EV Truck Maker Nikola to Pull the Plug on Battery Supplier Romeo Power

The electric truck maker Nikola Corp (NKLA.O) will start liquidating the assets of battery maker Romeo Power, the company said on Monday, less than a year after buying the California-based firm in a bid to jump-start efforts to make its battery packs for its vehicles. The move will also help Nikola reduce the costs of some of its key components.

The heavy-duty truck industry is seeking ways to boost fuel efficiency and reduce emissions. That’s why companies like Nikola, which produces electric and hydrogen fuel cell semi-trucks, are vying for a piece of the market.

But the Phoenix, Arizona-based company has struggled to keep up with high expectations of early investors amid inflated costs of commodities and fast access to capital over the past year. The stock lost more than half its value from a peak in 2022. In the fourth quarter, the company sold fewer than a sixth of the battery-powered trucks it made. And it forecast 2023 gross margins deep in the red.

To lure more buyers, Nikola has been offering perks such as credit lines and discounts on the cost of a truck. The company has also invested in an extensive nationwide network of hydrogen stations to fill the new vehicles.

But those investments haven’t been enough to boost sales or turn a profit. NKLA’s debt load is more than $987 million, and its operating cash flow in the latest quarter was negative. That’s well below the CAN SLIM metric that investors look at, which requires tremendous growth in both profits and sales on a quarterly and annual basis.

Nikola has been relying on a partnership with Proterra (PROT.O) to provide battery systems for its Tre BEV trucks, and it expects those systems to be available in the second quarter of 2023. But it has been facing delays that could push those deliveries into the second half of 2024 at the earliest.

As a result, the company needs more time to deliver on its promises. And it may not be able to do so if it doesn’t take steps to cut costs, especially on some of its most expensive parts.

To meet those expectations, the company needs to improve its manufacturing process and find ways to reduce the costs of some of its most expensive components. And that’s where bringing on board the expertise of Romeo is essential. The deal should help the company better grasp its supply chain and production process. That will allow it to reduce costs and produce a better product, leading to more sales and a higher share price.

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