm, Germany beginning in 2021.

Milton tweeted Monday that orders will be taken for the Nikola Badger electric pickup truck, available with battery or fuel cell power, beginning June 29. 

Other Candidates

What does Nikola's out-of-the-gate success mean for other technology transportation companies trying to raise large amounts of money?

"We're working on some transactions that will definitely occur this year," Mark Saraiva, managing director of Industrials at Cowen, told FreightWaves. Cowen led the $230 million initial public offering for VectoIQ.

Cowen also advised VectoIQ on its merger with Nikola and co-led with Morgan Stanley a private investment in a public equity (PIPE) transaction that raised $525 million for Nikola. PIPE investors, including Black Rock, Fidelity Investments and ValueAct Capital, purchased 50 million shares of VectoIQ at $10 each. Those shares converted to Nikola shares on June 4.

Electric charging infrastructure and autonomous trucking are strong candidates for reverse mergers that eschew traditional IPOs.

"It wouldn't surprise me if you had a company in that space go public in the foreseeable future," potentially through a reverse merger, Saraiva said.

Many startup technology companies are neither mature nor generating meaningful revenue. But the potential market size is so promising that investors are willing to come in earlier. The SPAC brought Nikola public a couple years before it might have otherwise planned, Saraiva said.

"With a SPAC structure, you have the ability to put your [revenue] projections out there," he said. "In a traditional IPO, you can't market yourself off forward projections."

Nikola's 14,600 orders for battery electric and fuel cell trucks have a projected value exceeding $10 billion. Since Nikola's business model is to sell enough hydrogen fuel to power a vehicle for one million miles, as well as maintenance as part of each seven-year lease, investors see significant potential, Saraiva said.

"Now that they're publicly traded, there's a lot more information out there on the company," he said. "When you really dig into the business model it is as much, if not more, an energy company than a [truck manufacturer]."

What's In A Name?

Nikola and Tesla named their businesses for Nikola Tesla, the Serbian-American inventor, engineer and futurist best known for contributing to the design of the modern alternating current electricity supply system.

"You could make the argument that Nikola's situation is somewhat analogous to Tesla's situation in passenger vehicles," Saraiva said.

Competitors doubted Tesla could commercially produce a battery-powered electric car. Though it took a dozen years, Elon Musk's company now has a portfolio of models and is working on a battery-powered semi-truck.

"Tesla already has an 80%-plus market share in the U.S. and everyone else is basically nowhere," Saraiva said.

Nikola encountered skepticism about hydrogen-powered long-haul trucks. Major truck makers like Daimler and Volvo doubted fuel cell trucks until recently. In April, the two said they would form a joint venture to make hydrogen-powered trucks and stationary fuel cells.

Nikola's emergence as a public company and its glidepath to production was helped by establishing manufacturing and other partnerships rather than trying to do everything itself.

"As a startup, that helped them early on where they didn't have to go out and raise billions and billions of dollars," Saraiva said. "What partnering effectively did was allow Nikola to advance their timeline by several years."

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