Nikola - Q1 2022

Transcript

Operator (participant)

Good morning. Welcome to Nikola Corporation's first quarter 2022 earnings call. At this time, all participants are in a listen only mode. We will begin today's call with a short video presentation, followed by management's prepared remarks. A brief question and answer session will follow the formal prepared remarks. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. It is my pleasure to introduce Nikola's Director of Investor Relations, Henry Kwon. Thank you, Henry. You may begin.

Henry Kwon (Director of Investor Relations)

Thank you, operator, and good morning, everyone. Welcome to Nikola Corporation's first quarter 2022 earnings call. With me today are Mark Russell, Chief Executive Officer of Nikola, Kim Brady, Chief Financial Officer, and Michael Lohscheller, President of Nikola's Motor Division. During today's call, we will share our views on the business environment and our financial results for Q1 2022, and our outlook for Q2 and the full year 2022. The press release detailing our financial results was distributed shortly after 6:00 A.M. Pacific Time this morning. The release can be found on the investor relations section of the company's website, along with presentation slides accompanying today's call. Today's presentation and Q&A includes certain forward-looking statements within the federal securities laws. Forward-looking statements are predictions, plans, and other statements about future events based on current expectations and assumptions, and as a result, are subject to risks and uncertainties.

Many factors could cause actual future events to differ materially from the forward-looking statements in this communication. For more information about factors that may cause actual results to materially differ from forward-looking statements, please refer to the first page of the presentation, the earnings press release, as well as the risk factor section of our annual report on Form 10-K and our quarterly report on Form 10-Q filed with the Securities and Exchange Commission, in addition to the company's subsequent filings with the SEC. Forward-looking statements speak only as of the date they are made, and readers should be cautioned not to put undue reliance on forward-looking statements. We will now begin a brief video presentation, followed by prepared remarks from Mark Russell and Kim Brady.

Speaker 9

On an average day, we run about 50-something trucks per shift. We have 105 active employees, including some of the trainees. That's a sizeable fleet that we run. The days consist of picking up full containers from the Port of LA or Long Beach, and we either pre-stage them on one of our yards or deliver them to the distribution centers out in California.

Right now we're going to Gardena to pick up a loaded container, and then from there on we just go to the ports. This truck, it's really exciting driving this truck 'cause it's a whole different view, the whole view in front of it, and the power on it is amazing. Regen helps out a lot on stopping. On the diesel, you have to be downshifting, shifting. You don't get all those fumes. It's a game changer for me.

Our drivers love it. The two drivers that have been assigned since January 6th have been to work each day, 'cause they know that if they miss a day, we're gonna put another driver in that seat, and they can probably not get that truck.

This actually for me, it feels like the future. Normally if I'm driving, like, in a traffic day, like a heavy traffic day, I'm exhausted already, you know, downshifting and then worrying about people cutting you off, not listening, honking. There's some places now that when you're waiting for a load, you can't idle and you have to put your windows down and be there waiting, you know, when it's hot or it's cold. With this truck, I could be waiting, turn on the AC, nobody's gonna tell me anything 'cause they don't know if the truck is on or off 'cause it's electric.

Those trucks are really performing very well. They're exceeding the expectations. Now we've been dealing with electric trucks since 2015, and with the early adopters, you know, we can only move, operate those trucks 2 hours a day, then come back in and plug it in. These trucks here, we're able to get 8 and 10 hours a day out of those, and those trucks are coming back 47%-58% state of charge, and they're leaving out at 85% state of charge. We operate in the Port of Long Beach in Los Angeles 18-20 hours a day, so every time that customer calls us to pick up that container, we must have a reliable product. You gotta look at the beneficial cargo owner that hire us to move their containers. They have schedules that they gotta keep to their customers, to their workers.

We gotta make sure that we have a reliable truck that can pick up that container and deliver it to their scheduled time. If the customer's happy, then we're happy, and it's a mutual benefit for both of us.

The support, that's been a major part. I mean, having guys that we can call and they're either here in the yard supporting us with whatever we need them for, and that's been the major part of the whole project.

You're not finding that with the other OEMs, or what?

Absolutely not. No. It's a five-minute tutorial, and they're out the door, and we're on our own from there on.

