WeWork Crisis Prompted Nikola's Pivot On Going Public

After shunning public ownership because reporting quarterly financials didn't mesh with its business, fuel cell trucking startup Nikola Corp. pivoted Tuesday to merge with VectoIQ, a NASDAQ-listed investment fund that will replace private equity scared off by poorly managed startups.

"WeWork really ruined a lot of things for the private market," Nikola CEO Trevor Milton told FreightWaves on Tuesday. "In my network, there are probably a dozen or two really awesome entrepreneurs, and every one of them said the capital just became incredibly difficult after WeWork."

A commercial real estate company that provides scalable shared workspaces for technology startups, WeWork has been in turmoil since it filed its public-offering paperwork in August 2019. The coworking company cut its valuation to as low as $10 billion from $47 billion, removed its CEO, and indefinitely delayed its initial public offering.

Private Equity Skeptics

"The first thing investors would do is come in and say, … ‘Why are you not another WeWork?'" Milton said. "What ended up happening is that investors said, ‘We want more clarity, we want more transparency.' It kind of changed, where all the investors want you to be public right now."

Going public at such an early stage has risks, said Mike Ramsey, an analyst with Gartner Inc. who covers electrification and autonomous vehicle technology.

"While it opens up more fundraising opportunities, it also requires financial disclosures that might not paint a great picture," Ramsey told FreightWaves. "It also opens a company to much more scrutiny in general as there is a new class of owners."

Money In The Bank

Nikola, which plans to produce battery-electric heavy-duty trucks in Europe beginning in 2021 followed by hydrogen-powered fuel cell electric Class 8 trucks in the United States in early 2023, has attracted significant investment, including a $250 million D round led by British industrial conglomerate CNH Industrial N.V. CNHI.

VectoIQ, valued at $230 million, will take the Nikola name and create a new NASDAQ listing, NKLA, if it gets U.S. Securities and Exchange Commission approval. Milton said that is expected within two months.

Nikola will have a $3.3 billion valuation and immediate access to an estimated $700 million in cash.

In a private investment in public equity (PIPE) deal, institutional investors, including Fidelity Management & Research Co., ValueAct Spring Fund and P. Schoenfeld Asset Management LP, committed $525 million to purchase shares at $10 each, below VectoIQ's Tuesday closing price of $11.50.

"It's the single-best shareholder base you could ever dream of," Milton said.

That money, plus most of VectoIQ's $230 million, will be available to Nikola when the merger closes.

Including the $250 million raised in Nikola's D Round, the company will have about $1 billion to invest in its portfolio of zero-emission battery-electric vehicle (BEV) and hydrogen fuel-cell electric vehicles (FCEV), Milton said.

A Proper Marriage

VectoIQ CEO Steve Girsky, a longtime Wall Street deal maker and former General Motors Co. vice chairman, wanted the right merger partner aligned with his automotive industry expertise.

"These investors said, ‘We want you to go out and find the perfect company to merge with,'" Milton said. "They went through hundreds of deals. When he found us, [Steve] was like, I've been looking for this for two years. We've got to do this."

Phoenix-based Nikola also will use the money to build out a hydrogen station infrastructure to provide green fuel for its Class 8 trucks at a price competitive with diesel. Nikola has more than 14,000 pre-orders valued at $10 billion, including an order for 800 trucks from Anheuser-Busch.

Nikola recently entered a joint venture with European industrial vehicle manufacturer IVECO to build its Nikola Tre battery-electric truck for European customers beginning in 2021. Nikola will electrify the chassis of an existing IVECO truck, which will make its first appearance this fall at the IAA truck show in Hanover, Germany.

Financial Assumptions

In a presentation for analysts Tuesday, Nikola revealed several of the financial projections that are the basis of its business case.

For example, the all-in costs of a hydrogen station, including land, building and electrolyzers to make hydrogen on site, total $16.6 million. Hydrogen refueling takes about the same amount of time as fueling with diesel. It is the total addressable market for trucks that makes the numbers work, Nikola executives said on the call.

Nikola will lease its trucks for seven years, including hydrogen and maintenance, for about $645,000. If all the current pre-orders are converted, it expects to show $3 billion in revenue by 2024.

Transforming Transportation

Companies like Tesla Inc TSLA and Nikola are "transforming transportation as we know it," Milton said.

"We're both the only ones that refuse to dabble in diesel and everything else," he said. "Every other group out there is still pumping through billions of dollars worth of diesel and gas vehicles, and then they use the zero emissions as a face mask."

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