July 11th, 2020 by Kyle Field
Nikola Motor burst onto the scenes in a big way last year at Nikola World 2019, and we were there to take it all in. They showed off the new Class 8 Nikola Tre aimed at Europe and a full lineup of fully electric power sport vehicles, including the WAV personal watercraft.
Fast forward 1 year and Nikola has completed a reverse merger with the single-purpose acquisition company (SPAC) VTIQ, and is now being traded on the NASDAQ under the NKLA ticker. With the IPO, Nikola published a flood of new documents giving us more insight into the business plan, cost of operations, and more. The full treasure trove of documents can be viewed over at the SEC or on Nikola’s Investor Relations page. Nikola also shared a handful of presentations geared towards investors which contain much of the same information in easier to digest formats (here).
Nikola is actually planning to kickstart its business with a line of battery electric trucks that, while not intended for long-haul routes, will compete directly with Tesla. Ironically, we don’t have many (any?) details as to how Nikola customers will charge these trucks, where the batteries will come from, who will make the batteries, or what the chemistry will be. So, for now, we’ll just compare data shared by Nikola about its fuel cell trucks.
One key insight coming from the mass of material was a look at the estimated cost of a Nikola Fuel Cell tractor over a 700,000 operational life. As we already have similar data from the Tesla Semi, what better time to compare two of the hottest competitors in zero-emission trucking than now? Let’s jump in.
Total Cost of Operations
Fleets live and die by the cost per mile to keep their trucks on the road, and that’s largely a function of three big factors. First, there is the cost of the truck itself, whether leased or purchased.
Second, and typically the largest cost to operate a traditional truck, is the fuel. Battery electric trucks are poised to flip this on its head, and it is the big juicy low-hanging fruit that puts many zero emission trucks in a favorable position compared to legacy diesel trucks.
Battery electric vehicles get their power from the grid, with the promise of being able to source or contract zero-emission electricity. True zero-emission fuel cell trucks produce hydrogen with a process called electrolysis using renewable energy.
In this scenario, electricity sourced from renewables is applied to water, which breaks the bonds holding hydrogen and oxygen together. In the truck, this hydrogen is then run through the fuel cell stack and paired with oxygen from the air, producing electricity in the process. It’s an extremely lossy process, at around 40% efficiency, and continues to be one of the major hurdles for hydrogen vehicles compared to their battery electric counterparts, which run at around 90% efficiency.
Maintenance is the last major component of a fleet vehicle’s total cost of ownership. It is challenging to estimate maintenance for two vehicles that aren’t even in production, with very few miles on even the prototypes. Lithium-ion batteries degrade over time as well as with repeated charging and discharging, and the efficiency of fuel cells decreases over time. The onboard traction battery in both vehicles will likely need maintenance of some sort, though we don’t have any information at this level of detail from either company yet. Nikola estimates a rebuild will be necessary after 700,000 miles and shares a maintenance cost over the 700,000 vehicle life of $46,470 plus a profit of $20,022.
For the Tesla Semi, we can look to its passenger vehicles to get an idea what maintenance will be required. New windshield wipers, tires, air filters, and battery coolant are par for the course, but we have no data from Tesla about the Semi yet. ARK Invest used Nikola’s maintenance numbers for both vehicles to prevent the comparison from being swayed in one direction or another by incomplete data, so we’ll use that in our analysis as well.
Unpacking Nikola’s Numbers
To compare the Tesla Semi and Nikola’s Hydrogen Fuel Cell electric trucks, we can start with Nikola’s investor presentation from April 2020. It unpacks the estimated cost per mile of $0.95 for Nikola’s hydrogen trucks into each of these major categories in a single slide over the estimated 700,000 mile life of the vehicle. As the slide focuses on revenue, profit is split out as a separate line item, so we added that back into each segment evenly.
Nikola’s data translates to a total cost to operators of $665,000 over the 700,000 mile/7-year period, or $0.95/mile. A few key assumptions baked into the assumption include a cost of $2.47/kg of hydrogen to Nikola. It’s not beyond the realm of possibility, but is a far cry from today’s retail prices of $16/kg of hydrogen common at public fueling stations. Nikola expects to achieve this lower cost by building out its own network of hydrogen production and fueling stations along pre-sold routes.
It’s a brilliant idea, as it pulls in the bulk of the money going into keeping trucks on the road for Nikola. The downside is that none of the infrastructure to produce or fuel trucks with hydrogen at this scale exists today. That shows up as a $26,365 line item for each Class 8 fuel cell truck Nikola sells that’s allocated towards building out this network of fueling stations. Nikola expects each 8,000 kilogram station to support 210 truck leases, with each station having a useful life of 21 years.
Nikola plans to bill customers for its vehicles a flat rate of $0.95/mile over the life of the 7-year, 700,000 mile lease. The flat cost per mile gives operators consistent pricing that won’t fluctuate with the cost of fuel throughout the year like diesel does. The downside is they pay the same price whether they are putting thousands of miles on it every week or it’s sitting in a yard somewhere.
The fixed cost of fuel to the customer over the 700,000 mile lease comes out to $329,435 ($230,637 cost + $98,798 profit), or $0.47/mile. Nikola estimates its fuel cell trucks will cost the company $188,174. With Nikola’s profit added in, that comes out to a cost for the customer of $268,782.