Beautiful, like always. It's running nice and smooth. Coming up that hill, no problem. It's nonstop. Been coming to Fontana back and forth, haven't had no issues. That was my fear. Like, man, you know, it might be good right now. Like these other trucks, they're good at the beginning. Like maybe one week, two weeks. The third week, they start deteriorating. Batteries won't start, the truck shuts off. With this one, it's been, I'm trying to say like a month and two weeks, around there, and it's been running the same way, man. No issues. The speed on it is crazy, man. It just takes off even with a load.

We just dropped a load right here in A.R.T. Furniture, Ontario, California, and we're picking up this empty one right now, and we're gonna take it back to the port of San Pedro, Maersk, dropping it there, and then get another load from there. Well, I started driving because I like the big trucks. When I was a kid, you know, when you're pulling next to somebody, a big rig, telling you to do the horn, and that always got my attention. I really like driving. It relaxes me.

Hey, man, this is 5006. Hey, bro, I'm here at A.R.T. Furniture picking up an empty. A couple of years ago, there was a survey that approximately 27,000 trucks service the ports of LA and Long Beach each day. Not a week, each day. That is a lot of trucks. If you take those number of trucks and convert them to zero-emission vehicles, just think of what it's gonna do for the environment around here.

Absolutely good feedback. In this specific truck, I have no negative feedback at all. I mean, well, the only negative feedback would be that people are stopping us all the time asking what kind of truck it is and how does it operate and all of that.

The biggest factor is that this truck is working. We believe they took the right approach. Just took it at the speed that the company needed to proceed. The end result is this Tre is working perfect.

Mark Russell (CEO)

Thanks for joining us for our first quarter call. We're so grateful for the overwhelmingly positive customer feedback you just saw in that video. Everything we've done over the years has been focused on getting to the point of delighting our target customers like this. We're anxiously engaged every day in continuing to build on this kind of customer success. A big thank you to everyone at Nikola and our partners for their exceptional and extraordinary efforts, especially in these last few months, to ensure that our production and delivery targets were met despite every obstacle, including a supply chain crisis that just won't quit. The war in Ukraine and COVID-related shutdowns in China have put new and additional pressure and uncertainty on the global manufacturing landscape.

I'm very grateful to be part of a team that has made steady and remarkable progress in achieving our milestones in spite of all of this. All right, let's review our progress on the vehicles side of the business since we talked to you last quarter. Slide 4. The final 10 Pre-Series Tre BEVs came off the assembly line in Coolidge during the quarter, which completed our total Pre-Series fleet of 40 trucks. These continue to be utilized in customer pilot test programs, dealer demos, and in our own continued R&D testing. The Tre BEV pilot program at TTSI's Southern California port operations was successfully completed in April. These two trucks accumulated over 11,000 combined miles with TTSI at 93% total uptime and using an average of only 25% of their state of charge to go 102 miles every day.

As we previously agreed with TTSI, they've begun issuing POs, with the first 10 submitted under the California HVIP incentive program. We also completed a pilot with Univar Solutions in April, resulting in POs for six trucks utilizing California HVIP. Pilots underway but not yet complete include Covenant Logistics among others. We're now gaining significant traction with our launch customers, and from here, we'll be looking at shorter demo and pilot programs. Let's go to slide 5. Since serial Tre BEV production started on March 21, we've received 134 California HVIP purchase orders through April, and the total of all Nikola Tre BEV purchase orders and LOIs we've received to date is 510, which is just over our upside target for production for this year. Turning to the Tre FCEV program on slide 6.

At the end of April, we successfully completed the Tre FCEV Alpha pilot program with Anheuser-Busch in California. These trucks logged over 12,000 miles and hauled 2 million pounds of freight in AB's operations. We'll start FCEV Alpha pilot testing with TTSI by the end of May. All the learnings from the Alpha pilot testing will be incorporated into our beta truck builds, with the first batch of 6 beta trucks set to commence production by the end of this quarter. By the end of Q4, we should have a total beta fleet of 19 Tre FCEVs. Beta validation testing is scheduled to continue through the first half of 2023, followed by serial production in the second half of the year. As of the end of April, we had 1,010 Tre FCEV trucks under either contract or LOI.

