Beleaguered hydrogen-fueled commercial truck maker Nikola Motor announced it acquired battery maker Romeo Power Inc. in an all-stock transaction valued at about $144 million.
The acquisition comes as the company cajoling shareholders to approve a proposal to create 200 million new shares of common stock by 11:59 p.m. on Aug. 1.
The company has postponed its shareholder meeting three times since June 1 — including adjourning it until Tuesday, in an effort bring shareholders on board for the proposal, and the latest effort includes a video plea from CEO Mark Russell to investors to approve the new stock issue.
Russell says in the video the company is “less than half a percent away” from the votes needed to approve the measure, which is designed to give the company the flexibility “it needs” to grow in the future, he says in the 90 second video.
A big ask to the shareholders
The proposal may be a hard sell as it involves a potential 33% dilution in shareholder value. The company originally authorized 600 million shares, of which it still has about 185 million unissued.
The company also raised about $200 million on the debt market earlier this year to maintain liquidity and support manufacture and delivery of its battery electric and hydrogen fuel-cell commercial vehicles. The company expects about $120 million in revenue for 2022.
“We began production of the Tre BEV on March 21 here in Coolidge and today we’re celebrating this milestone and the initial shipments of trucks to our customers,” Russell said in April. “In 2022, we’re moving forward with every aspect of our business. Next year, fuel-cell electric vehicles are planned to be added to the manufacturing mix. We are focused on delivering vehicles and generating revenue.”
Strategic battery production acquisition
Coincident with its Aug. 1 shareholder vote deadline, Nikola announced the $144 million acquisition of Cypress, California-based battery maker Romeo Power. The company is focused on designing and manufacturing lithium-ion battery modules and packs for commercial vehicle applications.
With a current market capitalization of just $98.53 million, the deal is a gift to Romeo Power’s shareholders. Romeo stockholders will also receive a 4.5% stake in Nikola as part of the agreement.
Romeo Power is already Nikola’s battery supplier, and the merger simply brings battery production in-house for the truck manufacturer. Nikola expects the acquisition will allow for significant operational improvement and cost reduction in battery pack production.
“With control over the essential battery pack technologies and manufacturing process, we believe we will be able to accelerate the development of our electrification platform and better serve our customers,” Russell said.
Economic and legal turmoil
While the company keeps looking to expand, it cannot seem to escape it’s controversial corporate — especially that related to founder Trevor Milton. He currently faces criminal charges of wire and securities fraud, based on allegations of misleading investors on Nikola’s product development and business prospects. Among other allegations, some charges involve purchasing real estate in Utah using Nikola stock options.
Milton resigned from the company in September 2020, and the corporation paid $125 million in December 2021 to settle civil suits brought by investors. The company’s stock traded as high as $65.90 per share in June 2020, but it dropped to $9.87 per share by the end of 2021. The company currently trades at about $6.44 per share.
As with any vehicle manufacturing enterprise, Nikola’s task is a heavy lift. To build its trucks and earn $120 million this year, the company expects to spend substantially on capital expenditures for its production facility and for costs of doing business. All told, the company expects to show a substantial loss for the fiscal year. Prospects of recession could drive Nikola and many other startup vehicle manufacturers further into red ink territory.
Nikola will announce its second-quarter results on Thursday, Aug. 4. In the first quarter of 2022, the company announced purchase orders for 134 of its Nikola Tre electric commercial trucks and 11 customer shipments in the month of April.
“During the first quarter, we reached a significant milestone with the start of serial production for the Nikola Tre BEV at our Coolidge, Arizona manufacturing facility and are currently delivering saleable trucks to dealers for customer deliveries,” Russell said. “We look forward to scaling production and delivering 300 – 500 production vehicles to customers this year.”
The company also completed Phase 1 of its production facility in Coolidge, Arizona. The initial facility is said to have production capacity for up to 2,500 trucks per year. The company is currently working on a Phase 2 expansion, which would bring capacity to 20,000 trucks per year.