Service was initially slated to be provided by Ryder through a massive partnership inked in 2016, but the deal fell through shortly before Nikola went public. Nikola Motor currently has a service agreement in place with Thompson Machinery for Tennessee and Mississippi, and is exploring other options for service in the rest of the country and Europe. The cost of maintenance to the customer, according to Nikola, will be $66,762.
How Much is a Tesla Semi?
Tesla was already public when it announced the Tesla Semi back in November 2017 (YouTube) and shared much of the relevant pricing information in the presentation at the event. Tesla President of Automotive Jerome Guillen opened up the event and showed the Tesla Semi to the world for the first time at the event when they drove up onto the stage at the Hawthorne Airport.
Tesla expects to provide power to its Semi trucks with a new network of Megachargers. These do not exist today as far as we know, and much like Nikola’s trucks, require a completely new network to be built from scratch. Tesla has an advantage in that it does not have to produce the power on site, as the electricity grid is already built out in much of the developed world. Tesla plans to leverage its existing solar and energy storage businesses to power all of the stations with solar eventually, though this does not have to happen prior to the stations being installed.
Tesla believes that powering the stations with solar will allow it to provide the unprecedented fixed low price for electricity of 7 cents per kWh. That’s a bit lower than the current average price of electricity for transportation in the US of 9.7 cents (April 2020, US EIA).
The lower price should not come as a surprise, given the massive decreases in the cost of solar deployments across the country and around the world in recent years. In 2018, a solar power purchase agreement from a solar farm in Arizona dipped below $2.50/kWh, setting a new low at the time, with more recent deals driving the price further down. These deployments speak to the viability of solar to deliver electricity prices at rates far lower than can be obtained from the grid.
Head to Head
Stacking up the cost of operation of the Nikola hydrogen fuel cell truck and the Tesla Semi in a simple chart results in a very stark contrast between the two. The nuts and bolts of the comparison highlight the relative maturity of battery electric vehicles, as expressed in the lower cost of the Tesla Semi. Tesla’s battery electric truck with a 500 mile range will set fleet operators back $180,000, compared to $268,782 for the Nikola hydrogen fuel cell truck.
That’s powerful, but comparing the cost of fuel really blows the equation out of the water. While drivers of a Nikola hydrogen fuel cell truck won’t pay for fuel as a separate line item, the cost of fuel is rolled into the cost per mile they pay for the vehicle. The result, even with Nikola’s aggressive assumptions around hydrogen pricing baked in, is a staggering $230,000 premium for hydrogen compared to the cost of the electricity required to power a Tesla semi over 700,000 miles.
As noted above, no data is available for the cost of maintenance on the Tesla Semi, so we used the value from Nikola.
Nikola has been very up front that hydrogen fuel cell trucks really only have an advantage over battery electric trucks on long-haul routes, where the time required to recharge a massive truck battery would become a hinderance to driver productivity. From this early analysis, it’s clear the Tesla Semi has a massive advantage over the Nikola hydrogen fuel cell trucks in the base cost to operate on shorter hauls, but they also have an advantage in routes of up to 900 miles.
Tesla notes that 80% of trucking routes are fewer than 250 miles, putting its 500 mile range Semi in a position to capture the majority of the trucking segment from legacy diesel trucks without even a stop to charge. For longer routes, adding in a single 30 minute charging stop lines up nicely with the legal requirement for drivers to take a 30 minute break every 8 hours. In that time, they can add 400 miles of range per charge, for a total driving range of 900 miles with just a single 30 minute stop to charge, assuming the charging stop is adequately located for their needs.
Tesla shared a few sample cost of operation analyses in the Tesla Semi unveiling, but it was not clear if the figures included driver pay or other factors, so we opted to use a bottom-up analysis for the most accurate comparison possible. On the other hand, Nikola also broke its numbers up based on cost to Nikola, with profit stripped out as a separate line item, so we had to manually spread the profit over each of the major line items. Having said that, the total cost per mile for Nikola lines up exactly with its top line numbers, so customers should expect to pay Nikola $0.95/mile for the full 700,000 mile term of the lease.
We also don’t have the full specs on the Nikola hydrogen fuel cell truck in this analysis. Is this for the Nikola One, Two, or Tre? The investor materials do not specify this, nor do they indicate what the range of the truck would be. This comparison presents the best data available for both companies and provides a good point-in-time comparison of the cost of operation of each — of each vehicle concept, that is.
As the production of fuel cell vehicle technology ramps up over time, we expect Nikola and its partners would be able to leverage those higher volumes to drive the cost of its trucks down. Similarly, if the production of hydrogen becomes more mainstream, Nikola will be able to lower the cost per kilogram of hydrogen and perhaps even use its own solar farms to power the production, lowering the cost of hydrogen.
As it stands today, the Tesla Semi seems to be the clear low-cost winner in the zero-emission heavy trucking space for routes of up to 900 miles. Either way, as long as both vehicles undercut the real competition — diesel trucks — we all get cleaner air and a healthier planet out of the deal. As both vehicles near production and start hitting the market, we will learn more about how each vehicle excels or underperforms and have better data to compare.
Until then, plug me in.
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