Let's go to slide 7 and update you on the energy business. We selected our first dispensing station location with our station partner, TravelCenters of America, during the quarter. We intend to jointly build a hydrogen refueling infrastructure within the relatively large footprint of TA's existing station in Ontario, California, adjacent to Interstate 10. Along with our partner, TC Energy, we're very close to sharing the location of our first hydrogen production hub in Arizona, which we plan to break ground on this year. This hub is intended to supply hydrogen to our joint TA station in Ontario and many others in the region, utilizing the groundbreaking hydrogen production electric rate schedule put in place by APS here in Arizona. TC Energy also announced in April the evaluation of a hydrogen production hub in Crossfield, Alberta.

This hub could produce an estimated 60 tons of hydrogen per day and will be able to scale up to 150 tons per day in the future. Nikola is committed to being the hub's anchor customer. This is an excellent opportunity for TC Energy to continue investing in low-carbon hydrogen solutions while providing Nikola with a significant hydrogen fuel source for our long-haul FCEVs in the region. On to slide 8. We completed the phase 1 assembly expansion area in Coolidge during the quarter, which gives us a production capacity of 2,500 units per year there. We started the phase 2 expansion in April, and we expect that to be complete in the first quarter of 2023. Phase 2 will provide us with a 20,000-unit annual capacity in Coolidge, and from there, phase 3 will take us to our original announced nameplate capacity.

Next slide. In March, we announced an expansion of our partnership with Alta Equipment Group with an agreement for them to also cover the Arizona sales and service territory. Our sales and service network now covers 27 states and over 127 locations. We're looking forward to our expanded partnership with Alta and to the continued growth of our sales and service footprint through additional partnerships. We believe the strength and expertise of our extraordinary dealer network sets Nikola apart in customer conversations. In March, we also entered into an agreement with ENGS as a commercial finance company to help facilitate the sale of Nikola vehicles. ENGS will work directly with the Nikola dealer network to offer customers financing solutions for the purchase of Nikola vehicles, charging assets, and infrastructure. All right, over to Kim now to go over the numbers.

Kim Brady (CFO)

Thanks, Mark, and good morning, everyone. Let's begin with our Q1 2022 results. In the first quarter, we reported revenues of $1.9 million from the sale of 10 Nikola Mobile Charging Trailers. While we do not expect MCT sales to become a key growth driver for us in the coming years, the product generates approximately 20% gross profit margin, which we expect to be sustainable. Research and development expenses were $74.6 million, including $8.7 million of stock-based compensation expenses. R&D expenses consist of costs incurred in developing, building, testing, and validating Nikola Tre BEV and fuel cell trucks. SG&A expenses were approximately $77.2 million, including $44.8 million in stock-based compensation and $14.1 million in legal and regulatory costs, which we back out for non-GAAP reporting. The net loss was $152.9 million.

Basic and diluted net loss per share for the quarter was $0.37. Basic and diluted non-GAAP net loss per share came to $0.21. On a non-GAAP basis, Adjusted EBITDA totaled -$79.2 million. Adjusted EBITDA excludes 1, $53.5 million in stock-based compensation, 2, $14.1 million for legal matters related to expenses for Mr. Milton's attorney's fees under his indemnification agreement, and 3, $3.1 million in depreciation and amortization. Turning to the balance sheet, we ended the first quarter with $385 million of cash and cash equivalents, including restricted cash balances. In addition, we also have approximately $409 million of available liquidity through our two equity lines with Tumim, providing us with roughly $794 million of total liquidity as of March 31.

Our capital expenditures totaled $33.5 million year to date, and are comprised of the construction of our Coolidge greenfield manufacturing facility and equipment purchases, renovations for office space expansion and hydrogen storage testing building in Phoenix, hydrogen mobile fuelers, supplier tooling, and investments made into our European JV. A large part of what we had anticipated in our Q1 CapEx guidance came in significantly below due to the timing of spending. Our full year CapEx guidance remains unchanged. On May 2, we announced an agreement with an institutional investor to invest in Nikola by purchasing $200 million of senior convertible notes. We expect the notes to fund in early June. We view this investment as a validation of the recent accomplishments our company has made on the operational and strategic fronts, including the $200 million of convertible notes.

