Post #97: A conversation with Nikola - Heptagon Capital – Production

Love or loathe Elon Musk, it is hard to deny the success that Tesla has enjoyed, both in terms of disrupting an industry and proving the sceptics wrong (so far).

Post #97: A conversation with Nikola

Love or loathe Elon Musk, it is hard to deny the success that Tesla has enjoyed, both in terms of disrupting an industry and proving the sceptics wrong (so far). We regularly get asked “who might be the next Tesla?” and while time will only tell, it certainly makes for compelling listening to hear what Nikola has to say about the world. All things hydrogen-related are seemingly topical at present – we first discussed the topic in our June 2020 theme piece – and heavy duty fuel cell electric vehicles (or FCEVs) constitute the most plausible current use case, in our view.

We were lucky therefore to spend 50 minutes in conversation with Nikola’s Chief Executive, Mark Russell, last week (in a small group meeting format). Mr. Russell spoke with admirable passion about Nikola particularly given that he has only led the business since June and began his career in the legal profession. The starting point for Nikola’s mission is, in his view, to disrupt the petroleum industry. Mr Russell notes that both electrolysis – the process which turns hydrogen into energy – and zero-carbon electricity have existed as viable technologies for some time. The challenge is to take these constituent elements and put them into an “intelligent infrastructure.” Think of it akin to the chicken-and-egg problem: the FCEV market needs both vehicles and infrastructure and cannot have one without the other.

The good news, per Mr. Russell, is that “diesel is dead” and apparently no manufacturers are currently developing new diesel-powered vehicles, meaning that an increasing amount of effort (and brain power) is going into more sustainable, renewable technologies. Whether all have the same vision as Nikola remains to be seen, but in their world view, “the more you understand the electric vehicle, the more you understand that the value is in the software.” Nikola wants to “own” the controls of the vehicle as well as “the user experience.”

This is certainly an intriguing vision even if it does perhaps beg the question of whether Nikola should be considered a play on automobiles or technology. Nikola might plausibly respond by highlighting that the key challenge for any business in the FCEV space is integration. Indeed, “execution is key”, per Mr. Russell. Nikola’s vision is for its battery-powered electric vehicles to hit the market in 2021, with FCEVs to follow by 2023. The market “will get crowded quickly” and so having an early-mover advantage (and a roster of partners) probably helps. Hype and reality are, of course, two very different things. We continue to monitor hydrogen industry developments with much interest.

9 December 2020

The above does not constitute investment advice and is the sole opinion of the author at the time of publication. Past performance is no guide to future performance and the value of investments and income from them can fall as well as rise.

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