Nikola would have had a total cash and liquidity position of approximately $1.0 billion as of March 31, 2022. The net proceeds from the sale of notes, along with our other liquidity sources, are expected to be used for business expansion related to scaling truck manufacturing and tooling setup, accelerating the development of our hydrogen infrastructure as well as for general corporate purposes. We ended the quarter with approximately 418.3 million shares outstanding. Weighted average basic and diluted shares for the first quarter were approximately 415.2 million. Our headcount as of March 31 was 1,040 employees. We continue to grow as we hire new talent in engineering and product development, manufacturing, supply chain, IT, and other corporate functions. Moving on to our Q2 2022 guidance.

We anticipate we will produce and deliver 50-60 Nikola Tre BEVs for revenues between $15 million-$18 million. We anticipate gross margin to be negative, but improve as fixed costs are spread over increased number of units as we scale production. We began shipping salable Tre BEV to our dealers on April 29 for delivery to customers and look forward to continuing deliveries of our zero-emission trucks at scale. Estimated R&D expenses for the second quarter is in the range of $72.5 million-$77.5 million, which includes approximately $11 million of stock-based compensation. SG&A expense ranges are estimated between $72.5 million-$77.5 million, including roughly $48 million of stock-based compensation. Actual SG&A expenses will likely be higher due to legal fees associated with Trevor Milton's defense.

These fees are difficult to predict, so we do not forecast them, and for non-GAAP guidance, they are excluded. CapEx for the second quarter is in the range of $85 million-$90 million. At the end of Q2, we anticipate having approximately 433.5 million shares outstanding and the weighted average shares outstanding of 426.5 million. We made no revisions to our full year 2022 guidance concerning deliveries, revenue, gross margin, or expenses. However, weighted average shares outstanding could fluctuate depending on the market conditions as we draw down on our equity line with Tumim, or if we raise additional capital. Additionally, going forward, we are expanding the activities of our European joint venture with Iveco to include EU product development activities. Previously, the JV acted solely as a contract manufacturer.

Accordingly, the R&D expenses within the JV are expected to increase. 50% of that increase will flow through our earnings in the equity in net earnings or loss of affiliate line item. This will result in increased losses for the remainder of the year. Next, I would like to provide some color on supply chain challenges embedded in our guidance. The ongoing war in Ukraine and the recent COVID outbreak in China were factors that we did not anticipate when we last discussed supply chain issues back in February. The zero-COVID policy in China has led to additional bottlenecks and cost pressures in more recent months. While there is still uncertainty about the magnitude and duration of any other supply chain impact from these events, we continue to have full supplier commitment and are confident in our ability to achieve our full year target range without making revisions.

Based on our current line of sight, we reconfirm the key electric components available to meet our delivery targets. Battery cells to build more than 500 Nikola Tre BEVs. Battery packs to build 300-500 Nikola Tre BEVs. Our supply chain team is working closely with battery pack supplier to ensure no gaps in the battery module chip supply so as to not disrupt Nikola's build schedule. ECU and subcomponents to build more than 500 Nikola Tre BEVs. Displays to build more than 500 Nikola Tre BEVs. E-axles to build more than 500 Nikola Tre BEVs. Inverters to build more than 500 Nikola Tre BEVs. We continue to strengthen our supply chain team by adding talent and growing headcount during the first quarter.

We strive to ensure we have the critical components necessary for Tre BEV production and Tre fuel cell beta builds. We are pleased to report that we shipped production Nikola Tre BEV trucks to dealers for revenue in April and successfully completed Tre fuel cell electric vehicle alpha pilot testing with AB. On our Q4 earnings call, we established five milestones to hit in 2022, and we are well on our way to achieving the strategic and operational goals. One, deliver 300-500 production Tre BEV trucks. Two, successful fuel cell EV alpha testing with Anheuser-Busch and TTSI. Three, build, validate, and test Tre fuel cell beta trucks. Four, announce location, break ground, and commence construction of the first hydrogen production hub in Arizona. Five, announce two or more dispensing station partners in California. This concludes our prepared remarks.

We will use the remainder of the time to address your questions. Operator, please open the line.

Operator (participant)

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your line from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Chris McNally with Evercore ISI. Please proceed.

Chris McNally (Senior Managing Director)

Thanks so much, team. Okay. Wanted to talk about the progression of the unit deliveries over the course of the year. Appreciate the Q2 numbers. Wanted to see if you could confirm. At the Analyst Day, you kind of gave broad comments about producing 1 truck per day now, getting to 2 trucks per day by the end of Q2, and that progressing all the way to, at the end of the year, hopefully something like 5 trucks per day. That gives a general sense of how we can pace out Q2 to Q4. Do those numbers still hold?

Also if you could just put a little bit of meat behind what is the key things that you have to do internally to ramp from, you know, that 1 to 2 trucks towards 5 over the next 8 months.

Kim Brady (CFO)

Chris, thanks for the question. If you recall, when you were actually on site visiting our facility in Coolidge, what we have stated was that when it comes to transition from Q2 to Q3 and Q4, it's really not about manufacturing ramp. It's really about supply chain issues. We have also stated previously in our earnings call that deliveries are skewed towards second half of the year. What we have suggested is that approximately 20% of the delivery for this year, based on 500 units, are going to be delivered in Q2, and Q3 and Q4 will represent about 80%. That's really due to the timing of our battery packs as well as certain chip supply that will be available in the second half of the year.

As we have confirmation and easing up of supply chain with respect to chips, then we can actually build more trucks and has nothing to do with our ability to actually scale at our manufacturing plant.

Chris McNally (Senior Managing Director)

Kim, that's great. Is the best way then to paraphrase that, of all the components that you just described, the only one that really had that variability between the 300-500 appears, you know, to be the packs, I guess, you know, chips on a secondary, and if you could just remind us, you know, which of the chips are in the variability. That's an external issue for the Q3 into Q4 ramp, 'cause it's obviously a big range, but most of that will fall in terms of just timing to if you can get the packs 'cause you'll have the cells by year-end. Is that a good paraphrase?

Kim Brady (CFO)

Yes. I think what we have stated was that two main risks are delivery of the modules and packs. We need to make sure that we're working closely with our supplier when it comes to manufacturing efficiency and yield. The second, when it comes to BMS chips, there are a couple boards and there are a couple hundred components, but there are few chips, microprocessors that are critical and important, and we're trying to make sure that we have supply of those such that there's no disruption in our build.

Chris McNally (Senior Managing Director)

Perfect. Just one housekeeping. You know, given I think you mentioned again, in Phoenix, $650 million is the new sort of financing number that you would expect to bridge to the end of 2023, $200 to the convertible. You know, just wanted to make sure that's reiterated that essentially, you know, it implies $450, you know, after this convertible.

Kim Brady (CFO)

I think that's reasonable. What we have stated is that we are always looking to ensure that we have adequate liquidity for the following 12 months of operation. We have also stated that by end of this year that we are targeting to have anywhere from $900 million of cash and liquidity on hand to $1 billion. I think that's reasonable.

Chris McNally (Senior Managing Director)

Perfect. Thanks so much.

Operator (participant)

Our next question is from Michael Shlisky with D.A. Davidson. Please proceed.

Michael Shlisky (Managing Director and Senior Research Analyst)

Yes, hello and good morning. I wanted to follow up on some of your comments about Europe. Did I hear this correctly? Are you developing a truck with Iveco that will be Iveco badged for Europe or will it be Nikola badged? Are the expenses related to that new to the previous guidance you had last quarter?

Mark Russell (CEO)

Thanks, Mike. This is Mark. The output of the joint venture in Europe will be all badged Nikola. Everything that we produce there from the joint venture will carry the Nikola brand name. Then the joint venture remains a 50/50 proposition. In terms of the specific numbers, I'll defer to Kim. Go ahead.

Kim Brady (CFO)

Mike, what we're doing is that we're expanding our JV relationship, which will include development of European version of trucks. What that means is that we are actually giving greater responsibility to the JV. What that means is that going forward, both Iveco and Nikola will be making additional investments for R&D. Most of this R&D is related to personnel as well as outside engineering services. It will impact in terms of loss from before related to our equity from our affiliates. We will be able to give you a better guidance. Right now, we are going through an exercise where we are working through the details, what that incremental cost and investment would be in the JV. In Q2, the impact will be minimal.

Going forward, Q3 and Q4, the impact will be larger, and we'll be able to share with you what that guidance would be.

Michael Shlisky (Managing Director and Senior Research Analyst)

Okay, great. If I could switch to the Alberta location you and your partners have identified for a new hub. Can you maybe share, is it really far from any of the fleets we're talking with as far as distance and dispensing stations? Because it might be located on the property of TC, could some of the hydrogen coming out of that facility flow in a pipeline, or will that be trucked into the various dispensing stations in that area?

Mark Russell (CEO)

A great question, Mike. The location is strategic in that it's close enough to Highway one. Highway one is the transcontinental route that goes all the way across Canada from Pacific to Atlantic, and that's the major route in Canada. Then, of course, we can move hydrogen throughout the region because this should be a very cost-effective operation for producing hydrogen and potentially capturing carbon. Yes, one of the reasons for the strong logic of a partnership with TC Energy is they do control substantial pipeline assets across North America. There's also pipeline assets near where we were going to be locating things here in Arizona eventually.

Eventually, the pipelines that now carry natural gas are very likely to be destined to carry hydrogen at some point in the future. I would defer you to, you know, or refer you to TC Energy industrial relations for some of that planning. Most of the industrial uses of natural gas today can't be replaced by direct electricity. Something substituting natural gas will have to be, you know, needs to be developed and pretty much everybody's agreeing that's gonna be hydrogen. Being close to a pipeline is important in the long run. In the short run, we will be the anchor customer. We, you know, we have the demand.

You might have seen some of the press materials that came out of a recent conference in Calgary that we participated in. We actually had a fuel cell truck up there. We have a lot of customer demand up there. That will be an early launch geography for us, particularly since we are looking confident, feeling confident about the fuel from this new Crossfield facility.

Michael Shlisky (Managing Director and Senior Research Analyst)

Okay. Maybe one last quick one from me. I don't want to get too granular here, but I appreciate your guidance this quarter on the FCEV testing. You know, that you're still planning to, you know, get through the ones we have with AB and TTSI. That's great. Last quarter, you had mentioned in that same part of your discussion, it was AB, TTSI, and others. You dropped the and others part this quarter. Is there any change to the other tests you're running besides those two potential customers?

Mark Russell (CEO)

No, there will be others. As we mentioned earlier in this presentation, Covenant is also in a current test pilot. There will be others. As we gain more confidence, as I said in my prepared remarks, as we gain more confidence with customers, which we are doing daily at this point, the length of the testing and pilot programs and demos will reduce. We don't have to do the really long ones like we're doing now.

Michael Shlisky (Managing Director and Senior Research Analyst)

Okay, great. Mark, Kim, thanks so much.

Mark Russell (CEO)

Thank you.

Operator (participant)

As a reminder, it is star one on your telephone keypad if you would like to ask a question. Our next question is from Joseph Spak with RBC Capital Markets. Please proceed.

Joseph Spak (Senior Equity Research Analyst)

Thanks so much, everyone. A couple of questions and clarifications. Just going back to the liquidity, Kim, I know you sort of ran through the math. You need a little bit more over $400, which is, I guess, equal to the amount you have left on the ELOC. If you need it, I guess you can get it. Is that your sort of current understanding? I mean, you might look for additional sources, but that's sort of available to you as you view right now?

Kim Brady (CFO)

Right. Joseph, I think we made it clear as part of our spending plan for 2022. We anticipate fully drawing down on our existing ELOC 1 and 2, and we have approximately $400 million remaining on our ELOC 1 and 2.

Joseph Spak (Senior Equity Research Analyst)

Okay. I guess just building upon that, and I know, you know, we sort of have to take it, especially in this environment, sort of like day by day. If I look at your guidance, and, you know, look at sort of the expected cash burn, it looks like, and this is without working capital, I guess, which could add a little bit more, but it looks like it comes to about, you know, $180 million a quarter. I think it, you know, which that would suggest, you know, and if it's higher, that's sort of, you know what, five, six quarters if you have $1 billion in liquidity. I think it's reasonable to assume that the burn probably goes higher before it goes lower as you sort of continue to ramp. How do

Like, you know, as you clearly want to ramp supply chain, it might constrain your pace. But how do we think about the needs here, you know, beyond sort of the balance of this year, that's what sort of really gets you know, towards the early stages of production, but when you really need to, you know, go or want to go at a much higher level into next year?

Kim Brady (CFO)

Joe, we have not provided any guidance for 2023 yet, but we have clearly stated that we will have adequate liquidity, we believe, for 2022 operation by end of 2022 based on capital raise that we are contemplating. We have stated when you look out for 2023, we believe that there will still be some supply chain issues with respect to battery cell availability as well as packs. What we have stated previously is that we have enough cells to build approximately 2,300 trucks for next year. So that cell volume has been secured. We have some idea in terms of what our CapEx are going to be, as well as operating expenses.

While we have not shared that at this point, we feel confident that approximately having $1 billion of liquidity, we'll be able to address 2023. Any capital that we raise in 2023 is really planning for 2024.

Joseph Spak (Senior Equity Research Analyst)

Okay. Thank you for that. Just the clarification on the shares, which I don't think that guidance changed, but that does. I'm just reading the footnote. It says, you know, it considers, you know, future purchase notices issued to Tumim. So that does contemplate a further drawdown of the ELOC. What about the convert and how are you gonna be accounting for that? Or is that sort of, you know, if converted or how are you gonna handle that?

Kim Brady (CFO)

With respect to drawdown for Tumim, we have already anticipated that. As we have suggested, there can always be somewhat of fluctuation depending on the stock price at that point where we draw down, but we make some general assumptions about what the stock price may be during the period. When it happens, then obviously we will adjust the share numbers.

Joseph Spak (Senior Equity Research Analyst)

Thank you.

Operator (participant)

Our next question is from Bill Peterson with J.P. Morgan. Please proceed.

Bill Peterson (Senior Equity Research Analyst)

Yeah, hi. Thanks for taking the questions. I have some questions on the BEV program and some of it's, you know, kind of more near term, but just wanna get some understanding. I think last quarter you mentioned 98% uptime. You mentioned 93 for TTSI. Can you provide some context around that? I guess how important is it, just on one hand. Then again, I think in the Investor Day you mentioned that Saia was gonna be starting in April, but you didn't mention that one here. You know, I guess what I wanna understand is the Hamburg still on schedule for June. You talked about 7+, you know, I guess in second quarters.

Just trying to understand what, you know, the near term outlook looks like for the BEV program, and then, you know, what kind of applications, drayage, short-haul, inner city, just things of that nature.

Mark Russell (CEO)

Bill, thank you. Great question. The BEV uptime is critical. Any Class Eight uptime is critical, as you know. These are, you know, these are the machines that our customers base their business on. If they don't operate, they don't make money. We are very pleased with the results of the pilots we've run so far, with TTSI and others. We have a lot going on on this front that we haven't publicly disclosed. We're working with lots of customers. Our dealers are working with lots of customers. All the dealers have trucks at this point, and are running demos and working with customers. The demand is pretty seismic.

If you can get somebody a zero emission truck that is reliable and capable like ours is, then everybody wants one. It becomes a discussion about the terms at this point. We're very pleased with how we're doing so far. As you saw in the video, the feedback we're getting so far is just tremendous. These trucks are proving very reliable and very capable, and the drivers love them. In the case of TTSI, they tested more trucks than anybody I know of. More than 20 different zero emission trucks, reduced emission trucks, alternative fuel trucks that they have tested, they say. As you saw the feedback in the video, those are the leaders of TTSI that were interviewed on the video. That's the lay of the land there.

You'll be hearing a lot more about more customers as we ramp up production. There's a lot going on this front right now.

Bill Peterson (Senior Equity Research Analyst)

It does sound like some demos either were pushed or pulled or whatever. Just again, it feels like at least based off what you said six weeks ago, something's happened to it then.

Mark Russell (CEO)

No. We haven't stopped any demos. We haven't pulled any demos. We haven't. No. Everything's going forward.

Kim Brady (CFO)

Bill, we'll be able to share, you know, additional information, but I would say that we have actually expanded our demo and pilot testing.

Mark Russell (CEO)

Dramatically. As I said, you know, our dealers have their own programs going right now in addition to our direct fleet work.

Bill Peterson (Senior Equity Research Analyst)

Okay. Just I guess on the cost, it's good to see the reiteration really for the full year, including even the margin guide. Considering, for example, we have an inflationary environment, I assume the reiteration is largely because maybe some of the take or pay agreements you've had and, you know, some of the inventory you've collected thus far. I guess how should we think about the gross margin trajectory as we look into next year? I know you wouldn't wanna provide full guidance, but given that you see battery price, materials, minerals increasing, how should we think about the impacts, broadly from this sort of inflationary and supplies constrained environment as we look into next year?

Kim Brady (CFO)

Bill, it's a challenge, as you know. It's somewhat premature in terms of exactly where we will be for next year. What we have guided is that when it comes to Nikola Tre BEV for 2023, by end of 2023, we plan to be in a positive gross profit margin territory. We are working hard and we have line of sight as well as visibility. We have targets by components and categories, and we know where we can pull the lever. As we talked about, a couple of the biggest challenging areas are with respect to battery cells and the pricing and raw materials related to that, as well as certain chip components.

We'll have to see in the second half of the year, how those shake out and whether there will be softening of demand with respect to cells and what kind of pricing approaches that we may see when it comes to raw materials. Then what we'll see when it comes to chip supply. We have stated, and we haven't backed away at this point with respect to where we wanna be by end of 2023.

Bill Peterson (Senior Equity Research Analyst)

Okay, thanks for the color.

Operator (participant)

Our next question is from Jeff Osborne with Cowen and Company. Please proceed.

Jeff Osborne (Managing Director and Senior Research Analyst)

Hey, good morning, guys. I had a couple questions on the HVIP process. I think the two orders you announced were both under 10, which I guess is part of the small fleet provision. Is there any risk to the guidance that, you know, folks that might want more than 10 trucks and the ability to get funding for larger orders?

Mark Russell (CEO)

Yeah, Jeff. Hey, great question. As we said, the total of the HVIP covered purchase orders we've gotten so far, 134. You know, that's a lot, obviously a big number for the program. We're working on others depending on how the program goes. Again, this is completely under the control of state officials in California. We have a lot of customers who are interested in taking advantage of it. We're working with them directly, and we have a great team on this, by the way. That's the reason why, you know, of the 500 trucks we're targeting to deliver this year, up to 500 trucks, you know, we've got 134 so far that are covered by HVIP. That's pretty good, I think.

Jeff Osborne (Managing Director and Senior Research Analyst)

No, absolutely. Are any of the orders for an individual fleet over 10 trucks?

Mark Russell (CEO)

I don't know the answer to that. We'll check and see if we can get you the answer to that before we hang up here. Hang on.

Jeff Osborne (Managing Director and Senior Research Analyst)

No worries. Is there, as we think about pricing, are you pricing at one level in California and perhaps a different level everywhere else? Just given California is anywhere between, call it a third to 20% of the guidance.

Kim Brady (CFO)

Jeff, we're definitely looking at that, and we should anticipate that there will be pricing for different geography. You know, we have guided in our guidance $300,000. We can tell you that our actual pricing that we're realizing is higher than that.

Jeff Osborne (Managing Director and Senior Research Analyst)

Got it. The last one I had is just on the 93% uptime. Could you share, like, what the 1 and 2 reasons for the downtime was? 93 is obviously still a great number. I'm just curious, like, what the leading factors for downtime were and what you're doing to address those.

Mark Russell (CEO)

We have a Pareto of the downtime causes, and it's a number of factors. I don't have the distribution in front of me, but everybody is super pleased with the uptime. That's the same customer that was highlighted in the video.

Kim Brady (CFO)

Hey, Jeff, we wanna make sure that we.

Jeff Osborne (Managing Director and Senior Research Analyst)

That's all I had. Yep.

Kim Brady (CFO)

We wanna set some expectation. Even for diesel trucks, if you're achieving uptime anywhere from 90%-95%, it's actually pretty good. While we are trying to improve our performance, we wanna make sure that we set the right expectation that we are hitting the target that our customers are looking for.

Jeff Osborne (Managing Director and Senior Research Analyst)

Thanks much, Kim. That's all I had. Appreciate it.

Mark Russell (CEO)

Thanks, Jeff.

Operator (participant)

We have reached the end of our question and answer session. I would like to turn the conference back over to management for closing comments.

Mark Russell (CEO)

Thanks for participating in our call, and we will talk to you next quarter.

Operator (participant)

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.